EU Commission: Germany can make Eurozone grow again just by helping itself

José Manuel Barroso, European Commission President on the left, and German Federal President Joachim Gauck, on the right, at Bellevue Palace. (EC Audiovisual Services, 21/10/2013).

José Manuel Barroso, European Commission President on the left, and German Federal President Joachim Gauck, on the right, at Bellevue Palace. (EC Audiovisual Services, 21/10/2013).

On the political level, the European Commission and the IMF have been warning Germany for months now about its inextricable over stretched internal fiscal and incomes double consolidation. Now the Commission comes back with an excellent economic paper, which employs a structural multi-country model and assesses the negative impact of fiscal consolidation measures undertaken in 2011-13, in the euro area periphery and the core countries. The paper, entitled “Fiscal consolidations and spillovers in the Euro area periphery and core” is written by Jan in’t Veld, an economist of the Directorate-General for Economic and Financial Affairs of the European Commission.

Understandably, a Commission economist wouldn’t embark on such a demanding work, without prior consultation with the responsible Commissioner and Commission vice President Ollie Rehn, especially when it comes to such a politically sensitive issue. This means the Commission doesn’t back off from its position, that Germany and the other surplus Eurozone countries, should use their ability to spend more in order to help themselves and the rest of the euro area countries to grow.

This ‘spend more’ encouragement by the IMF and the Commission has a twofold target. First, it contains a recommendation that the German government relaxes its unnecessary, over stretched fiscal consolidation. Secondly, it is an inducement for Germany to favour real increases in wages and salaries in both sectors, public and private. Work remuneration in this country is stuck on the same real levels, for more than five years now.

End misery at last!

In view of all that, Jan in’t Veld concludes that “Spillovers from consolidations in Germany and core euro area countries have worstened the overall economic situation. A temporary fiscal stimulus in surplus countries can boost output and help reduce their current account surpluses. The improvement in current account deficits in the periphery is however small”. Before coming to this conclusion the writer notes that, “Average multipliers for domestic fiscal shocks range from 0.5 and 1, depending on the degree of openness. But spillovers of fiscal consolidations are large, with both the demand channel and the competitiveness channel adding to the negative GDP effects. Higher risk premia add further to the negative GDP effects”.

The above remarks by Veld and his findings that the “Fiscal multipliers are larger at the current juncture than in normal times”, are directly related to IMF’s public admission, of having erred in its economic models and its recommendations for deep austerity programmes in Eurozone. Everybody remembers that some months ago the IMF chief economist astonished the entire world, when he admitted that in the case of Greece the Fund’s experts had underestimated the magnitude of the negative multipliers of the fiscal consolidation, and consequently they misjudged the oversized negative impact on GDP. Now this Commission economist proves with a new paper, that the IMF rightly accepts now that it erred.

Needless austerity

The European Sting had identified the convergence of views between the Commission and the IMF vis-à-vis Germany. On 4 June, Sting writer Dennis Kefalakos posted an article entitled “Germany’s fiscal and financial self-destructive policies”. One day earlier, the IMF had published its regular annual assessment of the German economy, as it is the rule for all member states of the Fund, under the Article IV Consultation. The article went like this, “IMF Mission’s “Concluding Statement” on the German economy which was published yesterday, contains almost the same basic recommendations as the European Commission’s assessment aired at the Semester Press Conference in Brussels on 29 May. Both reports had references to Germany’s over stretched fiscal consolidation (meaning unneeded austerity) and the need to increase wages and reduce taxation on labour, all that in order to better serve the country’s and Eurozone’s efforts for growth”.

It is exactly what Jan in’t Veld recommends above. However, this Commission economist adds one more factor in this analysis, which exacerbates the negative impact of the fiscal consolidation multiplier on GDP; the revenue-based consolidations. As noted above, Germany apart from needlessly cutting down its government spending, it has kept real wages and salaries stuck for five years now. In crisis conditions though, the German households reduced further the part of their revenue directed to consumption. This reaction had additional negative effects, to the worst hit by the crisis countries in the south of Eurozone. Greece’s largest customer is Germany on two accounts, goods exports and tourism, thus paying double costs for Berlin’s mistakes.

In reality, Germany, apart from punishing itself and the rest of Eurozone with its own needless fiscal consolidation, adds more negative effects by applying a severe revenue-based consolidation. The end result is that the crisis hit south Eurozone countries, already in deadly fiscal and incomes diets, have to also endure the negative effects on their economies, from Germany’s needless self-imposed double misery on government spending and household incomes.

Undoubtedly, Germany has to change. If Germany changes the other surplus countries of Eurozone will do that same. Probably a CDU-SPD grand coalition government in Berlin, may be more prone to relaxing Germany’s austere ideology. In any case, Veld concludes his paper like this, “The final section looks at the effects of a temporary stimulus in Germany and other core AAA-rated member states and shows the positive spillovers to the periphery”. In short, the European Commission is now providing the scientific base for a change of policies in the entire Eurozone. It remains to be seen if Germany can grasp the meaning of the times. One more winter without a light at the end of the tunnel, and the south Eurozone countries will certainly explode.

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

Will Cameron succeed in keeping UK inside the EU and reverse the present economic downturn?

Commission reports on 2019 European elections: fostering European debates and securing free and fair elections

Switzerland fast-tracks emergency aid for small businesses weathering COVID-19

EU Commission: Banking and energy conglomerates don’t threaten competition!

Sustainable finance: Commission publishes guidelines to improve how firms report climate-related information and welcomes three new important reports on climate finance by leading experts

Black babies more likely to survive when cared for by Black doctors, suggests new study

De-stigmatizing a mental illness: importance of individual and collective representativeness

How youth and technology can drive Africa’s COVID-19 response

This cheap, 700-year old solution could change billions of lives

Boosting the EU’s Green Recovery: EU invests over €2 billion in 140 key transport projects to jump-start the economy

All sides in Yemen conflict could be guilty of war crimes, UN experts find

We need to rethink neuroscience. And you can help us

The winds of change: 5 charts on the future of offshore power

Who and why want the EU-US trade agreement here and now

Who will secure Lithuania?

Betazone: The Beauty of Inclusion

Coronavirus Global Response: Commission joins the COVID-19 Vaccine Global Access Facility (COVAX)

Facts, not fear, will stop COVID-19 – so how should we talk about it?

China’s impact as a global investor; the Sting reports live from World Economic Forum 2015 in Davos

UN chief condemns air strike that hit school bus in northern Yemen, killing scores of children

This crisis cannot be confronted with statistics

Latvian economy is thriving, but boosting productivity, improving social protection and transitioning to a low-carbon productive model are vital for sustainable and inclusive growth

Chart of the day: These countries have seen the biggest falls in extreme poverty

EuroLat: serious concern about migration and support to multilateral trade

France-Germany: Divided in Europe, USA united in…Iran

Fail fast, fail better: 3 ways companies can master innovation

Malaria: Focus on pregnant women and children, stresses UN health agency report

How to change the world at Davos

Powering through the pandemic

Energy: new target of 32% from renewables by 2030 agreed by MEPs and ministers

Here’s how to make ‘value-based healthcare’ a reality

It’s time to switch to a four-day working week, say these two Davos experts

What if nature became a legal person?

A new era of computing is coming. How can we make sure it is sustainable?

A win-win strategy for private equity deals

Afghans entitled to live ‘free from fear, intimidation’, says UN chief, condemning suicide attacks

Female leaders warn about the erosion of women’s rights

9 climate tipping points pushing Earth to the point of no return

Eurasian Union begins: the giant modelled on the EU is Moscow’s biggest challenge

Guinea-Bissau needs ‘genuinely free and fair elections’ to break cycle of instability

WHO chief underscores need to address climate change following visit to Bahamas

Japanese law professor elected new judge at the International Court of Justice

A new dawn for Europe: Joint op-ed by President von der Leyen, President Michel and President Sassoli

Education expenditure in the EU not hurt much by crisis

Billions for sustainable investments – Germany’s plan for a green recovery

Prevent future crises and empower youth – now!

Will ECB win against low inflation by not following Quantitave Easing?

We can save the Earth. Here’s how

Do not confuse food charity with ‘right to food’, UN expert tells Italians, labelling food system exploitative

Listen to the future – how 26 youth-led organizations are supercharging the UN’s Global Goals

The decline of our oceans is accelerating, but it’s not too late to stop it

European Commission 2020 Work Programme: An ambitious roadmap for a Union that strives for more

Brexit: Six more months of political paralysis or a May-Corbyn compromise?

MEPs commend Ukraine‘s reform efforts and denounce Russian aggression

ECB asks for more subsidies to banks

Work and reforms of the UN ‘at risk’, Guterres warns Member States, amidst ‘record-level’ cash crisis

Pollution could be harming every part of your body. Here’s how

Cameron’s Conservatives and UKIP are exploiting and cultivating anti-EU immigration sentiment but Labour party isn’t?

A jingoistic Spanish ‘war’ from the past

Search Engine neutrality in Europe in danger: Are 160.000 Google filtering requests good enough?

More Stings?

Advertising

Comments

  1. jonh astrapos says:

    who are you and those who hide behide you ?

    that all of you sicrifice the people of the name of the money. You have

    created an economical crysis to kill the people . You bring the people to homicide, to

    kill their shelf .

    You the CC European responsible leaders , the European bankers , you the responsible

    of IMF execute the people , all of you are judas !

    You give a big important for the money and a big insignificant for the human being!

    You and the most of the european government bring the pain ,sigh , humiliation ,

    darkeness, you make the people slaves for a few rich people and for multinational

    companies and big bisnessne.

    We Greeks don’t want your money, go away! The money that you give to us is our money .

    You have stolen this and give us little by little with 100% interest wih humiliation.

    You and our government hate the Greek and also the European people, you make all the

    people to suffer ! Don’ come IMF or any one of you to Greece .You are not accepted.

    Ttroika means a set of three, you correct choose the name troika.

    Decause you make the poeple to commit suicide, any one to kill his shelf or you make the people self-murderer, because has

    lost anything, you are murders ! Second you betray the union and all the peaple’ s future, so you

    you are betrayers! Third you make the people to loose their jops, money, houses, properties and

    so on, you eat the people, you are cannibals.

    You make the people unemployment ,you have closed in Greece all the factories ,all the bisnessne ,

    schlools, hospitals , you cut pentions, salaries and all more and more tax, tax for anything. So you

    are sadistic cruel persons!You make the ploeple poor and unhappy slaves without future, all

    the young people immigrate far away from their country to find a job to live !You push the young people far away from

    home! You are the darkness, you don’t know to make a good but how to destroy it.

    So you are people without instructions or without any other education ! We conclude this with

    your fatal and disastrous action ! You are servants of the usurers instead to be servants
    of the people. The usurers are miserable ,miserly people are sick in brain, are evil-minded.
    Are these kind of the people condrol the hole world? Then this is destruction! Catastrophe !
    So ,every day we see what is happening, we are going from the bad to the worst.
    All of you stop ! Stop to demolish the word! Change mind ,I wish ,but this is impossible for
    you.
    Differently we, all, the whole world we shall be opposit of you!

    Userers and servant of the userers stop to destroy the wolrd .
    Stop to kill the poeple !

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