Reading the various news items and blogposts on European problems, one gets a feeling how Germany did all things right and other EMU economies did things wrong. Alex Weber, Bundesbank President showed how Germany reformed its economy after joining EMU. Then there was a paper which compared fiscal frameworks in France and Germany and said Germany stuck to the fiscal rules whereas France followed more discretion.
Joerg Bibow an econ professor at Skidmore College provides a counterpoint. And a strong one at that. He blames Germany for the current crisis in EMU and says Germany is unfit for the Euro. He first begins saying how Germans are reacting to this crisis:
Euroland has agreed to support Greece after all, really? Germany and its media are in uproar about Mrs. Merkel’s bowing to foreign pressures. After many years of belt-tightening, stagnant wages and fiscal austerity, it seems unfair that the spendthrift should be “bailed-out”. Germans have done everything right, they are being told by their political leaders and the media, boosting competitiveness and balancing the budget. Don’t make the Musterknabe pay for others’ sins. Instead, let Europe follow the German example. Let the Greek do their homework and get their own house in order through hard work and thrift – the German way. There is talk that Germany’s constitutional court might get busy again, providing new landmark judgments on what constitutes “stability” and what does not. For Germans have a constitutional right to stability, they are made to believe. If Europe is not ready to comply with the standards of stability, Germany will be forced to pull out. Perhaps the Bundesbank is already preparing for reissuance of marks. Germans are said to lose faith in the euro. Berlin does little to convince them otherwise. The train of European integration is rolling fast backwards.
Then he starts attacking Germany and its policies:
Sadly enough, Germany has been central to all of this. Germany is the biggest factor in Euroland’s export dependence, growing on exports only while domestic demand, especially private consumption, is notoriously stagnant. Among the first countries to break the Maastricht deficit limit dreamed up by its own lawyers, Germany contributed most to the ECB’s misses of its headline inflation mark by hiking indirect taxes. Worst of all, Germany reneged on the euro’s cornerstone to abstain from beggar-thy-neighbor policies.
Germany likes to see its international competitiveness as the fruit of hard work and productivity. Yet, German productivity growth since 1999 does not stand out. What stands out is wage stagnation. Germany’s improved competitiveness was derived from reducing German wages relative to its European partners; the equivalent of a beggar-thy-neighbor devaluation in pre-euro times. The consequences of this strategy have proved disastrous: domestic demand stagnation in Germany, housing bubbles in partner countries with higher inflation, given that the ECB sets one rate that has to fit all. One way or another, the country that runs up trade surpluses must either lend or grant transfers to the deficit countries that make its own surpluses possible. Today, German policymakers refuse to do either. Fooled into believing that beggar-thy-neighbor was the right thing to do, popular demands appear to be just that. One cannot fail to see that insane austerity in the periphery serves to keep the euro low enough so that Germany can now grow on external exports.
In the end he says if Germans want to go back to their Mark, let them go:
Sooner or later Europe may have to conclude that Germany is unfit for the euro. Let the Germans have their mark back if they are so keen. Let the new euro-mark rise to US dollars 2 or 2.50, so that the joys of stability are real. Euroland may then regroup around France. With Germany once again proving immature to provide constructive rather than destructive leadership, Europe’s fate is in France’s hands.
Interesting perspective and very different at that. Seeing his research work, he has been criticising Germany’s policies for a while.