Believe it or not, Germany's financial slowdown is a blessing in disguise.
At least that's what Alberto Alesina and Francesco Giavazzi write in an editorial published today.
They argue that up until now Germany's stance on monetary policy called for slow interest rate increases commensurate with nipping inflation in the bud in a growth environment.
But now with German growth slowing, the strongman of Europe may be more open to the same accommodative monetary policy measures necessary to stimulate growth in peripheral European countries like Italy and Greece.
That's not to say that a solution everyone can agree on will be easy:
We should stop thinking that the euro can be saved with some financial trick...All these schemes share the idea that a solution can be found without hard and immediate choices in the problem countries, and without costs (except, perhaps, for Germany). The most commonly-advocated financial scheme is Eurobonds. But let’s start calling them by their real name – a German guarantee on Italian and Spanish debt. Once their real nature is clear, should we be surprised if the Germans are not enthusiastic about them? So let’s stop kidding each other with dreams of Eurobonds. Let’s start talking about fiscal rigour and growth in the weak economies.
Alesina and Giavazzi admit that long-term fiscal rigor will probably be difficult to accomplish, because strict rules like a balanced-budget amendment do not take into account the money governments should be spending on a cyclical basis.
But growth is far more simple:
Citizens of the problem countries – and the Eurozone more generally – need to decide whether they want to grow or not. They don’t have to grow, they could just survive. A slow decline that eats away Europe’s wealth is possible. This banquet would bequeath a mess to their children but, as Keynes said, in the long run we are all dead.
While Alesina and Giavazzi make an interesting point about the German stance on monetary policy, they do not acknowledge that the problems of the eurozone may be, at least in part, responsible for the slowdown in Germany in the first place. The German people -- in their criticism of PM Angela Merkel -- seem to realize this. The last thing they want to do is give away more money to accommodate the rest of the EU, regardless of the damage they cause themselves in the process.
The real impediment to a viable solution for the eurozone remains finding a viable solution that will not perjudicate disciplined countries like Germany in the future. We can talk all day about growth, but we'll keep running into the same problems without some greater economic consolidation.
Rules can be violated, particularly without an authority strong enough to enforce them. Currently the EU does not have the force nor the willpower to keep up this side of the bargain. This is the time to change that.
View the original article here
This post was made using the
Auto Blogging Software from
WebMagnates.org This line will not appear when posts are made after activating the software to full version.
