The German word schuld means debt. Schuld also means moral fault or blame. There is a lot of that to go around in Europe these days. Greece, Spain, Portugal, Italy, and Ireland are all receiving blame, some deserving it more than others. All these European Union debtor states are on the wrong side of both definitions of schuld, and they are paying a severe price by imposing fiscal austerity measures according to dictates by the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission. This period of adjustment is supposed to be followed by a rebound for all these austerity-embracing countries. Spoiler alert: it won’t.
When you hear Germany lauded for fiscal rectitude and sound financial stewardship, you have to wonder where Greece got its money from. The answer, of course: Germany (and the other creditor states on the euro common currency).
Germany (and other creditor EU nations) not only deserve a heaping of schuld (the blame definition) for lending the debtor countries money in the first place, they deserve a second helping for imposing punishing capital controls and refusing the structural changes that would allow indebted nations like Greece, Ireland, and Spain a measure of breathing room to restore their fiscal houses. Greece, for instance, has been unable to devalue its currency – the step basic economics would suggest it take – because the structure of the euro excludes this as an option. So instead of a devaluation leading to an increase of exports, overcoming deflation, Greece is stuck in a cycle of low-growth, increasing indebtedness despite austerity. And countries like Germany share part of the blame.
Bad sign after bad sign is emerging from the Eurozone, along with serious problems in store for the ruble in Russia, and geopolitical conflict on the continent. Bond prices of the “riskiest” European governments – think Spain, Italy, and Portugal, never mind Greece – will continue to fall while their yields (interest rates moving in the opposite direction) will rise. So this means if you have money in Europe, you’ll want to have it in Germany rather than Spain. But what happens if (or when) the euro projects completely collapses. Better yet to have your money outside the Eurozone altogether.
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