Hancké, Β. (2014) “German austerity is not only damaging the Eurozone, but is also starving the country of its own much needed investment“, LSE EUROPP, 03 Νοεμβρίου.
A common argument in the context of the Eurozone’s economic problems is that Germany should pursue a more expansive fiscal policy to help generate growth in the rest of the single currency area. Bob Hancké writes, however, that while such a strategy might be justified in terms of its wider effects across Europe, the German economy itself is also struggling from the pressures of restrictive spending policies. He argues that unless the country increases public investment there is a very real chance of Germany developing into a dysfunctional economy, with the only hope for growth residing in exports and citizens struggling with both low wage growth and spiralling income inequality.
There seems to be some misunderstanding in Europe about the role that Germany should play to clean up once and for all the crisis of the single currency. A large contingent of commentators argue – against the Panglossians who think Germany lives in the best of all worlds and Europe just has to become more like it – that Germany has to take up its historical responsibility and run a more expansive fiscal policy so that other countries can adjust on the back of that. Adjustment has to be symmetric, they argue, especially in a relatively closed economy such as the Eurozone, so that Spain’s restrictive policies to bring inflation and deficit under control are matched by a similar expansive stance elsewhere.
There is nothing wrong with this argument. In fact, I have made it at least twice in recent publications. Germany’s current reluctance to seize leadership in the Eurozone resembles the catastrophic ‘reluctant hegemon’ role that the great financial historian Charles Kindleberger attributed to the US in the interwar years. Being the most important economy in the world, yet unwilling to lead, the US made the Great Depression longer and deeper than was necessary – in a similar way to what Germany is inflicting now on the Eurozone. And there is little doubt that a more expansive policy in Germany, a country that can borrow at zero or negative real interest rates in international financial markets, will have beneficial demand effects over all of Europe.
Σχετικές αναρτήσεις:
- Wren-Lewis, S. (2014) “Why the Eurozone suffers from a Germany problem“, Mainly Macro Blog, 26 Οκτωβρίου.
- Mishra, P. (2014) “How Germany Conquered Europe in 25 Years“, Bloomberg View, 26 Οκτωβρίου.
- The European Magazine: Conversations, Interview with Philippe Legrain, “Germany is undermining future growth”, 20 Σεπτεμβρίου 2014.