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EU: Why Germany must face up to its 1 trillion headache
The Telegraph ^ | 10/1/2012 | Jeremy Warner

Posted on 10/01/2012 8:32:49 PM PDT by bruinbirdman

Here's another fine mess the political hubris of the euro has got Europe into.

One of the most mind-boggling debates going on in euroland right now – only one of many, but particularly guaranteed to make the head spin, this one – is over the build-up of so-called “Target 2” claims and liabilities. Target 2 is the mechanism by which money is transferred around the euro area to ensure that each national central bank has sufficient euros to fund its banking system.

Accumulated cross border claims are now so extreme that they threaten to leave German taxpayers with huge losses should the euro break up, or any one of its members leaves.

What makes this debate of particular importance is that it is German opposition to debt pooling in the eurozone that is generally thought, at least among the periphery nations, to be the biggest barrier to crisis resolution.

If only the Germans would agree to treat Europe’s debts as one, rather than the separate responsibility of 17 different sovereign nations, then all this nastiness would go away. Well, through Target 2, it can reasonably be argued, these debts are already being shared, only many Germans don’t yet know it and it certainly hasn’t cured the crisis. The euro has stuffed the Germans just as much as the Spanish, Italians and Greeks.

The economist who has done the most to raise the profile of this issue is Hans-Werner Sinn, head of the Munich-based Ifo Institute. Germany would lose the thick end of a €1 trillion, he has written, should Greece, Ireland, Portugal, Spain and Italy leave the euro, or around a quarter of GDP.

Now, the sums he refers to are only contingent liabilities that wouldn’t crystalise except in the event of default. It is, in

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TOPICS: Business/Economy; Crime/Corruption; Foreign Affairs; News/Current Events

1 posted on 10/01/2012 8:32:52 PM PDT by bruinbirdman
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To: bruinbirdman

Why is this mind-boggling? Hey, remember when it was the other way around and Germany was printing money like mad and the Reichsbank collapsed and screwed everyone over? You know, when Benjamin Strong was Ben Bernanke and everyone thought money grew on trees (or in computers), too.

2 posted on 10/01/2012 8:40:59 PM PDT by Tublecane
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To: bruinbirdman; All

In a related EU tidbit. I hear France wants to tax people earning $1 million Euros, at a 70 or 75% tax rate. Don’t remember which I heard. Of course, I’m old enough to remember when we had such a tax rate on the rich.

3 posted on 10/01/2012 8:58:17 PM PDT by gleeaikin
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To: gleeaikin; Tublecane
Notice the relevance of the image above.

Evidently, the entire Euro Zone is bust.


4 posted on 10/01/2012 9:24:06 PM PDT by bruinbirdman ("Those who control language control minds." -- Ayn Rand)
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To: bruinbirdman
The best option is for Germany to leave the Euro - and let France lead the rest of the EU Socialist clown car brigade into oblivion.
5 posted on 10/01/2012 9:34:34 PM PDT by Mr. Jeeves (CTRL-GALT-DELETE)
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To: bruinbirdman
EU: Why Germany must face up to its €1 trillion headache

One trillion? Why is that number familiar? Oh, it's the number of marks in one rentenmark which the Germans issued to stop the hyperinflation of the early 1920s.

Maybe if they print up enough euros to try to hold back the debt flood they can start issuing renteneuros.

6 posted on 10/01/2012 10:14:09 PM PDT by KarlInOhio ("Government is the only thing that we all belong to"=implicit repeal of the 13th amendment for all.)
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To: Tublecane

what is mind boggling is why german ten year interest rates are so low.

7 posted on 10/02/2012 12:15:45 AM PDT by genghis
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