Germany and the European Debt Crisis

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

If you look closely at any financial crisis, you'll find a handful of profiteers getting rich. Think of hedge fund manager John Paulson during the mortgage-default crisis. Or George Soros, who was dubbed "the man who broke the Bank of England" when he shorted the British pound in 1992. And you can bet that many hedge funds are doing similar things in Europe right now, fostering financial chaos on the one hand and profiting from it on the other.

I was surprised to learn, however, that more than just private investors and institutions are getting in on this action. While it's common knowledge that both China and Japan may invest in a bailout package sponsored by the European Financial Stability Fund, less known is the extent to which Germany has profited from Europe's recent travails. I'd go so far as to say the European Sovereign Debt Crisis is the best thing to happen to Germany and its companies since the fall of the Berlin Wall (assuming you think that was a good thing, of course).

A country of contradictions
Germany provides a fascinating study in contradiction. It's obsessed with discipline, order, and cleanliness. Yet if Michael Lewis' book Boomerang is to be believed, its cultural lexicon is replete with analogies to excrement. According to an anthropologist quoted by Lewis, "the combination of clean and dirty -- clean exterior-dirty interior, or clean form and dirty content -- is very much a part of the German national character."

Consistent with this dichotomy, Germany didn't outwardly succumb to the excesses of the past decade. While other Europeans and Americans borrowed money cheaply to buy stuff they couldn't afford, Germans simply ignored the offer. There was no credit boom in Germany, and real estate prices there remained completely flat.

At the same time, however, German banks wholeheartedly participated in the extravaganza by lending money to American subprime borrowers, Irish real estate barons, and Icelandic banking tycoons, all of whom did things no German would ever condone. At last count, Germany's losses from doing so stood at almost $200 billion.

But Germany's losses are only the beginning of the story, for over the past three years, Germany has staged an economic recovery unmatched by any of its Western counterparts. And the thing that's keeping its counterparts down, the European sovereign-debt crisis, is the same thing facilitating its rise.

What does a Big Mac have to do with this?
You may or may not be surprised to learn that many of the world's richest countries are heavily indebted to many of the world's poorest countries -- think about China and the United States. The relative value of currencies goes a long way toward explaining this situation. In China, for example, you can buy a Big Mac for $2.27, whereas the same underwhelming burger will cost you $4.07 here at home. Substitute a toaster into the equation, and you start to see the point. Based on the relative value of currencies alone, most goods from China are half the price of goods from the United States.

The easiest way to change this situation is to simply adjust the value of the world's currencies -- i.e., to increase the value of the developing world's currencies relative to ours. While this isn't as feasible of an option for the United States, as many currencies are pegged to the U.S. deollar, it is a viable option for Europe -- and, in fact, that's exactly what's happened. The euro's value has decreased by 20% relative to the Chinese yuan since the middle of 2008. And much of this decrease can be traced to Europe's debt crisis, as currency traders are losing confidence in the European economy.

Source: St. Louis Federal Reserve database.

The mother of all contradictions
It seems odd to think that Germany benefits from the depreciation of the euro, but that's exactly what's happening. Because exports make up almost 50% of Germany's economy, proportionately more than any of its continental peers, the euro's decline has fueled the German economy more than any other. Germany's unemployment rate is at a four-year low, its exports are at a four-year high, and its borrowing costs are lower than they've ever been. This disparity is punishing Greek and French stocks more than their German counterparts.


Country Located In

1-Year Performance

DAX 30 Index Germany (12%)
CAC 40 Index France (20%)
Athens Stock Index Greece (51%)
SAP Germany 18%
OceanFreight (NYSE: OCNF  ) Greece (6%)
Siemens AG (NYSE: SI  ) Germany (11%)
Deutsche Bank Germany (33%)
Sequans Communications (NYSE: SQNS  ) France (36%)
Dryships (Nasdaq: DRYS  ) Greece (41%)
Veolia Environment (NYSE: VE  ) France (52%)
Aegean Marine Petroleum Network (NYSE: ANW  ) Greece (70%)
National Bank of Greece (NBG) Greece (74%)

 Sources: and Yahoo! Finance.

Observations from across the pond
From our vantage point here in the United States, it's easy to sympathize with the Germans. As with many things German, however, the situation is replete with contradictions. While Germany is being looked upon to reluctantly assuage the continent's debt woes, it's also profiting handsomely from the chaos.

If European stocks aren't your thing, one way to profit alongside of them is to check out the companies discussed in our new free report about 11 rock-solid dividend stocks that you can trust to secure your future. Access this free report before stocks rebound.

Fool contributor John Maxfield, J.D., has no financial stake in any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of Veolia Environnement. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1585263, ~/Articles/ArticleHandler.aspx, 10/23/2016 11:59:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:02 PM
ANW $9.23 Down -0.11 -1.18%
Aegean Marine Petr… CAPS Rating: ****
DRYS $0.36 Down -0.03 -7.23%
DryShips CAPS Rating: **
SIEGY $115.76 Down -0.19 -0.16%
Siemens AG (ADR) CAPS Rating: ****
SQNS $1.72 Down +0.00 +0.00%
Sequans Communicat… CAPS Rating: *
VEOEY $21.60 Down -0.17 -0.76%
Veolia Environneme… CAPS Rating: ****