Wednesday, November 12, 2014

Prognosticating a bit of 2015 for Germany and the eurozone

"Europe suffers from fatal politics." - Joseph Stiglitz, August 2014

Bloomberg Businessweek's looking-forward-to-2015 issue has a page featured bullet-points about Germany and Angela Merkel's Herbert Hoover/Heinrich Brüning economic policies, Rainer Buergin and Brian Parkin, What's Bugging Angela Merkel: Germany's Biggest Challenges 11/06/2014.

One of the notable ones concerns the effects of economic sanctions against Russia:

The Germans'once-flourishing trade with Russia is feeling the impact of sanctions. For the 12 months ended in August, exports to Russia declined 26%.
It remains to be seen whether these sanctions do more damage to the eurozone economy or to Russia.

The problem is that pursuing Hoover/Brüning economic policies during a depression leaves restricted room for economic sanctions without giving your own economy a serious blow.

Buergin and Parkin also note that Angie has promised to balance the German national budget in 2015, another staple of Hoover/Brüning economics during a depression. They note this determination of hers is dismaying to "other European Union governments that want Germany - the EU's biggest economy - to spend heavily at home and stimulate demand for French. Italian,
and other EU nations' goods."

It would also be accurate to say its dismaying to bonehead macroeconomics, as well.

Also, it's more than a little misleading to talk about Germany's economy as a separate one. When you're part of a currency zone, the currency zone is your economy.

Germany is also considering enacting a national minimum wage law for the first time. It's surprising they haven't had one before now. But in practice, the "social partnership" between Labor and Capital in Germany has mitigated the need for such a thing until the last 10 years or so.

Buergin and Parkin describe it this way: "To accommodate her Social Democrat [sic] coalition partners, Merkel's government will introduce the first nationwide hourly minimum wage of €8.50 ($10.63) on Jan. 1." And, of course, conservative economists make the same argument that they make in the United States every time the minimum wage is debated, even though experience has debunked it again and again and again: "The research institute DIW, citing simulations, estimates that the introduction of the minimum wage will cost Germany 57,000 to 384,000 jobs."

No comments: