Bill Bonner

It has been 65 years since Europe’s last major war. Still, when Germany gets up off its knees, the continent trembles.

Last week, the Berlin government announced the best results since the wall fell in ’89. From the first quarter to the second one the republic’s GDP rose 2.2%. At that rate – about 9% a year if it continues – Germany is running neck and neck with China. Compared to France and the US, Germany is flying nearly 4 times as fast. Greece meanwhile is backing up. Its economy shrank 1.5% last quarter.

The Teuton tribes are an aggressive lot. The Usipetes, Tenchteri, Batavi, Cherusci, Chatti, Vandals, Goths, Franks, Alans, Suebians – all jostled each other for centuries. They must have gotten a taste for competition. And when Rome wheezed her last gasps they fell on her like French tax collectors on a widow’s estate. The Vandals pushed all the way across Gaul and Iberia, crossed to North Africa, and from their new base in Carthage, continued to tickle the old Empire until it rolled over on them.

Everybody has his elbows out. But competition takes many forms. Better to build Audis and Mercedes than Tigers and Messerschmitts. Better to race for market share than for the Champs Élysée. Whatever form it takes, competition isn’t likely to stop. Happily, most of the time, it is a boon to everyone – even to the losers. That’s why Germany’s current success is only a threat to the economists and commentarists who’ve been giving her advice. The rest of us hold our breath and hope for more.

It was only a month ago that Martin Wolf led a “great debate” on how governments should react to the financial crisis. Of all the ideas to come out of financial crisis of ’07, Wolf proposed one of the most remarkable. He illustrated it with the fable of the ant and the grasshopper. He saw two types of economies. There were those that produced and those that consumed. The trouble, according to Wolf, was that the two didn’t compete at all. Instead, they lived in a kind of symbiotic parasitism. The grasshoppers lived off the labors of the ants. Not only did the grasshoppers make the things that the ants used, the ants took the grasshoppers’ money and lent it back to them, so they could buy more. The grasshoppers were ruining themselves. But the ants were making a mistake too. They were building up capital, but what could they do with it? There was no point in expanding output capacity; arguably, they already produced too much. And what could they buy? The grasshoppers had nothing to sell.

That was not the worst of it. When the grasshoppers had spent too much, said Wolf, both bugs were trapped. If the grasshoppers in Spain and Greece were forced to spend less, the ants in Düsseldorf were condemned to sell less. Their economies were doomed to go down together, like galley slaves chained to a sinking ship.

In any case, it looked like the sort of thing the fixers could fix. Germany is all make. Greece is all take. The system was out of whack. Trade flows must balance out to zero, so Wolf et al concluded that the problem could be corrected on either side. Germany could stop working so hard and exporting so much stuff it didn’t want. Or, Greece could stop spending so much money it didn’t have. Since any slowdown in spending threatens the “recovery,” it would be better for Germans to do more spending themselves. They should raise wages and encourage their own people to buy more Audis…more ouzo…and more pointy shoes with curled up toes. This was no time for austerity.

They misunderstood the problem. Imagine two men marooned on an island. They barely survive. One works hard, hunting, gathering, and planting. The other dances on the beach like Zorba, depending on the kindness of his companion for his daily rations. The problem is not the lack of balance. The problem is the slacker. You could redress the balance between them by getting the productive one to slack off too. But then, they’d both starve.

The euro was seen as part of the problem, too. It was either too low for Germany or too high for Greece, said analysts. In the good old days, Greece could have pulled a fast one, devaluing its currency to make its citizens poorer, and their labor and exports cheaper. But now, there is no cheap and easy solution.

Which set us to a-wondering about how the world possibly got to where it is. For the hundred years from the end of the Napoleonic Wars to the beginning of WWII, Europe was rarely happier, more prosperous…or more at peace. Yet during that time, money was even more inflexible than the euro. Governments did not commit premeditated murder of their own currencies. Instead, the value of paper money was protected by gold. People competed by working harder, saving more, and figuring out how to produce more with less – just as the Germans are doing now.

This week, the Merkel team followed up. “The lady’s not for turning,” Ms. Merkel might have said, taking a line from Margaret Thatcher’s 1980 Brighton speech. With the pressure off its budget, the commentators thought the Germans might be tempted to ease up on their austerity program. Instead, the German government will continue to pursue cuts to military and social spending, she said. Success will not distract Germany from its austerity program. Whether failure will send it off the rails is a question to be answered later.


Bill Bonner
for The Daily Reckoning

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily ReckoningDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

  • Pepe

    Is this man an idiot? Do you think that all the Greeks do is just to dance along and the Germans spend their lives making cars?. There are many Spaniards who work more and better than Germans ( after all Spain is the 9th largest world economy and the 6th largest world investor) while many Germans spend their lives dancing and drinking away in Ibiza ( like so many drunkard Brits, by the way) This kind of prejudiced characterisation is typical of the oversimplistic anglosaxon mind. And, finally, the ones who started all this mess were the corrupt and greedy anglosaxons in the City and Wall Street.

  • Antonio

    Another example of the APES mind ( Anglo-protestang economies) and their theories of racial superiority of anglos and germans over Latins. Frankly speaking, this kind of people are lunatics with a lot of money and that make them dangerous. No doubt the UK and the US are the ones which spread all their toxic financial rubbish all over the world and now they want to blame the Greeks. What a bunch of hypocrites.

  • http://Ziggo Den (EU)

    Who is to blame makes no sense, looking at the big picture we can easily predict that the Germans will blow up the Euro-currency union: just a matter of time, or better: an accident waiting to happen.

  • TC

    Stop arguing folks. Fact is Germany is strong, stable, prudent, high tech, and has lots of great stuff to sell.

    I take that over just about every other country folks.

  • kenn

    I’ve said it before and I’ll say it again… ‘PC’ Political Correctness is the most dangerous infection on our planet. I like to call it Prohibited Conversation. It’s getting almost impossible to say anything without hurting someones feelings! I think everyone agrees there are hard working people of all nations. He was just trying to make a point!! When I read it I never even thought of ‘racism’ until I read the comments. Makes me wonder who the racists are. This is incredible!!!! Debate him on the issues!!!

  • Jeff

    Let’s see. Lazy people complaining about racism.
    That’s a new concept.

  • JMR bayou bobby

    and those same lazy people make no diligent effort to complain about the racism

    I’m just observing.

  • Kevin

    In my conversing with Eurpoeans (who pretty much all hate America) I’ve seen that while America can be justly criticized on many fronts – their invective satisfied some kind of emotional need on their part. They’re intensely jealous of and feel insecure because of America.

    Since their press is in on the act, there’s no one to provide balance.

    Europeans are not comfortable having their worldview challenged, which is ironic because that is exactly what they project onto Americans.

    Americans are very comfortable with criticism, we’re big boys. Deal with it all the time. But look at the reaction to Bill’s mild comments. They can’t handle it.

    People – every one of us – need to hear the truth.

  • Alan Keck

    The title is great! Love your sense of humor–I’m still chuckling. Thanks for sharing your uncommon sense with a world gone economically haywire. Mr. Bonner, YOU are the man!

  • Paul Revere

    The US is a washed-up failed experiment run by a Goldman Sachs cabal led by that Muslim criminal Obama bin laden.

  • Peadar

    Good one Bill

    Empires come and go whether through warlords, despots, monarchies, megalomaniacs, politicians, good guys or rotters, and so on.

    They simply seem to work and last best for all concerned when their citizens do, and worst when their citizens dont.

    The only problem for the US is getting Obama and successors to score highly on that common sense, while then exemplifying to Europe, Asia, Africa, et al, that their earlier empires might be worth another chance; if handled better this time round – rather than still lying in ruins around them!

  • Bryan Charles

    I often wondered how the southern european countries (particularly Italy, but the others as well), ended up with the governments they have. The responses of Pepe and Antonio confirm my suspition that the voters in these countries are even more stupid and lazy than voters in the northern countries. Lets take a neutral opinion in the debate and ask the Dutch what they think. They are sick of these countries, rightly called the PIGS.

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