Recent U.S.  gross domestic product data show the world’s biggest economy emerged from recession in the third quarter, while in the UK data show that in the same period Britain’s economy contracted.

British economist and author John Kay theorizes that Britain is mired in its worst recession on record in part because government support has not been evenly distributed across sectors.

“We’ve poured money into the financial sector — by and large the financial sector in Britain is doing OK,” he said.  “But very little of that is getting through to small and medium-size businesses out there in the rest of the economy.”

- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

As the G20 ministers gather for their meeting this week, there should be no doubt about the item at the top of the agenda: the re-entry problem. At what point should the expansionary monetary and fiscal policy of the past year be reversed? And, if the answer is “not yet”, how soon does the re-entry plan need to be announced?

Since nobody is quite sure how much of the current worldwide economic recovery is a direct or indirect result of the various stimulus packages, quantitative easing, cash-for-junk-vehicles and cash-for-junk-bond schemes, it follows that nobody can be sure whether or when it is safe to reverse the fiscal expansion.

But leaving it too late to retrench will hand the decision over to the bond markets. They will be looking for reassurance from the major debtor countries that both versions of the default scenario can be ruled out.

An outright default, probably camouflaged as debt renegotiation rather than repudiation, becomes politically more acceptable than the package of expenditure cuts and tax rises needed to carry on with repayments.

A more likely scenario sees the lenders repaid in devalued currency, as the debtor country achieves the same outcome by printing money so as to generate inflation –- an option always open to any country whose debts are denominated in its own currency (i.e. not to Eurozone members).

So far, the markets have given the United Kingdom and the United States the benefit of the doubt, trusting them to come up with a plan gradually to cut their spending over the next few years.

But how long before their patience is exhausted? The numbers are frightening even by the standards we have got used to bandying about during this crisis.

On the federal government’s own optimistic projections, the U.S. deficit will be around 12 percent of GDP this year, and will still be around percentof GDP ten years from now, by which time the national debt will have grown to over $9 trillion, or more than 75 percent of GDP, compared to just over 40 percent today.

For the UK, the projections are of the same order of size relative to the economy –- and based on assumptions every bit as optimistic.

Faced with numbers unprecedented in peace time, the danger is that the markets may start to doubt the resolve of either America or Britain or both. At that point, holders of UK and U.S. gilts could decide to dump their vast holdings, driving their price down and their yield up –- in effect, demanding compensation for their prospective default losses.

The cost of insuring against default on UK government debt in the credit default swap market is already over one half of one percent, an improvement over the last few months, but still more than double the comparable figure for France or Germany.

Ironically, the very fact that so many Americans are voicing their disquiet about government borrowing is one reason to be sanguine about the outlook for U.S. bonds and consequently for the dollar, though it is still hard to visualise a turnaround in the public finances on a scale sufficient to preserve the dollar’s long term status as the world’s reserve currency.

As far as the UK is concerned, there is virtually no prospect of any serious attempt to address the problem this side of the election, so the burden will fall entirely on the post-election administration. If, at any time in the next twelve months, Labour manages to recover in the polls to the point where a minority Government becomes a serious possibility, the gilt market could panic amid a flight from sterling.

Against this background, the key player at G20 will be China. Its leadership realised some time ago that its massive dollar reserves represent a $2 trillion hostage to U.S. political will, a costly error for which they will be thankful they do not have to face the wrath of the electorate.

If dumping its massive holdings of US Treasury bonds drove the dollar down by 30 percent, the cost to China would be about $600 billion, which nowadays sounds like small change. So far, the ultra-cautious Chinese leadership has been deterred by fears about the impact of a less competitive RMB (renminbi) on its exports, but at some point the prospect of replacing the dollar as the number one reserve currency might just prove too tempting to resist.

- John Ross is visiting professor at Shanghai’s Jiao Tong University where he writes a blog on globalisation. The views expressed are his own. -

The success of China’s economic stimulus package has attracted increasing attention in Britain and internationally for two reasons. The first is simply its importance for the world economy. Second whether there are general lessons to be learned.

The impact of China’s economic programme can be seen in that it is likely the whole of world economic growth this year in net terms will be accounted for by China.

The sceptics on China’s stimulus package have been disproved by the facts. China’s GDP growth this year will be eight percent or slightly above. China’s GDP grew by 7.9 percent year-on-year in the second quarter and was accelerating –- the best private sector estimates are China’s economy grew at an annualised 13-15 percent in the second quarter. Urban investment increased 34 percent and as producer prices were dropping the real increase was probably around 40 percent. Retail sales increased 15 percent.

This is a stellar performance in conditions where most major world economies will shrink this year. Compared to these results talk of possible “green shoots” in other economies relates to minor improvements.

China’s economy is not large enough that its growth is able by itself to turn round the world economy. But it is sufficient to having a stabilising effect in East Asia with beneficial knock on consequences. Those wanting further detail on the scale of contribution of China’s growth to the world economy should read Professor Danny Quah, of the London School of Economics’, excellent recent paper on Asian growth.

But if the significance of the scale of the international impact of China’s economic performance is evident are there policy lessons which can be drawn by Britain?

Evidently the main features of China’s economic stimulus package cannot be copied by the UK. China’s economic growth is being powered by large investment programmes carried out by its state owned companies.

China’s emphasis on infrastructural investment can, and should, be copied in the UK in the limited areas of housing and transport. While overall UK investment has fallen by 15 percent, investment in housing has fallen by 30 percent and in transport equipment by 35 percent.  This is not a decline but a collapse in which direct intervention is required if permanent structural damage is to be avoided.

But in infrastructure as a whole the necessary structures simply do not exist in the UK to copy China’s success. This is unfortunate because, as anyone who visits Shanghai or Beijing knows, in many areas Britain’s city infrastructure now lags behind China’s but nothing can be done about it except in some defined fields.

There is one area, however, in which direct lessons can be drawn from China –- banking. The UK government is rightly desperately attempting to increase bank lending in order to counter the economic downturn. As is also well known it is having little success in these efforts despite hundreds of billions of taxpayers money put into the UK banking system.

In China this problem does not exist. The state owned banks can be, and are, instructed to increase lending. The second part of China’s stimulus package, after the investment programmes, is therefore a rapid increase in bank lending — new loans in the first half of 2009 were $1.1 trillion and M2 to June rose by 28.5 percent providing an extremely strong counter-recessionary impulse.

Vince Cable, the Liberal Democrat’s Treasury spokesman, has rightly repeatedly pointed out the absurdity of the current situation with UK banking. All UK banks today exist only due to taxpayer subsidy — although Barclays and HSBC did not receive taxpayers equity, they would not be profitable operating without the taxpayer funded guarantee and economic stimulus schemes.

Yet despite UK banks existing only due to the taxpayer, Chancellor Alistair Darling is reduced to ineffectually pleading with them to increase lending. No such problem exists in China.  A side effect is that China now has the most valuable banks in the world by market capitalisation –- but banks simultaneously doing the key job of expanding lending. In China, private and public interest are properly aligned within the banking system.

For the reasons outlined Britain cannot copy all of China’s stimulus measures even if it wished. But on infrastructure and banking it should learn to “speak Chinese”.

Around the world, governments are struggling to drum up buyers for the mountain of bonds they need to sell. And that's especially true for big deficit, low savings countries like Britain and the United States.

The returns they are offering on conventional government bonds are low and there's the risk of inflation eating away at their value. Perhaps it is time for a different approach.

Rather than hiring investment banks to bamboozle the public into subscribing for unwanted conventional bonds, or cramming them down the throats of the banks as part of expanded reserve requirements, governments should consider issuing bonds linked to gross domestic product.

GDP bonds are not a new idea but few governments have issued them. Those that have don't make for a distinguished roll call, including as they do Bosnia Herzegovina, Bulgaria and Argentina, which swapped conventional bondholders into GDP bonds after its currency collapse in 2001.

Instead of paying a fixed return, or one purely adjusted for inflation, the interest payments on these bonds are linked to a country's nominal GDP. Imagine a country that normally grew its GDP at 5 percent a year. To the extent it grew at 6 percent, the coupon would be reset upwards by one percentage point. If it undershot by one percentage point, the interest rate would be similarly reduced.

Most investors have three objectives: long-term growth; inflation protection and low price volatility. Conventional bonds offer a fixed return but no inflation protection. Equities offer growth and the possibility of a higher return but at the cost of volatility. Index-linked bonds offer inflation protection but no growth. GDP bonds meet all three requirements.

Moreover, they are an ideal investment for those saving for retirement. The objective of a pension fund (whether or not the benefits it offers are defined) is to meet liabilities that grow in line with predicted growth in earnings. Since GDP is by definition equivalent to gross domestic income, GDP is a good proxy for this liability.

For the issuer, GDP bonds also have appeal. As Willem Buiter has recently observed, they would give government debt some of the characteristics of an equity security. Their servicing costs would rise and fall in line with the state's own ability to pay. This, Buiter observes, "would reduce the expansion of the public debt through the intrinsic debt dynamics that comes out of the product of the interest rate and the outstanding stock of debt."

Of course there are problems. The biggest is that GDP figures can be gerrymandered and are subject to retrospective revision. There are no easy answers. There would need to be agreement on the methodology for, and timing of, any revisions. Put and call mechanisms could be inserted to protect against substantial changes.

GDP bonds might check stock market bubbles. Their existence, former fund manager turned economist Paul Woolley has argued, should act as a reality check for equity investors and offer a substitute asset, should equity valuations get wildly out of whack. Another argument in their favour is that they are almost ideal buy and hold investments and as such should require very little active management -- keeping management costs to a minimum.

This may be why few investment bankers, however many governments employ to sell their debt, would advocate issuing GDP bonds. That must be an argument in their favour.

- Marie Diron is senior economist at Oxford Economics. The opinions expressed are her own -

A swine flu pandemic would affect the economy via various channels involving supply and demand.

On the supply side, infection and death imply that employees would be unable to go to work. This is what most people think about when they think about swine flu’s economic costs.

But the demand channels are likely much more powerful. Fear of infection would keep people away from airports, train stations, restaurants, cinemas and shopping centres. This would imply cuts in travel and tourism and consumer spending.

In addition, uncertainty about the impact and duration of the pandemic would dampen investment, while financial markets would probably experience renewed tensions with spreads between policy and market interest rates rising again and share prices negatively affected.

To get a quantitative estimate of the impact, we need to make a few assumptions. First, based on the experience of previous pandemics and developments so far, we can assume that 30 percent of the world and UK populations would be infected and be unable to go to work for two weeks. We also assume a death rate of 0.4 percent.

Second, we look at the experience of the SARS outbreak in Asia in 2003 to calibrate the likely cuts in discretionary consumption and international travel. This episode showed significant reductions, of around 20 percent and 60 percent respectively. In the current environment of rising unemployment and needs of balance sheet repairs, households could cut discretionary consumption even more sharply.

Under these assumptions, the GDP loss during the six months of the pandemic would amount to around five percent in the UK. This means that GDP growth in 2010 would be at least as bad as in 2009.

However, and although once the pandemic is over the economic bounce back would likely be less sharp than post-SARS, chances are that, by 2011, GDP growth could be above our baseline forecast and the economic loss would be gradually recouped within around three to four years. CPI inflation would likely turn negative for a few months but would rise as pent-up demand is realised.

There is a risk that swine flu tips the UK and the world economy into deflation as the pandemic would hit at a time when businesses and banks are still reeling from the economic crisis.

Rather than catching up on postponed spending, households may raise savings for a longer time, while companies that are already fragile after the recession may succumb to this new shock.

We estimate that under such a scenario the UK and world economies would fall into deflation. UK CPI inflation would fall to around minus one percent throughout 2010-12 and UK GDP growth next year could be as low as minus seven-and-a-half percent. With the government budget deficit already at sky-high levels and the Bank of England’s interest rates pretty much at zero, there is little that public authorities could do to try to buffer the impact.

-Simon Chadwick is the Director of the Centre for the International Business of Sport at Coventry University, and runs the blog ‘Daily Sport Thought’ in which he addresses many of the important challenges currently facing sport. The opinions expressed are his own.-

I love sport, I have always loved sport, and I make my living researching, writing and talking about sport. As such, I do not need to be convinced about the social, cultural, psychological and health benefits associated with our engagement in sport. I also do not need any convincing about the economic benefits of sport, although some people will always and inevitably exclaim, “he would say that wouldn’t he!”

Well, it is not me it is actually the United Nations which states that sport may account for as much as 3 percent of global economic activity. It is the European Union that estimates sport to be worth 1.5 percent of its gross domestic product (GDP). And it is the British government that has recently acknowledged just how significant sport as an industry has become by commissioning research which will result in the development of robust measures for the contribution that sport makes to the British economy. Previous estimates already indicate that sport may generate as much as 2.5 percent of GDP, in which case this means it is an industry bigger than agriculture and not so far behind manufacturing.

Sport is, indeed, much more important than we realise or acknowledge. It is deeply ingrained in many of our psyches: for some people this dates back to our childhoods and is bound up in our social and geographic identities; for other people, sport allows us to indulge in vicarious achievement (related to the psychological phenomenon of BiRG-ing – Basking in Reflected Glory) and euphoric collective experiences.

The consumption of sport is thus not a rational economic activity, an observation that is particularly pertinent amidst these recessionary times. Whereas other industries continue to suffer the effects of the downturn, sport remains one of the more recession-resistant sectors, buoyed by the inherently unique features that differentiate sport, making it a safe-haven during difficult times.

Sport can be relied upon not to let people down, it provides value for money, not least because of its central proposition: the uncertainty of outcome – you never know what the result is going to be, something absent from virtually all other forms of consumption in our otherwise increasingly homogenised and standardised world. As such, people actively seek out sport and remain loyal to it, even during economically troubled times.

There is clear evidence already that sport has bucked recent recessionary trends; for instance, over the last year, Arsenal reported a profit of almost 37 million pounds; both the Rugby Football Union and the Premier League have announced new, high value, long-term televisions rights deals; Badminton England signed its most lucrative ever sponsorship deal; advertising revenues derived from slots during American Football’s Superbowl broke all records; and television viewing figures for the Champions League Final in Rome were up by 27 percent.

If one then factors in the specific economic impacts that sporting success can have, there are strong grounds for optimism that our love affair with sport may actually help lift us out of our current economic malaise. In the months immediately after last year’s Beijing Olympic Games, sales of bicycles reportedly increased by upwards of 20 percent; sales of sports bras were up by 27 percent; sales of swimming equipment may have increased by upwards of 36 percent; and sales of energy bars and sports drinks apparently increased by as much as 155 percent.

Moreover, a YouGov poll conducted prior to the 2006 FIFA World Cup in Germany indicated that almost half of all men and women felt that sporting success lifts their mood, helps them be more optimistic and increases their productivity.

So what are the prospects for this summer, and beyond into the autumn? It is a pity that there is no major football tournament due to take place, as previous research indicates a tangible link between football success and economic uplift. A Manchester United victory in the Champions League Final would have been helpful, as would an Andy Murray win at Wimbledon. We still have the Ashes ahead, the World Athletics Championship in Berlin, and Jenson Button leading the Formula 1 World Championship.

It may nevertheless be towards the end of the year before witnessing the real economic excitement. If the England football team can keep their nerve and qualify for next year’s FIFA World Cup in South Africa, then businesses from pubs and pizza-makers to television manufacturers and internet service providers will be gleefully rubbing their hands.

Perhaps that Anglicised Scot, Gordon Brown, may be the one who will rub his hands more than most? Sporting success over the next year could not only help to save the economy, it might also help him to save his job. Roll on that Croatia game in September, eh Gordy?

– Neil Collins is a Reuters columnist. The views expressed are his own –

Standard & Poor’s could have chosen a better day to kick the British economy, by placing the UK onto “negative outlook”, the usual precursor to a downgrade of S&P’s rating of an issuer’s debt.

The move came minutes before the Debt Management Office closed its massive auction of 5 billion pounds of 2014 stock, and minutes after the release of figures showing the Public Sector Net Borrowing Requirement leaping to 8.5 billion pounds in April, a sum which not long ago would have been considered high for a whole year.

Economist Howard Archer at Global Insight immediately called the figure “dire, starting the new fiscal year off as it is highly likely to continue.”

S&P, meanwhile, now fears that the net general government debt burden “could approach 100 percent of GDP and remain near that level in the medium term.”

It’s hard to describe the UK public finances as anything other than a disaster area. The forecasts made in last month’s Budget looked optimistic within days, and even these require the DMO to borrow 220 billion pounds this financial year, or almost a billion pounds every working day.

Yet while the DMO soaks up cash, the Bank of England is desperately creating it. Its “quantitative easing” programme has been in full swing this week, buying in 1.326 billion pounds of a stock which looks very like the one that the DMO was issuing just one day later.

The experts will tell you that because the life of the new stock is not quite five years, it falls outside the Bank’s five to 25-year target zone for QE, and is therefore qualitatively different. This is pure mumbo-jumbo. Essentially what is happening is one arm of the government is creating money for another arm of the government to borrow.

The traders can hardly believe their luck, selling expensively to the Bank and buying cheaply from the DMO.

This waste of taxpayers’ money would be bad enough, but the real damage is the false sense of security this round-tripping produces. Britain is in real danger of falling into a debt trap, where the cost of borrowing spirals up with the amount the government has to raise.

As the rating agency’s reality check concludes: “A government debt burden [of nearly 100 percent of GDP] if sustained, would in S&P’s view be incompatible with an AAA rating.”

Loss of that rating would lead to a higher cost of government borrowing, damaging the chances of avoiding the trap.

Were the Labour administration not in total funk, it might seize on this report to admit that its spending plans are not sustainable. Capital projects, like the NHS IT scheme, ID cards, Crossrail, aircraft carriers, the Eurofighter and much else will have to go, and the next government will have to impose real cuts in the core spending of education, health and welfare.

S&P’s warning shot shows that the phony war is over, and the real pain lies ahead.

(Wei Gu is a Reuters columnist. The opinions expressed are her own)

Which would you believe when it comes to diagnosing the health of China’s economy — the pulse-taking of the herbal doctor or the lab tests of Western medicine?

Beijing’s leaders are like the herbal doctors, using creative metrics such as power output and shipping indexes that can give a relatively accurate snapshot of manufacturing activity.

Private-sector economists, by comparison, believe in more mainstream data such as money supply and fixed asset investment even though they might not be completely useful in measuring a transitioning economy such as China.

Going by the latest economic indicators, the pulse shows the body is still listless, while the lab test is showing signs of a recovery to health. The last time this happened to China was in 2001, when the world was about to emerge from a brief recession.

It turns out that — like the debate over Western versus Eastern medicine — both methods have their pros and cons. And their relative advantages may be shifting as China itself changes.

SPECIAL INSIGHT
Although very few Chinese leaders have an economics background, they still have a special insight into China’s economy. So, when Premier Wen Jiabao said that a key economic gauge is power consumption, people took notice.

Power output traditionally has shown a strong correlation with business activity as the Chinese economy is one of the most energy dependent in the world.

Its beauty is that it is not distorted by inventories, is difficult to manipulate and is available almost real-time. Chinese banks routinely check the utility bills of their clients to make sure that factories are still busy.

Amid the current economic turbulence, the timeliness of such data has been crucial to Chinese leaders who want to be able to make speedy decisions.

China’s power output in April declined 3.6 percent from a year earlier, marking a continued fall in the country’s consumption of electricity, the official Xinhua news agency said.

The report defied investors’ belief that China’s massive economic stimulus package has led to a sharp rebound for manufacturers as indicated by the bullish reading on the purchasing managers’ index.

But with China moving away from heavy energy-consuming industries and toward a more energy-efficient economy — energy consumption growth trailed GDP growth by half in the first quarter — it may be that power consumption has become a less accurate barometer of manufacturing health.

ON TO SHIPPING AND MONEY SUPPLY
When analysing foreign demand, Chinese officials favour the Baltic Exchange Dry Index, which measures global shipping activity of commodities such as iron ore, soybeans and coal.

The index tumbled to levels unseen in 20 years at the end of 2008, when China’s imports sank as de-stocking ran its course.

This year, however, the index offers a less telling read on China’s demand for raw materials because the State Reserves Board has embarked on a commodities buying binge. Thus commodity imports might just be sitting in the reserves instead of going to factories.

In more developed economies, services, rather than manufacturing, account for the biggest chunk of GDP, which might explain why Western economists tend to focus on money supply rather than power consumption and shipping gauges.

After China’s money supply surged a record 25.5 percent in March as banks ramped up lending, foreign investment banks’ knee-jerk response was to upgrade their forecasts for China GDP.

But while money supply might hold the key to economic activity in Western countries, in China now, a lot of those loans are policy-driven rather than a result of market forces. Much of that has been recycled into banks, as indicated by a 29 percent jump in time deposits this March.

Western economic theories have not been very successful in analysing Japan, which managed to defy the Phillips curve by having both low inflation and a tight job market for years. They might be equally less helpful in analysing the Chinese economy, which is dominated by the government and its agencies.

Despite the problems, it is not for nothing that leading indicators, which include things like money supply and the stock market, are called “leading”, and coincident data, which includes things like power consumption, are called such.

Leading indicators were about a year too early to call the economic recovery that started around 2002, while the coincident data has performed largely in tandem with the real economy.
Currently, the uptick on the coincident index is hesitant while the bounce in the leading index is quite determined.

Perhaps this is a sign that an economic recovery — which has caught the imagination of economists and investors but has yet to convince Chinese leaders — is on the way, but its actual start might be later than what the market believes.

– At the time of publication Wei Gu did not own any direct investments in securities mentioned in this article. She may be an owner indirectly as an investor in a fund –
(Editing by Mathew Veedon and Sonya Hepinstall)

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

A revisionist theory on the causes of the global financial crisis blames surplus countries like China, Japan and Germany as much as highly-leveraged, deregulated finance in the United States and Britain.

Making Germany a scapegoat may be tempting, especially in Britain, where memories of sterling’s humiliating exit from the European Exchange Rate Mechanism in 1992 still rankle, but it is unfair and dishonest.

The revisionists contend that the meltdown was due not just to the Americans and British who borrowed, traded and lived beyond their means but also to the Chinese, Japanese and Germans who sold them the goods and lent them the money.

It follows that responsibility for digging the global economy out of its current hole lies disproportionately with the surplus countries, which must spend their reserves or go deeper into debt to boost demand and give the world a fiscal stimulus.

Seen from Berlin, this interpretation of global imbalances looks like a brazen attempt to punish German fiscal and economic virtue and divert attention from the irresponsibility of “Anglo-Saxon” financial capitalism.

Finance Minister Peer Steinbrueck has a 10-second summary of the origins of the crisis.

“My short formula is that a policy of cheap money in the USA afer Sept. 11 (2001), plus a paradigm of deregulation, plus the race for yields combined with illusions about risk, led to excesses and hubris which today have seriously shaken the world financial architecture,” he told visiting journalists last week.

Germany was slower than the United States, Britain or France to recognise how hard the crisis would hit its economy. It faces a deeper recession than any major economy except Japan, with a contraction of 6 percent of gross domestic product this year.

After early hesitation, it has enacted two stimulus packages which the government says are worth 81 billion euros ($107.6 billion) over two years. Combined with automatic extra welfare spending and lower tax revenues, it says the measures amount to about 4 percent of GDP. Ministers note that half of the German premium for scrapping old cars has been spent on imports, benefiting European neighbours and Asian exporters.

Steinbrueck acknowledged that dependency on exports, which account for 40 percent of GDP, made Germany more vulnerable to the collapse of global demand. The world export champion had a trade surplus of 178.2 billion euros in 2008.

Yet government leaders are convinced Germany will be able to export its way out of crisis as key markets recover, provided it keeps labour costs and public deficits under control. They see no alternative to the export-driven manufacturing economy. If that means cutting wages and working longer to stay competitive, so be it.

Two-thirds of Berlin’s exports go to other EU countries, mostly to the other 15 members of the euro zone. Since the EU is a customs union, its trade balance should arguably be considered as a bloc. Seen in this light, it had a modest deficit in 2008.

While critics of China’s export-led growth accuse Beijing of keeping the yuan artificially low, no one can accuse Germany of manipulating its currency. On the contrary, the euro has been strong on world markets, and the Germans entered the single currency in 1999 at a rate that was initially hard on them.

Germany imposed sacrifices on its taxpayers to balance its budget in the years before the financial turmoil began. Martin Weale, director of Britain’s National Institute of Economic and Social Research, argues German saving is no more than is needed to make reasonable provision for its ageing population, while Britain and the United States “decided not to make adequate provision for their collective old age”.

The OECD forecasts that the impact of the crisis will push the German deficit to 4.5 percent of GDP this year and 6.8 percent in 2010. So Berlin is understandably loath to sign bigger cheques to underwrite countries that were less prudent in the boom years, whether in the Europe or beyond.
Nevertheless, Germany has broken a taboo by making clear, without going into details, that it will help, if necessary and with conditions, to bail out any EU country that faced default.

So don’t blame the Germans for making machines, cars and chemicals that other people want to buy. And don’t bash them for living within their means and not having a property bubble.

Perhaps the lesson of the financial crisis is that we all need to become a bit more German.

(Editing by David Evans)