How “Evil” is German Domination of EU Economic Policy?

European Media are full with images of Angela Merkel in SS Uniform, with Hitler mustache, with memories of German misdeeds during WW II. These are the mainstay of Greek, Cypriot, Italian, Spanish, Portuguese media these days. Merkel and Finance Minister Schaeuble have become the villains of the Eurozone problem countries which talk about the Hitler slogan, according to which “German nature should be the role model for the world” (“am deutschen Wesen soll die Welt genesen!”).

Central European media are aghast, German media and population are appalled and do not understand that the assumed German positive attitude towards its Southern colleagues is not appreciated there. It is my opinion that the Southerners’ wrath is understandable to some extent, that people who are driven to despair by hopelessness, unemployment and immiserization use out-of-order instrument to vent their frustration. Here in the North we do not know what soup kitchens, repossessions of flats, hopelessness mean as mass phenomena. But, I venture to add, there is no place to recall German atrocities from 70 years back. This has nothing to do with today’s reality.

We need to distinguish three different levels. One, Germany’s population and economic strength make it quasi-naturally the “dominator” of the EU. Its GDP makes up 1/3 of EU BIP and nearly ½ of Eurozone’s GDP. Whatever Germany does (not), affects all EU and EZ countries, no matter what. This is true even more, as the other large countries (Britain, France, Italy) for various reasons do not represent a counterweight. They are either not able or not willing. And the small countries, among them Austria, also do not even contemplate to form a coalition to rein in the largest country.

Two, as a result of its overwhelming strength, Germany is by far the largest net-contributor to EU funds. Thus not only the EU budget, but all solidarity actions, require an out-of-proportion share from Germany, at least in absolute Euros. German chauvinistic politicians use this for domestic reasons, and keep shouting “enough is enough” – and large segments of the population fall for that. Thus, the nearly continuous German election campaigns at federal or state levels, have to heed this mood. In this way, unfortunately, European arguments are subjugated to domestic calculus.

Three, and here comes the only valid argument. German conception of EU economic policy has for years been extremely conservative, “neo-liberal” as many would call it. Since the start of the Eurozone in 1999, budget consolidation has been the one and only objective of German (and European) economic policy. They maintain that budgetary discipline and “structural” reforms of factor and product markets will by themselves create growth and welfare. German success with this policy is used as a role model. This conception neglects that economic growth, high employment, balanced budget and trade balance and low inflation all together form the pentagon of economic policy targets which all need to be pursued with their appropriate weights. Germany forgets that its own export success inherently requires other countries to be net importers, and that this success is not only due to its high productivity and wage restraint. In a zero-sum world net exports by some countries are exactly balanced by net imports of the “rest”.

German and German-led economic conception as above neglects the lessons of the Great Depression of the ‘30s, that the economy can only grow if the combined effective demand by the private and the public sector increases. In a balance sheet recession, as today, when private households and private enterprises aim to reduce their debt levels, and thus become net savers, it is up to the public sector to fill this demand gap and run up a deficit, in order to make the economy grow and thus also reduce the budget deficit in the medium run, by means of higher revenue and lower expenditure. At the same time, all efforts must be taken to improve the productive capacity of the economy and to get the financial sector back to its role as servant of the real economy.

Thus, Germany’s cardinal mistake is not its size, nor its domestic election agenda (even though the latter creates many problems, viz. the delay in the Greek rescue package on account of the looming elections in Rhineland-Westphalia two years ago), but its outdated and rigid economic policy conception which it has imposed on the EU. This has resulted in a deep and protracted crisis at the EU.

Two things are required: the “other” EU countries must put their weight together and develop another economic policy conception as a counter-model to the fossilized German concept. Second, Germany (its politicians and its population) must learn that in the crisis countries there is a completely different reality from the North, and that the relative German success can be safeguarded only by quickly completing the banking union, fiscal and political union (which implies the much derided “transfer” union). Politicians and media in the South must put all their efforts into combating the crisis by effective economic policy, instead of contributing to a senseless and ahistorical Germany bashing.



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4 responses to “How “Evil” is German Domination of EU Economic Policy?

  1. Milon Firkis

    first of all congratulations on your excellent blog! it is really an enjoyment.

    Now allow my first comment to be on a non economical issue. Being Greek I can only speak of the Greek media and I must say it is far from truth that Greek “… Media are full with images of Angela Merkel in SS Uniform, with Hitler mustache etc….”

    Ofcourse there are such media but they are really what one call in German “Randerscheinungen”, newspapers of a few thousand copies circulation. None of the main Newspapers like Kathimerini, TA NEA or TO BHMA or MAKEDONIA, which make for 80% of the circulation, nor the National Broadcasters have ever adopted such images or argumentation (although some columnists might be anti-german, but for anyone reading international media this should be of no suprise). One can hardly say the same of the almost-newpaper BILD, which adopts a rhetoric beyond any reason.

    As the saying goes, what Peter says about Paul reveals more of Peter than of Paul; it should be the Germans who would ask why do they get so much upset about a few hundred idiots in Europe. Or why are the German (and Austrian to a lesser extent) media so eager to capture those pictures.

    Indeed the discourse, at least in Greece is deep and multi-faceted and the crisis has, among all ills, animated a lively public discussion on many issues taken as granted in the past; exactly as is the case in Austria (and I have reasons to assume also in Spain, Portugal and Italy).

    I salute thus your blog as a valuable piece in that effort.

    Milon Firikis

  2. The German GDP makes up only 1/5 of the EU GDP and less than 1/3 of the euro area GDP.

    • kurtbayer

      yes, sorry, true, but this does not change the argument: Germany is the (willing or unwilling) Behemoth in the EU, whose sneeze causes pneumonia in other member states. For this reason, Germany has “responsibility” beyond its borders, different from small states with 2% GDP share.

  3. Very good story, I completely agree. What is media doing in southern countries is very dangerous and also very untrue.

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