Yves here. Das’ post has a lot of useful information, but like a lot of finance people, he is hostage to a conventional markets-driven reading of the issues. Governments are not households or businesses. When the private sector delevers, unless a country is running a big surplus (as Germany is) you can’t have government delever at the same time. So Germany’s notion of virtue (that governments and private citizens should wear an austerity hair shirt) works only for Germany.
There are also ways to prevent an Euro train wreck that don’t involve using German’s balance sheet, such as having the ECB issue bonds, or do revenue sharing (say on a per capita basis,as Marshall Auerback suggested in a NC post). Or the ESM could be given a banking licence via the ECB so that it has the ability to deploy unlimited capital to sort out the solvency issue (as France has suggested). Yanis Varoufakis’ “Modest Proposal” is another approach. But if Germany continues to oppose having the ECB take a much more aggressive stance, Das’ concerns are germane.
By Satyajit Das, derivatives expert and the author of Extreme Money: The Masters of the Universe and the Cult of Risk (2011)
It’s now about Germany, not about Greece, Spain, Italy, Ireland or Portugal!
Germany is financially vulnerable. Irrespective of the course of events, it faces crippling costs.
Gas gangrene is a deadly infection that causes massive necrotic damage to tissue. Treatment is by antibiotics and hyperbaric oxygen therapy to inhibit the growth of and kill the bacteria. But if that fails, amputation is necessary. Germany may be in great danger, having left it to late to excise the gangrenous body parts of the Euro-Zone.