Tuesday, May 28, 2013

Sven Böll and Christian Reiermann — Austerity About-Face: German Government to Gamble on Stimulus

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed....

The government's change of heart isn't just a sign of selflessness and compassion. More than ever, the chancellor and the finance minister are worried that Berlin's tightfisted, heartless, austerity-obsessed image could solidify throughout Europe and do irreparable political damage. An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign....

The fact that the finance minister and the chancellor are suddenly willing to do things that have been off-limits until now also has something to do with an internal Chancellery dossier from mid-May. The government headquarters had asked the ministries to take stock of the EU growth pact that was approved in June 2012 to support the austerity programs. The results were, in fact, supposed to demonstrate how well the German bailout strategy was working. But the officials' conclusions shocked even calculated optimists. In their report, they painstakingly documented that debt-ridden countries, especially those that have not taken advantage of EU bailout programs, have hardly made any progress in terms of needed reforms.... 
With her administration facing pressure from the anti-euro party Alternative for Germany, and despite her offers to help Southern European countries, Merkel doesn't want to be accused of throwing even more good German money after bad. To avoid this, the goal in Berlin is to achieve the greatest possible results while spending as little as possible....

But the economic stimulus program threatens to fall flat. So far, the EIB has shown little inclination to distribute the billions exclusively where they are more urgently needed: in Southern Europe. And, as EIB President Werner Hoyer has implied at every opportunity, the bank is determined to keep its top rating so that it can continue to finance itself at low rates.
Ironically, the Finance Ministry in Berlin backs Hoyer's stance. An internal Finance Ministry memo reads: "To preserve the portfolio quality and the AAA rating, the federal government is in favor of having the EIB continue to promote projects in AAA countries while implementing the anti-crisis program."

Likewise, even if there are well-meaning decisions and sufficient funds for programs, implementation remains a problem. Government administrations in Southern Europe are still too slow, the EU bureaucracy in Brussels is still slowing things down, and governments are still dragging their feet on promised reforms.
Spiegel Online International
Austerity About-Face: German Government to Gamble on Stimulus
Sven Böll and Christian Reiermann
Translated from the German by Christopher Sultan

This is all completely crazy. The cause of the crisis is basically the saving of the export nations internally in the EZ that is resulting in the indebtedness of the debtor nations. One solution is for the net exporters is to reduce saving and spend in the debtor nations on consumption and investment. Lacking this, there must be fiscal transfers. Otherwise, the euro is unsustainable.


Unknown said...

Lacking this, there must be fiscal transfers. Otherwise, the euro is unsustainable. Tom Hickey

There's a 3rd option: An equal "helicopter drop" of new Euros on the entire Eurozone population, including German savers, combined with leverage restrictions on the banks to preclude serious price inflation. Steve Keen recommends something similar to this in his "A Modern Debt Jubilee." And along with this one-time fix, nations should return to national currencies and let the Euro be a purely private money.

Roger Erickson said...

What's happening in parallel is that the 1% in every country is unwilling to give up one ounce of their ill-gotten riches (and aren't even done looting yet). [didn't Galbraith the elder say something to that effect? or Marriner Eccles himself?]

ps: nice to see that Steve Keen is slowly adopting what Eccles & the MMT community argued all along.