[Miu]

Originally Posted by brannelford

In a proper federation (or economic union), the stronger provinces help pay for the weaker ones, in order to help the union/federation maintain its optimal GDP. In Canada, we call this Transfer Payments, whereby funds from provinces with a stronger GDP will go to help support weaker regions. While this is no doubt controversial in Canada, most tend to agree that its the price one needs to pay in order to help maintain economic cohesion in the federation, and to prevent one smaller region from becoming an economic basket case.

The EU already has a transfer system, in which Germany has always been the largest contributor. This has absolutely nothing to do with the debt crisis though.

The EFSF is far larger in scale than the transfer payments between Canadian provinces (or German states, for that matter). Germany's €211 billion guarantee for the EFSF amounts to 82% of its federal budget.

Originally Posted by brannelford

Getting back to Europe, Germany seems to have chosen to completely ignore this principle of "Transfer Payments", as from what the press is reporting here, Germany appears unwilling to help Greece, even though it is demanding harsher austerity programs.

This entire debt crisis is the result of transfer payments if you will. Ever since the introduction of the euro, northern Europe has provided southern Europe with cheap credit, which allowed the Med countries to pile up enormous amounts of debt and equally impressive trade deficits. What the EU needs is a major readjustment, not more of the same. Crises always reveal imbalances and, unless governments actively try to maintain these imablances, force actors to make the necessary adjustments. That is a basic tenet of capitalism. It seems that Germany and its handful of allies are the only ones sticking to that principle though.

Originally Posted by brannelford

Something tells me that Germany is more interested in protecting its banks (or those Germans who loaned money to the Greeks) than it is in protecting the broader unity of the European Union.

Germany is advocating the exact opposite: it wants lenders to bear the losses for their failed investments in southern Europe, which is why it has been fighting for a significant haircut on Greek debt against opposition from the ECB and France ever since the beginning of the crisis

Originally Posted by brannelford

Let's not forget that Germany's GDP has benefitted from having a lower Euro, yet it seems unwilling to help other regions in the Euro.

Germany's GDP has not benefitted from the Euro. The 2000s were the worst decade in German post-war history in terms of GDP growth. It was countries like Greece, Spain and Ireland whose debt-fuelled economies boomed, not Germany.

Originally Posted by brannelford

Were Germany still using the deutschmark, its currency value would undoubtedly be higher, and German exports would be correspondingly lower.

Yes, which is just what Germany needs. Lower exports would result in more money being spent domestically and less money draining off to other countries in the form of dubious loans. Unfortunately for southern Europe, that would also mean that Germany would no longer be able to subsidize their current account deficits or be able to shoulder their bailouts.

Originally Posted by brannelford

Despite this, Germany has reverted back to nationalistic interests, as I mention above, judging from its apparent unwillingness to lend more support to Greece.

Germany and the rest of Europe have already lent far too much financial support to Greece.
It is widely agreed that Greece is a lost cause. Greece cannot be saved, no matter how many more billions of euros EU politicians pump into that country. It is an illusion that there is any way for Greece to get back on its feet without years of painful readjustments, with or without the euro.