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

Lagarde: Keep feeding the banks cut down wages and food subsidies

How can we build a workforce for our digital future?

3 priorities to shape the post-pandemic financial system

From the boardroom to the consulting room: pharma’s role in curing gender bias

EU Cohesion policy: Commission and EBRD promote innovative use of data in public procurement involving EU funds

Libya: UN report urges accountability for deadly attack against migrant centre

COP21 Breaking News_04 December: Building a Sustainable Future – speech by UNEP Deputy Executive Director Ibrahim Thiaw at the LPAA Thematic Event on Buildings

Capital transaction tax on Ecofin table

EU car manufacturers worry about an FTA with Japan

Why is the World Health Organisation so much needed?

ECB money bonanza not enough to revive euro area, Germany longs to rule with stagnation

Plans to keep EU budget funding in 2020 in the event of a no-deal Brexit

UN heath agency: Time is now to ‘act as one’ in fighting infectious coronavirus

EU-wide rules for safety of drones approved by European Parliament

China’s stock markets show recovery signs while EU is closely watching in anticipation of the €10bn investment

The ECB must extend its money stimulus beyond 2018: Draghi reckoning

Migration crisis update: The “Habsburg Empire” comes back to life while EU loses control

Further reforms in France can drive growth, improve public finances and boost social cohesion

Asylum: more solidarity among EU member states and funds for frontline countries

This heroic doctor is waging war on rape and the stigma around it

New Erasmus: more opportunities for disadvantaged youth

Budget MEPs back €1.6 million to help 400 former workers of Carrefour Belgium

COP25: Support business efforts to tackle climate change, urges Guterres

7 shocking statistics that show the cost of corruption

EU continues targeting on Chinese steel imports instead of the revival of its own economy

Coronavirus: First case confirmed in Gulf region, more than 6,000 worldwide

EU Parliament: The surplus countries must support growth

Investing in new energy infrastructure: Green light for EU grants worth nearly €1 billion

The European Parliament wants to stay in one place

EU: Huge surplus in the trade of services with the rest of the world

Track the spread of coronavirus around the world

US-China trade war is a ‘lose-lose’ situation for them and the world, warn UN economists

How can consumers be effectively protected from insurance sellers?

3 reasons why civil society is essential to COVID-19 recovery

Why is the Strait of Hormuz so important?

10 lessons from the COVID-19 frontline for a more gender-equal world

Letter to The European Sting from Italy

More funding needed to tackle child labour in agriculture says UN, marking World Day

Why today’s leaders need to know about the power of narratives

The UK is on a record-breaking run of coal-free power

These are the places with the most climate change deniers

Estonia: use robust growth to improve income equality and well-being

War of words in Davos over Eurozone’s inflation/deflation

Coronavirus is officially a pandemic – but we can change its course: Today’s WHO briefing

UN receives ‘Humanium’ wristwatch gift, symbolizing peaceful transformation

European Parliament strengthens EU consumer protection rules

Juncker and Tusk killed Greece on 07 July 2015 to meet the Commission’s summer vacation plan? #Grexit #Greferendum #Graccident

Joris in Indonesia

UN lauds special chemistry of the periodic table, kicking off 150th anniversary celebrations

Business leaders join UN to rev up sustainable development investments

These are the top 10 emerging technologies of 2019

Digital roles top the list of jobs on the rise in 2021

UN agencies welcome regional road map to help integrate ‘continuing exodus of Venezuelans’

Making money from meeting the SDGs? An overarching approach to sustainable development.

Companies must focus on resiliency, profitability and sustainability

Open-plan offices make workers less collaborative, Harvard study finds

Transparency and tech together can safeguard taxpayers’ money

Here’s how we can make innovation more inclusive

More women in Latin America are working, but gender gap persists, new UN figures show

Girls groomed for suicide missions fight back against the extremists of Lake Chad

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