This is currently the most-read article in the FT. I recommend it as a must-read. The author is Jürgen Stark, a former ECB director. Check it out!
via The historical and cultural differences that divide Europe’s union – FT.com.
Stark argues powerfully and passionately for the integrity of Germany‘s economics, based upon ordoliberalism. There is nothing fundamentally wrong with his case but there are some exclusions. When the Euro was introduced, Germany benefited from the exchange-rate – this helped Germany’s businesses and banks. Yet once, the Eurozone turned sour, both Germany & France went to enormous ends to protect their respective banks from major bad-debt write-downs. Germany called upon the IMF to supervise the ECB and European Commission. The result was politically-driven austerity, and the hated troika was born.
Also the ECB has been unable to function like a real central bank and this has caused enormous pain for Southern Europe. But as Stark argued correctly, there are proper political and legal checks and balances in Germany.
As an advocate of Keynesian economics, I would favor a massive fiscal stimulus but recognize that this is ruled out under the Eurozone’s 3% constraint.
Critically, I agree that Germany is right about structural reform and politicians in Southern Europe, including France, have been too weak to push the reform agenda.
However, it is now a time to find a ‘win-win’ agenda. I propose that structural reforms are a pre-condition of refinancing national balances sheets and encourage greater fiscal stimulation, a one-off reprieve from the 3% fiscal constraint for a limited time.