Much has been said about Peer Steinbruck’s ‘crass Keynesianism’ comment including Gordon Brown trying it on that this was a piece of internal politicking, (since denied by another member of the German government) but people are beginning to ask what the Germans really should be doing in this crisis. The German government has announced a €32bn stimulus package but analysts say this is largely stuff which has already been announced (oddly, an old Brown trick).
Ambrose Evans Pritchard, in a forceful piece in today’s Telegraph, believes Germany’ is in breach of EMU's implicit contract, and that it should reflate, using its surplus’. But why? ‘The rules of the game are that surplus countries should boost demand’, says AE-P. Well, I’ve never seen these rules.
The Stability and Growth Pact limits countries from going off the rails, applying ceilings to budget deficit and debt (broken by many countries, including Germany) but there is nothing in the Pact suggesting that in a recession the strong should reflate to help the weak. Germany has suffered and has held wages down in a way that France and Italy have not, their industry is now competitive, as evidenced by a trade surplus the size of China’s and they feel now that they should be allowed to enjoy the fruits of their labours, rather than having to bail out the less prudent.
This will make Germany stronger in Europe in the long term, and if we don’t like that, we can reflect that it is our own fault.
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