After years in which Obama and Bernanke were less “Austerian” than their counterparts in all other major economies (other than China), these roles may be in the process of reversing.
Japan’s recent pivot to a strongly anti-Austerian policy have been widely commented on, although US-sabotaging Republicans and Europe-dominating Germany have been reluctant to learn from Japan’s experience.
As George Soros puts it:
Japan has adhered to the monetary doctrine advocated by Germany, and it has experienced 25 years of stagnation, despite engaging in occasional fiscal stimulus. It has now changed sides and embraced quantitative easing on an unprecedented scale. Europe is entering on a course from which Japan is desperate to escape. And, while Japan is a country with a long, unified history, and thus could survive a quarter-century of stagnation, the European Union is an incomplete association of sovereign states that is unlikely to withstand a similar experience.This is part of a fascinating exchange, at Project Syndicate: http://www.project-syndicate.org/... between Soros and a leading German policy advisor, in which Soros explains his Plan A for Eurozone members to jointly issue "Eurobonds", and his Plan B for Germany to leave the Eurozone. Soros argues that:
If Germany is opposed to Eurobonds, it should consider leaving the euro.Soros concludes:
The division of the euro could save the EU, provided that the periphery retains possession of the euro. Given that their debt is denominated in euros, this would enable them to avoid a default that would destabilize the global financial system. And France, in its current competitive position, would be better suited to act as the eurozone’s leader, rather than to remain a passenger in a car driven by Germany.Meanwhile, German resistance, to Japan’s example and to Soros’s arguments, is explained in “The Austerity Delusion, Why a Bad Idea Won Over the West", By Mark Blyth, mainly behind a subscriber wall at Foreign Affairs: http://www.foreignaffairs.com/...
of which substantial extracts can be seen in the European Tribune at: http://www.eurotrib.com/... including this key point:
Germany could afford to cut its way to growth, since the sources of its growth lay outside its borders: it is the export champion of the world. But the whole of Europe cannot play that trick, especially as the Asian countries are also running surpluses. As the Financial Times columnist Martin Wolf asked, "Is everybody supposed to run current account surpluses? If so, with whom -- Martians?" The ideas that informed the institutional design of the postwar German economy and the EU may work well for Germany, but they work terribly for the continent as a whole, which cannot run a surplus no matter how hard it tries.I find Soros much more persuasive then his interlocutor, Hans-Werner Sinn. Among Sinn’s comments, the following may be particularly noteworthy:
In all likelihood … Germany’s exit would also trigger the exit of the countries of the former deutschmark bloc (the Netherlands, Austria, Finland and perhaps Belgium). When France proposed in 1993 that Germany leave the EMS [European Monetary System], a forerunner of the euro, the Netherlands and Belgium immediately declared that they would also be leaving, and France withdrew its demand.The reason this caught my eye is because of the recent Spiegel article (at: http://www.spiegel.de/...), which begins:
The Netherlands, Berlin's most important ally in pushing for greater budgetary discipline in Europe, has fallen into an economic crisis itself. The once exemplary economy is suffering from huge debts and a burst real estate bubble, which has stalled growth and endangered jobs.and explains:
No nation in the euro zone is as deeply in debt as the Netherlands, where banks have a total of about €650 billion in mortgage loans on their books.Attitudes are changing in the Netherlands, as the Spiegel explains:
Consumer debt amounts to about 250 percent of available income. By comparison, in 2011 even the Spaniards only reached a debt ratio of 125 percent.
"Sticking the knife in even more deeply" would be "very, very unreasonable," [Dutch Finance Minister and] Social Democrat Dijsselbloem told German daily Frankfurter Allgemeine Zeitung... It's the kind of rhetoric normally heard from Europe's stricken southern countries.The Netherlands, being harder to stereotype in the same manner as more peripheral European countries, seems to be encouraging some German policy advisors to see the anti-austerian light, according to the following quote in the Spiegel article:
"A vicious cycle develops in such situations," says Jörg Rocholl, president of the European School of Management and Technology in Berlin and a member of the council of academic advisors to the German Finance Ministry. "Customers have too much debt and cannot service their loans. This causes problems for the banks, which are no longer supplying enough money to the economy. This leads to an economic downturn and high unemployment, which makes loan repayment even more difficult."It makes one hope that the Netherlands might fully switch sides in the debate over austerity and, if Germany leaves the Eurozone, perhaps the Netherlands would find it more attractive to join France in continuing to use a depreciating Euro, leaving Germany largely alone with an appreciating new Deutschmark.
Whatever happens, the sooner the better, as Soros says:
There is no escaping the conclusion that current policies are ill-conceived. They do not even serve Germany’s narrow national self-interest, because the results are politically and humanly intolerable; eventually they will not be tolerated. There is a real danger that the euro will destroy the EU and leave Europe seething with resentments and unsettled claims. The danger may not be imminent, but the later it happens the worse the consequences.