Colin Barr

Following the money in banking, economics, and Washington

The hypocrisy of the Germans

May 12, 2010: 11:01 AM ET

Maybe Teutonic discipline isn't all it's cracked up to be.

Overdraft fees ahead?

Fortune's Katie Benner notes today that the euro zone's crisis has given Germany a chance to throw its ample weight around. Default fears in Greece, and to a lesser degree Portugal, have sent investors rushing into both gold and its closest paper equivalent,  German government debt. In an echo of the flight to safety that has sent U.S. Treasury yields tumbling, short-term German bills traded near zero in recent weeks.

So there's no doubt that Germany is indeed the strongest economy in Europe, such as it is, and buying its bonds is probably as good a bet as any nowadays. Yet even Teutonic discipline isn't as steely as we often assume.

Citigroup economist Willem Buiter pointed out in remarks at the Council on Foreign Relations this week that for all the talk about the profligacy of the Southern European nations, Germany itself falls short of euro area standards, calling for budget deficits of less than 3% and government debt below 60% of gross domestic product. The latest figures from Germany are 3.3% and 73%, according to Eurostat.

"If Germany weren't in the euro area today, it wouldn't be able to get in, because it violates both the debt and the deficit criteria," Buiter said.

Concern about this lapse into laxity is evident in Germany itself, where Der Spiegel recently warned that Chancellor Angela Merkel (right) had "reached her overdraft limit." The piece, which noted the burden the Germans will bear when the Greeks tap the euro zone rescue package, at times sounds a bit hysterical to American ears.

"In March, the government agreed on the highest package of new debt in the history of postwar Germany: €80.2 billion in debt," Der Spiegel noted with alarm. That package was worth about $100 billion – which is less than the amount of debt the U.S. Treasury has been selling in an average month of late.

Nonetheless, it's true that even an export powerhouse like Germany faces many of the same budget headwinds as we do here. The share of the German federal budget dedicated to social spending on health care and pension plans, for instance, has risen to 54% now from 16% 30 years ago, Der Spiegel said. Sound familiar?

None of this is to downplay the problems here or in other overextended economies, such as the U.K. Buiter warns that without a broad rise in taxes and spending cuts, the U.S. will lose its triple-A rating within three years.

"There's no hiding place for anybody," Buiter said. That at least we can all agree on.

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About This Author
Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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