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Can we blame the Germans? Cyprus and Greece

March 31, 2013

Yes, we can: English people can take pleasure that the Germans were partly at fault in what is happening to Greece and Cyprus.

This blog tries to explain why. The idea of writing it came when Jane asked me the question, which had come up in a late night discussion with one of her brothers and his wife at a recent family gathering.

Shakespeare

Let's bring Shakespeare in: often a good start. In Hamlet, Polonius advises his son Laertes (with a summary first, which I have included since it helps explain to thine self be true, which I didn't appreciate fully at first).

A father's advice to his son how to conduct himself in the world: Don't tell all you think, or put into action thoughts out of harmony or proportion with the occasion. Be friendly, but not common; don't dull your palm by effusively shaking hands with every chance newcomer. Avoid quarrels if you can, but if they are forced on you, give a good account of yourself. Hear every man's censure (opinion), but express your own ideas to few. Dress well, but not ostentatiously. Neither borrow nor lend. And guarantee yourself against being false to others by setting up the high moral principle of being true to yourself.

Give thy thoughts no tongue,

Nor any unproportion'd thought his act.

Be thou familiar, but by no means vulgar;

The friends thou hast, and their adoption tried,

Grapple them to thy soul with hoops of steel;

But do not dull thy palm with entertainment

Of each new-hatch'd, unfledg'd comrade. Beware

Of entrance to a quarrel, but, being in,

Bear 't that th' opposed may beware of thee.

Give every man thine ear, but few thy voice;

Take each man's censure, but reserve thy judgment.

Costly thy habit as thy purse can buy,

But not express'd in fancy; rich, not gaudy;

For the apparel oft proclaims the man.

Neither a borrower, nor a lender be;

For loan oft loses both itself and friend,

And borrowing dulls the edge of husbandry.

This above all: to thine own self be true,

And it must follow, as the night the day,

Thou canst not then be false to any man.

William Shakespeare.

 

Extracting the key lines:

Neither a borrower, nor a lender be;

For loan oft loses both itself and friend,

And borrowing dulls the edge of husbandry

 

Two sides to an argument

Sometimes, there is only one side to the argument, though I can't think of when. Certainly, when I am trying to make a point on which I am right with Jane, she always has a different one. This human nature point is quite important: there will be many Cypriots blaming Germany for lending them too much: http://tinyurl.com/bosh5s6 is a nice article on the psychology of lending and borrowing. Or, I am alas on the chubby side: whose fault is that: well, mine clearly, for eating too much, eating the wrong things, and exercising too little. But it is also the manufacturer's and retailers fault for selling me sausage rolls, fish and chips, and chocolate; and Jane's fault, for having a well stocked fridge, and making things I like. But Jane opted for an easier life by providing food her husband prefers, and the retailers take their profit, and the Government takes its tax.

Or the parent-child example: the child doesn't get outside enough, preferring Nintendo, Facebook or Ant and Dec: but the parent could have limited Internet, TV or gaming hours, and encouraged or made the child go out: but the parent gained some peace and quiet from letting the child play indoors.

Germans

And so to the Germans. German manufacturers sold Mercedes and Porsches to Greeks, who borrowed from their banks to fund these purchases; or borrowed from the car companies themselves, on HP or lease terms. And the German Government or Central Banks lent to the Greek Government, to fund motorway improvements, agricultural investments, lazy civil servants, young pensioners.

Why did the Germans do this? Because it was in their interests to do this, or they thought it was: the sale of the car recorded a profit, which could result in a dividend paid out to Herr Schmidt of Dusseldorf; and Herr Schmidt's share portfolio and his pension plan rose whilst Porsche kept recording ever increasing sales. So when he read in the papers about Greece's pending debt problems, did he worry? Not early enough, the Greeks were paying good interest rates on their debt, and they hadn't defaulted before, at least in Herr Schmidt's memory. We tend to forget the things we don't want to remember: how many Brits remember that Britain has defaulted on its debts before now?

Summary

In summary, the Greeks and the Cypriots shouldn't have borrowed; should have taxed themselves more; should have spent less, and retired later. But other Governments, bankers and lenders generally permitted this, encouraged it, making good profits in the meantime: or so they thought: we now know they were unreserved, they should have realised that the chubby child of husband would me day be their even bigger problem, but it is human nature to ignore such future possibilities.

Shakespeare was right: everything is in Polonius's three lines.

From → Economics, General

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