Greek/Euro Crisis Explained has been added as a related post - related requested by messenger on that post.

8:18 – "Germany is very financially responsible".

The clip makes a few good points, twists others and omits some central issues. But I want to comment on the quote above most of all, because it forms the basis for all kinds of arguments and recommendations.

The claim that Germany is financially responsible stems from what has been paraded around domestically as the "schwarze Null" (black zero), meaning a balanced budget. Given how focused most economic debates are around the national debt or the current budget deficit, it shouldn't come as a surprise that not running a deficit evokes positive responses in the public. If there has ever been an easy sell, politically, it's this.

However, it's not that simple.

For instance, the sectoral balance rule dictates, by pure accounting identity, that the sum of public balance, private balance and external balance is 0 at all times. In case of Germany, this means that the balanced public budget (no surplus, just a fat zero) requires a current account surplus of the same size as private savings – or an accumulation of private debt. For someone to run a surplus, someone else has to run a deficit. In this case, foreign economies have to run a deficit vis-á-vis Germany, so that neither the German government nor the German private sector have to run a deficit.

The composition of each sector is another topic entirely, but the point remains: no surplus in Germany without a deficit in the periphery. If everyone is to be like Germany, Klingons have to run the respective deficit.

My question: is it financially responsible to depend on other economies' deficits to keep your own house in order? Is it responsible to engage in this kind of behaviour after having locked yourself into a monetary union with less competitive economies who have no way of defending themselves through currency devaluation?

Second point: capital accounts and current accounts are two sides of the same coin. If Germany runs a current account surplus of X%, it also runs a capital account deficit of X%. Doesn't explain anything, but it's the same for the countries at the other side of these trade imbalances. Spain's current account deficit with Germany meant a capital inflow of the same size.

Let's look at EuroStat's dataset for current accounts. Germany had run a minor current account deficit during the late '90s and a small surplus up to 2003. From then on, it went up, up, up. Given the size of Germany's economy within Europe, that jump from 2% to 7.5% is enormous. Pre-GFC, the majority of this surplus went to... yap, PIIGS. Their deficits multiplied.

Subsequently, capital of equals size flowed into these countries, looking for investments. No nation, none, can absorb this amount of capital without it resulting in a massive misallocation, be it stock bubbles, housing bubbles, highways to nowhere or lavish consumption. Michael Pettis wrote a magnificent account (Syriza and the French indemnity of 1871-73) of this and explains how Germany handled a similar inflow of capital after the Franco-Prussian war: it crashed their economy.

As Pettis correctly points out, the question of causality remains. Was the capital flow a pull or a push?

The dataset linked above says it all happened at just about the same time, in all countries. It also happened at the same time as Germany's parliament signed of on "Agenda 2010", which is the cause of massive wage suppression in Germany. Germany intentionally lowered its unit labour costs and undercut the agreed upon inflation target (2%). German employees and retirees were forced to live below their means, so the export sector could gain competitiveness against all the other nations, including those in the same currency union. Beggar-thy-neighbour on steroids.

Greece overshot the inflation target. They lived beyond their means. But due to their size, it's economically negligable. France stayed on point the entire time, has higher productivity than Germany and still gets defamed as the lame duck of Europe. Yet Germany, after more than a decade of financial warfare against its fellow members of the EU/EZ, is hailed as the beacon of financial responsibility.

Mercantilism always comes at the cost of others. And the EU is living proof.

Thanks radx for bringing that up, and so astutely too.

I wasn't happy with a lot of the language in the video, especially surrounding the cultures of Germany and Greece. To me those parts sound like someone with a burning private agenda who just wouldn't be able to sleep at night without somehow painting Greek people as the problem and German people as doing the right thing. He tried to appear impartial, but it didn't come off that way to me. That statement sounded like it was full of moral assumptions, and I'm not surprised there's a strong counterargument to it.

There are 100 issues to this EU mess, and 100 different angles to each issue. To stay on top of things or even just to keep a somewhat comprehensive overview is impossible at this point.

It's too complicated, charged with too much emotion, too blurred with power politics. A clusterfuck if there has ever been one.

And you can't even counter any single argument in a meaningful manner, because it would take a deconstruction of the whole thing to present a pursuasive case. The helplessness is infuriating.

Pretty decent.

The Eurpean States would be a big leap for europe.

"...and it's still not a continent"

Moving this video to messenger's personal queue. It failed to receive enough votes to get sifted up to the front page within 2 days.