Three reasons Germany won’t mutualize debt
(From L to R) These effigies in the likeness of German Vice Chancellor and Economy Minister Philipp Roesler, German Chancellor Angela Merkel and German Social Democrats (SPD) Chairman Sigmar Gabriel were part of a publicity campaign by the Initiative Neue Sociale Markwirtschaft critical of German spending policy. Germany’s upper house of parliament is scheduled to vote on Friday whether to ratify the European Stability Mechanism (ESM), the permanent bailout scheme for the euro zone.
Economist Nouriel Roubini was just on Bloomberg TV discussing the unfolding euro crisis and the German reaction to all of these proposals to mutualize debt.
Roubini told Bloomberg that the Germans worry about three things:
One is about moral hazard. They say, "if we agree on these things, there's not going to be enough effort by Italy and Spain.
Secondly is a time consistency problem. If you agree on that stuff and they don't delever, then Germany is going to take a huge amount of risk.
And three, there is a huge amount of credit risk the Germans are going to take by backstopping the debt on one side and also the deposits. You need also EZ-wide deposit insurance.
He then said that basically Germans are being asked to marry a non-virgin, and before they're willing to do that they want to see some abstinence…
The Germans say, "you lost your virginity. Now you sign a contract; you say, 'I'm a born again virgin.' Be abstinent for the next two years. Show me your soul and two years from now, we're going to get married. But today, I commit to marriage today? Forget it."
The Germans don't believe and they don't trust the periphery.
More from our partners at Business Insider:
Business Insider: The Worst Drought In Over 100 Years Could Cause An Enormous Famine In North Korea
Business Insider: UBS' George Magnus: Traders Betting Against Germany Are Going To Fail
Business Insider: Jersey Is So Mad About David Cameron Calling Tax Avoidance 'Morally Wrong' That It Might Break Ties With The UK
Business Insider: The New Egyptian President Reportedly Said 'Jihad Is Our Path And Death In The Name Of Allah Is Our Goal'
Business Insider: Citi: Everyone's Talking About A Huge European Catastrophe, But Nobody Is Willing To Bet On It
Every day, reporters and producers at The World are hard at work bringing you human-centered news from across the globe. But we can’t do it without you. We need your support to ensure we can continue this work for another year.
Make a gift today, and you’ll help us unlock a matching gift of $67,000!