Daily Archives: 15 February 2012

European Finance Crisis

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I’ve written before about this subject.

The chart below is from Spiegel Online International, which has a related story, but I want to visit another aspect of this.  The chart’s breakout indicates German governmental exposure to Greek debt and that exposure’s cost to the German economy were Greece finally to default altogether on its debts.

 

The 50%, or so, haircut currently being sort of negotiated with Greece’s commercial financial institution creditors is a real default, albeit much lipstick has been applied to this PIIG’s lips, and much makeup is being added to its face.  The breakout elides those private banks and the cost to the German economy through the private sector generally; however, the governmental institution cost breakout has its uses.

The German economy is the EU’s and the euro zone’s largest, so the figures in the chart can be taken as an outer bound, within which the other European creditor nations’ costs can be assessed.  Alternatively, and perhaps more effectively, the German cost can be proportionally bounced against the other nations’ GDPs to get an idea of the costs to them, along with an idea of how expensive those costs really are.  Since I don’t have 2011 GDP figures, yet, my greasy spoon diner napkin analysis uses 2010 GDP estimates.

Germany’s 2010 GDP was in the neighborhood of €2.7 trillion.  The chart’s seemingly enormous €72 billion bite, presented without context, shrinks when compared to German economic strength: it’s about 2 2/3% of the German GDP.  The French GDP was €2.1 trillion; its proportional “share” then works out to a bit under €56 billion.  The Netherlands’ GDP was €641 billion; its “share” would be roughly €17 billion.  And so on.  It’s true enough that stronger economies will have an easier time than weaker economies, but in the end, these are sums that are easily absorbed.

To be sure, the private sector also will take hits from a Greek default.  Taking the private sector as a whole, not just the commercial bank interests mentioned above, but including insurance company, pension firm, and mutual fund holdings of Greek debt, the total private exposure works out to around €142 billion.  That’s about half the total Greek debt; it doesn’t add much at all to the GDP-based cost.  For individual economies, the ripple effects of private sector dislocations and occasional bank bankruptcies could seem sharp, but they would be short-lived.  The economies of the non-Mediterranean EU nations (yes, including France) are simply too large and too strong to suffer permanent, or long-lasting, damage.  And the private sector is the only place the hits should occur, anyway.  There’s no reason a French, German, Dutch, and so on, taxpayer—private citizen—should pay for the profligacy of a Greek government, or for that of any government other than their own.

Certainly, it would be suboptimal for Greek’s national creditors to walk away from the deals already made for a Greek bailout: even a bad contract must be honored.  But there should be—and there need be—no more public monies committed to this effort.

The Greeks will be better off, too, for having been released from their indenture to their creditors and allowed to default and to start over.

Contraception Regulation

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Others have some thoughts on this, along with matters carefully ignoredmissed by President Obama.

Ruth Ann Daily of the Pittsburgh Post-Gazette points out a principle that was well understood in our early days, but that our former University of Chicago Senior Lecturer in Constitutional Law seems to have…forgotten.

She describes an 1801 exchange of letters between Thomas Jefferson and a coalition of Baptist ministers from Connecticut, where the Congregationalist Church was supported by all citizens’ state taxes [emphasis added].

The “Danbury Baptists” and other minorities…could seek an exemption certificate that would route their taxes to their own church, but in practice, many municipalities made that difficult to do, and in principle, the Baptists argued, it was wrong:

“What religious privileges we enjoy (as a minor part of the State) we enjoy as favors granted, and not as inalienable rights,” they wrote to Jefferson, “and these favors we receive at the expense of such degrading acknowledgements, as are inconsistent with the rights of freemen.”

Jefferson’s response extolled the “wall of separation between church and state,” a metaphor borrowed from Rhode Island founder Roger Williams. The Baptists and the deist skeptic are still right, 210 years later: An exemption, by definition, establishes one worldview over another and relegates dissenters to second-class status. Therefore the government must abstain from any such sphere where its presence is not absolutely necessary — as in forcing employers or insurance companies to dispense free contraceptives.

Caroline May of The Daily Caller describes another aspect of this problem that Obama…missed: some insurance providers are “religious organizations whose beliefs preclude them from offering birth control.”

She quotes Richard Land, president of the Southern Baptist Convention’s Ethics & Religious Liberty Commission:

Let’s just take Southern Baptists, there are 16 million of us, almost all of us are covered by a self-funded insurance program called GuideStone.  So when he says “well you don’t have to pay for it, your insurance company will,” our insurance company is a Southern Baptist insurance company, it is self-funded through the denomination, so it is totally unconscionable for them to provide abortifacients.

As Land put it

My initial reaction is: How dumb does he think we are?  Does he think when he puts lip stick on a pig, that we don’t understand that it is still a pig?

Hmm….