Why are the German people so opposed to lending more money to Europe?

Most everyone wonders why the Germans are so unwilling to continue to lend money or provide support to their fellow Europeans in an attempt to stimulate growth within the Euro Zone. It seems logical that Germany will benefit from growth in the area and should be willing to support such economic efforts. It is also reasonable that Germany benefits from a stronger Europe as Europeans buy German products which provides employment in Germany. So why are the German people reluctant to continue to lend the money?

We have to look back in history to find the answer and we don’t have to go back very far in time. Just twenty years ago when the Berlin Wall fell Germany banded together to rebuild the country and end the separation between East and West. This was not a trivial matter. For many decades (1945 until the Wall fell) no major infrastructure efforts had been taken except outside of the main street of Berlin. The task of making up for so much lost time was financially burdensome. It was such a large task that Germany instituted a Solidarity Tax and withdrew money directly from worker’s pay stubs. Nearly, $2,000,000,000, yes trillion, has been taken out of the German workers paychecks to rebuild the economy of the East. This was acceptable as the German nation managed the rebuild and debt well through discipline and restraint, plus the benefit could be seen first hand.

Now Germany is being asked to incur another tax to rescue economies that have not shown discipline or any effort to restrain from overspending. German citizens would like to stop paying the earlier tax and certainly do not wish to incur another tax to bailout someone else. Put yourself in their shoes, would you be willing to set aside a portion of your paycheck in the form of a new tax to assist? If the answer was yes, then Greece would not be having trouble selling bonds with 20% yields. The credit markets will not loan these countries money at rates lower than 7% so why should the citizens of another country (Germany) be willing to lend them (Greece, Spain, Italy, etc, etc.) the money for free?

Now before someone writes to me and tells me the debt pays interest, I will need to see how the interest payments make it back directly to the worker in Germany in the form of a check or some type of payment. Otherwise, reality for the worker is paying the bill and never receiving the interest payments or the original investment back. This is why the German population is balking. They never will see the return. The German government might see it at the central bank but, the worker will never know it arrived. All they will know is that they paid the bill.

By | 2012-04-27T09:15:30+00:00 April 27th, 2012|Categories: Money Basics|1 Comment

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One Comment

  1. Cynthia April 27, 2012 at 9:34 am - Reply

    Interesting that none of the countries now looking to the German people for a hand out ever stepped forward during the rebuilding of East Germany to lend a hand or money – that would have actually stimulated the economy faster and increased demand for their own goods and services.

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