Fatas, A. (2014) “The logic behind the German Euro gamble“, Antonio Fatas on the Global Economy Blog, 02 December.
In the current economic policy debate in Europe there seems to be an increasing polarization between the German view and the view of the other countries. How did we end up with such polarized views of the world? What is the basis for the apparent German stubbornness to change their mind about what are the right economic policies for the Euro area? Here is my best attempt to explain the economic logic behind that side of the debate, including a critical view of the arguments whenever is needed.
1. Europe needs structural reforms. Correct, this has always been true and it will be true in the coming years or decades.
2. Some countries/governments will find any excuses they can to avoid reforms. Correct. Without external pressure or a crisis, change will not happen. This was also true for Germany in the post-2000 reforms.
3. Imbalances of spending and debt (and asset price bubbles) were a fundamental cause of the crisis. Correct.
Relevant posts:
- Turner, A. (2014) “Germany’s Secret Credit Addiction“, Project Syndicate, 10 November.
- The Editors (2014) “What’s Bad for Germany Could Be Good for Europe“, Bloomberg View, 04 November.
- Wren-Lewis, S. (2014) “Why the Eurozone suffers from a Germany problem“, Mainly Macro Blog, 26 October.