Why has Germany fought so hard to keep Greece as a viable member of the European Union? Once again, the answer is simple math.
Let’s set the stage with this example: Imagine a very smart student and an underachieving student who both attended the same college and apply for the same job. Seeking to choose the best job applicant based upon their academic grades, the employer states they need to review the college transcripts for both students.
However, there was an unexpected twist. In this instance, Student A had a perfect 4.0 grade point average and is almost certainly the type of applicant the employer is seeking. Yet, Student B just eked by with a 2.0 GPA.
It seems the employer’s hiring decision would be easy.
Nevertheless, with the college implementing its contemporary view of education, both GPAs were combined and each student was assigned a 3.0 cumulative grade point average.
This method certainly worked very well for Student B; however, Student A was definitely punished by the school’s modern approach to education.
Ultimately, this employer who was searching for the exceptional student based solely upon academic grades was required to make the hiring decision based upon other criteria. A rather controversial college, wouldn’t you agree?
Or, maybe they’re just plain stupid?
Well, that’s how the European Union has operated since inception, just plain stupid.
By and large, Germany’s strength of austerity, manufacturing, and productivity would have made the Deutsche Mark the strongest currency on the continent.
On the other hand, it would have made Germany’s goods and services much more expensive. By blending with the Greek drachma under one currency, the euro, Germany has realized the benefit of muting and understating the cost of both their exports and their domestic services.
Conversely, Greece has seen the cost for their goods and services escalate through the years, the result of being artificially tied to the dominance exhibited by Germany.
So, similar to our job seeking students with one of them suffering at the expense of the other, that very same pain is experienced by countries like Greece that are in desperate need of a weaker currency to help re-establish both exports and tourism.
No wonder Germany has fought hard on behalf of Greece. The Germans certainly realize it is only in their best interest.
However, the Greeks may finally be realizing that if you remove the power of the money printing press, you put your future in the hands of another.
Considering the history between Greece and Germany, I’m not sure many Greeks will acquiesce to that option.
Get the Market Movements in Advance: William's Edge Webinar for Tuesday, March 11th, 2014 | John Ransom