by J\u00f6rg Bibow, Skidmore College<\/p>\n
Developments surrounding the recent G-20 summit further underlined some starkly conflicting views among key global policymakers, an important \u201cAmerican-German divide<\/a>\u201d in matters of macroeconomic policy in particular. For instance, referring to the Federal Reserve\u2019s latest quantitative easing (\u201cQE2\u201d) initiative, Germany\u2019s finance minister Wolfgang Sch\u00e4uble briskly attacked U.S. policy as \u201cclueless\u201d and \u201cirresponsible\u201d. In his view<\/a>, it is inconsistent for the U.S. to accuse the Chinese of exchange rate manipulation while steering the \u201cdollar exchange rate artificially lower with the help of their printing press\u201d. While highlighting that the final remnants of global policy consensus at the G20 level have evaporated, Mr Sch\u00e4uble is clearly missing the real inconsistencies in international policymaking today.<\/p>\n Take Mr Sch\u00e4uble\u2019s assertion that Germany\u2019s export success was not based on any exchange rate tricks, but on increased competitiveness. This would seem to imply that the euro\u2019s decline from $1.50 to $1.20 in the context of Europe\u2019s so-called \u201csovereign debt crisis\u201d was neither a competitive depreciation nor any other kind of exchange rate trick, but a legitimate booster of German competitiveness; conveniently super-charging Germany\u2019s export engine though. Rather less convenient, at least from the viewpoint of the rest of the world, is the fact that austerity across Europe will do little to boost German and European imports \u2013 when Europe happens to be the U.S.\u2019s most important export market.<\/p>\n While China has gone through a fundamental policy shift<\/a> since the global crisis, Germany is simply returning to bad old habits. In fact, China\u2019s current account surplus has declined sharply from 10 percent of GDP towards 4 percent; close to Mr Geithner\u2019s proposed cap for imbalances. By contrast, Germany\u2019s ballooning external surplus has soared back to 6 percent of GDP (with the OECD forecasting a continued rise to 7 percent of GDP, close to the pre-crisis 8 percent peak level). Ironically, it was mainly China\u2019s massive stimulus program that bailed out Germany\u2019s peculiarly unbalanced export model, replacing depressed export markets in the crisis-stricken European periphery. That German policymakers should lend their voices to pressures for more renminbi appreciation reflects a freeloading propensity of embarrassing dimension.<\/p>\n Even worse, it is official policy today that the rest of Euroland has to emulate the German model, which would turn Euroland into a large trade surplus zone. The rest of the world may not like that prospect all that much though, not least the US, and for good reasons. To be sure, even if the German Euroland strategy were to come about, the US would still be facing continued accusations of running irresponsibly large current account deficits, most certainly from Germany. For from a German perspective the sins of running budget or current account deficits are to be addressed by nothing but austerity, as the panacea fostering both growth and competitiveness. That austerity has never ever fostered growth in Germany but competitiveness only is a fact conveniently ignored \u2013 a trick that has worked for Germany precisely because others refuse to buy the austerity-fosters-growth fiction, graciously making Germany\u2019s export model viable in the first place.<\/p>\n At the current juncture there is a serious problem though: U.S. external deficits internally require overspending by some U.S. sector. Alas, neither households nor businesses are currently sufficiently forthcoming, while Congress looks disinclined to do more deficit spending either. In other words, to the U.S. the dollar is something of an \u201cexorbitant burden\u201d rather than a privilege right now, with dollar diplomacy \u00e0 la QE2 emerging as last line of defense against exchange rate tricks and export successes of others.<\/p>\n Mr Sch\u00e4uble may be annoyed that anyone should dare to challenge what he seems to see as Germany\u2019s monopoly right for competitive depreciation and beggar-thy-neighbor trickery, as he had to watch the euro rise back towards $1.40 following the Fed\u2019s QE2 announcement. Meanwhile, a German initiative to establish a sovereign bankruptcy regime with private investor bail-ins in Euroland by 2013 has triggered another \u201crescue package\u201d (this time allegedly \u201cbenefiting\u201d Ireland) and renewed euro weakening. With never-ending German calls for savage austerity and renewed market fears of contagion on the rise, Euroland is re-confirming its status as global hot-spot of instability. As pointed out in detail elsewhere<\/a>, Euroland\u2019s policy regime is based on pre-historical German doctrines that are bound to leave any currency union dysfunctional. More by accident than by design, Germany herself is doing rather well at the moment. On top of the China factor and low interest rates due to its haven status, one has to acknowledge that Germany got lucky in 2009 in successfully implementing policies the Keynesian character of which the German authorities may be keen to deny. More generally, when it comes to \u201cclueless\u201d and \u201cirresponsible\u201d economic policies, German policymakers are truly in a league of their own.<\/p>\n","protected":false},"excerpt":{"rendered":" Developments surrounding the recent G-20 summit further underlined some starkly conflicting views among key global policymakers, an important \u201cAmerican-German divide\u201d in matters of macroeconomic policy in particular.<\/p>\n","protected":false},"author":35,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,40],"tags":[95,94,96,75,93],"class_list":["post-814","post","type-post","status-publish","format-standard","hentry","category-economic-policy","category-monetary-policy","tag-exchange-rates","tag-germany","tag-global-imbalances","tag-quantitative-easing","tag-united-states"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/814","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=814"}],"version-history":[{"count":4,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/814\/revisions"}],"predecessor-version":[{"id":817,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/814\/revisions\/817"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=814"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=814"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=814"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}