by Matthias Matthijs on January 19, 2011
_The German question never dies. Instead, like a flu virus, it mutates. (The Economist, 21 October 2010)_
In late September 2010, Brazil’s Finance Minister Guido Mantega commented in Sao Paulo that the world was “in the midst of an international currency war.” His comments effectively ended all the premature praise for the G-20’s efforts at international cooperation with regard to the global financial crisis. In vogue came the assessment of the actual lack of cooperation as evidenced by the growing tensions and fault lines between the new global institution’s main protagonists, China and the United States, who disagree so starkly on the origin of the global macroeconomic imbalances. Those systemic imbalances – a large US current account deficit balanced by large current account surpluses in China, Japan, and Germany – have been identified as one of the main causes of the credit crunch of 2007-8 which led to the Great Recession. The central issue preventing a unified solution to the current crisis is whether the main cause of those imbalances is a global savings glut in Europe and Asia, or deficient savings and too loose monetary policy in the United States. This disagreement has risen to the forefront of the existing crisis debate as evidenced by Mantega’s remarks. No one point of view, or ”narrative,” so far seems to have won the day and allowed cooperative steps forward.
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by Wade Jacoby on January 19, 2011
Two popular views of Germany have dominated the current debate about the European financial crisis. Both are wrong. The first view sees Germany as an economically virtuous island in a sea of European profligacy. This is the view of most German voters and of their chancellor, Angela Merkel. In this view, Germany was industrious and prudent while others (Greece, Ireland, Hungary) were profligate. Therefore, these countries should rebalance their accounts without a “bailout” from Germany. This view conveniently ignores that German firms and banks financed these imbalances and that absent external demand for German goods and capital, Germans would be poorer. To put it bluntly, Germany can profitably do what it does only if most others do not.
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by Mark Vail on January 19, 2011
In the aftermath of the current economic downturn, German policy makers turned to Keynesianism with ambivalence, hesitation, and no small amount of bad faith. Notoriously fearful of debt, government spending, and state power, the German government was among the last in the G-20 to adopt a stimulus package, as one might well have expected. And yet, German stimulus measures were actually more than met the eye and represented one of the more extensive efforts in Europe, though the rhetoric surrounding the debate over the package hewed closely to traditional German narratives about fiscal probity, debt, and inflation. This inconsistency between rhetoric and reality also characterized the German turn to austerity in summer 2009. While excoriating the Greeks for fiscal profligacy and egged on by an unsavory public discourse about southern European work habits, Chancellor Angela Merkel announced plans to cut euro 80 billion from the German federal budget over the next four years. And yet, these cuts amounted to less than they appeared and spared politically powerful groups.
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by Aaron Boesenecker on January 19, 2011
As Mark Twain once observed, “The trouble with the world is not that people know too little, but that they know so many things that aren’t so.'” The aphorism is appropriate in light of the current confusion concerning Germany’s role within Europe. According to German public and political discourse, Germany is experiencing a second economic miracle (look no farther than the FT Deutschland’s “Wirtschaftwunder blog”:http://www.ftd.de/wirtschaftswunder ) thanks to balanced social and economic policies, fiscal responsibility, and respect for the rules and institutions of the European Union. Although much attention has been paid to this “new” German model, little has been focused on how this reading of events was constructed or, to use Twain’s formulation, how and why many among the German public and elite are convinced of so many “things that aren’t so.” Doing so not only helps clarify the seemingly contradictory or ad hoc nature of contemporary German politics. It also sheds light on how problematic the current German approach is as a perceived solution to Europe’s woes.
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