Germany selfish

The new Italian Prime Minister Enrico Letta’s first official foreign trip soon after taking oath was to visit Germany’s Angela Merkel. The discussion was mainly around the troubles facing Europe at the moment and how Italy was going to get itself out of the economic and financial mess it is in.

What I found interesting from their meeting was the pronouncement by Merkel that considering the current crises, the fiscal consolidation programs and growth are not mutually exclusive issues. that’s wrong for sure and the empirical evidence is there for everyone to see. The prolonged downturn in Europe is as a result of these failed austerity programs. The solution isn’t more austerity but a move towards growth programs founded upon expansionary policies.

Germany has put uplifted itself to a position where other European countries must follow. But one must understand that it was actually Germany which benefited a lot from the boom years in the Eurozone setup and during the crisis when demand fell back it escaped almost unscathed because the Germany banks which mostly financed the construction and other booms in countries in the south of Europe were bailed out by tax-payer money. Therefore other countries were forced to protect the shortfalls of the Germany lenders under the banner of protecting public interest. When banks get into trouble we hear a lot about how authorities must protect the savings of the general public but not much effort is spent on reprimanding and prosecuting those responsible officials who got us into this mess.

A bulk of these deficits and debt which are at the storm were brought about by the crises themselves when private demand slumped. Punishing governments and the very same “general public” whose “interests” were “protected’ by bank bailouts is hypocritical and it goes on to show how the system is protecting itself and its masters. Therefore the inadequacies of monetary policy needs to be filled by a more focused fiscal policy. Government stimuli funded by debt are not bad in the current situations.

If policy-makers are scared of bond vigilantes, they should look to the US as an example. That’s were the crises started and they have rebounded but not exactly to were they are expected to be. In a sense they are way ahead of their European counterparts.Inflation has been predicted to occur in the US many times but this has not happened. The same thing with interest rates also but real economics has defied many “experts.” Bond vigilantes have failed to get their way in the US therefore why should they have much power in Europe?

Europe should get its economics right if they are to experience positive news soon. Germany has to take more financial responsibilities in solving the current European difficulties if Europe has to entertain the Eurozone concept. A monetary without some fiscal unionism, means that the benefits of federalism, something the EU concept in heading to will remain just a pipedream. Therefore a relook into the Eurozone concept needs to be done with a view of finding out were this concept is heading to and how are they going to achieve it. Concrete decisions need to be made.