Amygdala

Now just stay with me, this is important and I’ll make it funny, I promise. We all know about quantitative easing don’t we? You know when the central bank (the government) literally creates money and gives it to the Treasury (the government) by buying more of those government (Treasury) bonds. If that sounds weird to you then it should. The government is paying its credit cards off by forging new cards in the basement and using them to pay off the others.

This works because money isn’t real, it’s just a convention. As long as both you and the hot-dog seller agree that a green piece of linen can be exchanged for a chilli dog, everything is fine. When that silent compact breaks down, first you get inflation, then inflation Zimbabwe-style, then the chatter of small arms fire down at the Stop And Shop. (Inflation just means that we’ve finally noticed there is a lot more green linen around than there used to be, which means that it’s worth less, so we demand more of it. Repeat until bankrupt.)

In the US, the Federal Reserve has decided that since the dollar is the dollar, the risk of hyperinflation is remote and that a bit of inflation is a good thing. It makes you spend today instead of saving or buying tomorrow because inflation destroys the value of money, especially if interest rates are at zero. (No point saving if you get no interest and prices are rising.) So the economy gets better. This only works if you think you’ll have a job tomorrow. If you don’t then you’ll save for a rainy day regardless. This can go on forever as it has been in Japan for 20 years. This is the 20 years they optimistically call ‘the lost decade’.

In Europe the Fed’s counterpart, the European Central Bank, takes the more German view that since inflation caused World War Two, it, and therefore QE, is a very bad thing. They have to do this because the Germans have all the money and have put it in a pile on a piece of land just outside Nuremberg called The Moral High Ground.

In their new Weltanschauung, all these problems are caused by lazy and slightly unwashed people from the South. These sun-tanned slackers with their three-hour lunches, beliefs in Transubstantiation and huge overdrafts have run up debts they can’t pay and they should face the consequences. Why should hard-working Aryans bail these spivs out with the money they’ve saved in their good, strong German banks (actually theirs are among the worst and most incompetent but that spoils the myth of Deutsche efficiency a bit). I mean it’s bad enough the South already has all the sun, and beaches and languages that can be used to chat up women instead of sounding like a man vomiting in a half-track.

If this sounds familiar, it should. First, it’s a pretty clear example of implying a general moral and financial turpitude in an alien culture. Second, it’s a dammed convenient way of avoiding self-criticism by blaming a bunch of deviant foreigners and contrasting their shortcomings with your own purity and virtue.

It is true that Germany has gone through its own decade of mildly painful re-adjustment in terms of wages and productivity while people in Portugal have continued to focus on basket weaving and milking the European grant machine for as many pointless motorways as possible. But in many ways Germany is reaping what is has sown.

Germany’s export-led economy has boomed, creating jobs and tax revenues and allowing German governments to keep their finances in order, because everyone else on the planet has been happy to go neck-deep in debt to buy BMWs and Mercedes and everything else that Germany sells.

When companies do this it’s called vendor financing and it’s probably how you bought your car. If it is done in a controlled way, it can be a sensible way for sellers to maintain and expand markets for their goods. But there are two ‘buts’.

First, it’s not really a tenable position to get all moralising with the Southern slackers if actually you need their lax attitude towards personal finance and hygiene in order to sell your products and save like the smug Lutheran that you are. Second, there is an obvious flaw in the whole scheme.

If to satisfy an insatiable hunger for growth you get less fussy about how much you lend and to whom, you may find that you end up producing a shitload of cars that end up back on your lot with broken tail-lights and feta stains on the back seat. Even if you can sell these for use as taxis in the Philippines, you will lose a lot of money. Worse still, the true size of your market becomes starkly apparent: without people willing to borrow more than they can afford, the markets for cars, houses and everything else are smaller, and the prices are lower.

Plenty of companies have gone bust by extending vendor financing, but Germany is finding out what it means when a country does this. It’s a bit of a shock and so the Germans are only just moving out of the denial phase of their grieving and into anger. What happens when they get angry is something no-one is talking about but we need to get them into therapy before they lose it. And when they’re there, we need to help them understand that it’s all their fault. The eurozone was their idea; they turned a blind eye to Greek lies; they didn’t speak up when everyone broke the Maastricht treaty - including Germany; and they funded everyone else’s debt splurge. Their banks even helped cause the CDO crisis under the noses of their allegedly tough regulators.

We need to talk to Germany soon about all this otherwise things could get out of hand.