Image via Wikipedia
This week, as Spain, Italy and Greece struggle against the increasing vice of austerity, ever watchful of the latest broadside from credit rating agencies, and struggling to explain the demise of democracy to voters, I have been reflecting on the question:
Is Germany Really Following a Policy of Economic Narcissism in Relation to Other Euro Countries?
It all started when I reblogged a Guardian article entitled:
The eurozone will pay a high price for Germany’s economic narcissism | Hans Kundnani | Comment is free | guardian.co.uk
My blog prompted a response from Pit, another blogger, who is German national and now lives in Texas. Pitt commented:
Without having read the article yet – which I’ll certainly do – just one question here: why are being industrious, adhering to sound labour laws and showing good husbandry “economic narcissism”?
Pit’s question caught me a bit by surprise and after reflection, I replied:
Many thanks for your comment which is appreciated. Let me try to clarify & answer your question.
I would recommend that you read the article and then perhaps you will see why the description “economic narcissism” was deployed in the headline.
Personally, I believe that the article presents a balanced view. On reflection, deploying the term “economic narcissism” might be a bit strong or inflammatory or perhaps just designed for headline grabbing attention.
I have provided a link (Wikipedia) to narcissism and it is a wide-ranging concept so it’s meaning here is ambiguous. I have extracted the following section from the Wikipedia definition which might help in positioning the use of “economic narcissism”:
<<Campbell and Foster (2007) review the literature on narcissism. They argue that narcissists possess the following “basic ingredients”:
Positive: Narcissists think they are better than others.
Inflated: Narcissists’ views tend to be contrary to reality. In measures that compare self-report to objective measures, narcissists’ self-views tend to be greatly exaggerated.
Agentic: Narcissists’ views tend to be most exaggerated in the agentic domain, relative to the communion domain.[clarification needed]
Special: Narcissists perceive themselves to be unique and special people.
Selfish: Research upon narcissists’ behaviour in resource dilemmas supports the case for narcissists as being selfish.
Oriented toward success: Narcissists are oriented towards success by being, for example, approach oriented.[clarification needed]>>
Returning to your question, I do not believe that the article challenges “being industrious, adhering to sound labour laws and showing good husbandry”. The article maintains that “economic narcissism” come from following a policy of economic self-interest.
Pit considered my response for a few days and came back with the following comment:
Thank you so much for your answer and the links. Let me here voice a few of my thoughts:
Re the headline and the article: I agree that it might just be interest-grabbing, and that the article is much more balanced.
Re the definitions of “narcissism”: I was used to it meaning “special” and “showing off oneself”. For what the author describes in his article, “selfish” might be the word I’d use.
Re the article itself: I think the author is wrong when he says that Germany’s politicians (secretly) try to decrease the value of the Euro as it helps Germany’s exports, for three reasons:
(1) The bulk of Germany’s exports goes to Euro(pean) countries where the value of the Euro doesn’t matter.
(2) When the value of the Euro was higher, it has not significantly hampered Germany’s export to non-Euro countries.
(3) In Germany’s public opinion – and, btw, most politicians’ – a weak Euro is considered a failure of politics.
Spain, which the author uses as an example to prove his view, can also be seen as an example to prove German policy: admittedly it was not the state’s [excessive sovereign money] fault, but it certainly was the easy availability of cheap money which inflated, among others, the housing market. And now Keynesians would suggest to make money even more readily available? The same goes for Greece, only that here it was the state that made reckless use of readily available money.
Re central banks’ role(s): what the author – as other advocates of supplying money to the economy by quantitative easing [in fact printing money] – does not see is that this impoverishes the common man [inflation rising makes his earnings/savings worth less] while enriching the state [decreasing the state’s debts].
I readily admit that austerity policy alone is not the solution as it might too easily end in a downward spiral. But on the other hand, bailing out Greece, e.g., would not solve but continue the problem. Or does anybody really believe that without enormous outside financial pressure there would ever have been the slightest attempt at mening their ways?
As to how to solve the crisis I have no idea, though. It seems to be more of a matter of belief than exact science as there are two contrary economic schools. In the short run, maybe let Greece exit the Euro (and go bankrupt)? And in the long run, Germany’s proposed solution [greater European political and fiscal unity], may be the only way. And this is, contrary to what the article maintains, a great contribution by Germany.
Now that has become quite a long answer! But I’m glad we can talk about these matters here.
My final response to Pit was as follows:
Many thanks for coming back with your views which I acknowledge & respect. I sense that in reality I am not too far away from you here. I guess I am frustrated that politicians are broadly on the back-foot.
I thought that was the end of the matter until I spotted an eye-catching article from Der Spiegel entitled:
Profiting from Pain: Europe’s Crisis Is Germany’s Blessing – SPIEGEL ONLINE – News
The Spiegel article was providing evidence to support the Guardian viewpoint.
Again the matter went to the back of my mind until I spotted yet another and interesting related article in the Financial Times entitled:
The falling euro and the crisis that wasn’t | The World | International affairs blog from the FT – FT.com
The Financial Times (FT) article argued that a policy of controlled depreciation of the Euro to other major economies’ currencies is a healthy thing, citing IMF evidence emerging from a working paper based upon the experience of South Korea emerging from the 2008 crisis.
After reading the FT article and again reflecting on the articles in the Guardian and the FT, this left me with two open questions:
- If the Euro continues to fall against other major trading currencies, surely that will be enormously advantageous to Germany because it is an export driven economy?
- Has Germany engineered an erosion of the Euro to stimulate its own growth in exports?
I am not a great fan of conspiracy theory but I must admit that I still have an open mind as to whether Germany is leading or lagging the markets.
What do you think?