Must-Read: Michael Burda: Dispelling Three Myths on Economics in Germany
Must-Read: The very sharp Michael Burda gets it, I think, completely wrong here.
German failure to make it better for Greece (and Italy, and Spain, and Portugal) to stay in the eurozone and undertake structural adjustment than it would have been for them to have exited the eurozone in 2010 and undertaken the standard IMF-recipe depreciation-plus-structural-reform-and-adjustment recipe is already doing incalculable long-run damage to German’s position within Europe, and indeed to the concept of a European Germany. And Germany desperately needs, for its own sake as well as everybody else’s, to be a European Germany:
Dispelling Three Myths on Economics in Germany: “The Anglo-American world has been ganging up on Germany long before the financial crisis…:
…but the since the onset of the Greek standoff it has gotten notably worse…. Myth #1: Economists in Germany fundamentally reject Keynesian ideas This is nonsense…. Myth #2: German economists feed at the trough of ‘Ordoliberalism’ and worship at the altar of supply side policies…. Germans… have less patience for short-term views of the world that tend to think in terms of chains of Keynesian short runs which at some level need to be consistent with what policy wants to do in the long run. This may be hard to deal with, but it is not voodoo economics…. Myth #3: Economists in Germany obsess on moral hazard and austerity…. It’s hardly surprising that Germany is more interested in sustainable solutions to southern European problems… [than] kicking the can down the road…. In principle, governments should practice austerity in good times, not bad. After seeing the consequences of its failure (with France) to impose the stability rules and sanctions on themselves in 2003… Germany is now wedded to austerity or risks losing all credibility on fiscal discipline in the monetary union….
It is not ordoliberal religion, but a mixture of national self-interest and healthy mistrust informed by experience that guides German economic policy today…. A monetary union imposes a one-size-fits-all monetary policy but is silent on the right substitutes for it…. German economists will tend to peddle economics that serve Germany’s own self-interests, just as we’d expect of the British if and when they decide to leave the EU, or of the US when interest rates are finally raised. If it is to succeed, the European monetary union needs to synchronize national and union interests, or faced being be dashed on the rocks of shocks to come.