It has been said before (I blogged on this in 2011) – that to cure the structural imbalances that plague the European project, Germany needs to be more like Greece, and Greece needs to be more like Germany. Well, Germany is being more like Germany right now and this means the structural imbalances between the north and south will only get wider, baking in further strains on the Euro.
CNBC reported today on an article in the FT: Germany Defies Calls for Stimulus. In a nutshell, Germany is proceeding with cuts in spending in order to meet a balanced budget, even earlier than originally planned (by a year). Apparently Wolfgang Schauble, German finance minister, is reported to have said the 2014 spending plan as “growth-friendly consolidation”, intended to prove to the rest of the euro zone that “consistent sustainable budgeting and growth are not mutually exclusive”.”
Ammmm excuse me Wolgang – no one said they were not mutually exclusive. What has been said is that this is desired, long term, once we get out of the mess we are in. This decision takes Europe in the exact opposite direction it needs short term. Germany needs to spend (and save less) to create demand, and allow deficits to grow, as the south slows spending, and starts to save. This would balance the European budget, and lessen the current divergent wage/price differences that stress a single currency across a divergent economic landscape. No the divergence can only remain, or get larger. Thus any trigger to charge for debt (for the profligate south) will trigger yet another run and challenge to the Euro and its hegemony in the region.
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