The Economic Consequences of German Fiscal Aggression
We’d like to welcome an excellent new blog, Philip Pilkington’s Fixing the Economists, which aims to provide a view of international economics from an Irish perspective to the Irish web-oh-sphere. Just cross-posting this from his blog today to give a flavour.
In 1919, just after WWI, the great British economist John Maynard Keynes published a book entitled ‘The Economic Consequences of Peace’. The book was a response to the proposed reparations that were being imposed on post-war Germany. The general opinion in the Allied countries at the time - one, no doubt, fueled by the hangover effects of the greatest wartime propaganda campaign the world had, at that point, ever seen - was that Germany should bleed. No quarter should be given; the German economy should be cut down like those British and French men that were cut down by German machine-gun fire as they poured over the trenches.
Keynes argued that these reparations would be the beginning of the end for Europe. He argued - as any salient macroeconomist would - that reparations shouldn’t be seen as a zero-sum game. If the British and the French plundered Germany they would destroy her economy - this would then have long term consequences for the European economy as a whole. This was not even to mention the political consequences that would result from these reparations - consequences attested to today by the greatest disaster European man has ever known.
Fast-forward to today and a new nationalism is on the rise. The German people, this time in the position of the aggressor. Because they are Europe’s main creditor nation, the German’s see themselves as the arbiters of European fiscal policy. It is the Germans that hold the sway at meetings that try to deal with the debt crises arising in the so called PIIGS (Portugal, Ireland, Italy, Greece and Spain). The Germans - riled by crass nationalism - see themselves as the unwitting victim of these ignoble countries who expanded their national debt too far, too fast. “It’s unfair,” say the Germans, “That we should have to support these economies.”
Yet, this is no zero-sum game either. Indeed, where is that European spirit gone now that it is invoked as anything but a friendly ghost? Why is it that the Germans - and the other countries that support their general stance - fail to note that perhaps what is good for the PIIGS is good for the whole of Europe? Well, it would seem that there is a new specter haunting Europe - the specter of crass fiscal nationalism. “To each European according to his central bank; to each Irishman according to his failed national banking system,” they cry.
After WW2, Germany was once again in ruins. Of course, the international community could again have said, “Well, it’s their fault, isn’t it? They geared their entire economy toward war and conquest - indeed, they even tried to eradicate certain elements in their population. They are not just an irresponsible, but an evil people!” The international community had every right to take this stance - but they didn’t. They had learnt their lesson the hard way. As the smoke from the bombs and the tank fire cleared across Europe many began to realise that Keynes had been right in 1919. An economically strong Germany benefits the whole of Europe. Shortly after huge debts were extended to Germany to rebuild her frayed economy under the Marshall Plan. This ushered in a new age for Europe; an age of prosperity and cooperative national expansion.
Today the situation is different. European brotherhood is nothing but a ghost, only to be summoned up when key European leaders meet for fancy dinners. And while Germany’s Merkel puts on an austere face, the Irish politicians and economists curl up in a ball to receive their telling-off - readying their tuxedos for their next meal in Brussels, where praise of fraternal inter-European relations will be sung to the rafters.
Meanwhile, the anti-EU lobby - made up of a queer hotch-potch of shady business interests, nationalists, socialists and traditionalists - have seen all their worst fears realised. The EU is not now based on all-for-one and one-for-all - it’s still based on crass nationalism and one-sided bias. The propaganda may have changed, but the nationalist sentiments remain - threatening, no less, to once again destroy Europe.
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Comment by: Pope Epopt
Oct 22nd 2010 at 08:10
But it’s fiscal nationalism that only works within the EU context. Germany would find it much more difficult to export if the ‘problem children’ were not members of the Euro which appreciate considerably in their absence.
I assume that what this article is hinting at is an intra-European Marshall Plan. Structural funds were, I suppose, meant to work rather like that. They were, however, mainly gobbled up by national elites. A new Marshall Plan might just work, but fragmentation is more likely.
The EU and the bond markets act as a convenient puppeteer figure to shift blame from whichever right-wing coalition is in power in this country. And much of left is going to row in behind them, at least on the first issue.
That’s very well-written blog, Mr. Pilkington, we are badly in need of more critique of the sermons of the high priests of the markets (sorry, economists).
Comment by: Pope Epopt
Oct 22nd 2010 at 11:10
However Monsignor Waters agrees that it was the godless EU wot destroyed the nation’s soul.
Comment by: Donagh
Oct 22nd 2010 at 13:10
I like Hugh Green’s name for him: Giovanni d’Aqua, which is probably what they call him in the Vatican when he’s being debriefed.
Comment by: Philip Pilkington
Oct 22nd 2010 at 14:10
@ Pope Epopt
I did a post yesterday about what I’d propose to do with the EU (and with the US):
http://fixingtheeconomists.wordpress.com/2010/10/21/give-us-the-credit/
More broadly, what I’m proposing is a return to classic Keynesian economic policy - and a restructuring of certain institutions (such as the ECB, the Fed, the IMF, the World Bank etc.) around Keynesian principles.
So, we’re talking a return to the economic policy of the US and other advanced countries in the 40s, 50s and 60s. Major government spending - to soak up unemployment in the short-term and float strong national economies geared toward an international market in the long-run.
The obstacles to this, however, are legion - one of which I point out in a previous post (gosh, I’m in a ‘plugging’ mood today…):
http://fixingtheeconomists.wordpress.com/2010/09/30/why-businessmen-dislike-earning-money/
Personally, I don’t think the world will even begin to consider until the next major financial crash - that’s probably between two and five years away. Then there’ll have to be, on top of that, a big ‘clean-out’ of most national governments and directors of key institutions - how to achieve that, I don’t know…