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Germany's PIIGS Role: Q&A With Gary Becker

Q3: At the macro level, Germany has unprecedented political power. Do you believe that German leaders foresaw this attainment of fiscal and therefore, political leadership of Europe? Was this part of Germany's strategy?

A3: Certainly the Germans were concerned at the ratification of the EU common currency whether they would be able to control the weaker European countries. German leaders may well have anticipated that the common currency of the eurozone would ultimately lead to greater power for Germany both politically and economically. In fact, some other countries like Great Britain may have refused to join the eurozone because they would not want to be in a monetary union in which Germany had dominant power. A desire for greater power in Europe is likely to have gone into the German decision to join the eurozone. Germany is the most powerful player in the union with France as a secondary power. A weaker country like Italy may have thought that conditions required by the eurozone have the benefit of more likely assistance from stronger countries in the event of a crisis.

Q4: Can the PIIGS avoid being slaughtered? If so, how will the process evolve? It is doubtful that Germany alone can bail them out, despite Germany's political hegemony.

A4: The major issue confronting the EU is what happens next. There may be a sustained prolonged recession in Southern European countries. There will be a greater call for fiscal centralization, which will be led by Germany, leaving Germany in an even more secure position as the leader of Europe. There is no doubt that fiscal centralization will lead to far more power for a country like Germany. Their main concern will be that economic policies are not dictated by the other countries of Europe. Germany has a very conservative fiscal and budgetary policy. They will agree to centralization only if they think that they can dictate joint EU policy. They will be an excellent position to do just that due to their fiscal superiority within the eurozone.

Q5: Do you see an interesting investment opportunity in light of the European Financial Crisis?

A5: There are lots of great opportunities to invest in Eastern Europe but investing in the southern countries is likely to be unattractive for several years, if, as I expect, those countries suffer from a prolonged economic downturn.

Nathana O'Brien, a Phi Beta Kappa graduate of the University of Chicago who will attend Yale Law School next year, contributed to this article.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
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