Europe is in a depression, because Germany is afraid of a recovery [not on its terms].
It's afraid that more inflation and more spending would wreck its export-led growth model. And afraid that southern Europe would stop trying to adopt that model if they had an easier way out. So Germany has left them no way out....
The euro's problem, as the U.S. Treasury points out, is Germany wants the rest of Europe to become sellers too, but isn't willing to buy more itself.
Germany, of course, calls this criticism "incomprehensible." Its Economics Ministry thinks that its massive trade surplus just shows the "strong competitiveness of the German economy and the international demand for quality products from Germany." But that's a non sequitur. Germany doesn't have such a big trade surplus because it sells so many quality products. It has such a big trade surplus because it sells so many quality products and it buys so little. Nobody is asking Germany to stop making quality products. They're asking Germany to start paying their workers more and to start buying more from abroad. In other words, to tolerate a bit more inflation and government spending.
But the opposite has happened. Germany has fought any and all monetary easing out of fear of nonexistent inflation. And it really is nonexistent. In October, overall euro zone inflation fell to a four-year low of 0.7 percent, while German inflation was just a tad higher at 1.2 percent. Despite this, Germany's central bank still opposes easier money, because it sees the specter of inflation in ... apartment prices in its major cities. It'd be funny if it weren't dooming southern Europe to a depression. See, with German prices (and wages) rising so slowly, Europe's crisis countries can't regain competitiveness by having their own just rise slower. They have to cut wages instead—which, as Iriving Fisherpointed out back in 1933, can throw an economy into a death spiral by making debts harder to pay back.
Austerity, though, has already thrown southern Europe into a death spiral.The Atlantic | Business
Germany's Export Obsession Is Dooming Europe to a Depression
Matthew O'Brien
The German elite have invested so much political capital supporting their mindless ideology, they are not about to change.
ReplyDeleteMore tragic than the German position - and the ideology it's based upon - is the lack of reaction to austerity policies by the elites of southern Europe.
ReplyDeleteSeems a serious case of euro-ideology trumping national interests. Or perhaps only popular (as opposed to elite) interests.
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ReplyDeleteGermany is in a difficult position. It can be argued that they are MORALLY obliged to endure years of uber inflation so as to help the periphery. But that wasn’t down in black and white when the Eurozone was first set up. Quite the reverse: it was obvious from the way the system was set up that it was the less competitive countries that would face elevated rates of interest for money they wanted to borrow if they lost competitiveness.
ReplyDeleteWhat Germany could do is approach periphery countries and say “We’re happy to change the rules of the game and endure a few years of excess inflation as long as you pay us something for the inconvenience.” That way, everyone (hoffentlich) would be happy. Germany doesn’t lose, because the payment they get from the periphery counterbalances the costs of excess inflation in Germany. While periphery GDP rises and hopefully by more than the fee paid to Germany.
Alles would then be in ordnung.
The deficits in PIIGS are the reason for the surpluses in germany. PIIGS cannot any more foot more bills.
ReplyDeleteSee krugman today
The hoarders are OPEC CHINA JAPAN GERMANY UK AND ...USA SINCE REPUBLUCANS are pro austrian