Tag Archives: European Union

Greece should seize Germany’s botched offer of a velvet Grexit, by Amrose Evans-Pritchard

Posted on July 17, 2015 | Leave a comment

Ambrose Evans-Pritchard at telegraph.co.uk hits the nail on the head:

One day we will learn the full story of what went on at the top levels of the German government before the villenage of Greece last weekend.

We already know that the EMU accord – if that is the right word – is an economic and diplomatic fiasco of the first order. It does serious damage to the moral credibility of the EU but resolves nothing.

There is not the slightest chance that Greece will be able to stabilize its debt and return to viability under the Carthaginian settlement imposed on Alexis Tsipras – after 17 hours of psychological “water-boarding”, as one EU official put it.

The latest paper by the International Monetary Fund has torn away the fig-leaf. The country needs a 30-year moratorium on debt payments and probably outright subsidies to recover from the devastation of the past six years.

Instead it gets pro-cyclical fiscal contraction of 2pc of GDP by next year.

Some are already comparing the terms to the Versailles Treaty but this does not quite capture the depravity of it. The demands imposed on Germany in 1919 were certainly vindictive and narrow-minded – as Keynes rightly alleged – but they were not, on the face of it, beyond reach.

France was forced to pay reparations after the Franco-Prussian War in 1871 that were roughly equivalent to Versailles, albeit in very different circumstances. It dutifully did so, while plotting revenge.

What Greece is being asked to do is scientifically impossible. Almost everybody involved in the talks knows this. Yet the lie goes on because the dysfunctional nature of EMU politics and governance makes it impossible to come clean. The country is dishonestly kept in a permanent state of crisis.

Wolfgang Schauble is one of the very few figures who has behaved honourably in this latest chapter. As readers know, I have been highly critical of the hard-bitten finance minister for a long time, holding him directly responsible for the 1930s regime of debt-deflation and contraction imposed on much of Europe, and for refusing to accept that the eurozone’s North-South divide must be closed by both sides. Any policy that puts all the burden of adjustment on the South is destructive and doomed to failure.

To continue reading: Greece should seize Germany’s botched offer

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The Curse Of The Euro: Money Corrupted, Democracy Busted, by David Stockman

Posted on July 14, 2015 | 3 comments

David Stockman saves SLL the trouble and mauls the Greek-EU debt agreement. SLL may well take a break from this topic until the agreement meets its inevitable political or economic failure. From Stockman at davidstockmanscontracorner.com:

The preposterous Gong Show in Brussels over the weekend was the financial “Ben Tre” moment for the Euro and ECB. That is, it was the moment when the Germans—–imitating the American military on that ghastly morning in February 1968——set fire to the Eurozone in order to save it.

Some day history will judge good riddance……..but that get’s ahead of the story.

According to an American soldier’s first hand recollection of the Vietnam event, it was a Major Booris who infamously told reporter Peter Arnett, “It became necessary to destroy the town to save it”.

After the massacre of Greek democracy in the wee hours Monday morning, Angela Merkel said the same thing—even if her language was a tad less graphic:

“It reflects the basic principles which we’ve followed in rescuing the euro. It now hinges on step-by-step implementation of what we agreed tonight.”

Now no one in their right mind could think that lending another $96 billion to an utterly bankrupt country makes any sense whatsoever. After all, the Greek economy has shrunk by 30% since 2008 and is wreathing [sic] under what is objectively a $400 billion public debt already in place today.

That figure follows from the fact that on top of Greece’s acknowledged $360 billion of general government debt there’s at least another $25 billion loan embedded in the ELA advances to the Greek banking system. The latter is deeply insolvent, meaning that some considerable portion of the $100 billion ELA currently outstanding is not an advance against good collateral in any plausible banking sense of the word, but merely a backdoor fiscal transfer from the ECB to keep Greece’s financial shipwreck afloat.

Likewise, as I demonstrated Friday, given the even deeper deep hole into which the Greek economy has tumbled during the last six months, the fiscal targets extracted from Greece under this weekend’s demarche are utterly ridiculous. Indeed, even if the targeted primary surpluses of 1,2,3 and 3.5% of GDP are miraculously reached through 2018, upwards of $15 billion of budget deficits after interest accruals would be incurred anyway, and a lot more than that if there are material budget shortfalls, which is a virtual certainty.

So even before the latest dose of Troika economic punishment further debilitates its economy, Greece at this very moment has a de facto public debt of $400 billion sitting atop $200 billion of GDP.

To continue reading: The Curse of the Euro: Money Corrupted, Democracy Busted

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Greek Pudding, by James Howard Kunstler

Posted on July 13, 2015 | Leave a comment

From James Howard Kunstler, of kunstler.com:

The proof of the pudding is in the eating, the old saw goes. This one, alas, is a mélange of several old shit sandwiches bound in a liaison of subterfuge and seasoned with political absurdities. Having been fooled in this bistro before, citizen-patrons leave the table resigned to yet another bout of food poisoning as the music of universal upchuck rings across the European Union from Helsinki to Lisbon

What is on display more brightly and clearly than ever, though, is the utter fakery of international banking. The players have lost faith in their own shenanigans. They simply go through the motions now awaiting the political fallout, which is to say the revolt of the people who can still do arithmetic. So, now Greece can supposedly expect another $90Billion-equivalent in new loans on top of the $350Billion-equivalent already racked up. That’s rich. The loan repayment schedule must look like a map of Middle Earth.

Most perplexing — especially for those on summer hiatus in which time seems to be suspended — is the fact that the rescue package will take weeks, perhaps months, to gin up while Greece is right now so utterly paralyzed in bankruptcy that no goods can move, no bills can be paid, and the economy cannot deliver the necessities of daily life. The old refrain, “your check is in the mail” may not be so reassuring to folks who haven’t eaten for three days. Personally, I would expect the gasoline bombs to be flying around Syntagma Square before the middle of the week.

Has anyone noticed the eerie paucity of news emanating from the other hard-luck nations of the EU, namely Spain, Portugal, Italy, and Ireland? The money hole that these deadbeats are in makes Greece look like a dimple in the sand. What, I wonder, is the message to them from the Greek negotiation melodrama? (Lend more money to real estate developers to build more houses and condos that will never be sold? That’ll work!) No, the entire EU debt fiasco harks back to the original meaning of “ring around the rosie” — a theme song of the Black Death. The eventual implosion of the European Union, and the banking system hugging its face vampire squid style, will be the financial equivalent of the Black Death. Kingdoms will fall and social systems will be turned upside down.

The agonizing wait for that outcome is obviously fraying the nerves of all concerned to the degree that all their exertions seem like little more than tragic and pointless exercises in futility — for instance, the terms arrived at in last weekend’s negotiations. Nobody has a shred of faith that they can or will be carried out. In effect, what they’ve done is put together a Potemkin framework allowing them to go just give up for a month or so and go on vacation.

That would, of course, set things up for a mighty financial convulsion in the autumn — history’s favorite season for ruin — when all the ministers and their factotums venture back to the dismal realities they left fermenting at the office. Of all the many things apt to happen, we can count at least on the current Greek government falling and a failure of Greece to make any gesture of repayment in their just-negotiated loan schedule. That would leave the “Troika” (the EU, the ECB, and the IMF) with zero credibility and initiate the epochal widespread repudiation of the entire EU loan structure — in short, the collapse of Europe.

That wouldn’t necessarily be the end of the world, but it would be the end of nearly seventy-year period of peace, prosperity, and stability. The sorting-out would be epic. The standard of living across Europe would sink to the level of the 1830s. The fundamentals of banking and currency would have to be rebuilt from ashes. More nations will break up into smaller units. Western intellectual life would suffer immense shock as all the certainties of the Enlightenment project seemed to go up in a vapor of insolvency and political upheaval. You have to even wonder whether Europe could defend itself against an onrushing Jihad.

But these are admittedly gloomy thoughts for a morning so early in summer. Myself, I’m going to shop for an outfit to wear to Diddy’s annual party in the Hamptons. Coonskin caps may be oddly coming back in style as people all over America try to emulate Donald Trump and the furry creature that lives on the top of his head. Something tells me that the ladies will not be buying many Hillary-style pantsuits. Wouldn’t it be cunning if Diddy’s caterer came up with something like miniature Greek Pudding bites? That would bring a real frisson to the doings, something to chat about besides the marketing genius of Kim Kardashian.

http://kunstler.com/clusterfuck-nation/greek-pudding/

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Tsipras Invites Schäuble To Fall Into His Own Sword, by Raúl Ilargi Meijer

Posted on July 12, 2015 | Leave a comment

Raúl Ilargi Meijer has made the Greek situation his focus the last month or two on the website automaticearth.com. He has had some good insights, although he apparently believes that the suffering of the Greek people justifies more European taxpayer largess. Yes, it is unfortunate, often heart-rending, that old people, their pensions cut, are digging in garbage cans and Greek hospitals and doctors lack necessary supplies. However, when your government spends more than it takes in for years, is corrupt, and fails to collect taxes, those sort of bad things happen. America will find out about it soon enough. When the shit really hits the fan, there won’t be enough money, even the kind conjured from thin air, to alleviate all the misery coming Europe and America’s way.

However, in this article, Meijer suggests an interesting possibility: that Alexis Tsipras has maneuvered his way brilliantly through the crisis, from the standpoint of both the negotiations and domestic Greek politics. He was elected in January with less than 40 percent of the vote. The electorate wanted to stay in the EU, but to forego austerity. The referendum gave him a mandate to reject further austerity. Tsipras then essentially agreed to the austerity package his voters had just opposed, contingent on some sort of debt reduction and restructuring. The IMF, one member of the hated “Troika,” had, just before the referendum, said Greece’s debt was unpayable and would need to be reduced and restructured, putting the IMF in opposition to the other two members, the EC and the ECB. Now, apparently, led by the Germans, Dutch, and Finns, the EU will not grant any reduction other than tweaks on maturities and interest rates, and are “suggesting” that Greece leave the Eurozone.

Tsipras is the same position as Lincoln after Fort Sumter or Roosevelt after Pearl Harbor—he has got the other side to fire the fateful first shot. He can claim he was willing to meet the EU’s demands, but it was they who initiated the Grexit. He will not be blamed in Greece, and he can, like Lincoln and Roosevelt, rally his country around him for the undoubtedly tough times ahead, provided there actually is a Grexit and not some 11th hour, can-kicking agreement. Then, if Tsipras is really smart, he’ll pull a Nixon goes to China, swear off socialism, embrace free markets, low taxes, protection of contract and property rights, and minimal regulation. In 10 years Greece would be on its way to becoming the Hong Kong, rather than the Venezuela, of the Mediterranean. This is an extremely low-ods bet, but it sure would scare the hell out of the rest of Europe.

From Meijer, at automaticearth.com:

Too many voices the past few days are all pointing the same way, and I’ve always thought that is never good. A guessing-based consensus, jumping to conclusions and all that. Look, it’s fine if you don’t have all the answers, no matter how nervous it makes you.

What I’m referring to in this instance is the overwhelming conviction that Greece and Tsipras have conceded, given in to the Troika, flown a white flag, you get the drift. But guys, the battle ain’t over yet.

So here’s an alternative scenario, purely hypothetically (but so in essence is the white flag idea, always got to wait for the fat lady), and for entertainment purposes only. Let ‘er rip:

Tsipras, first through holding a referendum, and then through delivering a proposal that at first sight looked worse than what the Troika provided before the referendum, has managed a number of things.

First, his domestic support base has solidified. That’s what the referendum confirmed once more. Second, he’s given the Troika members, plus the various nations that think they represent them, something that was sure from the moment he sent it to them: a way to divide and rule and conquer the lot.

Tsipras has set the IMF versus the EU versus the ECB. Schäuble snapped at Draghi last night: ”Do you hold me for a fool?” Germany itself is split too, Merkel and Schäuble are at odds. Germany and France don’t see eye to eye anymore. The US doesn’t see eye to eye with any party involved.

Italy is about to tell Germany to stop its shenanigans and get a deal done. The True Finns may get to decide the entire shebang, with less than 1 million rabid voters calling the shots for 320 million eurozone inhabitants.

From that point of view, Tsipras has done a great job at playing the other side of the table off against each other. So much so, it doesn’t even have to have been intentional, and it still works out great. He’s exposed the entire EU structure as a bag of bones, let alone a naked emperor.

Moreover, imagine this also purely hypothetical and for entertainment purposes only notion: maybe Tsipras has known forever that for Greece to stay inside the eurozone was a losing proposition. But he never had the mandate. Well, after Schäuble’s antics last night, that mandate has come a lot closer. And it’s not even just in Greece either.

And he may not even need such a mandate: Schäuble may do the job for him. If Tsipras pokes him just a little more, he’ll throw such a hissyfit that Alexis will be able to get Greece out of the euro without carrying the blame himself. And get money for the effort. Lots of money.

And that’s not all: he’ll sow division in the ranks to such an extent that the whole EU won’t survive. How can Schäuble stay in his post after this? How can Draghi? He’s shown them all, for the whole world to see, to be nothing but hot air bags of bones. Their entire credibility is shot to bits.

To continue reading: Tsipras Invites Schäuble To Fall Into His Own Sword

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He Said That? 7/9/15

Posted on July 9, 2015 | 3 comments

From Nigel Farage, leader of the United Kingdom Independence Party:

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Twilight Of The Euro Welfare State, by Holman W. Jenkins, Jr.

Posted on July 8, 2015 | Leave a comment

The bell is tolling for Europe’s, and sooner or later everyone else’s, welfare states, regardless of how the Greek situation turns out. From Holman W. Jenkins, Jr., at The Wall Street Journal, via davidstockmanscontracorner.com:

Journalists have strained to apply their good guy-bad guy conventions to the Greek crisis. But are the bad guys the greedy, wastrel Greeks? Or are the bad guys the imperious, demanding Germans?

In fact, this narrative is a poor construction. What we’re seeing is less a story of good guy-bad guy than a terminal falling out among Europe’s club of welfare states over the inevitable problem that eventually other people’s money (in Margaret Thatcher’s phrase) runs out.

The Greek combination of welfarism-plus-cronyism, with a large helping of outright corruption, has long relied on other people’s money from abroad to make ends meet. But if the terms imposed by fellow Europeans for fresh loans-cum-aid have lately seemed intolerable to Greek voters, they still took the availability of fresh loans for granted. This week they are learning their right to their neighbors’ money is not automatic after all—and yet, for reasons we’ll get to, don’t be surprised if there’s an 11th-hour bailout.

Let us not kid ourselves, the way many Europeans are kidding themselves, that Greece is entirely unique. Portugal, Italy and Spain—“core” European welfare states—already have made the same transition to dependence on external “other people’s money” to uphold their welfare systems.

Their version of other people’s money is Mario Draghi’s implicit promise to tax all Europeans with future inflation (a promise that remains implicit at this point) to keep their welfare states afloat. If not for the European Central Bank’s promise, these governments likely would already be in the same position as Greece—unable to finance their deficits.

As long as Mario Draghi is on the job, there should have been no dramatic, visible “contagion” from the Greek crisis. And there hasn’t been, for the same reason there was none from the Cyprus crisis two years earlier. There is no “surprise” involved: The markets had already fully internalized that Greece and Cyprus were outside the circle of Mario’s magic guarantee, so there is no reason their default need be seen as heralding other defaults.

But the fundamental long-term problem still remains: How will France and Italy especially (the key too-big-to-fail economies) find their way back to reliance on internal taxation plus voluntary, market-based lending to keep their welfare states up and running? Is this even possible in a democratic political system with large, calcified interest groups? Then again, if European states are already maximizing their option to avoid reform, might not the feared triumph of populist parties in future elections actually be a good thing, producing a crisis that forces action?

To continue reading: Twilight Of The Euro Welfare State

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Greece And The EU Situation, by Paul Craig Roberts

Posted on July 8, 2015 | Leave a comment

The US government certainly doesn’t want to see Greece leave the EU, and Paul Craig Roberts, in a guest post from theburningplatform.com, is predicting the government will get its way.

I doubt that there will be a Greek exit.

The Greek referendum, in which the Greek government’s position easily prevailed, tells the troika (EU Commission, European Central Bank, IMF, with of course Washington as the puppet master) that the Greek people support their government’s position that the years of austerity to which Greece has been subjected have seriously worsened the debt problem. The Greek government has been trying to turn the austerity approach into reforms that would lessen the debt burden via a rise in employment, GDP, and tax revenues.

The first response of most EU politicians to the Greek referendum outcome was to bluster about Greece exiting Europe. Washington is not prepared for this to happen and has told its vassals to give the Greeks a deal that they can accept that will keep them within the EU.

Washington has a higher interest than the interests of the US financial interests who purchased discounted sovereign debt with a view toward profiting from a deal that pays 100 cents on the dollar. Washington also has higher interest than the interests of the European One Percent intent on using Greece’s indebtedness to loot the country of its national assets. Washington’s higher interest is the protection of the unity of the EU and, thereby, NATO, Washington’s mechanism for bringing conflict to Russia.
If the inflexible Germans were to have Greece booted from the EU, Greece’s turn to Russia and financial rescue would put the same idea in the heads of Italy and Spain and perhaps ultimately France. NATO would unravel as Southern Europe became members of Russia’s Eurasian trade bloc, and American power would unravel with NATO.

This is simply unacceptable to Washington.

If reports are correct, Victoria Nuland has already paid a visit to the Greek prime minister and explained to him that he is neither to leave the EU or cozy up to the Russians or there will be consequences, polite language for overthrow or assassination. Indeed, the Greek prime minister probably knows this without need of a visit.

To continue reading: Greece And The EU Situation

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First Was A Head Fake—–Now Comes Einen Shitschturm, by David Stockman

Posted on July 7, 2015 | 1 comment

David Stockman, at davidstockmanscontracorner.com, on the coming turmoil in Europe and beyond:

If you don’t believe financial markets are well and truly broken Monday’s tepid response to the Greferendum should be dispositive. The house of cards known as the Eurozone is about to hit the wall, unleashing financial contagion and turmoil far and wide. So any investor or trader in their right mind should have been slamming Jim Cramer’s triple sell button early and often.

For lack of doubt, consider what Merkel’s Vice-Chancellor and leader of the German socialists had to say on Monday. Recall Herr Gabriel is purportedly the voice of the enlightened left and the politician hoping to soon relieve Angela Merkel of her job:

Sigmar Gabriel, the German vice-chancellor and economy minister, said there could be no question of writing off Greek debt because other countries that have had loans such as Ireland, Portugal and Spain would demand equal treatment.

‘I really hope that the Greek government – if it wants to enter negotiations again – will accept that the other 18 member states of the euro can’t just go along with an unconditional haircut,’ he said.

‘How could we then refuse it to other member states? And what would it mean for the eurozone if we’d do it? It would blow the eurozone apart, for sure.’

Oh, yes, he used the “conditional” word, meaning that if Greece signs up for a permanent regime of reform, austerity and depression its paymasters in Brussels and Berlin might be open to an accounting double shuffle. That is, to having Greece’s crushing loans extended to 40 years from 25 years, its grace period on interest and principle repayments stretched beyond the current 2023 time frame and its interest rates pared to something less than 1.5%. On an NPV basis, this is supposed to be some big deal concession.

But who do these clowns think they are kidding? Some day all of this debt will have to be rolled over, and eventually the monetary mountebanks running the ECB and other central banks will be unable to prevent interest rates from normalizing.

So put an honest interest rate—–say 6% on a country that has been a chronic deadbeat for two centuries——-on its current $350 billion of fiscal debt and the pro forma interest computation rounds out to 10% of GDP. It is doubtful that even Art Laffer would claim Greece could grow out from under that kind of financial albatross.

So the real red line is very simple. Above all else, 61% of the Greek public voted for relief from the onerous debt that has been imposed upon them by the troika and faithless Greek politicians in Athens. If they don’t get an outright haircut in excess of $100 billion, Greek democracy will remain permanently indentured to its troika paymasters.

Yet is there an iota of chance that the other 18 Eurozone nations plus the IMF will agree to a meaningful and honest “haircut” during the next 48 hours that Angela Merkel has allotted for reaching a new deal or a Grexit? Well, for starters, her iron- fisted finance ministers has just averred that a discount on the ESF debt is actually “prohibited” by the EU treaties.

End of discussion.

To continue reading: Now Comes Einen Shitschturm

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Financial Nonsense Overload, by Dmitry Orlov

Posted on July 7, 2015 | Leave a comment

Dmitry Orlov’s take on the Greece situation, from cluborlov.blogspot.com:

“Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece’s potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

However, Greece’s creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

Add to this a double-helping of double standards. The IMF won’t lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren’t Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe’s politics, with the political center cratering and being replaced with radical left-right coalitions. Note how quickly France’s right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece’s left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.

In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it’s called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that’s exactly what must happen.

But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let’s look for ways to not help them do this.

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Ragin’ Contagion: When Debtors Go Broke, So Do Mercantilist Exporters, by Charles Hugh Smith

Posted on July 7, 2015 | Leave a comment

The debtors are Greece, Spain, Portugal, Italy, and Ireland, and the mercantilist exporters are Germany and the Netherlands. Also note that the US stands in the same position as the European debtors vis-a-vis China and Taiwan, which are the Asian Germany and Netherlands. From Charles Hugh Smith, at oftwominds.com:

Papering over the structural imbalances in the Eurozone with bailouts or bail-ins will not resolve the fundamental asymmetries in trade.
Beneath the endless twists and turns of Greece’s debt crisis lie fundamental asymmetries that doom the euro, the joint currency that has been the centerpiece of European unity since its introduction in 1999.

The key imbalance is between export powerhouse Germany and its trading partners, which run large structural trade and budget deficits, particularly Portugal, Italy, Ireland, Greece and Spain.

Those outside of Europe may be surprised to learn that Germany’s exports ($1.5 trillion) are roughly equal to the exports of the U.S. (1.6 trillion), and compare favorably with China’s $2.3 trillion in exports, given that Germany’s population of 81 million is a mere 6% of China’s 1.3 billion and 25% of America’s population of 317 million.

German GDP in 2014: $3.82 trillion
Chinese GDP in 2014: $10.36 trillion
U.S. GDP in 2014: $17.42 trillion

Germany’s dependence on exports places it in the mercantilist camp, countries that depend heavily on exports for their growth and profits. Other (non-oil-exporting) nations that routinely generate large trade surpluses include China, Taiwan and the Netherlands.

While Germany’s exports rose an astonishing 65% from 2000 to 2008, its domestic demand flatlined near zero. Without strong export growth, Germany’s economy would have been at a standstill. The Netherlands is also a big exporter (trade surplus of $33 billion) even though its population is relatively tiny, at only 16 million. The “consumer” countries, on the other hand, run large current-account (trade) deficits and large government deficits. Italy, for instance, runs a structural trade deficit and its total public debt is a whopping 137% of GDP.

Here’s the problem when debtor/importer eurozone members such as Greece go broke and default: Who is left standing to buy all the mercantilist exporters’ goods? Ultimately, much of those goods were purchased with debt, and when debtor nations default, the credit spigot is turned off: no more borrowing, no more money to buy Dutch, German and Chinese exports.

To continue reading: Ragin’ Contagion

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