The Beer Theory of Sovereign Debt: North & Malta vs South Europe
“That’s the difference between beer drinkers and wine drinkers,” says a friend. “The beer drinkers pay.”
The Beer Theory of Credit Quality
Bond investors believed the euro promised stability and security. It was backed not by the wine drinkers, but by the beer drinkers.
We’re not sure how Ireland – a big beer-drinking country – fits into this story. But our friend notes that the countries of Northern Europe – where they also drink mostly beer – tend to repay their debts. Southern Europe – Spain, Italy, and Greece – are bad credit risks.
On the streets of London at this time of year, people stand on the sidewalks with barrels of beer in their hands. And on the Fourth of July holiday, more Americans will raise glasses of beer than wine.
Still, we doubt the “Beer Theory of Credit Quality” will hold up under the pressure of a generalized credit contraction.
In Europe, the beer drinkers of the north sold automobiles, for example, to the wine drinkers of the south. Then, when the winos couldn’t pay, the beer swillers gave them more credit.
Now, when the Greeks still can’t pay, the Germans are getting huffy about it.
And everybody is nervous. If the Germans put the screws to the Greeks, they invite problems with the rest of the wine drinkers.
What the Greeks owe is peanuts compared to what the Italians and Spanish owe. And if the credit stops, who’s going to buy the Germans’ BMWs, Audis, and Mercedes?
Nobody wants the credit to stop…..no credit no party