If Chancellor Merkel Means This, She Is One Politician Who Gets It

[haha]

FT.com / Brussels - Irish contagion hits wider eurozone

Angela Merkel, the German chancellor, dug in her heels against the turbulent bond market, saying she would not abandon her drive for the cost of any future Greek-style bail-out to be borne more heavily by private investors.
She acknowledged her stance had scared financial markets, which have punished Irish, Greek and Portuguese debt for two weeks. It was unfair for European taxpayers to finance rescues of debt-laden countries on their own, she said at the Group of 20 summit in Seoul,
“Let me put it quite simply: in this regard there may be a contradiction between the interests of the financial world and the interests of the political world,” Ms Merkel said. “We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”

[traineeinvestor]

I hope she sticks to her position.

An expectation that there will be a bail out of sorts for anyone (bank, government, etc etc) has all sorts of costs for everyone else, including higher taxes, higher cost of credit for some borrowers, lower returns for some investors etc.

The consequences of all these bailouts is significant and personal. As a tax payer, I am fed up with seeing my tax dollars being used to bail out [insert recipient of choice] instead of more socially beneficial projects or reduced tax rates. As an investor aiming for early retirement with a correspondingly long investment horizon, I am increasingly concerned at the potential risk of only being able to obtain negative real interest rates on deposits and fixed income investments (although, for the moment, its a plus as I am a net borrower).

If the line had been drawn a long time ago when LTCM failed, while there would have been a lot of financial pain at the time it may have avoided the much bigger crisis many countries have just been through (IMHO).

Of course, the cynic in me says that trouble in other Euro zone countries keeps downward pressure on the Euro which benefits Germany's export industries. Just a thought.....

[tulak]

And it's not just Germany that pays. I really got a kick out of this article when Slovakia voted not to help with the bail-out:

Quote:

The new Slovak government earned the wrath of Brussels this week when its decision to withhold its share of funding from the euro-area's contribution of €80 billion to the €110 billion Greek bail-out fund was approved, almost unanimously, by the parliament in Bratislava on Wednesday. ... Slovakia, which only adopted the single currency last year, is much poorer than Greece, with a per capita GDP of $21,000 to Greece’s $32,000 at purchasing power parity. Yet as a member of the euro area, Slovakia was supposed to provide more than €800m to the rescue package. Unsurprisingly, the idea is deeply unpopular in Slovakia. Ms Radicova has long been opposed to it. Ahead of the election she told voters that, “The more responsible, poorer [countries] should not be raising money for the less responsible, richer ones.”

Can't really blame them, eh?

I read this a few months ago. Here's the link to article I found in the economist:
Slovakia and Greece: Slovakia's revolt against solidarity | The Economist

[ziggy29]

Quote:

Originally Posted by haha “We cannot keep constantly explaining to our voters and our citizens why the taxpayer should bear the cost of certain risks and not those people who have earned a lot of money from taking those risks.”

Translation: We need to stop socializing losses when gains are privatized. The people are sick and tired of it.

Good for her. This sort of moral hazard needs to be stopped. It's arguable that the handouts to the financial industry were necessary to a point, but we need to take "lessons learned" from that to prevent them from being able to topple a global financial system through their own recklessness again.

[dex]

Quote:

Originally Posted by haha FT.com / Brussels - Irish contagion hits wider eurozone

I wonder if this is the reason for the past few days market decline. I think we have a change in trend with today's market action. How long or low it will go I don't know.

[FIREd]

Quote:

Originally Posted by kiki And it's not just Germany that pays. I really got a kick out of this article when Slovakia voted not to help with the bail-out: Can't really blame them, eh? I read this a few months ago. Here's the link to article I found in the economist: Slovakia and Greece: Slovakia's revolt against solidarity | The Economist

I don't hear Bratislava moan and groan about solidarity when Slovakia is the recipent of EU largesses, compliments of the taxpayers in Western and Northern European countries.

[Jay_Gatsby]

Quote:

Originally Posted by ziggy29 Translation: We need to stop socializing losses when gains are privatized. The people are sick and tired of it. Good for her. This sort of moral hazard needs to be stopped. It's arguable that the handouts to the financial industry were necessary to a point, but we need to take "lessons learned" from that to prevent them from being able to topple a global financial system through their own recklessness again.

Bailouts of private institutions seem to be a move to preserve the jobs associated with those institutions and the taxes that such institutions and their employees pay. If the government knows that it will eventually be paid back its money, it has no problem interfering in the free market system to save jobs and tax revenues.

[ziggy29]

Quote:

Originally Posted by Jay_Gatsby If the government knows that it will eventually be paid back its money, it has no problem interfering in the free market system to save jobs and tax revenues.

But as we see with TARP and the bailouts of the financial institutions, the only way the government has a chance to recoup its "socialized" losses if it ties the receipt of bailout money to restrictions on executive compensation. That seems to motivate the suits to make the taxpayer whole again...

[veremchuka]

good for merkel.

the problem with socialism is eventually it runs out of other people's money.

[Jay_Gatsby]

Quote:

Originally Posted by ziggy29 But as we see with TARP and the bailouts of the financial institutions, the only way the government has a chance to recoup its "socialized" losses if it ties the receipt of bailout money to restrictions on executive compensation. That seems to motivate the suits to make the taxpayer whole again...

True, since such companies are afraid of losing key talent to the competition. Personally, I'm not so convinced that the people who ran the company into the ground and forced a bailout are really "key talent" in need of retention.

[DblDoc]

It seems she was talking about future bailouts, not about the current crisis: Ireland Urged to Take Aid by Officials Amid Debt Crisis - Bloomberg

Quote:

German Chancellor Angela Merkel rejected such criticism, saying in Seoul yesterday “the future crisis mechanism has nothing to do with the debate going on right now.”

DD