AS LONG AS GERMANS VIEW THE CURRENT CRISIS AS A “SOUTHERN”
PROBLEM, RECOVERY CAN'T HAPPEN
GREEK
elections are over and many are looking at GERMANY for a solution to the Euro’s
woes. Unfortunately, the chances that GREECE’S northern neighbor will assume
responsibility for the financial messes of its southern partners are slim. The
reason GERMANY continues to tout austerity rather than growth to save the Euro
lies largely in GERMANY’S skewed view of history and of itself, which is based
on two false assumptions.
First,
most GERMANS view southern EUROPEANS as “different” from themselves. They
assume that GERMANY enjoys great economic power primarily because its citizens
have saved and been industrious, in contrast to, say, the GREEKS, SPANISH, or ITALIANS.
Bailing out GREECE, according to this view, would encourage it and other
countries like it to continue their lazy and licentious ways. Second, GERMANS
(and many others) view EUROPE’S predicament as a currency or debt crisis rather
than what it truly is: a current-account and balance-of-trade problem. GERMANS export
more to their EUROPEAN partners than they consume, benefiting from this
asymmetrical situation even as they expect everyone else to be exporters and
savers like them.
See: WHICH CRUEL RULER
IS CONTINUALLY FORCING NEW ROUNDS OF AUSTERITY MEASURES ON SOUTHERN EU STATES?
– NOT GERMANY - BUT THE EUROZONE’S SHADOW STATES?
While
much reporting and commentary has focused on GERMANY’S moral disdain for its
flailing E.U. partners, most GERMAN leaders view the GREEK case differently.
They rightly point out that key institutions of democracy and civil society are
not sufficiently embedded in GREECE, making it difficult to collect taxes and
resolve distribution conflicts.
But
GERMANY and GREECE have had very different experiences in making their
institutions work. In the post-World War II era, GERMANY was initially an
occupied nation, whereas GREECE had to contend with a communist threat and
successive rightwing military dictatorships. The “embeddedness” of GERMAN
institutions derives from the West’s imposition of democracy and the lack of
viable alternatives to it. The same cannot be said for GREECE.
THE EURO HAS BENEFITED GERMANY GREATLY
Furthermore,
GERMANY occupied and plundered countries like GREECE before 1945, stealing and
destroying both public and private wealth. Yet it was not asked to pay
reparations. The Allies even forgave GERMANY’S World War I reparations. So GERMANY’S insistence that GREECE pay all
of its debts is not just hypocritical, it’s a complete misunderstanding of one
of the key sources of post-1945 GERMAN economic success: massive debt
forgiveness and free money—the exact opposite of austerity.
 |
| Main Architect of German austerity measures, Finance Minister Wolfgang Schäuble |
Although
most GERMANS find it difficult to remember, the Euro has benefited them
greatly. The EUROPEAN currency has not only reduced GERMANY’S transaction costs
with its biggest trading partners, but also made its exports more competitive
because they are priced in a currency that is less valuable than the DEUTSCHE
Mark was. Thanks to the euro zone’s inclusion of countries (such as GREECE)
where wages and prices are much lower than in GERMANY, GERMAN exports are sold
relatively cheaply. The so-called sovereign-debt crisis, therefore, is really a
question of trade and capital-payment asymmetries for which the GERMANS bear
some responsibility, since they built an export-driven economy. GERMANY’S surpluses
are the flip side of GREECE’S deficits.
But
if GERMAN policymakers persist in demanding austerity, the crisis will finally
hit GERMANS in their pocketbooks. Refusing to extend to GREECE the debt relief
that GERMANY once enjoyed only increases the probability that GREECE will be
forced to abandon the Euro, and the shock waves extending from a GREEK exit
would hit GERMAN capital markets hard. So far the crisis has affected only the
stock market, which most GERMAN private investors avoid, viewing it (with good
reason) as a speculators’ market. But once it hits bonds and other forms of
commercial paper, which are broadly held by individual investors, GERMANS will
start to realize that fiscal austerity is not equivalent to growing one’s way
out of a downturn.
GERMANYS’ STRUCTURAL REFORMS DURING THE 1990S, TO REGAIN A COMPETITIVE
EDGE ON WORLD MARKETS, WERE IMPLEMENTED DURING A PERIOD OF ECONOMIC GROWTH
It
might also remind GERMANS that the structural reforms they undertook during the
1990s to regain their competitive edge on world markets were implemented during
a period of economic growth. In
contrast, they are asking their southern neighbors to make much more painful
cuts during a severe global downturn. That is a recipe for further contraction
not just in GREECE, but GERMANY as well. After all, once its EUROPEAN trading
partners fall into a deeper recession, GERMANY won’t be able to rely on exports
to sustain economic growth and GERMANS will have less money to be austere
about.
While
commentators are hailing the GREEK elections as a first step forward, the
results of that vote have done nothing to change the forces that brought about
this EUROPEAN crisis. GREEK voters expressed a desire to retain the Euro, but
the country’s basic problem – how to build responsible fiscal institutions
while undermining its ability to pay for them – remains as intractable as ever.
THE EXPORTING NORTHERN EUROPE IS REWARDED FOR THE SURPLUSES
IT REFUSES TO REDISTRIBUTE TO HELP SOUTHERN EUROPE
 |
|
For austerity: IMF and Germany
|
Meanwhile,
the problem has spread to SPAIN, PORTUGAL, and ITALY because investors fear
that the same contradictory mix of budget-cutting and institution-building
threatens their solvency. This “contagion” has raised the cost of reform for
these countries, further imperiling the EUROPEAN project. Worse, the GERMAN
emphasis on austerity has reordered the single EUROPEAN capital market along
national lines, as the exporting north is rewarded for the surpluses it refuses
to redistribute to help the south. Precisely because there is no redistribution
mechanism to help bail out the south– something that GERMAN policymakers
vehemently oppose — the emergence of large interest rate differentials among
national bond markets seriously endangers the Euro’s integrity.
Related
articles on EUROPE:
As
long as GERMANS view the current crisis as a “southern” problem rather than a
shared EUROPEAN one – as a one-sided coin – and persist in the belief that
pursuing austerity and reform during an economic slowdown is the answer to the
problem, GERMANS will continue to look for solutions in all the wrong places.
By Jonathan Zatlin and Louis Ferleger via
Salon News
Well if this will continue, I'm sure that more and more European countries will suffer in this economic crisis.
ReplyDeleteeconomic outlook