There is no
doubt that the eurozone has performed lamentably in terms of recovering from
the Great Recession. GDP per capita remains well below pre-recession peaks.
Eurozone unemployment is close to 11 per cent, compared with 7.5 per cent in
2008.
Recently 16 widely respected economists
wrote an article reiterating what most have known for some time: the 2010
crisis was essentially the result of excess lending to the private sectors of
countries such as Ireland, Portugal and Spain, lending that often originated
with the banks in Germany or France. Countries like Belgium or Italy entered
the crisis with debt-to-GDP ratios over 100 per cent, yet did not require Troika
bailouts, whereas Ireland and Spain, which had ratios below 40 per cent, did.
The major factor leading to a rise in Irish government debt was that it bailed
out its own banks that had lent excessively.
Only in the case of Greece do we have a
classic case of government profligacy. Yet the German government in particular
chose to see the entire 2010 crisis as the result of government profligacy, and
as a result it changed the eurozone’s fiscal rules so that from 2010 all the
eurozone countries were forced to embark on austerity.
Back-of-the-envelope calculations suggest
that cuts in government consumption and investment between 2010 and 2013
reduced eurozone GDP by around 4 per cent in 2013. More sophisticated estimates
including those based on model simulations suggest an impact at least as large.
In normal circumstances that would have hit
Germany as hard as the rest of the eurozone. However as Peter Bofinger, the
“minority Keynesian” member of Germany’s Council of Economic Experts, recently
argued action taken much earlier by German employers and employees ensured that
Germany was (and still is) in a far better position than its neighbours
following the crisis.
Stability within a monetary union is only
possible if inflation in each member country is roughly the same. As is well
known, this was not the case for the eurozone periphery before the recession.
The excessive private-sector lending that I have already mentioned led their
inflation rates to outstrip the eurozone average, so that when the crisis hit
they had become highly uncompetitive.
What is less known is that Germany did
exactly the reverse. Employers and employees co-operated to ensure that nominal
wage increases were remarkably low, and as a result the competitiveness of
German traded goods steadily increased before the crisis, not just in relation
to periphery countries, but also against all its other eurozone neighbours. The
result was strong export growth, which substituted for the reduced domestic
demand caused by fiscal contraction.
Today Germany’s current account surplus is a
massive 7.5 per cent of GDP. While unemployment has increased substantially
since the recession in nearly every other eurozone country, in Germany it has
fallen. German officials would like you to believe that this relative success
indicates the soundness of German economic policies, but what they do not tell
you is that undercutting their eurozone neighbours was critical to this
success.
We can go further. The European Central Bank
only started a large-scale quantitative easing programme this year, some six
years later than similar programmes in the US and UK. A major reason for this
delay was resistance by German economists, central bankers and politicians to
this programme. The Bundesbank’s obsession with inflation, together with the
strong influence that German central bankers have on some of their colleagues
at the ECB, allowed interest rates to rise twice in 2011, which added to the
second eurozone recession.
We can go further still. The scale and scope
of the eurozone debt funding crisis was greatly increased by the influence on
the ECB of German central bankers, politicians and economists. It is now well
understood that the reason why economies in the eurozone, and only those
economies, suffered a debt funding crisis in 2010 is that these countries did
not have their own central banks. Central banks in countries like the UK play a
key role in reducing the risk associated with government debt by acting as a
“sovereign lender of last resort”, which means being prepared to buy its own
government’s debt if the market fails to. The ECB initially refused to play
this role, leading to self-fulfilling market panics over Irish, Portuguese and
Spanish government debt. The ECB changed its mind in 2012, and the debt funding
crisis quickly came to an end. Despite this, German politicians have tried to
declare this move illegal in the courts.
Thus Germany helped to aggravate the 2010
crisis by pressurising the ECB not to act as a lender of last resort. We have
also seen how adopting the wrong model of the crisis led Germany to insist on
tighter fiscal rules which created a second eurozone recession. German
influence on the ECB also led it to delay QE for six years, and raise rates
during 2011. Finally we saw how the actions taken much earlier by German
employers and employees helped to protect Germany from the consequences of all
this. The eurozone crisis was not made in Greece, Ireland or Spain; it was made
in Germany.
A great conspiracy? Not really. More the
consequence of a set of misguided ideas about macroeconomics and how central
banks should work. However, Germany has made a false narrative for itself which
is sufficiently embedded, popular and self-serving that it will never change
from within, despite the courageous efforts of a few enlightened German
economists to tell the real story. The key to a better future for the eurozone
is that the other countries suffering the consequences of all this begin to see
Germany’s pivotal role in their own discomfort.
Πηγή:
independent.co.uk
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