Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 14 August 2015

German Self-Interest

Michael Burda from Berlin’s Humboldt University has an interesting article in the Royal Economic Society newsletter, which is critical of views that I and others have expressed about the ‘problem with German (macro)economics.’ The key argument Michael Burda wants to make is that there is nothing peculiar or unusual about German economics, and what many of the critics interpret as either economic ignorance or distinctiveness is actually self-interest. To quote from his final paragraph: “It is not ordoliberal religion, but a mixture of national self-interest and healthy mistrust informed by experience that guides German economic policy today.”

Often trying to decide whether policies are the result of self-interest or particular ideas is difficult because both explanations fit the facts. What we really need are examples of German economic policy which follow self-interest but not dominant ideas, or vice versa. Now some might suggest ‘bailing out’ Greece and other periphery countries was a clear example, where the idea of European solidarity triumphed over self-interest. Unfortunately that will not work: the fact that Greece in particular did not default in 2010 and had only limited default in 2012 was in part to protect the interest of other EU banks. You could plausibly argue that Greece has suffered precisely because of German and other EU countries' self-interest.

In fact in many ways Germany has done rather well out of the EZ crisis. Henning Meyer points us to a study which suggests that, as a result of the crisis and Germany’s ‘safe haven’ status, the German government has saved more than E100 billion from 2010 to 2015 in debt interest. As Henning notes, this has helped Germany ‘set an example’ on deficits without having to do anything too painful. That is slightly more than its total loss if Greece completely defaults. It has also not done badly as a result of the profits the ECB has made on its lending.

Perhaps the largest benefit Germany has received from the Eurozone has been as a result of undercutting its fellow members around ten years ago. Everyone knows about the ‘excess inflation’ in the periphery during those years, but the story of insufficient wage inflation in Germany at the same time is not often told. This policy - which if it had occurred via exchange rates rather than domestic inflation would be called beggar my neighbour - may well have been accidental, but it is a key reason why Germany is the only Eurozone economy that has not suffered since 2010. Indeed, one interesting explanation of the general lack of interest in using fiscal policy for demand management in Germany is that for some time the country has been part of a fixed exchange rate system in which, with its particular wage bargaining system, it can fairly easily boost demand by changing domestic inflation.

What about the pressure from Germany on the ECB: first not to undertake the OMT programme in September 2012 which ended the non-Greek crisis, and then not to undertake QE? That is generally put down to extreme fears of inflation and fiscal dominance of monetary policy in Germany. Unfortunately it is also been in Germany’s self-interest. For example, if the ECB had been able to keep to its 2% inflation target, the earlier undercutting of its neighbours would have had to result in a subsequent period of German inflation above 2%. However Germany may well avoid this outcome as a result of Eurozone deflation, so that countries outside Germany will bear the cost of correcting the German competitiveness problem.

That self-interest is key to German policy gets important support from 2009 when alongside other counties Germany enacted a form of countercyclical Keynesian policy. Here we have a clear case where self-interest appeared to win out over a prevalent distrust of countercyclical fiscal policy.

In some senses I’m attracted to Michael Burda’s hypothesis. I once believed that the “problem with German macroeconomic policy is not that it is acting in the national interest, or otherwise, but that it is based on a discredited and harmful set of ideas”. But in my recent discussion on why these discredited ideas persisted, while I threw doubt on some popular accounts, I still failed to come up with a convincing story. There may also be an element of false optimism in focusing on belief in poor economic ideas rather than self-interest, if you also think (hope?) that these beliefs can be more easily changed.

For much the same reason I also think it is futile to try and convince Germany that it should embark on fiscal expansion ‘for the sake of the rest of the Eurozone’, partly because it contradicts self-interest, but also because Eurozone deflation means that we need fiscal expansion not just in Germany, but the whole of the Eurozone, so that ECB interest rates can be lifted above their lower bound. The problem over the last few years has not just been austerity in Germany, but austerity in the Eurozone as a whole.

So perhaps it is all just self-interest. But if that means there is nothing unusual about German economics, it does not let German economists off the hook. Germany was central to creating the second Eurozone recession through its insistence on fiscal austerity everywhere, together with unhelpful pressure on the ECB. Germany was also central in imposing harmful debt levels and austerity on Greece. Mainstream economics tells us this, but few German economists have been prepared to say so in public. German Keynesians who are involved in the policy debate that I have talked to tell me the prevailing climate is definitely anti-Keynesian. It is not the job of German academics to stay quiet about what mainstream macroeconomics tells us just because doing so suits the national interest.


  1. It might be logically impossible to differenciate between these two possibilities. If Germany is convinced that Ordoliberalism is the way to go, then ordoliberal policies ARE in its self-interest. One would have to prove that German policy élites KNOW a better way but don't pursue hard - that's hard to prove.
    Also, countercyclical fiscal policy does not necessarily contradict ordoliberalism. If the economy is shrinking and there is deflation, then ordoliberalism would advice countercyclical policy. I guess one of the main ideals of ordoliberalism is a 0% inflation target - perfect order, so to say. That's why Germany is currently very happy with the 0,3-0,4% domestic inflation. You don't hear any prominent German banker or politician call for more inflation to hit the 2% ECB target. On the plus side, the threat of deflation will also be countered strongly. You could say the ordoliberal inflation target is at 0%, but asymmetrical, with a preference for inflation against deflation. Don't conflate ordoliberalism with neoclassical economics.

  2. Interesting remarks here about Ordoliberalism - definitely I would like to know more about this - if there are any informed commentators here. Perhaps this school of thought is more historically, rather than 'mainstream' (which I gather you mean sticky-price-rational-expectations-optimisation-model) based. This might explain why there is a reticence to push for a macro-economic Eurozone expansion without first fixing institutional weaknesses behind the pre-crash asset price bubbles in the Southern periphery. The policy sclerosis is probably also institutional - in this case there isn't the institutional infrastructure to ensure that capital from surplus countries can be chanelled into deficit countries and ensure that it is invested in the right places in the right way. This would require a German type of system - with its labour and financial market characteristics. That would require banking and fiscal union in the EU - designed on the German/Northern European model (which is not necessarily inline with much of the wider EU agenda which pushes for free trade, capital and labour flows and is very neo-liberal). The Germans need to push much more quickly on this, but in an expanded EU and in the current climate, this is very tricky.

  3. How is it is 'German self-interest' to have a smaller economy, just as much as how is it in UK self-interest to have a smaller economy than it would were a proper stimulus enacted after the 2008 crash?

    It is clearly not in the self-interest of everyone in Germany or the UK to have a reduced economy.

  4. SW-L says “the story of insufficient wage inflation in Germany at the same time is not often told.” In defence of Germans it should be said that inflation there for the first decade of the Euro’s existence was around 1.5%pa. And that pretty much complies with the official EZ target which I think was “a maximum of 2%”.

    But obviously with the benefit of hindsight, there’d probably have been something to be gained from bumping up German inflation to perhaps 3% for that decade.

    1. Musgrave, German inflation was consistently just under 1% for a decade. You might be thinking of nominal growth, as German real GDP barely grew during those ten years because the Hartz reforms flat-lined domestic consumption. The Economist actually called Germany the sick man of Europe back then. Which makes it all the more astonishing how European governments are now holding Germany as THE example to follow. Political amnesia is a scary thing.

  5. "Indeed, one interesting explanation of the general lack of interest in using fiscal policy for demand management in Germany is that for some time the country has been part of a fixed exchange rate system in which, with its particular wage bargaining system, it can fairly easily boost demand by changing domestic inflation."

    Indeed. Imagine your American sticky-price-rational-expectations-optimisation-model masters grasping that. (They even said prices and income policies have been unambigously discredited - using their theories of course.) Imagine UK or US policy makers trying to pull off something like that. A stable currency, with wage stability, and yet at the same time managing to have living standards and an egalitarian outcome the envy of Europe.

    I reckon we should adopt ordo-liberalism.

    1. The point is in the ordo system Germany plays zero sum with the rest. So we can't all be Germany, because then even Germany can't be Germany.

    2. Indeed. That kind of policy only works within a fixed exchange rate system, and is beggar my neighbour.

    3. What is 'beggar they neighbour'. I think if you properly studied the actual history of German policy making (and I mean the history, that means looking at historical documents) you would find little evidence of policies with a 'beggar thy neighbour' objective. I think we would agree that a strong DM policy followed for most of the post WWII period (which they want to keep with the Euro) is not beggar thy neighbour, if anything, it is "giving a competitive advantage to thy neighbour".

      And suppress German wages? Have you been to Germany ever? Whose wages look suppressed, theirs or ours?

      I think a lot of this stuff goes back a long way. It is heavily rooted in silly MIT models, and I remember as a student reading Dornbusch rant on about this type of stuff decades ago. (He also said the same rubbish about Japan, greatly misunderstanding that economy.)

      We want more history, More understanding of how the German system actually works. One thing I would like to understand is how does their collective bargaining system work so well. I agree, it seems to be very effective in terms of demand management. How do they do it?

    4. Beggar they neighbor means having large trade surpluses with the rest of the world in which the surpluses are partly due to an undervalued currency (thanks to a currency union with the slumping periphery nations) and to a lack of domestic demand due to tight fiscal policies for example.

      I agree their collective bargaining and labor relations are better than the West, but I'd be curious to see the actual numbers on wage gains over the years. I bet they are not that great.

    5. Yes I know what it is Peter, believe me. And I just explained why it is bunk. The reason's for Germany's or Japan's trade surpluses are not to be found in undervalued currencies. Germany followed a strong currency for much of its history (do you remember the DM?). Their standard of living would suggest that suppression of wages has not been one of their tactics either.

      Yet we have heard this talk since the 1970s. It is attributable to people who are more interested in flirting their favourite gadgets than the history. It started with open economy ISLM, and has clearly been adopted by sticky-price-rational-expectations-optimisation-model based converts.

      Germany and Japan have generally been well managed economies, and that is partly the problem. Yet they are forced to swallow this stuff from the priests at MIT (and its pick-up ground the IMF) and the cosmopolitan English language FT centred financial press who, as has been pointed out on this blog before, are not terribly clever).

      But the big cause of the trade imbalances is micro-economic, and is to be found in industrial structures.

  6. For an interesting political science take on exactly this issue, see Matthias Mathijs who argues that it was mistaken ideas which caused Germany to act against its own national interest, which Mathijs argues it did.

  7. " a result of the crisis and Germany’s ‘safe haven’ status, the German government has saved more than E100 billion from 2010 to 2015 in debt interest."

    Sorry, that is trivial. The German Government has 1500 billion EUR as debt, usually with 10 years maturity, i.e. 150 billion EUR per year are converted into Bunds with ~2% less interest rate. This process started in 2009.

    This means the German government can expect arund 300 billion EUR savings between 2009 and 2029, maximum annual saving will be about 30 billion EUR in 2019.


    1. Addendum: These savings are a direct result of the fact that credit and credibility come from the same roots and are of course not a purely German feature.

    2. And whatever interest the German government does not pay, the German savers do no receive, do not fill the pension plans. People do not pay their Riesterrente anymore, and some of them will have to be subsized in retirement, etc .

  8. Is it altruism and solidarity with Bulgaria and Romania, and with fellow eurozone members Latvia and Slovakia, that motivated the greek government to commit massive accounting fraud to get a lot of cheap loans and when they run out to offer the others countries of the EU the opportunity to cancel $300 billion of debts and then give the greek governments $50 billions a year no-strings-attached?

  9. And what about the altruism and solidarity of the USA, UK, australian governments with Greece? Is because of that altruism and solidarity that so many USA, UK, australian "progressive" Economist are demanding that SOMEBODY ELSE should give the greek government a costless default on their debts and huge yearly transfers?

  10. «Germany was also central in imposing harmful debt levels and austerity on Greece.»

    That to me seems like a huge fantasy: the greek government had always had the right to walk away at any time, and very democratically they called a referendum the proposals of the other 18 eurozone nations and also entirely democratically rejected them. There has been no imposition. Also, the greek government engaged in massive accounting fraud for several years to fraudulently borrow those «massive debt levels», so perhaps they have the major responsibility for them.

    But it seems to me that the USA and the UK have been far more responsible than any other ally of Greece for their troubles: they haven't risen to the challenge of making Greece the much better, much more generous offer that so many "progressive" Economists from the USA and the UK think that Greece needs and deserves.

    Indeed they have offered no direct help to the greek government, despite having have enormous financial resources, and only a pretty small indirect contribution via the IMF or the ESF.

    The USA and the UK governments can well be said to have humiliated Greece with their determination to deny them help they could have given a loyal ally in their moment of need.

    Every morning every greek voter can wake up and resent the USA and the UK for being so cruel to the poor of Greece.

  11. Is accidental policy an oxymoron?

  12. Put another way, some obvious categories of people engage in frequent attacks against specific countries for not-donating even larger huge sums to Greece, despite the decisions of the eurozone group having been taken at unanimity, and nobody else having offered to pay for a better deal.

  13. I'm not sure it makes sense to say that keeping Eurozone inflation low was in Germany's self-interest. Surely most of the German public would have benefited from a modest increase in inflation. The German banks and wealthier population are the ones that would suffer (slightly) here.

    So maybe it's self interest, but only if we equate "Germany" with "Germany's banks and rich."

    1. Actually, teh German banks suffer from old fixed interest rate saving contracts now due to low inflation. The Sparkassen (savings & loan) companies are expecting to be in great pain 2016 onwards.

  14. Blissex, good points as usual but the mantra should be "central banks will never interfere in another currency zone." Ultimately for the euro to work, there has be a fiscal union at the federal level, or breakup and a few nations continue to use euro, or else full breakul. UK/US governments would be far better providing real goods and services to Greece than money.
    Bill Mitchell has written about the possibility of eurozone federal government. Myself I would have a 100% land tax and a federal VAT/sales tax collected by an elected Eurozone federal government that runs an overdraft at the ECB. This would require treaty changes. A eurozone wide Job Guarantee and linking healthcare services would be a start.
    In addition, the eurozone can quantity expand via new output.
    Remember US government introduced the Marshall Plan. I certainly think the US could help but doubt you would get anything past a GOP congress.

    1. «Ultimately for the euro to work, there has be a fiscal union at the federal level,»

      That's exactly the proposal that Y Varoufakis has made IIRC: a fiscal union without a political union, a fiscal union where the debts of the greek government get co-signed by the other eurozone governments, but the other eurozone governments have no say in the economic policy of the greek government and how much debt it borrows. "because dignity" :-).

      As countries like Greece don't want a political union, because in a political union there would be one-person-one-vote, and then the voters of Greece and the the other small debtor countries would have never been able to vote themselves lots of borrowed spending.

      If there was a fiscal *and* political union then economic policy of Greece would be set by the voters of the other 18 eurozone governments, the greek government would not have borrowed hundreds of billions to pay for "free" imports, and most greek ministers and politicians would be in jail for fraud, embezzlement, corruption, ...

  15. The US buys a lot of Greek products. But we're neither in a currency union or a political union with Greece. We have a NATO military alliance with them and would prefer they stay in it. I think it would great if the US gave Greece aid, but this a problem of Europe's making and Republican sociopaths would never vote for it.

    Here's why the Euro zone was a bad idea. Let's say California is Germany and Puerto Rico is Greece. In the poorer cases you have the flight of prime age workers. In the case of PR the US and rich states like California will send transfer payments automatically to individuals, not creditors.

    The difference is these stabilizers are automatic and not the result of political squabbling.

    In the US, crippling austerity was imposed in states like Kansas and it failed comically and tragically. But it wasn't imposed. The idiot local leaders did it.

    When austerity is imposed from an more powerful outside force, it strips the less powerful of its dignity. Dignity is the most underrated political force, it is an essential human need. And Greeks and the periphery are losing it.

    1. «this a problem of Europe's making»

      When the greek government engaged in massive accounting fraud to enter the eurozone and then to scam a few hundred billions of cheap loans, was that something that Europe made the greek government do?

      Also, in what way is are the governments of the EU and the eurozone doing less than the USA and the UK are doing to finance the deficits of the greek government? They are surely not doing for Greece what you are suggesting here:

      «the US and rich states like California will send transfer payments automatically to individuals, not creditors.»

      Then all that Greece needs is that the selfish governments of the USA and UK, that have "imposed austerity" on the greek government by not funding its deficits and not paying for a costless default, send transfer payments direct to greek individuals. I am sure that the greeks will accept dollars and pounds and SDRs as they would accept euros. They seem much less willing to accept TNs or neodrachmas.

      «When austerity is imposed from an more powerful outside force»

      I think that Greece is not at all suffering from austerity, but if it is then it is being imposed by the USA and UK, who are close allies of Greece, who effectively control the IMF, and who are not giving any direct transfers to greek citizens. As I wrote: the USA and the UK can well be said, as you do, to be humiliating Greece by denying it of an «essential human need».

      In the case of Greece that can be easily quantified: around $50 billion a year for the «essential human need» of "free" imports to restore their dignity.

      When the USA and the UK are ready to finance a much better offer to Greece, with more money and less conditions, than anybody else. When the USA and the UK directly or via the IMF give the greek government around $50 billion a year I will start to believe that they are willing to stop stripping the less powerful greek people of their dignity.

      Also the USA and UK governments should consider also the cases of Poland and Bulgaria, for example:

      * Let's assume for the sake of argument that vicious austerity has stripped greek citizens of their dignity as median greek spending per person has fallen 20-25% from its 2008-2009 peak.

      * then vicious, dignity-stripping austerity has also been imposed on Poland that has a spending per person that has "fallen" to half of that of Greece.

      * then vicious, dignity-stripping austerity has also been imposed on Poland that has a spending per person that has "fallen" to one quarter of that of Greece.

      It is therefore the USA and the UK that are imposing austerity and stripping Poland and Bulgaria citizens of their dignity by not funding government deficits of 100% and 400% of polish and bulgarian GDP.

    2. «The US buys a lot of Greek products. But we're neither in a currency union or a political union with Greece. We have a NATO military alliance with them and would prefer they stay in it. I think it would great if the US gave Greece aid»

      It would be great, but the fact remains that both the USA and the UK government are denying the fiscal transfers that the greek government seems entitled to. And that so many Economists only attack Germany for this, while the USA and UK governments have done much less for Greece and the "dignity" of greek citizens than the german government.

      Also a military alliance is a much stronger bond than the EU and the eurozone: greek citizens have been ready to fight and die to protect the lives and properties of the USA:
      «Right after the terrorist attacks of September 11, 2001 in New York, Greece has been one of the first countries to immediately respond to the request of the USA to create a coalition of willing nations, with the aim of combating terrorism»

      How selfish, how cruel has been America to Greece, in imposing on them dignity-stripping austerity, when the greek government leapt to the defense of their ally?

      Besides the USA, the UK and Greece are also common members of the IMF, an organization devoted to "helping" crisis countries. Conversely the EU is a minimal trade area, with powerless central bureaucracy managing a budget of 1% of EU GDP, far from a political union, because most small countries don't want to be governed by the decisions of german and french voters.

      Also the eurozone treaties *specifically forbid* eurozone institutions from providing fiscal transfers to member states, and the greek government committed serious accounting fraud in order to sign them as they are.

      There is no such prohibition in the NATO and other treaties: the USA and the UK are entirely free to supply any fiscal transfers they want to the greek government; instead new international treaties are needed to approve fiscal transfers to eurozone members, a lengthy and complicated process.

      The USA and UK governments have sovereign parliaments and have had 5 years to give Greece the fiscal transfers they are "entitled" to: why haven't yet done a simple vote to pay whatever it takes to end Greece's "austerity"? Why are they "stripping" the dignity of greek citizens? If they think that the other 18 eurozone countries are not doing enough for Greece, they are very welcome to do better, much better.

      One of the interesting aspects of the very similar arguments used by so many anglo-american Economists in their anti-german campaign is that they apply to *any* rich country that has not made net fiscal transfers to the greek government...

      Note that my argument is rather different: that Greece is not suffering from austerity, and that the other 18 EU governments have been very generous in helping Greece achieve a very soft landing after a temporary import boom funded by fraudulent borrowing.

    3. Blissex,

      "while the USA and UK governments have done much less for Greece and the "dignity" of greek citizens than the german government."

      "helping Greece achieve a very soft landing"

      Are you kidding?


  16. I couldn't agree more: German economic policy is nationalist in character. The problem is that German leaders sell themselves as "pro-Europe, anti-nationalist" and then demand that the rest of Europe do what benefits only Germany.

  17. I think German perceived self- interest is, in part, to protect its ability, long-term, to export to the whole world not just to the other EU or Euro-Zone states thus wage restraint and spending restraints are part of this. After all, Germany is vulnerable to increasing competition as China and others climb up the value chain and copy technologies and design. Also, Germany has not needed to do a fiscal stimulus, and in part could ignore the need for one, since it has enjoyed the fruits of other people's fiscal stimulus, notably that of China. China's fiscal stimulus became Germany's fiscal stimulus. But the quasi-total state of denial in Germany of Keynesian economics, of the importance of aggregate demand, of the multiplier, of the responsibility of Germany for creating a competitiveness gap in the Euro Zone, and for its banks - which lent too much too easily - and the denial of any design flaws in the Euro Zone is quite amazing. Perhaps when German exports splutter Germany will rediscover Keynes. In any case, I doubt the southern countries can really survive cohabitation with Germany in the Euro Zone without suffering a prolonged and horrible economic decline. The euro was a horrible idea, premature, ill-designed, and extended to far too many countries. As it stands the euro is incompatible with sovereignty and therefore with democracy; and Europe is not ready for federalism either, which would mean, under German aegis, the destruction of much of what makes countries such as Italy, Spain, and even France unique - and great. I think, one way or another, it would be best for the Euro Zone to split or to end, though this, I know, would create chaos in the short term. But staying in the euro is effective suicide for many countries, slow motion suicide, the suicide just the same.

    1. You do know that you´re wrong?

      "Also, Germany has not needed to do a fiscal stimulus, and in part could ignore the need for one, since it has enjoyed the fruits of other people's fiscal stimulus, notably that of China."

      Actually, the German fiscal stimulus in 2009/10 was one of the largest in the world. Look at OECD, IMF or ILO sources which compare the size of stimulus packages.

      And there´s also another problem.
      If one easily researchable statement in your comment is wrong, how to trust the rest you wrote?


  18. There's more about German self-interest. One example:

    The addition of a capital savings component to the German retirement system in order to cope with the demographic change is only effective if Germany is a net capital exporter now and can expect those billions be returned in the future.
    Greece defaulting would shatter this primary German mechanism for mitigating retirement pay affordability problems in the future. The German government must not tolerate that foriegners refuse to pay back billions to Germans.

    1. Sven,

      I think you work with assumptions that are a few years old and outdated: The German population is not shrinking and the German government does not pay high interest rates for the debt.

      As a result the transion will be happen with much less pain level as anticipated ten years ago. Whether Greece pays 100 billion EUR or not does not really matter for the retirement issue.


  19. There's a difference between strict, closed-minded self-interest and enlightened self-interest. Is it in Germany's self-interest to have the periphery nations adjust via painful internal devaluation and years of sky-high unemployment?

    It may seem like a righteous, moral punishment for allowing themselves to be put into a position that requires bailouts. But this just serves the ancient forces of greed and fear.

    Enlightened self-interest would dictate that Germany and the creditor nations share in the adjustment, which would mean looser fiscal policy and higher inflation.

    Allow the periphery nations to grow out of their debt, instead of forcing internal devaluation on them, something Germany never had to undergo except during the pre-Nazi, Weimar era.

  20. It'd be great if people actually read the text by Michael Burda linked above. Word by word.

    1. Yes it seems pretty realistic. But it does not fit with the current anti-german campaign that the author describes, and carried out by so many anglo-american commentators (some of them seem genuine anti-german, some of them seem a bit "coordinated").

      The anti-german campaign seems to me a bit suspicious, in part because it is happening in parallel and somewhat overlaps with the current anti-russian campaign, but also because it seems absurd as the proposals to Greece have been taken by 18 countries unanimously, several of those countries have officially expressed views rather less nuanced than those of the German government, and nobody else, least of all the governments of most of those commentators, has offered the greek government more money with less conditions.

      Also because ordo-liberalism is essentially "free markets+trade unions+social insurance", and is considerably more left-wing than the policies of the recent Democratic governments in the USA and of the New Labour governments in the UK.

      To a very large extent ordo-liberalism is more or less the same thing as the USA New Deal, or the policies of Roosevelt, Truman, Eisenhower, Kennedy eras in the USA, which now would be considered far-left collectivism in both USA and UK.

    2. «Allow the periphery nations to grow out of their debt, instead of forcing internal devaluation on them,»

      That seems to be exactly what the proposals of the 18 eurozone countries have been to Greece and other countries, with very generous debt cuts, and for the remaining debt extreme rescheduling and extremely low interest rates, plus reforms that are meant *also* to enhance the long term growth prospects of those countries.

      If the USA and UK governments think those proposals are not generous enough, and want to give Greece more money with softer conditions, they are very welcome to do that, and we'll see if that helps «the periphery nations to grow out of their debt» even faster, given that they had essentially no organic/structural growth during their 5-10 year long borrowing-fueled import and house speculation booms.

    3. Agreed. It seems deeply stupid to consider economics on the basis of "Nations".
      So why do we do it?

  21. Personally, I always found it strange that Germany doesn't support a bit of quantitative easing. Whenever the euro dips, the DAX is the main beneficiary because of the large amount of German extra-eurozone exports.

    Germany seem different to other countries when it comes to QE. They seem to dislike active monetary policy as a whole almost.

    1. «Germany doesn't support»

      There is a big difference between german voters and the german government.

      «a bit of quantitative easing»

      Oh please read the news :-) The ECB have announced "Outright Monetary Transactions" in 2012, expanded their balance sheet by trillions over the past few years, mostly to bring down the interest rates of spanish, italian, greek bonds. The ECB (technically the Bank of Greece with ECB permission) have given to the greek government (barely disguised via ELA to the greek banking system, and earlier through "discount" window operations) nearly a hundred billion euros of very low interest rate loans. Two members (A Weber, J Stark, both germans) of the ECB board have resigned in protest about all this, but the german government has not protested, and must have guaranteed formally and informally all that, otherwise the ECB board would never have done it, because the ECB treaties signed *enthusiastically* by Greece forbid the ECB to lend to governments even if solvent or to insolvent entities of any sort.

      The bit of quasi-dishonesty in the statements by the government of the 18 EU countries is that they are telling their voters that they are giving little money and at hard conditions to the greek government when they are actually giving a lot of money and at soft conditions; and the german government in particular when it pretends that it will never allow the ECB to run an expansionary monetary policy, when this has been happening on a large scale for years.

      «Whenever the euro dips, the DAX is the main beneficiary because of the large amount of German extra-eurozone exports.»

      The german government has the duty to look at the national interest, but they seem quite admirably to take a long term view and an "inclusive" (of their allies too) view of the national interest, unlike the USA and UK governments (certainly not "inclusive"), or the greek government (certainly not "long term" and also not "inclusive").

      «Germany seem different to other countries when it comes to QE. They seem to dislike active monetary policy as a whole almost.»

      They seem to do monetary policy in prudent doses. They seem to care a lot more about the real economy than the financial economy, and about the median working voter than the top 30-40% of rentiers and worker-rentiers. The USA and UK governments *love* expansionary monetary policy to boost asset prices, but in neither country the median working voter has benefited much for decades. In large part because in both countries expansionary monetary policy has been balanced with a policy of high imports to keep domestic prices from rising and thus domestic wages.

  22. I find Burda's article amusing. The very arguments he uses in an attempt to dispel his three myths are the very same arguments that support the myths.

    1. " When I arrived in Berlin in the early 1990s ... "

      So perhaps most amusing is the circumstance that the interpretation of those arguments mainly depends on where one has lived the last 20 years.

  23. I don't know who is Michael Burda but I know German economics is very powerful

  24. Unfortunately I couldn't find (yet?) an English translation of this book:
    If what the author here says about Germany re-unification and how it was brought about is true - the choice of exchanging the FDR mark one-to-one against the DDR mark and its consequences - then we should really be aware of the ways Germany chooses to pursue its self-interest


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