Dr Alf’s Two Cents: Germany and Europe: The Merkel plan

Merkel (Photo credit: stejan)

This is an excellent and MUST READ article from the Economist.

Germany and Europe: The Merkel plan | The Economist.

For me, the article made a number of powerful points:

Firstly, that Germany has no cohesive strategy for Europe, just a simple vision that Southern Europe must work harder for less money like all good Germans.

Secondly, Germany’s plan for Europe is intellectually flawed in that it is based upon selective analysis of Germany’s own history.

Thirdly, the lawyers in Germany hold more power than the economists which reinforces the vision that Europe should be more like Germany.

My conclusion is that Germany is still not ready to lead Europe with a broad vision, robust, wide-ranging and properly validated strategy, followed by effective delivery. Germany remains reactive, dealing with problems piecemeal. Germany is blocking the following:

Letting the ECB act like the Fed or the BoE, prepared to introduce cutting edge monetary policy;
Letting Southern Europe reflate with Keynesian stimulation which would short-term increase fiscal budget deficits

All that is left for Germany is to reflate her own economy and this would indirectly be beneficial to Southern Europe; I suspect that Germany will be reluctant to act here too.

Sadly, I fear that Germany will wait for the next crisis in Europe before adjusting her policy; it will remain a muddling through approach. There are a number of hot-spots including statist France which is heading for major storms ahead, increasing hostility towards the EU across Europe, and increasing likelihood of serious civil unrest in Southern Europe.