Tuesday, May 08, 2012

Has Germany been practicing austerity itself?

Germany under Angela Merkel's leadership has been forcing austerity politics on its European Union satellite nations partners. But, as Peter Coy reports in Is Europe's Weakness Finally Reaching Germany? Bloomberg Businessweek 05/02/2012:

Exhibit No. 1 for Germany’s pro-austerity case is the strength of the German economy. "See," the Germans’ message goes, "we are keeping our belts tight and our economy is still strong. Follow our example." If Germany weakens, it would have two conflicting effects—hurting the rest of Europe by decreasing Germany’s demand for their products, but possibly helping the rest of Europe by making Germany more sympathetic to the need for stimulus to restore growth.

In truth, Germany hasn’t even embraced the austerity it urges on other countries, because it hasn’t had to, says Steven Kyle, an economist at Cornell University’s Dyson School of Applied Economics & Management. Economic growth has produced enough tax revenue that spending cuts have not been needed to keep the federal budget in rough balance.
He quotes a Bloomberg News story by Brian Parkin on why Angie's "advice" to other EU nations that they adopt a German model of export-driven growth is absurd:

Germany has grown in part through exports, 40 percent of which go to other euro-zone nations and 60 percent of which stay in the European Union as a whole. It’s impossible for all euro zone countries to enjoy trade surpluses with one another, so the German model can’t possibly work for all of the zone. And it may not work much longer for Germany itself, if a recession in other countries dampens their demand for German goods.
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