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The Euro Crisis: No More Safe Havens

Josh Rosner - July 2012

Rosner argues that German long-term bunds are not the safe haven that many have talked them up as, and that in fact the long-term underlying indicators of the German economy do not support the idea that bunds are a low-risk long-term investment. The cost to the German economy of either propping up an uncompetitive Eurozone, or overseeing a messy Eurozone break-up (neither of them palatable options) is one of the key reasons for this. Rosner believes that the longer that leaders in Germany and Europe wait before resolving this ongoing problem, the greater the danger to the German economy, and therefore the greater the risk of German bunds being seen as progressively less and less safe.

As the global financial and economic crisis drags on, European regulators and policy-makers continue in their attempts to find a path from crisis toward stability while balancing the public interests of independent sovereign nations with the desire to forge a deeper financial, economic, political and fiscal union.

While the media and government officials in the core of Europe continue to characterize the crisis as the result of profligate borrowing and reckless spending by peripheral economies of the EuroZone this picture ignores the larger and more significant reality of the crisis – this crisis is, at its core, the result of structural weaknesses built into the original design of the European Monetary Union. This theme further ignores the economic realities that faced the core states, particularly Germany and France, at the time of their entry into the EMU and also the reality that these economies, driven by asset growth as their banking sectors funded domestic exports, enjoyed almost a decade of growth. This growth, particularly in Germany, came not from any meaningful improvement in productivity but, rather, on the back of reductions of real wages for households, increased unemployment and reforms in their labour market – such as the Hartz reforms – which transferred wealth to those sectors of the economy. (which sectors?) It was these reforms in the post-reunification period of austerity, that prevented the profligate levels of domestic household consumption that were witnessed in the peripheral economies.

While there is a rationale basis for anger and contempt by German and French taxpayers it appears the anger has been largely misdirected. Rather than embracing the false narrative that “we don’t want to be responsible...

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