By Richard Conquest
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Extra resources for German Economic Policy and the Euro : 1999-2010
19%. This might at first sight seem to be good news, a reconstituted Germany, showing herself to be integrated into the ‘globalising’ world economy and reaping the rewards for her management of a highly disciplined labour market and remarkably successful export economy. Sadly, the reality is very different: Germany’s outstanding commercial success is a very parochial affair, Germany is far too dependent upon the EU markets both for its export success and for its massive trade and current account surpluses.
This entirely fraudulent notion, encouraged by the powers that be, simply encouraged an orgy of borrowing in countries such as the Baltic States. The market has now restored risk premiums upon the debt of these nations with extremely painful results. THE BALTIC S TATE S AND GE R MANY: LONG TE R M YIE LDS 12 11 10 E S TONIA P ercent 9 8 7 6 LITHUANIA LATVIA 5 4 3 GE RMANY 2 J an May S ep J an May S ep J an May S ep J an May S ep J an May S ep J an May S ep J an May S ep J an May S ep J an May S ep J an 00 01 02 03 04 05 06 07 08 09 E stonia, Long Term Indicator (E CB ), Average, E E K Lithuania, Long Term (E urostat), Average, LTL Latvia, Long Term (E urostat), Average, LVL Germany, B id, 10 Year, E nd of P eriod, E UR S ource: R euters E coWin The fragility and deterioration of the financial standing of Eastern Europe is set out in the previous graph and the following table and graph.
This was all greatly encouraged by the closing interest rate differentials which allowed businesses and citizens to borrow far too cheaply. Let us be clear about this, the ‘convergence play’. The idea was floated that as these and other countries approached Euro membership then their credit status would improve and their risk premium would be reduced. In other words interest 47 payments on government and other debt would fall. This entirely fraudulent notion, encouraged by the powers that be, simply encouraged an orgy of borrowing in countries such as the Baltic States.