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Monday, March 25, 2019

Will Germany Bully Europe Over The Brink?

There’s still hope for Europe to avoid a crisis, but it will first have to reject Germany’s self-righteous demands for austerity.

The audacity Germany has shown in floating a demand to manage Greece’s finances is a window on the leaders of that country and how much perspective they’ve lost. Let’s be clear; not all in Germany agree with this narrow, insensitive stance and the uninformed and uneducated demands for austerity economics in debt-ridden and recessionary nations. For example, there are political parties in Germany that want their country to take the lead on a Marshall Plan for the periphery of the eurozone. But they are not the ones setting policy.

I am tempted to say that antediluvian economics is ruling in Germany, but it may not really be about economic theory, but rather superior pride, irrational fear of inflation, and perhaps vindictiveness. It’s as if a German version of our own Tea Party is now running economic policy in Europe. Germany reduced its unit labor costs beginning in the late 1990s, which were higher than much of the rest of the EU, but with the euro fixed, they benefited as their export prices remained low. Could they have done well without their eurozone trading partners buying more from them than they were selling? And they lent them the money to do so. Do they have no moral obligation here? Without the fixed euro, the DM would have soared.

Then there is David Cameron of Britain and his finance minister lecturing the rest of Europe about how to run their economies. Move over Monty Python. As everyone now knows, Britain’s GDP is still below its pre-recession high, its deficit is high and not falling as promised, it may have slid into recession, and often ignored, average wages are well down since a recovery supposedly began. The bombast with which Cameron proclaims the rightness of his austerity economics while his people suffer is right out of school-boy debating. This time his countrymen will lose the debate, not only him.

There are some hints that people of influence are talking sanely and recognize growth is necessary and that austerity in this environment is tragically anti-growth. Some believed there would be some actual policy initiatives in Monday’s summit, but there weren’t. Instead, the EU agreed to a nutty deficit limit for all its nations. The good news is that they won’t abide by in a crunch. Must we remind ourselves yet again that it was Germany that conspicuously violated the prevailing EU limits on deficits to 3 percent of GDP when it had problems? Some say the current limit is over a full economic cycle and therefore not that stifling, but 0.5 percent of GDP is stifling any way you size it up.

Other analysts are saying that now that Germany has won this round it will support further lending by the European Central Bank. What a group! Remember when Trichet, then the head of the ECB, actually raised interest rates in the spring of 2011? It is all a matter of confidence, he said. But trying to cut spending in the face of recession will not generate confidence; only renewed growth will.

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4 responses to “Will Germany Bully Europe Over The Brink?”

  1. HeinrichAnton says:

    You forgot that Germany’s products (like BMWs) are not selling so well, because they are so cheap. They sell because they are top quality! You also forgot that Germany was already the world’s number one export country, before there was a Euro! Today it is number two, after China. You also forgot that Germany had to absorb the Unification expenses, which was the reason for a few years of higher debt. Your phrase: Europe is being handed a recession by the Germans is very wrong. No German government told the Southern European States to have the big party they had over the last decade. In the end, the German tax payer should pay for this?? I hope not!

  2. Rap77 says:

    re: HeinrichAnton

    Your points are not that accurate. For one; except for Greece, the southern countries were NOT having a party. Before the 2008 meltdown, which was caused by outrageous and illegal financial actions of big banks, Spain, Portugal and Italy were actually running surpluses. They did not cause the problem.

    One big reason Germany’s exports sell so well is directly related to exchange rates and the creation of the Euro.

    Germans were instrumental in the process which ended up giving Germany a distinct advantage. That is, the Euro valuation artificially made German products less expensive than they were before the Euro. Southern countries, especially Greece, were penalized by the exchange so their products became more expensive, thus reducing Greece’s export revenues and further aggravating their deficit.

    It’s basically the same tactic, currency manipulation, used by China to make their exports so affordable. Since German producers have been capitalizing on this imbalance, their complaints over bailouts lose credibility.

  3. Bruce_S78 says:

    Until all of Europe figures out that they put themselves into one boat when they established the Euro, this crisis is not going to get better. Europe has even bigger issues with poorly run big banks and poor banking regulations than the United States. The Germans and the IMF may think that austerity works, but it doesn’t seem to be. If you live in Greece, Spain, etc, things must see pretty hopeless.

  4. HeinrichAnton says:

    You are not correct! Compare the prices of BMW and Peugeot in the US….which one is cheaper! The Peugeot is a lot cheaper, but why do Americans then buy Porsches and BMWs??? …..because they are BETTER!!!! Quality sells! That’s how it was BEFORE the Euro and that is how it is today.

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