No offset!

Another depressing quote!

This from Desmond Lachman. Also at the AEI:

The timing of the Treasury’s criticism of German economic policy seems to be particularly well timed. Today Eurostat released data showing that European unemployment remains stuck at an appallingly high rate of 12.2%. It also reported that over the past year overall European consumer price inflation had decelerated sharply from 2.6% to 0.7%. With a number of countries in the European periphery already on the cusp of outright deflation, these trends have to raise questions as to whether overall Europe might not be heading for a bout of Japanese-style deflation.

Sadly, while the Treasury’s admonishment is likely to rile the German policymaking establishment, it is unlikely to change German policies. Seemingly coming from a different planet, German policymakers believe as an article of faith that since budget prudence and structural reform has served Germany well over the past decade there is little reason for Germany to change course now. They simply dismiss as a misguided Anglo-Saxon idea any notion that draconian belt tightening in the European periphery needs to be offset by budget expansion in those European countries that have room to do so.

As I showed previously, Spain is doing even worse than the US during the Great Depression (and its unemployment rate is even higher).

Spain SM2Note: The chart above is very wrong. Inadvertently I used Real Gross Investment (instead of RGDP) in the case of Spain. The correct chart follows:

Spain SM1 Rev


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