The Most Dangerous Man in Europe
For the world to pull out of its present economic crisis, all four of the big economic actors — the USA, the European Union, China, and Japan — are going to need to do some heavy lifting. And of the four, the EU is the biggest. And of the EU’s member states, the biggest is Germany. And German Finance Minister Peer Steinbrück — an erstwhile social democrat, no less — is lambasting the “vulgar Keynesianism” of Gordon Brown and other stimulus advocates and thereby doing a considerable amount to block stimulus all across the EU. As Paul Krugman explains it’ll be very difficult for the Finlands and Denmarks and Portugals of the world to take decisive action without Germany cooperation:
The reason is that the European economy is so integrated: European countries on average spend around a quarter of their GDP on imports from each other. Since imports tend to rise or fall faster than GDP during a business cycle, this probably means that something like 40 percent of any change in final demand “leaks” across borders within Europe. As a result, the multiplier on fiscal policy within any given European country is much less than the multiplier on a coordinated fiscal expansion. And that in turn means that the tradeoff between deficits and supporting the economy in a time of trouble is much less favorable for any one European country than for Europe as a whole.
It is, in short, a classic example of the kind of situation in which policy coordination is essential — but you won’t get coordination if policymakers in the biggest European economy refuse to go along.
Germany is, of course, a pretty big economy on its own terms. And while none of the small European countries is a very big economic player (that’s why I call them small) they collectively represent a fair share of world output. So Germany’s actions are going to be very bad for the entire world and especially bad for Germany’s neighbors in Europe.
61 Responses to “The Most Dangerous Man in Europe”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
December 11th, 2008 at 11:15 am
Erstwhile: adj. former; of times past
Steinbrück is not an “erstwhile” Social Democrat. He is a current Social Democrat in good standing, participating in that party’s grand coalition with the Christian Democrats.
December 11th, 2008 at 11:24 am
It would be nice if Matt would present us with an argument here that goes beyond “Krugman says” or “let’s throw around lots of money”. When Merkel and Steinbrueck demanded more transparency in the international finance system their efforts were ridiculed and attacked by the US and the UK. Now that the sh!t has hit the fan, they are blaming Germany for not wanting to burden future generations with the result of their neoliberal pipe dreams.
December 11th, 2008 at 11:25 am
Pretty big?
Germany is the 3rd or 4th largest economy, depending on who you ask.
December 11th, 2008 at 11:41 am
Disgusting we must borrow from China (a country whose income per capita is a fraction of our own) in order to bail ourselves out of a mess of our own making.
December 11th, 2008 at 11:50 am
Yes, where did ‘an erstwhile social democrat’ come from? The guy is the deputy party leader of the SPD. He is also the related to one of the founders of Deutsche Bank, but that doesn’t disqualify him from being a social democrat.
December 11th, 2008 at 11:58 am
Steinbrueck is a Social Democrat in good-standing as well as a know-it-all prick. The discourse in Germany is anti-Keynesian on both the center-left and center-right. You will even see editorials in the left-leaning, SPD-sympathetic Sueddeutsche Zeitung cautioning people not to forget Schumpeter for Keynes. Also, Oskar Lafontaine, an actual erstwhile Social Democrat in the newly created Left Party, is the main Keynesian voice on the scene and he is considered dangerous. My hunch is that a lot of this has do with hyperflation in the inter-war period and a successful export-based economy since the end of WWII. The Bundesbank was notoriously tight with the money supply and Germans of both parties have generally been cautious in good times too. So with that background, and the fact that Merkel and Steinbrueck called for reforms in the international financial system a few years ago, it is a little difficult to convince them to put forward a stimulus-package. It does look like people are slowly coming around and that there will be something, even if it probably will not be sufficient.
December 11th, 2008 at 12:02 pm
“Soi-disant” could have subbed in for “erstwhile” with no loss in highfalutingness. Possibly more, in fact, as a five-Euro word is worth more than a five-dollar word.
December 11th, 2008 at 12:10 pm
Well, THAT sentence could have been written a few times in the past 100 years.
December 11th, 2008 at 12:12 pm
I curse you DP for beating me to the punch on the appropriately pretentious phrase that Matt should have used. And French no less — always a plus when one wants to appear highfaluttin’.
December 11th, 2008 at 12:31 pm
In addition to what David said, it’s worth noting that Germany has paid a gazillion billions into the EU over the last 50 years and has not very successfully tried to revive the East-German economy with stimulus program after stimulus program.
December 11th, 2008 at 12:37 pm
Between this and Merkel backpedalling on climate change resolutions it really look like Germany is prepared to screw a lot of stuff up in the near future.
December 11th, 2008 at 12:43 pm
It will be interesting to see if the global crisis affects the so-called “Growth and Stability Pact” preventing euro countries from running large deficits.
And by “interesting” I mean tragic, in a funny way.
December 11th, 2008 at 12:47 pm
Why oh why:
I don’t think there will be a showdown over the Growth and Stability Pact.
You need to keep this in mind:
“No EDP procedure will be launched if the excess of the government deficit over the 3% of GDP threshold is considered temporary and exceptional and the deficit remains close to the threshold.”
Generally “exceptional” is taken to be in a recession and few in Europe, even the Germans, have a suicide wish. Considering the EU has already agreed to promoting stimuli in member countries I don’t think it will be problem in the middle-term.
December 11th, 2008 at 12:53 pm
Bla. The Germans have decided upon a stimulus (admittedly rather tiny) and will probably decide to spend some more come January. Paul and you are being panicky, and it’s time to stop this ‘the house is on fire! do something! anything!’ routine. This is just the first step. And it is no big deal whether something gets decided today or in four weeks time. Except that when we rush into it today we might do something that makes a lot less sense.
December 11th, 2008 at 12:55 pm
To David, nitpicking:
“You will even see editorials in the left-leaning, SPD-sympathetic Sueddeutsche Zeitung”
I for one am not so sure the SZ business/economic section is left leaning.
The SZ is politically and culturally not CSU, and therefore somehow left–leaning, but the economic section has always been in full agreement with the dominant current as you read it in the FT or the not editorial WSJ. At least to me.
The Anglo-American disease pushed by our financial Masters à la Josef Ackermann arrived years ago in the subconsciousness of the serious people.
December 11th, 2008 at 12:59 pm
That’s very sensible of you nanne.
You are right though that they have grudgingly decided on a stimulus plan, but boy, did Merkel and Steinbrueck need to be dragged into it kicking and screaming. And can we both admit that Pendlerpauschal is ridiculous?
December 11th, 2008 at 1:02 pm
Fair enough giulio, but I am not just talking about their business section, but also page 4. Moreover, while the Frankfurter Rundschau (or the taz) is more obviously on the left, the SZ is definitely the main center-left paper in the country, oder?
(Also, I would quibble with your non-nuanced pairing of the WSJ and FT. The FT is much more centrist and open to center-left ideas than the reactionary op-ed page of the WSJ.)
December 11th, 2008 at 1:10 pm
Strike my FT/WSJ remark. I missed the “or the not editorial WSJ” bit. My apologies.
December 11th, 2008 at 1:25 pm
The German economy is roughly the same size as the Chinese economy. Britain and France are not significantly smaller.
December 11th, 2008 at 1:30 pm
The Germans have a fear of hyperinflation in their DNA. Unfortunately for the rest of the world, the fear is irrational this time. Krugman and Matt are 100% correct. The only thing I would say in their defense is that they have less room to take on debt than the US or UK — with a grimmer demographic outlook to boot:
http://www.imf.org/external/pubs/ft/weo/2008/02/weodata/weorept.aspx?sy=2004&ey=2009&ssd=1&sort=country&ds=.&br=0&pr1.x=59&pr1.y=16&c=193%2C542%2C122%2C137%2C124%2C181%2C156%2C138%2C423%2C196%2C128%2C142%2C172%2C182%2C132%2C576%2C134%2C961%2C174%2C184%2C532%2C144%2C176%2C146%2C178%2C528%2C436%2C112%2C136%2C111%2C158&s=GGD_NGDP&grp=0&a=
December 11th, 2008 at 1:37 pm
I don’t think “neoliberal” means what you think it means.
December 11th, 2008 at 1:40 pm
On the other hand, they might want to recall that the last time they were in a major depression, the political consequences weren’t pretty.
December 11th, 2008 at 1:41 pm
It will be interesting to see if economic union without political union can survive more than a generation. Everything was hunky dory in the good times during this decade, but I wonder how the Eurosphere experiment will play out when faced with its first real crisis.
December 11th, 2008 at 1:47 pm
The German economy is roughly the same size as the Chinese economy.
That’s really stretching the meaning of “roughly.” In PPP terms China’s economy is something like 2.5 times as large as Germany’s. Yes, I know purchasing power parity isn’t the only way to look at things, but does anybody seriously think that in 2008 some 82 million Germans are outproducing 1.4 billion Chinese?
On the other hand, they might want to recall that the last time they were in a major depression, the political consequences weren’t pretty.
Yes indeedy. The geopolitical ramifications of the current global crisis aren’t being mentioned enough. Santayana and all that…
December 11th, 2008 at 2:05 pm
I wonder how the Eurosphere experiment will play out when faced with its first real crisis.
The “Eurosphere experiment” is if nothing else resilient. So it will survive this particular crisis (First real crisis? How about the defining Constitution falling apart?).
What History has proven is that the European Union will live on. Now what it can actually achieve economically today will be determined soon enough.
December 11th, 2008 at 2:09 pm
In PPP terms China’s economy is something like 2.5 times as large as Germany’s.
PPP is flawed and doesn’t matter when talking about power or influence.
Yes, I know purchasing power parity isn’t the only way to look at things, but does anybody seriously think that in 2008 some 82 million Germans are outproducing 1.4 billion Chinese?
Strange way to look at reality. Are 300 million Americans outproducing 1.4 billion Chinese? Are they outproducing 1 billion Africans?
December 11th, 2008 at 2:15 pm
Neo-liberalism
Yeah…I think it does mean what they think it means.
December 11th, 2008 at 2:16 pm
PPP is flawed and doesn’t matter when talking about power or influence.
Not nearly as flawed as exchange rate comparisons. Do you really think that, say, the UK’s output vis-a-vis that of the Eurozone has declined by 30% (or whatever) in recent months? Moreover, I wasn’t specifically addressing concerns about geopolitical influence. I was addressing the claim — which is pure bunk — that Germany has a larger economy than the PRC. Although if you want to talk “power” and “influence” I’d say Beijing’s got Berlin beaten by a country mile even without its nukes. Just sayin.
December 11th, 2008 at 2:21 pm
Are 300 million Americans outproducing 1.4 billion Chinese?
Um, yes, because the eight-fold advantage in US per capita GDP more than makes up for China’s larger population. Germany — a slightly poorer country than America — doesn’t have enough of a per capita edge over China to make up for the fact that her population is less than 10% of China’s.
December 11th, 2008 at 2:22 pm
Are 300 million Americans outproducing 1.4 billion Chinese?
Um, yes, because the eight-fold advantage in US per capita GDP more than makes up for China’s larger population. Germany — a slightly poorer country than America — doesn’t have enough of a per capita edge over China to make up for the fact that her population is less than 10% of China’s.
Pre-emptive tag close. Y’all are welcome.
December 11th, 2008 at 2:25 pm
Um, yes, because the eight-fold advantage in US per capita GDP more than makes up for China’s larger population.
Just for the record, this situation won’t last very long. I’m predicting 2023 is the year China’s economy surpasses America’s. Write it down.
December 11th, 2008 at 2:28 pm
The Germans have a fear of hyperinflation in their DNA.
One wishes the US and the UK had had a bit more fear in their DNA, instead they believed in the magical powers of an unregulated market, allowed predatory lending practices and let people shuffle their personal debt from one credit card to another. This is the cause of the current crisis – face it and stop scapegoating those who criticized such practices early on.
December 11th, 2008 at 3:54 pm
The industrious and budget-conscious Germans are tired of bailing out the lazy and free-spending French. And rightly so.
December 11th, 2008 at 4:26 pm
While working on my MBA at the University of Texas my professors proved repeatedly that Keynes’ financial models are flawed. The errors are examines as a matter of course in modern business schools. Since Washington and London are ignoring this key peice of info, we have to ask why. Is it incompetent financial advisors, or biased ones? Steinbruck should be applauded for standing up for true financial science in the face of popular (to some) cash grabs.
December 11th, 2008 at 4:33 pm
John Schmidt:
Today when we talk about Keynesianism we don’t necessarily mean, you know, what Keynes wrote in the General Theory–we are talking about modern macroeconomics. I would be interested, but not suprised, to learn that modern business schools neglect to teach macroeconomics.
December 11th, 2008 at 5:27 pm
One important difference between the US/UK and Germany is that the US or UK perceive fiscal (and monetary) stimulus programs as something that is good for them and a result of their own political decision making, while Germany has a long history of experiencing fiscal and monetary stimulus programs as something imposed by or accepted due to foreign power or interests and not in the end good for Germany. That’s the narrative in Germany, across political divides among ‘responsible’ parties, on the experience of the late 1970 and late 1980s and early 1990s.
The view that Germany is insufficiently Keynesian or post-Keynesian is a left wing academic deviationalism. Germans prefer regulation and social responsibility to massive government borrowing. Indeed, Steinbrück got in trouble with the constitutional court of Nordrhein-Westfalen when he was governor of that state for taking on unconstitutionally high levels of debt.
December 11th, 2008 at 8:46 pm
So unlike Matt, he’s smart enough to know that unbridled “stimulus” spending is like burning stacks of $100 bills.
December 11th, 2008 at 8:54 pm
What happened to all that talk (a few years back) among liberals about a resurgent Europe?
My people fled Prussia in 1848 (after the electors of Saxony had sold them out in the 1810s). They fled the Kingdom of Hanover (in advance of the Prussian invasion) in the 1860s.
What do Germans get from being Germans anymore if they have to pay even higher taxes? Maybe they should go back to being Saxons, Thuringians, and so forth.
December 11th, 2008 at 9:46 pm
The “Eurosphere experiment” is if nothing else resilient. So it will survive this particular crisis (First real crisis? How about the defining Constitution falling apart?).
I had editted something out of my comment prior to posting about how political union without economic union is somewhat more common througout history, and in many ways, much easier (all you need is better swords/guns than the other guy). I should have also added “first *economic* crisis”; the EU of course has had a political crisis pretty much every few months since its inception.
December 11th, 2008 at 10:31 pm
And this is the kind of misguided crap our Dear Leader Osama wants us to try…
December 11th, 2008 at 11:06 pm
The events that shaped the Steinbrueck’s outlook – and that of many more Germans – are not quite so long ago as the Great Depression and so on. Throughout the 70s and 80s, a lot of money was spent on welfare, infrastructure and stimulus, yet unemployment kept going up, and the budget going south all the time. Then, with the reunification in 1990, government spending and unemployment both went through the roof. Schroeder – another not ‘erstwhile’ social democrat – finally took the rap for cutting back spending on welfare to sustainable levels and lowering taxes.
Because of the poor results of deficit spending, the current consensus is to let the economy take care of itself and focus government activity on the necessary minimum. It may seem a bit rigid in the current circumstances, Steinbrueck’s attempt to restore sanity to government spending is actually quite popular.
December 12th, 2008 at 2:56 am
Here is a good Guardian column on the matter.
December 12th, 2008 at 3:13 am
“The discourse in Germany is anti-Keynesian on both the center-left and center-right.”
I think Germans are to discourage spending and stimilus, I think the problem in USA is too much stimulus sinc 20 years to avoid low growth.
“The industrious and budget-conscious Germans are tired of bailing out the lazy and free-spending French. And rightly so.”
Germans don’t pay for french, only poor country receive money from EU, like Greece for instance, or Portugal.
France like Beligum, Netherlands …pays more than they receive.
And I think that the east part of Germany receive aids from EU, like southern Italy.
December 12th, 2008 at 4:31 am
only poor country receive money from EU
Not true. Ireland has had one of the highest per capita GDP in the world for a number of years now, way higher than Germany, France or the UK. Yet Ireland has been and still is a net recipient of EU funds:
In December last year European Council reached agreement on the Financial Perspectives for the EU for the years 2007 – 2013. The new Perspectives, which have since been agreed with the European Parliament, protect the interests of each Member State and allow the EU to move forward on a sound financial basis. They provide for 2862.36 billion for the years 2007-2013.
From Ireland’s perspective, the overall result was excellent. We expect that over the seven years covered by the Perspectives, our receipts from the EU will amount to 214 billion while our payments will be 213 billion, leaving us with a net benefit of 21billion. We anticipate that we will become a net contributor to the EU budget near the end of the seven-year period.
December 13th, 2008 at 2:10 pm
It is heartening to know that there are at least some statesmen in the world wise enough to see that the ideal economy is not that which generates the highest volume of spending, but that which produces goods and services in the proportions that society demands them. As the failure of the command economies should have demonstrated once and for all it is not ‘idle’ resources that are the ruin of an economy – for as J.K galbraith said in a rather infamous article, one of the boons of a command economy is that it “makes full use of its manpower” – it is the misallocation of those resources.
January 18th, 2009 at 11:43 pm
laptop battery
laptop batteries
March 13th, 2009 at 1:46 pm
great site… tks for your insight..
March 13th, 2009 at 1:48 pm
Hey, i am glad i came across your site… keep it up!!!!
March 22nd, 2009 at 6:14 am
tramadol
If you have to do it, you might as well do it right
March 22nd, 2009 at 10:29 am
buy viagra online
Very interesting site. Hope it will always be alive!
April 3rd, 2009 at 4:14 am
If you have to do it, you might as well do it right
cheap brand pfizer viagra