I’ve got a question for you. If German economic growth is the result of German prudence, frugality, and hard work relative to the “periphery” countries, e.g. Greece, Ireland, what is the cause of Germany’s economic downturn?
What the Euro did was create a bubble in peripheral countries that allowed for mass consumption of German goods. Relatedly, Germany benefited from the fact that the Euro was cheaper than the Deutsche Mark otherwise would have been, thus giving it an export boost.
Again though, the German line will be that its practiced austerity and engaged in labor market reforms that would work for everyone else, if only they would bite the bullet.
The truth of the matter is that not only has the Euro been a perfect form of stimulus for Germany all these years, it has also benefited from more explicit forms of public stimuli.
Take a look at the linked post over at Business Insider. Related and worth mentioning: China’s peg to the dollar created a bubble in the U. S. that allowed for mass consumption of Chinese goods. The hard landing of the Chinese economy, now very clearly in progress, won’t be much fun either for us or the Chinese.
This is almost exactly right. Being Americans, we turn it into some sort of morality play. Instead, this is mostly a currency issue. I would hedge just a bit because Germany really did keep labor’s wages down, which did help. Absent the the lower interest rates that the periphery should never have seen, so they could borrow in amounts they never should have, and the cheaper “Mark”, Germany would not have seen the growth it had.
Think China can take the hit without significant civil strife?
Steve
This is precisely the point I made in a comment some time last week. If I recall correctly the Germans a dvantage at the time of the formation of the Euro was some 35-40%. As Dave has (correctly IMO) pointed out, this is what the Chinese did, although the differential has drifted upward for about the last five years.
In the poker game of European finance the Germans walked away with the pot.
You’ve got to love the German insistence they’ve been responsible in their austerity and been rewarded by markets for it. Germany has violated the Maastricht Treaty eight out of ten years through deficit spending, yet somehow Teutonic nobility makes it so that didn’t happen.