Don’t scapegoat the Germans for crisis
A revisionist theory on the causes of the global financial crisis blames surplus countries like China, Japan and Germany as much as highly-leveraged, deregulated finance in the United States and Britain.
Making Germany a scapegoat may be tempting, especially in Britain, where memories of sterling’s humiliating exit from the European Exchange Rate Mechanism in 1992 still rankle, but it is unfair and dishonest.
The revisionists contend that the meltdown was due not just to the Americans and British who borrowed, traded and lived beyond their means but also to the Chinese, Japanese and Germans who sold them the goods and lent them the money.
It follows that responsibility for digging the global economy out of its current hole lies disproportionately with the surplus countries, which must spend their reserves or go deeper into debt to boost demand and give the world a fiscal stimulus.
Seen from Berlin, this interpretation of global imbalances looks like a brazen attempt to punish German fiscal and economic virtue and divert attention from the irresponsibility of “Anglo-Saxon” financial capitalism.
Finance Minister Peer Steinbrueck has a 10-second summary of the origins of the crisis.
“My short formula is that a policy of cheap money in the USA afer Sept. 11 (2001), plus a paradigm of deregulation, plus the race for yields combined with illusions about risk, led to excesses and hubris which today have seriously shaken the world financial architecture,” he told visiting journalists last week.
Germany was slower than the United States, Britain or France to recognise how hard the crisis would hit its economy. It faces a deeper recession than any major economy except Japan, with a contraction of 6 percent of gross domestic product this year.
After early hesitation, it has enacted two stimulus packages which the government says are worth 81 billion euros ($107.6 billion) over two years. Combined with automatic extra welfare spending and lower tax revenues, it says the measures amount to about 4 percent of GDP. Ministers note that half of the German premium for scrapping old cars has been spent on imports, benefiting European neighbours and Asian exporters.
Steinbrueck acknowledged that dependency on exports, which account for 40 percent of GDP, made Germany more vulnerable to the collapse of global demand. The world export champion had a trade surplus of 178.2 billion euros in 2008.
Yet government leaders are convinced Germany will be able to export its way out of crisis as key markets recover, provided it keeps labour costs and public deficits under control. They see no alternative to the export-driven manufacturing economy. If that means cutting wages and working longer to stay competitive, so be it.
Two-thirds of Berlin’s exports go to other EU countries, mostly to the other 15 members of the euro zone. Since the EU is a customs union, its trade balance should arguably be considered as a bloc. Seen in this light, it had a modest deficit in 2008.
While critics of China’s export-led growth accuse Beijing of keeping the yuan artificially low, no one can accuse Germany of manipulating its currency. On the contrary, the euro has been strong on world markets, and the Germans entered the single currency in 1999 at a rate that was initially hard on them.
Germany imposed sacrifices on its taxpayers to balance its budget in the years before the financial turmoil began. Martin Weale, director of Britain’s National Institute of Economic and Social Research, argues German saving is no more than is needed to make reasonable provision for its ageing population, while Britain and the United States “decided not to make adequate provision for their collective old age”.
The OECD forecasts that the impact of the crisis will push the German deficit to 4.5 percent of GDP this year and 6.8 percent in 2010. So Berlin is understandably loath to sign bigger cheques to underwrite countries that were less prudent in the boom years, whether in the Europe or beyond.
Nevertheless, Germany has broken a taboo by making clear, without going into details, that it will help, if necessary and with conditions, to bail out any EU country that faced default.
So don’t blame the Germans for making machines, cars and chemicals that other people want to buy. And don’t bash them for living within their means and not having a property bubble.
Perhaps the lesson of the financial crisis is that we all need to become a bit more German.
(Editing by David Evans)