Is Europe ready to cooperate with the rest of the world? Can Germany change its selfish policies?

Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Jean-Claude Juncker, President of the European Commission, Mario Draghi, President of the European Central Bank (ECB), François Hollande, President of the French Republic, Alexis Tsipras, Greek Prime Minister, and Mariano Rajoy Brey, Spanish Prime Minister (from left to right). The Heads of State or Government of the countries in the Eurozone, met in Brussels for Euro Summit on Greece (Euro Summit, 22/06/2015). (EC Audiovisual Services).

Mark Rutte, Dutch Prime Minister, Angela Merkel, German Federal Chancellor, Christine Lagarde, Managing Director of the International Monetary Fund (IMF), Jean-Claude Juncker, President of the European Commission, Mario Draghi, President of the European Central Bank (ECB), François Hollande, President of the French Republic, Alexis Tsipras, Greek Prime Minister, and Mariano Rajoy Brey, Spanish Prime Minister (from left to right). The Heads of State or Government of the countries in the Eurozone, met in Brussels for Euro Summit on Greece (Euro Summit, 22/06/2015). (EC Audiovisual Services).

For a long time now the European Union is accused by the rest of the world for the severe austerity and recessionary economic policies it follows, also imposing them on crisis stricken euro area member states like Greece, Spain, Italy and Portugal. This is so despite the fact that the Eurozone economy as a whole doesn’t seem inept or lacking economic means to increase its spending on investment and consumption to support sustainable growth rates internally and for the global economy. Yet the euro area, guided by Germany, obstinately denies complying and continues counting on the faltering growth potential of others to increase its exports.

On the contrary, the US immediately after the outbreak of the 2008 crisis applied huge monetary, and otherwise, policy programs to support growth. This country actually achieved noticeable growth rates as from 2012 and has been expecting, in vain, so far, the Eurozone to do the same. The International Monetary Fund and the US government have repeatedly asked Berlin and Brussels, the main responsible parties for the EU austere attitude, to reconsider. Alas, the only response they got was the ‘phantom’ Juncker investment plan of €320 billion. This is not fresh money though but mostly it’s about rearranging existing spending lines of EU’s budget.

Europe withholds its powers

The truth is that the euro area’s economic health is basically good. It creates large trade surpluses with the rest of the world and its fiscal and sovereign debt accounts are far from being in the danger zone. However Eurozone’s growth rates are stuck very close to zero and the €9 trillion GDP economy doesn’t help itself or the rest of the world to gain sustainable and noticeable growth rates.

It took seven years after the 2008 financial crisis erupted for the European Central Bank to start pumping some extra money into the economy (the quantitative easing program of €1.14 trillion). This decision was taken last January and Mario Draghi, the ECB President, had a lot of difficulties to overcome the German objections. For comparison purposes it must be mentioned that the US central bank, the Fed, has pumped $4.5 trillion into the American and the world economy during the 2008-2014 period. It’s obvious that the European contribution to the world economic growth is well below the abilities of the old continent. Let’s see why.

Why blocking growth?

Eurozone, powered by Germany, traditionally produces surpluses in its foreign trade (goods and services). Let’s see the details. According to a Eurostat (the statistical office of the European Union) Press release issued last week, “The EU28 seasonally adjusted external current account recorded a surplus of €13bn in May 2015, compared with a surplus of €11.9bn in April 2015 and a surplus of €4.8bn in May 2014”. The EU achieves equal or even larger surpluses as well in its international trade in goods.
This brings EU’s annual surpluses in the trade with the rest of the world to the tune of three hundred billion of euro. This amount can be considered as ‘stolen’ growth potential from the rest of the world. The word ‘stolen’ may sound biased or irrelevant in our free trade world. Nevertheless, the idea of free trade cannot go on serving the interests of Germany alone.
Germany must cooperate

This country has presently accumulated reserves of around €1.2 trillion which came from its trade surpluses. Germany, by continuing to refuse recycling those surpluses, condemns the rest of the world to permanent recession and deficits. This recycling cannot be sustainably achieved with loans from Germany to the others. It can be healthily realized only through increased home spending for imports via augmented consumption and investments. This can be done by favouring wage increases and greater government spending on consumption and investment. Another way for Germany to do this may very well be by materially supporting other Eurozone countries to do the same (through EU programs). By the same token, the ECB should be left to inject more freshly printed money into the economy.

This has to stop

Unfortunately, this is exactly what Berlin still refuses to do. Reportedly though, this issue is dividing the German political and economic establishment’s thinking. The Federal Chancellor Angela Merkel and her minister of Finance, Wolfgang Schäuble, are the champions of two opposing camps. The chancellor favours a more relaxing economic policy, while Schäuble supported by the German central bank, the Bundesbank, insists on fiscal and incomes austerity and a strict monetary strategy.
This division has surfaced around the Greek issue. Visibly the two sides have held different positions over Athens’ future, with the minister of Finance still envisaging a Grexit. He even went as far as to threaten with his resignation, in case his policy lines are rejected. Nonetheless, during the past few days, the two sides seem to converge, with Schäuble accepting a rearrangement of the Greek financial obligations. To be noted that the Americans and the IMF have explicitly demanded a rescheduling of the Greek debt with very long maturity extensions.

Greece was the catalyst

It remains to be seen if, faced with the American and IMF pressures for far reaching economic policy changes in Eurozone, the part of the German establishment that Schäuble authentically represents is willing to bend. It must be repeated that Washington asks for less strict monetary policies and a relaxation of the austere fiscal and incomes strategy. With the Chinese growth rates stuttering and the country’s stock exchange bubble having exploded, Europe’s cure to world’s economic malaise is needed badly and urgently. But Germany has first to be convinced to deliver.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Featured Stings

Can the US-Iran rapprochement change the world?

EU takes again positive action on migration crisis while Turkey asks for dear favors in exchange for cooperation

Medschool 4.0: how to succeed in the smart revolution of healthcare

Italian voters put again the European Peoples in the Brussels picture

From diamonds to recycling: how blockchain can drive responsible and ethical businesses

Why Eurozone can afford spending for growth

Eurozone’s north-south growth gap to become structural

The Oslo model: how to prepare your city for the electric-vehicle surge

Ukraine turns again to the EU for more money

‘We face a global emergency’ over oceans: UN chief sounds the alarm at G7 Summit event

The European Sting live from the World Economic Forum 2015 in Davos

Following the World Cup? Then you’re watching high-performing migrants at work

What we take for granted: The EU is not perfect

The historic accomplishment of a seamless EU patent and intellectual property space

MARKUP initiative to boost market access to Europe for East African SMEs

Fostering global citizenship in medical students through exchanges

Ben Stiller’s new role, more about hope than humour, as he’s named Goodwill Ambassador for UNHCR

Global Citizen-Volunteer Internships

Young? You should work out the entrepreneurial heart before the mind

For how long will terror and economic stagnation be clouding the European skies?

Eurogroup president swallows statement on savings confiscation

PM May fosters chauvinism, declares trade war on Europe

The battle for the 2016 EU Budget to shake the Union; Commission and Parliament vs. Germany

Imported and EU fisheries products should be treated equally

Jakarta is one of the world’s fastest disappearing cities

The refugee crisis as a young Nigerian doctor sees it

Trump’s Russophiles under investigation, Europe remains ‘en garde’

Senior UN children’s advocate says they ‘should never be targeted by violence’

Jeroen Dijsselbloem new Eurogroup president

Politics still matter in the US but not in Europe

Mental health in medical students: the deciphered quandary

Parliament sets up plan to fight the 3,600 criminal rings of EU

Cyber defence: MEPs call for better European cooperation

Vĕra Jourová, European Commissioner in charge of Justice

The New EU-US “Shield” for data privacy is full of holes

Macron’s Presidency: what the young generation’s expectations are

G20 LIVE: Fact Sheet from the G20 Leaders Summit and key outcomes (G20 Antalya 2015 Summary)

European Youth Forum welcomes steps towards raising awareness of youth rights by EU ministers

Ethiopia is Africa’s fastest-growing economy

Mali: Presidential elections critical to consolidate democracy, says UN peacekeeping chief

VW emissions scandal: EU unable to protect its consumers against large multinationals

The third bailout agreement for Greece is a done deal amid European economies full of problems

EU budget: Regional Development and Cohesion Policy beyond 2020

1 million citizens try to create a new EU institution

WEF Davos 2016 LIVE: “There is a communication issue (about China) which markets don’t like” Christine Lagarde, Managing Director of IMF stresses from Davos

Spirit unlimited

Tackling Youth Unemployment

Who threatens the lives and livelihoods of Ukrainians?

G20 LIVE: “This was not an attack against France, this was an attack against the universal human values!”, EU President Juncker cries out from G20 in Antalya Turkey

EC v Samsung: A whole year to compile a case

Junior Enterprises as a solution for Youth Entrepreneurship

Spanish vote – bad luck for Greece: Does Iphigenia need to be sacrificed for favourable winds to blow in Eurozone?

‘Immense’ needs of migrants making perilous journey between Yemen and Horn of Africa prompts $45 million UN migration agency appeal

Global health challenges require global medical students

The EU Parliament slams Commission on economic governance

JADE Generations Club: Connecting perspectives, changing Europe.

De Gucht: More gaffes with the talks on the EU-US free trade agreement

COP21 Breaking News_07 December: “The world is expecting more from you than half-measures”, UN Secretary General Bank Ki-moon cries out from Paris

Eurozone has practically entered a deflation trap

Here are six bold ideas to accelerate sustainable energy innovation

More Stings?

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