Germany is not fit to lead!

That´s my conclusion from (Germany Finance Minister) Wolfgang Schäuble´s NYT article “Wolfgang Schäuble on German Priorities and Eurozone Myths”:

The financial crisis broke out seven years ago and led many countries into an economic and debt crisis. A pervasive set of myths — that the European response to the crisis has been ineffective at best, or even counterproductive — is simply not accurate. There is strong evidence(!) that Europe is indeed on the right track in addressing the impact, and, most importantly, the causes of the crisis. Let me run through some of these myths.

……………………………………………………………………………………………………………………………

My diagnosis of the crisis in Europe is that it was first and foremost a crisis of confidence, rooted in structural shortcomings. Investors started to realize that the member countries of the eurozone were not as economically competitive or financially reliable as the uniform bond yields of the pre-crisis years had suggested. These investors began to treat the bonds of certain countries with much more caution, causing interest rates for those bonds to rise. The cure is targeted reforms to rebuild trust — in member states’ finances, in their economies and in the architecture of the European Union. Simply spending more public money would not have done the trick — nor can it now.

…………………………………………………………………………………………………………………

The priorities for Germany, as the current president of the Group of 7 nations, are modernization and regulatory improvements. Stimulus — both in fiscal and monetary policy — is not part of the plan. When my fellow finance ministers and the central bank governors of the G-7 countries gather in Dresden at the end of next month we will have an opportunity to discuss these questions in depth, joined — for the first time in the G-7’s history — by some of the world’s leading economists. I am confident that we can reach some common ground in Washington in advance of that meeting.

Maybe Germany´s Finance Minister has a “euro death wish”! A real Greek exit, not just Grexit, is upon us, ever more likely. With that the whole will be broken and the euro will be perceived as just another (likely to fail) fixed exchange rate arrangement!

The NGDP contrast between core and periphery (with Greece as the “benchmark).

German Leads_1

German Leads_2

Schaüble´s idea that “many European countries are reaping the rewards of reform and consolidation efforts” is risible. Just compare RGDP in the EZ with RGDP in the US since the 2007 cyclical peak.

German Leads_3

I wonder who “some of the world´s leading economists” attending the G-7 will be.

Update: You really can´t square Schaüble´s “The financial crisis broke out seven years ago and led many countries into an economic and debt crisis” with the facts, especially regarding Spain, whose debt/gdp at 36% in 2007 was one of the lowest in the EZ (and at that point Spain was running a fiscal surplus!). It looks and feels like a monetary induced NGDP crisis!

German Leads_4

One thought on “Germany is not fit to lead!

  1. When I look at these charts of Italy, Greece, Spain and Portugal, and people say it is so important that the Euro be saved….what? What?

    Surely, these nations would be better off with their own central banks. Sure, free trade, of course make it easy to cross borders for fun or profit. All good.

    I see no future for Spain, Portugal, Greece and Italy in the Euro, only perma-recession. How any more years will this go on? Yes, all four of these nations need structural reforms, every modern democracy does.

    Monetary asphyxiation is not how you reduce structural impediments. Monetary policy cannot be made with utopia in mind; it must be made with the realities on the ground.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s