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Ire Directed at Germany Is Not Just nitpicking

November 29, 2013 in Economics

By Steve H. Hanke

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Steve H. Hanke

Well, it’s official, the economic talking head establishment has declared war on Germany. The opening shots in this battle were fired by none other than the US Treasury Department, which had the audacity to blame Germany for a weak Eurozone recovery in its semi-annual foreign exchange report.

Despite Germany’s relatively strong recovery, the international economic establishment is none too happy about the country’s tight fiscal ship.”

The Treasury’s criticisms were echoed by IMF’s first deputy managing director David Lipton, in a recent speech in Berlin — a speech so incendiary that the IMF opted to post the “original draft” rather than his actual comments, on its website. Things were kicked into a full blitzkrieg when Paul Krugman penned his latest German-bashing New York Times column.

The claims being levelled against Germany revolve around nebulous terms like “imbalances” and “deflationary biases.” But, what’s really going on here?

The primary complaint being levelled is that Germany’s exports are too strong, and domestic consumption is too weak. In short, the country is producing more than it consumes. Critics argue that “excess” German exports are making it harder for other countries (including the US) to recover in the aftermath of the financial crisis.

While a review of international trade statistics is all well and good, the ire against Germany actually comes down to one thing: austerity. Despite Germany’s relatively strong recovery, the international economic establishment is none too happy about the country’s tight fiscal ship.

If only Germany would crank up government spending, then Germans would buy more goods, and all would be right in the Eurozone, and around the world — the argument goes.

Yes, the anti-austerity crowd has found a convenient way to both slam austerity and scapegoat one of the few countries to successfully rebound from the crisis. I would add that it is hardly a coincidence that this line of argument fits nicely into the fiscalist message of Germany’s Social Democratic party, with whom Chancellor Angela Merkel is currently trying to arrange a governing coalition.

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In recent years, the fiscalist crowd has advanced the one-dimensional argument that fiscal stimulus is the only way to save struggling economies in the wake of the crisis. This follows the standard Keynesian line: to stimulate the economy, expand the government’s deficit (or shrink its surplus); and to rein in an overheated economy, shrink the government’s deficit (or …read more

Source: OP-EDS

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