Thanks Ms Merkel, you're right

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fujisan's picture
fujisan
Status: Gold Member (Offline)
Joined: Nov 5 2008
Posts: 296
Thanks Ms Merkel, you're right

FT.com / World - ‘We all want to put the global economy back on its feet’ (emphasis' mine)

Listening to Angela Merkel outline her expectations for next week's G20 summit in London it is hard to recall that only three weeks ago US and European leaders were at loggerheads over how best to tackle the world financial and economic crises.

...

Germany, she says, is an over-indebted, export-oriented economy with an ageing, shrinking population. It cannot boost consumption at the expense of exports. "The German economy is very reliant on exports, and this is not something you can change in two years," she said. "It is not something we even want to change." Instead, it will try to sit through the turbulence while taking care not to lose too much industrial muscle so that it can ride the upturn when it comes. She is robustly unapologetic when discussing the origin of the global financial meltdown. The fault, she says, ultimately lies with misguided efforts in the US, both by the government and the Federal Reserve, to re-start artificially the economy after September 11 by pumping ever-cheaper money into the financial system. "We must look at the causes of this crisis. It happened because we were living beyond our means. After the Asian crisis [of 1997] and after 9/11, governments encouraged risk-taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground."

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She is sceptical about calls for bigger public deficits and looser monetary policies - the very things that tipped the world economy into the abyss in the first place - as the way out of the crisis.

"The crisis did not take place because we were spending too little but because we were spending too much to create growth that was not sustainable. It isn't just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary [financial market] rules and, for instance in the US, by increasing the money supply too much."

Hence Ms Merkel's oft-repeated insistence that governments, as they fight the crisis, must also start to think about their "exit strategies" - a return to fiscal discipline, a dismantling of protectionist measures, and mopping up of excess liquidity.

The debate about the possible inflationary side-effects of measures taken to tackle the crisis "is something I am taking very seriously", she said. "As head of the German government, I am most concerned by the debate in Germany, where people are worried about accumulating debt, and about the possible inflationary consequences."

Markets, she added, "expect to see a return to sustainable fiscal policies after the crisis". Asked about the failure of a government bond auction in the UK this week, she stopped for a long pause, and chose her words with great care: "It shows states cannot borrow forever," she said.

Estimates about how much the German economy is expected to shrink this year have worsened dramatically since Ms Merkel's government adopted its €50bn ($67.9bn, £46.6bn) fiscal stimulus in January. So have expectations about how long the downturn will last. The government is considering cutting its forecast of a 2.25 per cent contraction in gross domestic product growth to 4.5 per cent.

And yet, Ms Merkel insisted once more that the time had not come to consider another package of growth-boosting measures. Setting up a mechanism to help the country's banks rid themselves of their toxic assets, she said was a more pressing priority, and would be addressed before the election of September 27.

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Thanks Ms Merkel.

At least one official in the world understands something, tells some thruth and admits some responsability.

Maybe that's because she is ... a woman ?

Some hope is left...

Michael Höhne's picture
Michael Höhne
Status: Silver Member (Offline)
Joined: Nov 16 2008
Posts: 119
Re: Thanks Ms Merkel, you're right

The German government is debating about balanced budgets for years and tried to minimize new indebtedness with some success. They now plan to prohibit new debt for the states (we have 16 of them) by 2020 and it was also said the new debt in the national budget will be limited to 0.25% (at some time, most probably not in the coming years).

The fun part is that neither the states, with very few exceptions, nor most cities or the German government itself managed to provide a balanced budget even in boom times. If it will be possible in the future, then I wonder why it hasn't been possible in the past.

I do agree that Ms Merkel made some bold statements regarding the fiscal policies of the United States and that these statements could be posted 1:1 as part of the Crash Course. I wonder though if changing things after the crisis will work, because it never has before. The only way to pay off our debt - though much less than in the U.S. - is by raising taxes and that won't work, because it would impact the economy even further.

Abolishing the bank secrecy may add some revenue, but certainly not enough to create a surplus, which indeed is needed to pay off debt. A balanced budget sounds nice, but doesn't solve the problem of too much debt. Only large surpluses could make a difference, but from the past I can tell that whenever a German agency reported more income than expected, there always were a dozen politicians looking for ways on how to spend the additional money.

Changing this behavior would eventually be the first step to solve the problem, but it would mean that politicians stop thinking about the next elections, which is somewhat unlikely to happen soon. Anyway, I hope that Ms Merkel's message has some impact on other people and that it's not only part of the election campaign. The federal election takes place in September...

rkopf's picture
rkopf
Status: Martenson Brigade Member (Offline)
Joined: Sep 4 2008
Posts: 29
Re: Thanks Ms Merkel, you're right

Im also a bit surprised to read this. I first thought this was an aprils fool. However, im not surprised, that I couldnt find this Interview somewhere in german language, must have something to do with the elections in september, becaused saying we lived beyond our means is a no-no for politicians here.

It is sometimes mentioned, that Germany tries to resist stimulus packages, because we already have them since decades, one is the relatively generous social security system, the other is the very expensive rebuilding package for the former east german states. 

All political parties, from the socialist left to the conservative right are on the growth bandwagon here in Germany, and dont understand energy (maybe except the green party). And only very few peoples, not one politician among them, understand that we need to get rid of fractional reserve banking and our debt based money system.

Ken C's picture
Ken C
Status: Platinum Member (Offline)
Joined: Feb 13 2009
Posts: 753
Re: Thanks Ms Merkel, you're right
Michael Höhne wrote:

......

 but from the past I can tell that whenever a German agency reported more income than expected, there always were a dozen politicians looking for ways on how to spend the additional money.
Changing this behavior would eventually be the first step to solve the problem, but it would mean that politicians stop thinking about the next elections, which is somewhat unlikely to happen soon. ..

.

 

Isn't that true of politicians everywhere. If a politician sees a dollar, euro, pound they want to spend it and 10 more.

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