Saturday, March 06, 2010

Greece and Germany; Dubai and Abu Dhabi

What do you think? The Germans don't want to bail out profligate Greece. Is this anything like Abu Dhabi's reluctance to bail out Dubai? The logic of a bail out is that although it rewards behavior, the alternative of letting Greece, or Dubai -- or AIG to give an American example -- would be worse for both parties. Of course, Abu Dhabi was able to extract its pound of flesh.

Here's The Weekly Standard on Greece and Germany:
Opinion polls show that over two-thirds of Germans reject the idea of contributing to a Greek bailout, and the venom with which that opposition is expressed suggests that exasperation has drifted into contempt.

To give more money to the Greeks would be akin to giving schnapps to an alcoholic, argued Frank Schaeffler, deputy finance spokesman for the Free Democrats, the junior partner in Germany’s governing coalition. Focus magazine ran a cover story on “The Fraudster in the Euro-Family” (a reference to the more creative aspects of the Greek government’s accounting) and illustrated it with the Venus de Milo, one-armed and flipping the bird. The tabloid Bild raged at the “proud, cheating, profligate” Greeks. A writer for the rather more heavyweight Frankfurter Allgemeine Zeitung asked whether Germans should have to retire at 69 rather than 67 to pay for Greek workers striking against proposals to increase their retirement age from 61 to 63. The mood in Germany was not improved by Greece’s deputy prime minister. Stung by all the criticism of his country, he grumbled that, having made off with Greece’s gold during the war, the Germans were in no position to complain “about stealing and not being very specific about economic dealings.”
All of which reminds me. I don't recall the voters in Abu Dhabi complaining about a Dubai bailout.

Addendum. The first commenter says Greece hasn't defaulted, but Dubai has, so the comparison is a false to begin with. But, one of the reasons Greece has not defaulted is that it has continued to be able to borrow. Which raises the question, why? Is it because investors are more confident that Germany will save Greece from default than they were that Abu Dhabi would step in prevent the Dubai default? The commenter also mentions CDS rates -- i.e., the cost of insuring sovereign debt. This February 12th article about the high level of Greece's CDS also notes "the cost of insuring Dubai’s sovereign debt against default rose to its highest level since November as concerns resurfaced over the emirate’s large debt." Greek CDS rates have fallen with talk of an EU/German bailout. Is there similar talk that Abu Dhabi stands ready to continue to backstop Dubai?


Anonymous Anonymous said...

Interesting to compare Greece to Dubai considering Greece is not defaulting or even close to it. Nor has Greece asked for financial support from Germany...not too sure if the poles in Germany therefore were as speculative as the market and press driven CDS spreads. I wonder what the real agenda here is? Anyone have an opinion?

10:02 PM  
Anonymous Anonymous said...

Funny thing you mention 'voters in Abu Dhabi'. As if an autocratic state would allow your vote to be heard. Didn't think so.

Greece will swallow the austerity pill but will moan depressingly against Germany before they finally accept to bailout Greece in exchange for Corfu and Crete.


1:20 AM  
Anonymous Anonymous said...

The Germans killed the entire Greek Jewish population and 10% of the total population during WWII and stole billions in treasures less then one generation they enjoy the huge and very significant trade imbalance with Greece. All upside for them I guess. It's OK, Greece gets their naked arian women on their beaches every summer.

2:08 AM  
Anonymous Vikram Chennai said...

There is a difference. Germany caused crisis in Spain and Greece. Abu Dhabi did not cause crisis in Dubai. When Germans accumulated Euros from exports, they rushed their investment to sunny Spain and Greece. This drove real estate prices up. Jobs shifted to more attractive real estate sector. Wages rose. Spanish/Greek products became expensive. Jobs went away in manufacturing. When real estate burst, wages fell and manufacturing jobs did not come back. Spain and Greece have two options: devalue their currency or suffer long and grinding inflation. They cannot devalue since they are tied up to Euro. Grinding inflation cannot be easily suffered. It is in Germany's economic interest to bail out Greece and Spain. Dubai on the other hand is a "heads I win, tails someone else loses" game of building real estate with leveraged funds hoping that appreciation can be used for dividends. When the cycle is unsustainable, liquidity is threatened. Abu Dhabi has no economic need to bail out Dubai. Probably political need exists.

8:13 PM  

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