The European monetary system has essentially been in exercise in vendor financing, with the productive countries lending money to the less productive countries to buy their goods. What happens when the borrowers can’t pay? We’ll soon find out. From Mike “Mish” Shedlock at mishtalk.com:
A noteworthy reader-led discussion just took place in response to my previous article Euroscepticism Grows In Germany as 63% Say the EU is Excessively Bureaucratic
One of my readers, PecuniaNonOlet, commented “I thought Germany was the biggest beneficiary of the EU.”
That is (or was) an accurate assessment. The response from TexasTime65 was perfect.
“They were the biggest beneficiaries. But now they are potentially the biggest losers because all the other countries owe them a lot of money and have no real way to pay any of it back unless Germany becomes a net importer of goods and services (which is politically a no-go in Germany),” replied TT.
Trade Statements by German Finance Minister “Utter Lunacy”
I have commented on trade aspects many times before.
For example please consider my September 13, 2016 article Michael Pettis Calls Surplus Trade Statements by German Finance Minister “Utter Lunacy”
At that time the six largest deficit countries owe a collective 797.3 billion euros to the four creditor countries, primarily Germany.
Target 2 Imbalances
It’s been a while since I reported on Target2 (what countries owe each other).
Spain, Italy, Greece, and the ECB now owe Germany (alone) over a trillion euros!
Tiny Luxembourg is a creditor to the tune of 267 billion euros.
The creditor total is over 1.5 trillion euros!
How can that be paid back?
It can’t. Target2 is one of the fundamental flaws of the Eurozone.
Those imbalances can only be paid back in one of these ways: Default, forgiveness, monetary printing and handouts against Maastricht Treaty rules, or a very prolonged period in which Germany becomes a net importer of goods and services from Spain, Italy, and Greece.
Place your bets, but I rule out the last choice.