Euro slumps again as sluggish Germany scuppers Greek bailout

The Germans seem loth to bail out the Greeks while their economy is still flagging. And who can blame them?

Last Updated: 20 Jul 2011

More hot air emanating from the general direction of Brussels yesterday, as – in one of the less surprising developments of the week – the EU’s finance ministers failed miserably to agree a plan to bail out struggling Greece. The euro has been hammered this year amid worries about the cost of the Greek financial crisis, and the mealy-mouthed statement that followed yesterday’s meeting hasn’t exactly helped matters. Apparently the big problem is that the Germans – who’ll basically have to foot most of the bill – are reluctant to splash out to save the profligate Hellenes, particularly since their own economy is still flat as a pancake. And if the UK was in that position, we’d imagine us taxpayers would feel very much the same…

The euro has lost about 10% of its value this year, which is good news if you’re about to go for a spring break in the Dordogne, but not if you’re a UK exporter trying to compete on price. Yesterday’s meeting was expected to provide some kind of reassurance to the nervous financial markets – a firm indication that the other eurozone members were four-square behind Greece. Unfortunately, it didn’t quite work out like that: what we got instead was a vague promise that they would ‘take determined and coordinated action, if needed, to safeguard financial stability in the euro area as a whole,’ while insisting that the Greek government hadn’t actually asked them for a sub (yet). Sure enough, the euro's down almost 1% against the dollar today.

The problem, it seems, is that although France (and, less surprisingly, the rather-less-healthy economies of Spain and Italy) are keen to bail Greece out, Germany is a lot less so –  and since they’d have to dig the deepest, that’s a bit of a problem. Official figures out today show that the German economy failed to grow at all between October and December, a worse-than-expected performance. And with Chancellor Angela Merkel busy implementing some rather stringent budget cuts at home, German voters are not surprisingly a bit miffed about bailing out the spendthrift Greeks, with their deficit of almost 13%. Merkel apparently wants to make sure the Greeks are actually willing to push through the proposed painful spending cuts (under international supervision) before she contemplates getting her cheque book out.

Here in the UK, outside the eurozone, we can afford to look at this situation with a degree of detachment. Alistair Darling has supposedly ruled out putting any British money towards the bailout, and quite right too – it would be a bit rough to get none of the advantages of the euro, and all of the drawbacks. But although that doesn’t apply to Germany, we can’t help being sympathetic to their plight; it’d be like UK taxpayers being forced to cover the liabilities of Iceland or something. Hang on a minute...

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