The German Finance Ministry is a little peeved with US criticism of the mercantilism of its economic policy. This, in pursuing a strategy that suppresses domestic demand and feeds their mighty export machine. Bad as this is, equally important is its rejection of the responsibilities that accrue to stronger members of a polity.
Having ones cake, and expecting to eat it too:
Germany benefits from the single currency by having its natural foriegn exchange rate suppressed by the wider currency region. Its goods are cheaper, but by the same token it raises the exchange rate for the wider currency region. Making their goods more expensive.
And do so whilst engaging in none of the normal solidarity acts that nation states engage in to normalise wealth potential within regions:
Federal US taxation is ~25% of GDP and the variation in spending levels between rich and poor states is ~5% of GDP, so a variation of roughly 20% of federal spending.
How big a budget would the EU need to be able to slosh around 5% of combined GDP into the poor regions (bearing in mind the current budget is only 1% (and heavily constrained by CAP payments)?
The other point is that americans accept this, they are all american, whereas we are rapidly finding out just how german the germans are, and finnish the finns are, when it comes to firehosing cash at nations they consider to be essentially delinquent! In the UK this ‘sloshing’ occurs in the form of:
a) National pay-bargaining which benefits poorer regions (teachers, nurses, etc)
b) National social benefits more generous than poorer regions could afford alone (eg.housing benefit in glasgow)
c) Targeted regional development grants/discounts to encourage business growth (objective 1 EU/WEFO funds)
d) Additional infrastructure spending to support the local economy (the mainland-skye bridge)
e) Operating national services hubs from depressed regions to boost wages (DVLA in swansea, etc)
Unless Germany recognises the ‘familial’ relationship, and the obligation that goes along with that, then it needs to leave for the good of its neighbours.
This principal applies equally to the netherlands and finland, but since it is Germany that is the driving economic power for the euro’s sake the answer must be ‘right’.
One mechanism to equalise this foriegn exchange disparity would be eurobonds. To compensate for a higher than natural foriegn exchange rate the wider currency union would borrow collectively, and thus lower their borrowing costs on the back of Germany’s strength.
The quid-pro-quo would be that Germany’s cost of borrowing would rise, as it too would be borrowing through the wider currency union and would see its strength diluted in consequence.
What is happening right now is commonly termed “wanting to have your cake, and eat it too“, an attitude considered ugly by weaker members of the polity who consider that cake to be shared treat.
Beware, Mr Salmond, for the Scottish ‘question’ is identical, and I think we both understand the difference in sentiment to obligations listed above.
Update 2013.10.13 – The scale of the problem:
The euro exchange rate is too high for two thirds of the euro states that use it, and cripplingly high for a third of them. It is pushing Europe’s crisis economies into incipient 1930s deflation, making it almost impossible for Italy, Spain, and Portugal to dig their way out of debt traps. It is partly why unemployment keeps going up, reaching an all-time high of 12.2pc in September — 26.6pc in Spain, and over 22pc in Italy if properly counted.
Note that unemployment in the US and the Eurozone were similar during the Lehman crisis. Both sides of the Atlantic had much the same credit shock in 2008-2009, yet the aftermath speaks of two different destinies. The Americans printed money a l’outrance, and the jobless rate has fallen steadily to 7.2pc. The Europeans let money atrophy, and have been paying the price ever since. Such is the power of central bank stimulus in a tight corner.
Update 11.04.2014 – Yanks taking further pot-shots at Germany:
Last year Germany exported twice as much to the US as it imported, a gap that has widened sharply over the past four years and is causing trade frictions. The implicit US criticism is that Germany has locked in a structural advantage through EMU, which prevents Germany’s currency rising as the D-Mark used to do. This creates a permanently under-valued exchange rate. It not only hurts Club Med but it also has secondary effects on non-EU countries.