Germany's Love-Hate of the Euro

The slow-motion collapse of the eurozone continues. A recent development is the formation of anti-euro party, Alternative for Germany, to challenge German Chancellor Angela Merkel from her Right in the September parliamentary elections. Nicholas Kulish and Melissa Eddy report today in their story, "German Elites Drawn to Anti-Euro Party, Spelling Trouble for Merkel," that 

The fragile solidarity between the 17 euro-zone members has been sorely tested by the years of crisis and the growing list of bailouts. The countries needing help complain about diktats from Brussels and Berlin, while Germany and its northern allies grumble about the costs. Here in the German capital, the images of demonstrators in Athens, Madrid and now Nicosia, Cyprus — some of them waving swastikas or pictures of Ms. Merkel dressed as Hitler — have begun to try people’s patience. 

Pollsters and political analysts doubt that the new party will attract more than 5 percent of the vote, the threshold for representation in the next Parliament. But it does not need that many votes to play the spoiler for Ms. Merkel. 

“They don’t need to get 5 percent to make things very tight for the chancellor,” said Wolfgang Nowak, a fellow at the North Rhine-Westphalia School of Governance in Duisburg. “And every swastika on the street in Athens helps this new party.”

A good naked capitalism post from this past Saturday, "Why Germany (Mistakenly) Thinks it Can Kill Its Export Markets Through Austerity and Still Prosper," shows that Germany runs a deficit with Russia and Asia but racks up a huge surplus with eurozone deficit nations. The quote comes from a cross post off Yanis Varoufakis' blog:

In 2012, mostly on account of energy imports, Germany had a net trade deficit of €27 billion with Russia, Libya, and Norway. In addition, it sported a €4.7 billion trade deficit vis-à-vis Japan and a sizeable €11.7 billion trade deficit with China. In total, Germany’s trade deficit with these net exporters summed to €43.4 billion. Meanwhile, Germany’s trade surplus with the Eurozone’s deficit nations (France, Italy, Spain, Greece, Portugal, Cyprus and Ireland) came to a still staggering €54.6 billion – despite the sharp diminution of this number following the sharp decline in imports in these crisis-hit nations. 

Put differently, Germany’s net exports to the countries that the German press likes to lambast as ‘laggards’ that constitute a drain on German ‘progress’, sufficed to pay for Germany’s net trade deficit vis-à-vis China, Japan, Norway, Russia and Libya, with €11.2 billion to spare: enough to cover for the €3.4 billion transferred to German factories in the Czech Republic and in Slovakia and a large chunk of German companies’ transfer payments to their Dutch partners or subsidiaries (which are in a surplus of more than €15 billion with their German partners).

In short, despite all rumours to the contrary, German global trade surpluses are still being financed by the deficits of the imploding Eurozone ‘stragglers’. It is in this sense that Germany’s denial of the systemic nature of the Eurozone crisis, and its leaders’ commitment to the principle of ‘the greatest austerity for the weakest Eurozone member-states’, is perhaps our epoch’s most spectacular own-goal.

In the lead unsigned editorial on today's Opinion page, "Europe's Bitter Medicine," the New York Times points out, in the case of Portugal, the folly of austerity. The editorial, I think correctly, makes the case for euro bonds as a solution to the sovereign debt crisis:

In Portugal, the government of Prime Minister Pedro Passos Coelho cut spending and raised taxes so much that the fiscal deficit has fallen by about a third from 2010 to 2012. He also pushed through reforms to phase out rent control for tenants and legal changes that make it easier for companies to fire workers. The result is that the country’s unemployment rate has risen to close to 18 percent, from 12.7 percent in 2011. Economists say Portugal will likely have a bigger fiscal deficit this year than it agreed to in exchange for loans from other European countries and the International Monetary Fund, because national policies, not surprisingly, have made the recession deeper than anticipated. 

What would help is if leaders like Chancellor Angela Merkel of Germany stopped insisting on austerity and helped bolster demand by, for instance, allowing weaker countries to issue bonds backed by the euro zone. That could put more into the economies and help lift them out of a downward spiral. Policy makers in Portugal and Italy would have a much easier time selling their people on the need for reforms if they weren’t also cutting popular government programs and benefits. Faster growth and lower unemployment would provide the resources that could later be used to pay down debts and reduce deficits.