The November edition of National Geographic highlights the remarkable discovery of the Staffordshire Hoard. This treasure, consisting of gold, silver, and garnet military artifacts, dates back to the early Anglo-Saxon period and was buried in the English countryside for over 1,300 years.
The article reveals that after Roman colonizers departed from Britannia around A.D. 410, the British sought assistance from Germanic mercenaries to defend against invasions by the Scotti and Pict tribes from the west and north. However, as history often shows, expectations can lead to unforeseen consequences.
Before long, Germanic warriors flooded into Britain, shifting the balance of power. The threat from the Scotti and Pict tribes soon diminished, but the newcomers quickly overshadowed the local population. Instead of acting as allies, these warriors turned against their British patrons, establishing independent kingdoms.
The sixth-century monk Gildas chronicled this violent upheaval in his work, *On the Ruin of Britain*, stating, “For the fire of vengeance…spread from sea to sea…and did not cease, until, destroying the neighboring towns and lands, it reached the other side of the island.” The aftermath left many Britons fleeing or facing enslavement.
The Difference between a Becker and a Papadakis
Today, Germany finds itself once again being called upon to bail out its neighbors. This time, however, the appeal is not from the North Sea, but from nations along the Mediterranean’s northern coast. This ongoing financial crisis has been years in the making and demands serious consideration. Yet, to understand the present’s complexities, we must first examine the past more closely.
One crucial observation stands out: not all nations within the European Union share the same economic traits. While this seems like a basic truth, it was largely ignored in discussions about credit markets over the last decade.
In Germany, trustworthiness is paramount; borrowers reliably repay their debts according to agreed-upon terms. Conversely, Greece has cultivated a reputation for financial ambiguity, where stiffing creditors can resemble a fine art.
This disparity in reliability shapes lending practices: traditionally, German borrowers enjoy lower interest rates due to their strong credit history, while Greek lenders face higher costs to mitigate the risks associated with less stringent debt repayment norms. Thus, the historical record shows that the likelihood of a Becker defaulting on a loan is nearly nonexistent compared to a Papadakis.
Unexpectedly, the establishment of the Eurozone turned this understanding upside down. With member nations united under a single currency, all Eurozone countries began to benefit from borrowing rates typically reserved for Germany.
The Euro is Done
Following the Eurozone’s inception, lenders collectively abandoned their judgment. Credit markets came to assume—incorrectly—that Germany’s financial strength would prop up other EU nations in times of default risk.
As anticipated, countries like Greece, along with Spain, Portugal, Italy, and Ireland, succumbed to the temptation of easily accessible credit. They borrowed and spent far beyond their means—but this is only part of the story.
For every euro borrowed by these nations, there were corresponding lenders. Notably, more than half of the debt incurred by Greece, Spain, Portugal, Italy, and Ireland came from banks in other European countries. Alarmingly, the banks most at risk from the bad debts of these near-bankrupt nations are located in Northern Europe. Without continued bailouts from the EU, these institutions might face catastrophic failures, potentially endangering the entire European financial system.
In recent days, Eurozone leaders convened in Brussels, Belgium, to devise a strategy for addressing the European Debt Crisis. It has become clear that merely bailing out Greece once again will not suffice. Current discussions are focused on recapitalizing banks and ensuring they possess adequate reserves to withstand a potential Greek default.
However, serious challenges lie ahead.
Once Greece collapses, Italy is likely next in line, followed closely by Spain and Portugal. France’s financial stability could soon come into question as well, illustrating that Eurozone leaders have not yet grasped the true extent of the crisis. The conclusion is clear: the euro, in its current form, is nearing its end.
Germany should prepare to distance itself while there is still time.
Sincerely,
MN Gordon
for Economic Prism