The Rejoinder from Germany

The question on the table: "Is Germany underestimating the extent of the calamity about to befall it and making a terrible mistake by not passing a large stimulus package?" or contrariwise: "Are German politicians correct in thinking that they will be spared the worst because of the fundamental structural characteristics of their economy (and are the calls for more stimulus from the U.S. driven by the feeling that export-king Germans are "free riding" on other nations' stimuli)?"

The New York Times gives some Europeans a chance to make their case here, and it seems pretty convincing to this non-economist: 

Indeed, to travel between the United States and Germany is to find two countries experiencing the economic slowdown completely differently. The severity of the downturn does not appear to have sunk in yet in for Germans. There was no real estate bubble here, and few people have a substantial portion of their savings or retirement accounts invested in the stock market. The unemployment rate has risen more than a percentage point, to 8.5 percent in February from 7.1 percent last November. But, significantly, the latest figure is still lower than it was just a year ago.

“In contrast to America, our social systems are not on the decline right now,” Mrs. Merkel said Sunday night in a widely watched interview on a television talk show. “Pensions are not cut, unemployment insurance is not reduced. On the contrary, we can register stable and, in some sectors, also rising expenditures, and this makes me hope that our social market economy will enable us to cope with this complicated situation.”

Comments

[James Rytting]

By now, with Geithner and the oliginous Sumners at the helm, it should be clear that the means and ends of the U.S. stimulus package are one and the same: resurect U.S. financial companies, and, thus, the U.S. economy, on the same securitized footing as before. Why would Germany, or anyone else, participate in this folly? The American debacle, of course, gives right wing European parties the perfect excuse to resist increasing stimulating the economy in any direction, such as by expanding unemployment benefits or pensions or education and social services generally, including the arts, which is what is advocated, in vain, by American economists such as Paul Krugman and, particularly, James Galbraith, as an alternative to Geithner's and Summner's trickle down plans to enrich their classmates. At the very least, though, this is the time for intense investment by European Governments in science and technology, perhaps through the creation within the EU of the equivalent of the U.S.'s national science foundation and national institute of health. It also could be an opportunity for Germany to wean itself from dependence on its auto companies, which are the Achilles heel of its export based economy, by subsidizing other sectors, especially since this can be done with little friction now that the GATT and the WTO are jokes.

[Sebastian Koppehel]

Europe is recieving a large chunk of the US funding in the form of the AIG bail-out. Congress and the public are fully aware of that, even if the German public is not. AIG is incredibly unpopular in the US, not least because the European banking system is getting a major part of the benefit solely funded by the US taxpayer.

In other words, Don (and other American right-wingers) thought the large payables that turned a credit rating/liquidity crisis into a life-threatening condition for AIG were owed to Mom-and-Pop apple pie shops in the Heartland and is now shocked to find out the money will actually go to large financial institutions, some of whom have the temerity to not be American. Can this actually be true? Of course not, it's just another way to criticize the bailout payments using populist rhetroric.

Indeed, I'm amazed that he didn't offset the amount of money owed by AIG to, say, Deutsche Bank, against the x gazillion dollars that Germany still owes the USA for all the nice military airfields they built in Germany to protect us from the Ivan. Cause hey, Deutsche Bank is Germany, American Inter-hm-hm-hm Group is America, it's right there in the names. And Lord knows what counts in international high finance isn't contracts or accounts or whatever, but fairness, gratitude and generosity.

[Don]

From the first page of the NYT piece:

'something that Prime Minister Mirek Topolanek of the Czech Republic, which holds the European Union presidency, has called “a way to hell.”'

Hmmmm. Is that the same PM Mirek Topolanek of the Czech Republic whose government just lost a no-confidence vote in the Czech parliament? It would seem so. So, how is that marvelous economic recovery plan working out in the Czech Republic, Mirek?

[Don]

That NY Times piece is just slightly one-sided. Look at Berlin, Munchen, or Paris and you see one side of the European story.

Look at Riga, Bratislava, Dublin, Talinn, Warsaw, Reykjavik, or Vilnius and you will see parts of Europe which aren't working quite so well.

Johannes reminds us that Germany is dependent on exports. Where does Chancellor Merkel believe German exports are going to go to in the future? None of the places mentioned above are going to be importing much for a long while, I suspect. Neither will the US or Canada.

China? Chinese imports dropped 42% during the fourth quarter of 2008.

Europe is recieving a large chunk of the US funding in the form of the AIG bail-out. Congress and the public are fully aware of that, even if the German public is not. AIG is incredibly unpopular in the US, not least because the European banking system is getting a major part of the benefit solely funded by the US taxpayer. And without even a thank-you from Berlin, though the French have had enough awareness and grace to say thanks.

If Angela wonders why Nikko has more pull in Wachington than she does, whe might examine the fact that France is trying to lead on the issue, while Germany sits there fat, dumb, and happy - waiting for the back orders to be filled and no new ones coming in.....

[brad johnson]

The last thing Germany remembers happening before the horrific rise of Nazism: hyperinflation.
As the rest of the world currencies are inflated by massive 'stimulus' spending, let's hope Germany continues to have more sense.

[califax]

The export crisis will us hard for sure. But for the time being there are still (old) orders on the stack. When they run out, there's (limited) financial help from the government through the Kurzarbeit solution.
And only when this help runs out the real trouble comes in.

[Johannes]

I can't claim any expertise of my own here, but quite a few economists (blogging or other) do (not quite respectfully) disagree with Frau Dr. Merkel, her ministers and advisors. Sure, there are several factors as the ones noted that are distinct advantages for Germany. But one big disadvantage is exactly the status as export world champion! What will we do, if, as is or will be the case very soon, the rest of the world has not enough money to buy our cars, machines, power plants etc.? The improportional dependence on the exports that was seen as a strength may prove a fatal weakness. It will take a while (that's why almost everything is quiet now), but it may strike hard when other countries are already on their way to recovery.
As mentioned, I can only report what I read elsewhere. But it certainly seems too early to say that Germany will get away with the current policy.

(Also note that German unemployment figures are "prettified" to a considerable degree; there's usually a million more dependent on welfare payments (at least partly) than shows up in the (officially) doctored stats)

[califax]

Ich weiß nicht, ob es sowas wie Kurzarbeit in Amerika gibt, aber bei uns verzögert das die Auswirkungen auf den Arbeitsmarkt deutlich und taucht in den Konjunkturprogrammen gar nicht erst auf, da es ja normaler Usus ist. Momentan lebt wahrscheinlich fast die ganze Exportbranche davon.
Dazu kommt, daß wir auch mit HartzIV noch ein funktierendes Netz haben, mit dem die Entlassenen nicht betteln müssen.
Und: Deutschlands Konsumenten sind nicht so stark überschuldet wie die amerikanischen.
Da liegt auf privaten Konten also noch eine Menge Geld rum, daß man ausgeben kann.
Und das hält die Wirtschaft noch ein Weilchen am laufen.
Also: geringere Verschuldung der Haushalte, bessere Kaufkraft der Arbeitslosen, hinreichend stabile Immobilienwerte, Kurzarbeit zur Deckung der Lohnkosten.
Das ist das Geheimnis.