Wikileaks Euro Revelation: Germany Underestimated Greek Debt Threat

What do leaked U.S. Embassy documents say about Germany’s original reaction to the developing euro zone crisis? That the German government refused to take the situation seriously, and were all too happy to keep its citizens in the dark.

then-Prime Minister George Papandreou of Greece (left) and German Chancellor Angela Merkel in September 2011
then-Prime Minister George Papandreou of Greece (left) and German Chancellor Angela Merkel in September 2011
Günther Lachmann

Think what you will about Wikileaks, but a just published U.S. Embassy report sheds important new light on Germany's stance in the face of the crisis in Greece. The report, which the U.S. Embassy in Berlin sent to Washington D.C., reveals a frightening cluelessness and serious misjudgment on the part of the German government, not to mentio a low level of political savvy.

The document records talks that U.S. Ambassador Philip D. Murphy and others at the embassy held with high-ranking government representatives and finance managers in Germany. A Harvard graduate, Murphy has an MBA from Wharton Business School and spent 23 years with Goldman Sachs, in Frankfurt, New York and Hong Kong. From 2003 to 2006 he was a senior director at the firm's New York headquarters.

All the information in Murphy‘s missive was gathered in the weeks around the February 2010 EU Summit, when the Greek debt crisis was becoming acute. The information points to the fact that Germany's government was by all appearances refusing to take the situation seriously, and failing to inform its citizens accordingly.

Before the summit meeting, the Greek situation was discussed back and forth within the German government, the U.S. diplomats wrote. However, although the writing was on the wall for the disaster that was looming, the government sought to avoid having to divulge the truth to its citizens for as long as possible.

Nobody liked the idea of telling German taxpayers, who were already worried about a record German deficit, that they were going to have to pick up the tab for the irresponsible behavior of another country, says the diplomatic report.

One staffer at the Ministry of Finance told embassy staffers that Germans were "disgusted" by the situation in Greece. So the German government was glad that at the EU Summit held on Feb. 11, 2010, no concrete measures to help Greece were agreed on.

U.S. diplomats reported that Chancellor Angela Merkel was visibly relieved that she didn't yet have to explain to Germans why their federal government had to increase debt to rescue the Greeks.

According to the Americans, Wolfgang Merz, a high-ranking employee of the Finance Ministry, evaluated the outcome of the summit meeting by saying that "a bailout now would carry too many downside risks," adding that bailing the Greeks out would create a precedent for EU countries like Spain and Portugal.

At the time, German experts were unable to imagine any intervention on the part of the International Monetary Fund (IMF). Karlheinz Bischofberger of the European Central Bank (ECB) told the Americans that it was more than unlikely that the IMF would be asked to bail Greece out. As subsequent events have shown, that was not the case.

Talk of Germany leaving the euro zone

While the U.S. diplomats listened patiently to the viewpoints of their German interlocutors, their analysis of what they were hearing showed a very different picture of the situation. They concluded that the German federal government, the ECB and private German economists were playing down the seriousness of the Greek situation and its effect on the stability of the euro.

Particularly remarkable are some of the comments attributed to Deutsche Bank's chief economist, Thomas Mayer. In talks with Ambassador Murphy he mentioned the possibility of Germany leaving the euro zone.

He was apparently basing his remarks on a 1990s decision taken by Germany's Constitutional Court, which ruled it would be possible for Germany to leave "if the currency union were to become an inflation zone" or the German taxpayer a "de facto rescuer."

Mayer suggested a "Chapter 11 for all euro zone states' whereby all countries in a precarious condition would come under trusteeship until such time as their house was in order. Mayer is reported as saying he regretted that this idea had not found any takers.

Things have changed since. After the last EU summit a number of signs pointed to the possibility of Greece being the first euro zone country to come under economic guardianship.

Read the original article in German

Photo - Office of George Papandreou

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Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum


SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.

It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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