Germany’s immense current-account surplus – the excess savings generated by suppressing wages to subsidize exports – has been both a cause of the eurozone crisis and an obstacle to resolving it. Before the crisis, it fueled German banks’ bad lending to southern Europe and Ireland. Now that Germany’s annual surplus – which has grown to €233 billion ($255 billion), approaching 8% of GDP – is no longer being recycled in southern Europe, the country’s depressed domestic demand is exporting deflation, deepening the eurozone’s debt woes.And he reminds us of how much German so-called assistance to Greece has been shaped by calculations of narrowly-conceived German national interests:
Germany’s external surplus clearly falls afoul of eurozone rules on dangerous imbalances. But, by leaning on the European Commission, Merkel’s government has obtained a free pass. This makes a mockery of its claim to champion the eurozone as a rules-based club. In fact, Germany breaks rules with impunity, changes them to suit its needs, or even invents them at will. [my emphasis]
Beyond refusing to adjust its economy, Germany has pushed the costs of the crisis onto others. In order to rescue the country’s banks from their bad lending decisions, Merkel breached the Maastricht Treaty’s “no-bailout” rule, which bans member governments from financing their peers, and forced European taxpayers to lend to an insolvent Greece. Likewise, loans by eurozone governments to Ireland, Portugal, and Spain primarily bailed out insolvent local banks – and thus their German creditors.Dieter Wermuth notes in Warum die deutsche Wirtschaft nicht in Fahrt kommt Die Zeit 28.07.2015 notes that despite obviously good conditions for economic growth, such as very cheap credit, German GDP growth for 2015 is expected to be in a modest 1.5-2.0% growth range.
To make matters worse, in exchange for these loans, Merkel obtained much greater control over all eurozone governments’ budgets through a demand-sapping, democracy-constraining fiscal straitjacket: tougher eurozone rules and a fiscal compact. [my emphasis]
Higher German growth would be good for Germany and good for the eurozone. But Angela Merkel's economic dogma doesn't allow it.