Must-Read: Philippe Legrain: The Eurozone’s German Problem

Must-Read: Philippe Legrain: The Eurozone’s German Problem: “Germany’s beggar-thy-neighbor policies and the broader crisis response that the country has led have proved disastrous…

…Seven years after the start of the crisis, the eurozone economy is faring worse than Europe did during the Great Depression…. As long as German Chancellor Angela Merkel’s administration continues to abuse its dominant position as creditor-in-chief to advance its narrow interests, the eurozone cannot thrive–and may not survive. Germany’s immense current-account surplus–the excess savings generated by suppressing wages to subsidize exports–has been both a cause of the eurozone crisis and an obstacle to resolving it… fueled German banks’ bad lending to southern Europe and Ireland… is [now] exporting deflation….

Germany breaks rules with impunity, changes them to suit its needs, or even invents them at will…. Loans by eurozone governments to Ireland, Portugal, and Spain primarily bailed out insolvent local banks–and thus their German creditors…. In exchange for these loans, Merkel obtained much greater control over all eurozone governments’ budgets through a demand-sapping, democracy-constraining fiscal straitjacket…. Merkelism is causing economic stagnation, political polarization, and nasty nationalism…. The eurozone’s members are trapped in a miserable marriage, dominated by Germany. But fear is not enough to hold a relationship together forever. Unless Merkel comes to her senses, she will eventually destroy it.

July 23, 2015

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