In America, various right wing elements have tried to paint the poor, and even the middle class, as moochers who take more from society than they pay back into the system.  This story is meant to counter the seemingly obvious observation that the wealthiest Americans benefit more from our collective system that anyone else.  There's a productive class (rich people) and a consuming class (everyone else) and the morally just have been rewarded while the rest of us learn to be like them.  That's how the fable goes, anyway.

In Europe, Angela Merkel is pushing the same story, but on the level of countries rather than class.  That's the subject of my column for The Daily today.  Merkel has very conveniently left the world with the impression that lazy Greeks and corrupt Italians have partied for years on the backs of Germany's hardworking, spendthrift population.  All of this ignores the fact that Germany is a debtor nation (the mainstream news is so inumerate sometimes that I bet many casual observers assume that Germany is a lender nation -- but its debt to GDP ratio is north of 80%).  Heck, S&P just put Germany on watch for a potential credit downgrade.  And, it should!  How can the U.S., which borrows on in its own currency, not be AAA, while Germany, which borrows in a currency controlled by the European Central Bank, is considered to have the lowest default risk?  If you borrow in a currency you don't control, you have default risk, by definition.  If you borrow in a currency you do control, you do not have default risk absent somebody doing something incredibly stupid.  That is not to say that your debt is "risk free," just that it carries no real default risk.  Germany could, someday, default.  I don't think it will, but it could.

The Merkel fable is that Germany is unique among the European Union and that other countries need to learn to be more like it.  The truth is, Germany is not all that unique.  All of the PIIG countries had reasonable debt levels headed into the financial crisis.  But they were hard hit by the global recession and their economies shrank while their debts remained (and their need to borrow increased as they had to cover the social costs of high unemployment).  Spain was running surpluses up until the last moment.  Four years ago, German banks were buying Greek bonds as if they were risk free.

Here's the thing -- Germany's debt to GDP ratio went way up over the course of this decade, also as a result of the financial crisis.  This happened to France as well.  Yes, France and Germany have larger, more developed and better regulated economies than some of the PIIGS, but they all experienced the same thing -- shrinking economies made their debt situations go from bearable to something worse.  That's why they're all on negative watch together.

Earlier in the week, Genghis made the point that Merkel is looking for the U.S. to help bail out Europe under the guise of the International Monetary Fund, an institution that the U.S. contributes to heavily but usually leaves in the control of philandering European technocrats. 

Genghis might have said that Merkel wanted the U.S. to rescue Europe for the second time in three years.  The bailout of AIG paid all of the insurer's counter-parties 100 cents on the dollar, even though those banks should have taken losses for not making sure that AIG could afford to pay out on all of the credit default swaps it had sold.  Most people now look back and say, "those banks should have taken haircuts."  Much attention has been paid to the money that went to Goldman Sachs.  Was Goldman secretly bailed out during AIG's government rescue?  I think it's the wrong question.  Goldman was helped, sure.  More interesting to me, though, were the European recipients like Societe Generale and, of course, Deutsche Bank.

See, if Goldman really needed rescuing, the Federal Reserve and Treasury could, and would, do it.  Ron Paul would gripe.  I'd gripe.  But the public would largely accept it in the long run, just like the public has largely accepted the bailout of just about any American company.

What would really get people angry would be the Fed and Treasury outright rescuing a foreign bank.  People would rightly ask why the Fed and Treasury are out saving Deutsche Bank and Socgen when the European Union has its own central bank that should be up to the task.

The problem is, Europe's Central Bank is unwilling to act in such a way, as it desperately guards its independence from 17 sovereign states that lack a common agenda.  The ECB is unwilling to act, but Bernanke and Geithner are unwilling to live with the consequences of a Deutsche Bank implosion.  That's why I think that AIG's counter-parties were made whole.  It was Europe's first rescue.

Merkel acts like Germany is put upon and being victimized by Europe's lazy and profligate.  But I think she's really more terrified.  Another global recession could hit Germany hard and put it in the position that Greece and Portugal are in today.  These are dangerous times for her and what I think she's really up to is hoarding her resources and hoping for outside help.  That might be the U.S. (and I'm not saying we shouldn't do it, if it falls to us), or it might be China.  But it paints Germany in a different light, doesn't it?