Business, Finance & Economics

The secret reason why Germany may be forced to keep the euro


Three monkeys symbolizing ''say nothing, see nothing, hear nothing'' are displayed behind a euro symbol on a desk at the entrance of Luxembourg's prime minister's residence, Hotel de Bourgogne, in Luxembourg on July 14, 2011, before a meeting between Luxembourg Prime Minister and Euro Group president Jean-Claude Juncker and Deutsche Bank chief executive officer Josef Ackermann.


Georges Gobet

Still boggled by Germany's position on the euro?

Then check out this great piece of reporting in Bloomberg/Businessweek that sheds some fascinating light on German actions and incentives regarding the ongoing euro crisis.

Here's the key point:

According to Bloomberg/Businessweek, German's Bundesbank has quietly, and automatically, lent the European Central Bank half a trillion euros to cover what's called Target2, Europe's interbank payment system. 

That giant pile of money is reportedly being used to balance huge borrowing by Greece, Ireland, Portugal, Spain, Italy and even France, as the countries struggle to cope with their debt levels. 

What does this quiet Bundesbank action mean? 

If the euro goes bust, Germany could lose all those lent euros.

That exposure adds up to more than $650 billion, an amount that's "60 percent bigger than Germany’s annual federal budget — and larger than the lending under the European Financial Stability Facility and other aid programs that have received more scrutiny," Bloomberg/Businessweek reports.

So Berlin has an enormous inventive to keep the euro in place. 

“If the euro breaks up then the whole claim is under risk,” Hans-Werner Sinn, president of the Ifo Institute, a Munich-based economic research group, told Bloomberg/Businessweek.

“This may be the largest threat keeping Germany within the Eurozone,” he added. 

Read the full article here

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