Sunday, August 24, 2014

As much as I admire Germany and its impressive manufacturing industry, the almost total reliance on exports as a way to achieve growth means that Germany cannot be the engine of growth that the Eurozone needs it to be.  The economic policies of China and Germany were just as much responsible for the financial crash as those of the debtor nations who have to exist for the policies of those two countries to work. German and Chinese surpluses were never returned and spent in their domestic markets but were recycled in the debtor states so that they could continue to buy German and Chinese goods to support the export growth that these two countries are so reliant on, of course this Ponzi scheme could not continue indefinitely hence the crash. Much of Europe is still in denial about some of the causes of the financial crash so it is hardly surprising that they cannot find a cure if they misdiagnose the illness. Anglo-saxon style casino banking was a convenient scapegoat which allowed others just as culpable to get away scot free. It explains the constant attacks on the city of London while ignoring their own zombie banks which are loaded up with sovereign debt which may turn out to be worthless. How many stress tests have they conducted on banks which have turned out to be nothing but meaningless shams that convinced no one.
It is worth remembering that at the introduction of the Euro the most vocal critics were British and what they predicted then subsequently happened. There is a lot to admire about Germany but do not have all the answers...
Germany's de facto leadership of the EU has been terrible. Most especially on the economic front. Certainly Germany itself benefitted from the hard currency policy it imposed on the other eurozone countries, as the industries of those countries folded one by one and their markets were taken over by German ones. But it was a disaster for the rest of us, and ultimately even Germany will be hurt as we become more and more unable to buy its goods. The only way soft-currency countries could have continued to compete with hard-currency ones like Germany was if the latter had allowed some domestic wage inflation. But they didn't, instead asking troubled countries to impose wage deflation - which they well knew was impossible, because wages are determined by contract and cannot be lowered easily any more than pensions.
For soft-currency countries, and even medium-hard currency ones like France, the euro has been a trap. You can't leave it without creating devaluation fears which will drive interest rates into the stratosphere, and if you stay in it your industry erodes year by year until you become a third-world vassal of Germany. The teutonic refusal to restore the competitivity of its southern neighbors by increasing its own wages has been selfish and destructive.
The new German assertiveness in foreign policy matters hasn't been much better. Merkel's dominant and belligerent stance during the Crimea crisis did more harm than good and is one reason why Russia and the EU are hardly talking any more, let alone working together to defuse the Ukrainian crisis. In any case if Germany wants to continue to call the foreign policy shots for all of Europe, it might start by doing its share of defense spending instead of relying on the French/British security umbrella.
Power comes with responsibility and Germany under Merkel hasn't shown much of it.

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