Posts Tagged ‘Unification of Germany’

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All of a sudden the criticism is coming from everywhere. From George Soros to the Australian Treasurer; from the US Treasury Secretary to a former German Finance Minister, Germany’s leader Angel Merkel is being put under enormous policy to change tack. Is the great European experiment with austerity about to be ditched?

Perhaps one of the more surprising elements of the recent media coverage of the death of Lady Thatcher has been the focus on her views on the unification of Germany. Opinion seems divided on what, precisely, she believed, (whether unification should not happen at all, or should be merely delayed).

It is clear, however, that she had grave reservations. The unification of Germany probably led to acceleration in the European project; the idea being that a more closely integrated Europe, especially closer ties between France and Germany would act, as a counter weight to Germany’s new found might. Lady Thatcher, it appears, felt that not even that approach would work; that a united Germany would become virtually all powerful within such a union.

But the discussion on Lady’s Thatcher’s views on German unification is really about something else. Germany’s position within Europe is becoming increasingly unpopular and seemingly unrelated developments in the news have been sucked into the debate.

The criticisms of Germany have reached a new crescendo for two reasons. The first factor is the contrast with Japan. Its new programme of QE is not so much making the Eurozone look as if it is behind the curve, as making it look as if it is not on the curve at all. The second factor is the Cypriot debacle. The way this crisis was dealt with in Europe has left a nasty scar on the entire European project.

The US Treasury Secretary Jack Lew has been in Europe, and while he made some attempt to couch his words diplomatically, it is very hard not to interpret his comments as being hugely critical of Germany. He said at a press conference: “I was particularly interested in our European partners’ plans to strengthen sources of demand at a time of rising unemployment.” Err so what plans are those, exactly? Europe does not go for demand management. The ethos in Europe seems to be austerity and let demand take care of itself.

George Soros has been in Frankfurt, and while there he made a speech slating Germany for the way it dealt with the Cypriot crisis and said Europe’s biggest economy should do one of two things. Either it should support euro bonds, whereby bonds issued by one government are guaranteed by all members, or Germany should leave the euro.

He said: “Germany has no right to prevent the heavily indebted countries from escaping their misery by banding together and using Eurobonds.” He added: “The financial problem is that Germany is imposing the wrong policies on the Eurozone. Austerity does not work. You cannot shrink the debt burden by shrinking the deficit.”

Meanwhile former Australian Deputy Prime Minister and the country’s Treasurer Wayne Swan has praised the monetary policies of the US and Japan. “Thank God for the Fed,” he said. He could just as easily have said “Curse the Eurozone.” It would have meant much the same thing.

In Germany, the former Finance Minister and now political rival to Mrs Merkel Peer Steinbrück used an interview in ‘Spiegel’ to slam Mrs Merkel’s focus on austerity. Nobel Laureate Paul Krugman used his ‘New York Times’ column to congratulate Japan on its new bold approach to QE: “Seriously,” he said, “this is very good news.”

Austerity can work if applied in isolation, but when it is applied across a continent as important to the global economy as Europe it can become self-defeating.

©2013 Investment and Business News.

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