Hollywood Studios coined the phrase “Stupid German Money” for the 80% or so of German taxpayers’ subsidies to the movie industry that went right into Hollywood’s pockets instead of going to local independent film studios that were the intended recipients. Even though they’ve finally closed this loophole a couple of years ago, Stupid German Money remains the best example of German politicians’ incompetence in financial matters.

Now history is about to repeat itself on a much, MUCH larger scale by Stupid German Money soon to be spent en masse on the ESM to automatically bail out French, Spanish, and Italian banks… on a regular basis, without any way for Germans to have a say in the matter whatsoever.

Why am I calling this stupid? Because economically, it doesn’t make sense. Neither for Germany, nor for the recipients. Germany will gradually be bled dry without any return on investment. Recipient countries will continue to be submerged by easy money, exposing them to inflation and potentially hyper inflation on the long run. Moreover, this stupid money takes the pressure off their lazy political systems to initiate and follow through with badly needed structural reforms of their utterly broken banking and public finances sectors.

Stupid German Money isn’t just stupid, it is outright harmful. For everyone.

Should we cut off Stupid German Money?

One of ESM advocates’ main argument is that Germany needs to stabilize the economies of the countries it depends on for its exports. That is true, but it doesn’t make sense to send 100% money to a country that will spend merely 20% to 30% of it on buying German goods. Clearly, this would amount to Germany subsidizing its direct competitors like China, USA, other European countries etc. with the remaining 70% to 80% of that money. It would still be stupid money, when spent this way.

The alternative would be for Germans keep all that money to themselves, and lose some European markets for their export industry. While harsh and clearly anti-european, it won’t destroy the German economy, because they could still export their machines to strong economies inside the Euro zone, all economies outside the Eurozone, and be very efficient at that.

Smart German Money

A better and more European-friendly alternative would be Smart German Money, i.e. money spent wisely for the mutual benefit of both sides. What does that mean? IMHO, that would be money spent on German infrastructure projects being conducted and implemented by currently unemployed Spaniards, Italians, French, and others who are hit by the economic crisis.

What kind of infrastructure projects am I thinking about? Well, for starters, Germany is currently phasing out nuclear power, and moving towards renewable energy sources. Doing this requires gargantuan investments in new power grids, reservoirs, wind mills, electrical cars etc. This is a truly huge project that needs a lot of expertise (engineers, specialists) and workers to implement.

Now, what if Germany, instead of blindly bailing out foreign banks with Stupid German Money, used those hundreds of billions of Euros in a smart way to kick start and finance this huge infrastructure project, allowing at the same time people from Spain, Italy, France, etc… to take part in it, i.e. to build it?

This way, we could get the best of both worlds:

  • Germany would reduce its dependence on non-renewable energy sources, and won’t compete for them on the world market with those other countries, unlike now when they import nuclear power from the Eurogrid.
  • Economies in the PIIGS states would recover thanks to the influx of money, without their citizens having the feeling of being beggars and seeking handouts. They’d EARN their money with honest working and would feel all the better for it.

Of course, being led by proverbial financial idiots, Germany will continue to lavish its Stupid German Money on the PIIGS’s banks. Smart German Money will remain an illusion and a theoretical concept at best. Which is sad.

2 Comments

  1. dieta

    This, of course, is creating a great deal of angst among the Germans because there is a lot of money involved. Today, the German taxpayers’ exposure to the weaker countries represents at least one quarter of Germany’s GDP, and it’s rising. Facing a bill like that, German Chancellor Angela Merkel has recently pushed back and stated the obvious: “Germany’s strength is not infinite.” What can be done? For a start, new, excessive bank regulations should be scaled back, or scrapped altogether — particularly when we’re in the middle of the worst slump since the Great Depression. Basel III’s stringent capital-asset ratios and liquidity coverage ratios are prime candidates. Such a roll-back would alleviate financial repression, allowing the banking system to increase the privately-produced portion of the broad money supply. Since excessive and untimely regulation is what’s holding down broad money growth, this is just what the doctor ordered. Remember, it’s the money supply, stupid.

     
  2. silver account

    The world blames Germany for attaching conditions to loaning or rather giving away money they legally should never give in the first place. The world wants Germany to bail out all of Europe, to give enormous guarantees that some day might become due as true financial liabilities for Germany. Risk Germany’s bankruptcy to bail out Europe.