I’m sure you’ve heard a lot, too much even, about the economic crisis and how it affects the European Union. But in the short bursts of news, the larger picture usually remains hidden or misunderstood. I don’t claim to be an expert on the matter, but macroeconomics do intrigue me. They’re an incredibly fun complex system to try to comprehend and affect our lives much more directly than most imagine.

The latest piece of news is that the EU is deciding on another 15 billion Euro bailout of Portugal with extremely dim economic prospects and on the edge of default or quitting the Euro.

Portugal like a big elephant in the criris room

EU officials will hold a fresh round of talks in Lisbon this week to check whether Portugal deserves the next 15 billion Euro tranche of bailout. Experts say the future of the country worries investors even more than Greece.

via: rt.com

As usual, the problem lies in what doesn’t get said. That one of the principal forces behind the decision on the bailout is the Europan economic giant, Germany. Germany has benefited greatly because of the Euro, it’s true that it’s recent economic success has been in large part due to economic reforms and discipline they have pursued in the last 10 years. Kudos to them on that. It’s true, that more of European countries should be able to pursuit such a path with such rationality and efficiency. That does not mean however that only austerity is necessarily the right path in this moment when economies are in need of more stimulus.

While the German reforms and discipline are commendable, they are far from the only reason for their success. The dirty truth is that Germany profited greatly on the back of peripheral EU economies such as Greece and Portugal. How?

Had Germany had it’s own currency, it’s value would have risen on their good economic performance. That would have slowed exports as they would be more expensive elsewhere because of the higher price of German currency. Needless to say Germany is a very export-oriented economy. As Germany has had the Euro which has been held down by the poor performance of the worse performing countries it has kept the price of the Euro, down thus fueling the German economy. At the same time, that has harmed peripheral countries, because the currency was higher than it would have normally been, plus it enabled an overheating of the e.g. construction sector, due to low interest rates, tied to the Euro stability. You can read more about it in Jean Quatremer’s excellent blog Coulisses de Bruxelles (in French).
At the same time, the Germans insist on not issuing Euro-bonds to ensure the stability of the Eurozone and stable cheap credit for embattled countries. It’s true that it would have raised Germany’s cost of borrowing, but it pales in comparison in what they have gained with the Euro-fueled export boom.

Their policy of running around with a water gun trying to put down individual fires as they flame up is thus incredibly short-sighted. To continue with the fireman metaphor, they’re barely putting down small fires on their way to a giant gas tanker. Unsuccessfully.

It boggles my mind that they are so short to mid-term focused and cannot see that solving the Euro crisis with bold actions is in their long-term self-interest.

If we go beyond that, it’s also morally reprehensible in terms of building the European project. Where is the long-sightedness of German politicians in the after-war years. Where is the solidarity? Where is the Konrad Adenauer of modern times?!