The Italian crisis may act as a catalyst for less austerity

Visit of Wolfgang Schäuble, German Federal Minister for Finance (on the right), to the EC. (EC Audiovisual Services).

Visit of Wolfgang Schäuble, German Federal Minister for Finance (on the right), to the EC. (EC Audiovisual Services).

The Italian political stalemate which threatens the financial stability of this country and risks to shake the Eurozone through the contagion effect, has not prompted Germany to relax its tough position vis-à-vis the euro area debt crisis and the severe austerity measures favoured by Berlin. As a matter of fact, Wolfgang Schaeuble, the German minister of Finance, speaking yesterday to national and global media, said that the political dead-end after the Italian election, inflates the financial risks and threatens the other weak Eurozone economies.

In view of that Schaeuble asked the Italian politicians to do what-ever it takes to formulate a viable government the soonest possible, in order to continue applying the necessary measures and secure a stable economic path for their country. Incidentally he recalled that last year Greece’s political void after the May election posed grave dangers to other weak Eurozone economies and brought forward existential questions over Eurozone.

Tough Teutonic logic

He stressed that in the present circumstances the problems of one country affect everybody else. That’s why he concluded, those who got elected and have the responsibility for Italy must formulate a viable government. The soonest they do that the fastest this crisis will be effectively countered.

The German minister however did not restrict his advises only to the Italian leaders. After stating that he never said the Eurozone crisis was over, he extended his criticism to France, by saying that this country has to introduce economic reforms in order to enhance its growth potential. Schaeuble however went even further and made his criticism more personal, when he added that both the French President Francois Hollande and his minister of Finance Pier Moscovici know that very well. In other words the German dignitary held directly responsible those two leading French decision makers, for their country’s growth problems.

Wolfgang Schaeuble is much more than a minister of Finance in his country. He is a widely and highly respected political figure not only in his own political party (CDU) but in the entire country and express authentically not only the federal government but also the German business world. That’s why his comments on France carry special weight. Apparently these strong Germanic comments constitute an answer to Pier Moscovici’s evaluation of the Italian electoral results. Earlier this week the French minister of Finance interpreted the Italian electoral results as a proof, that the austerity policies have reached their limits. This was a direct fling to Berlin’s direction, where Schaeuble is considered as the main architect of the entire austerity package imposed on Eurozone.

That is why, what Moscovici said about Italy was obviously addressed personally against the German minister of Finance, and the special weight of the Italian crisis, made the French comment even more edgy. As a result the German politician, in an indirect way, felt obliged to apologise for the Italian stalemate and for this reason he insisted that he never said the Eurozone crisis was over. This however was not enough to counter the indirect French demand for a complete reversal of the austerity policy, enunciated by the Moscovici observation. Consequently the German had to return the missile from Paris, and to this end he had to point the finger where it hearts, that is on the French fiscal deficits.

Paris asks for a change

Obviously the fight between Berlin and Paris is a fight between two diverging economic policy strategies. Obviously Francois Holland supports a quite different policy mix than the present one prevailing in Eurozone. He wants more European Central Bank intervention in support of growth through government deficit financing and doesn’t mind much a bit more inflation. This monetary accommodation of the real economy is repelled by Germany.

The problem is until when the Merkel- Schaeuble twin will be able to impose this austere option? The truth is that there are already encouraging signs for something different even from within Germany, favouring a watered down austerity. Actually in view of the next election the Berlin government is seen ready to support unusually large real wage increases this year. To this effect Schaeuble has encouraged the employers’ side to agree with the trade unions large wage increases for 2013, so as to reduce the competitive advantage of Germany, in comparison with the south Eurozone countries.

For this initiative however to have visible results the German workers have to see their incomes rise fast and substantially, so as they increase their spending on imported goods and take up more vacations in south Eurozone sea resorts. But those imports and those vacations have to be directed to favour intra-Eurozone activities, and this is a rather difficult exercise. In any case a new policy mix with richer German consumers and a more accommodating European Central Bank, the austerity plague may be at least partially cured.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Cyclone Idai: UNICEF warns of ‘race against time’ to protect children, prevent spread of disease in flood-ravaged Mozambique

Botswana has decriminalized gay sex. But, it’s still illegal in 70 countries

Link between conflict and hunger worldwide, ‘all too persistent and deadly’, says new UN report

Berlin Calling: DCX Expo on track to grow, in association with The European Sting

Wednesday’s Daily Brief: mental health, conflict prevention, Ebola in Uganda, Sudan protests, child labour

Migrant caravan: UN agency helping ‘exhausted’ people home

Europe is now practically divided as in the Cold War

How blockchain can manage the future electricity grid

Will Western Balkans respond positively to EU initiatives?

Cameroon: Clear ‘window of opportunity’ to solve crises rooted in violence – Bachelet

Uneven progress on climate action at Bangkok conference

How India will consume in 2030: 10 mega trends

Thousands of Syrians in ‘life and death’ struggle amid harsh conditions in remote desert camp, UN warns

Collaboration: the key to success in the digital economy

Engaging ‘head and mind’, key for effective learning, says UNESCO chief on Literacy Day

Israeli security forces’ response to Gaza protests ‘a recipe for more bloodshed’, says UN expert

Libya: Thousands seek shelter in health clinics from Tripoli fighting, UN warns

How the EU sees its own and Russia’s role in Ukraine

European Semester Autumn Package: Bolstering inclusive and sustainable growth

Workplace bullies could now go to jail in South Korea

Did Draghi ask the Germans to accept a drastic change of austerity policies?

Migration crisis will keep deteriorating as common EU political will is simply not there

Hiring is broken. Here’s how to fix it

Facebook engineer working at the company’s HQ, Menlo Park, CA (Copyright: Facebook Inc., Source: Facebook Inc.’s website, newsroom)

Facebook goes under formal EU privacy scrutiny after latest massive data breach

4 things to know about the state of conflict today

Syria: Guterres concerned over reported attacks in Idlib, calls for ‘full investigation’

Laws must protect, ‘not reject’ says UNAIDS chief on Zero Discrimination Day

State aid: Commission approves Luxembourg guarantee measure to further support economy in coronavirus outbreak

Human Rights: breaches in Cambodia, Uganda and Myanmar

We can build an inclusive workplace, and it starts with empathy

There are more than 1 billion guns in the world and this is who owns them

The European Parliament double-checks the EU 2014-2020 budget

Ensure that widows are ‘not left out or left behind’, UN chief urges on International Day

‘Counter and reject’ leaders who seek to ‘exploit differences’ between us, urges Guterres at historic mosque in Cairo

Does hosting a World Cup make economic sense?

Parental leave: why we can’t wait a century for equal rights for women

EU Council approves visa-free travel for Ukraine and cement ties with Kiev

Trade is not a weapon. Let’s not use it as one

Improvements to pension systems have made them better placed to deliver pensions

European Commission adopts new list of third countries with weak anti-money laundering and terrorist financing regimes

Switzerland to introduce strict restrictions on executive pay

Security Council urges countries to factor child protection into conflict prevention efforts

These are New York Public Library’s 10 most borrowed books

Easing ‘classroom crisis’ in Côte d’Ivoire, brick by (plastic) brick

GSMA Mobile 360 in Kuala Lumpur– Digital Societies, in association with The European Sting

How Africa’s entrepreneurs are changing the direction of globalization

Climate change hits the poor hardest. Mozambique’s cyclones prove it

Mexico: UNICEF calls for implementation of protocol to protect migrant children

Industrial price dive may lead to point of no return

4 climate tipping points the planet is facing

COP21 Breaking News: “We must accelerate the process”, Laurent Fabius cries out from Paris

Government internet ban leaves parts of Myanmar ‘in a blackout’, UN expert calls for immediate lifting

Commission presents its response to Antisemitism and a survey showing Antisemitism is on the rise in the EU

Teenage girl’s death sentence spotlights Sudan’s failure to tackle forced marriage, gender-based violence – UN rights office

Lack of access to clean water, toilets puts children’s education at risk, says UN

Vulnerable children face ‘dire and dangerous’ situation on Greek island reception centres, UNICEF warns

Larger species are more at risk of extinction than smaller ones – here’s why

Human rights are ‘key’ for economic policymaking says UN expert

Checks, fines, crisis reserve: MEPs vote on EU farm policy reform

UN General Assembly urges greater protection for Palestinians, deplores Israel’s ‘excessive’ use of force

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s