Faced with intense regulatory pressures, banks in Europe have been deleveraging big time
BY STEVE 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 United States Treasury Department, which had
the audacity to blame Germany for a weak Eurozone recovery in its semi-annual
foreign exchange report. The Treasury’s criticisms were echoed by IMF 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 leveled against Germany revolve
around nebulous terms like “imbalances” and “deflationary biases.” But, what’s
really going on here? The primary complaint being leveled 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 U.S.) 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.