Indulge this for a moment…  Let’s say you’re German Chancellor Angela Merkel. The entire European Economic Community is putting pressure on you to lead a bailout of Greece because they don’t want contagion and they know you’ve got the pocketbook to pull it off. But you’re a little tired of non-stop handing money over to the rest of Europe since 1945 (especially the past 20 years), and you’re pretty sure your electorate is tired as well. Further, you know that Germans are a hard working bunch that have lived within their means and pulled themselves by their bootstraps in terms of German reunification costs. All the while, the PIGIS countries lived wildly beyond their means. Plus, the PIGIS (subtract Ireland) lead the ranks of the underground economies. Greece has fully 25% of GDP underground (black market). What sane person would offer to backstop losses on an economy where so many are on the take? As a matter of comparison, the USA sees approx 7.2% of its economy underground (we’re a puritan bunch!).  The figure is 14.6% for Germany.
So a certain amount of schadenfreude might be just. Now add this beauty: The Euro has steadily seen its value climb (vs the USD) over the past couple years and will see this resume if a bailout regime takes over in Europe (recall point above that Euroland has less debt to GDP than the US does). But as Europe’s biggest exporter (and the world’s #1 exporter for many years – until China overtook it a few weeks ago) you really need to see a weaker Euro currency.
 
Why not stage (fake) a rescue of the Greeks, but allow the effort to fail? You merely insist on proportional support by EU members. Then let France take the heat when it balks at the bailout. Think it won’t happen? Try this on:
  • Greece has $300B in debt owed to its Euro-friends.
  • of this, 43B euro is owed to German creditors (1% of GDP)
  • 75B euro is owed to French creditors (3% of GDP)
  • 25-30B euro in Greek sovereign debt will need to be rolled over in April & May
  • 53B euro will be financed this year.
Consider what this head-fake accomplishes:
  • Germany looks like a leader and a helper.
  • France gets blamed for scuttling the care package.
  • Greece defaults and is forced to live within its means for the first time in many decades (there is a reason Greece paid exorbitantly high interest rates before it joined the EU).
  • you send a shot across the bow of the rest of the PIGIS that Germany is going to stop paying for Europe’s excess and profligate ways.
  • MOST IMPORTANT!  you devalue the Euro in a manner that you could not otherwise accomplish. This helps drive your $1.1T export-driven, efficiency-focused economy.

If you’re Germany, the worst thing you can do right now is bail out the Greeks.