WHO WOULD REALLY BENEFIT FROM AN EXTRAVAGANT GERMANY?

The argument that Germany should increase its public spending and thus its inflation rate, so that the troubled South could catch up with her is nonsensical in every respect.

First of all, there is zero to nil chance to convince German authorities to such a conduct. They are happy with their performance and well- being; indeed the recent weakening of the euro will help their cause further (by increasing their already strong outside-eurozone exports) and they simply do not and will not care about the rest. (I know that, as of recent, there are some objections raised regarding the state of the German economy, citing the slow-down in the growth rate and low capital spending. Well, first of all, everything should be judged in a “relative” context. It is inevitable that Germany will face a slow-down vis-a-vis generally poor performance of the World economy. Regarding the capital spending (its gross capital formation is 17% of GDP), a closer look is called for. To start with, its spending on non-income generating investments (mostly, residential construction) is much lower than its neighbors. Hence, in terms of investment that counts (ie. gross private non-residential fixed investment) it is on a par with its peers.)

For a moment, let’s assume that somehow Germans were convinced to fiscal spending. Is this a bad thing, or a good thing for the German economy itself? Well, it will definitely be good for them. They will be renewing some of their old infrastructure, creating further jobs, boosting their economy etc. So, what good is this for the battered South? Some workers coming from Spain and Greece? Maybe, but that is just a weak maybe. Increased imports from the Eurozone neighbors? Fat chance! Germany has all the capacity and resources to build its infrastructure – very little will be outside-resourced. Increased inflation? Barely. The wages will remain stable unless the capacity is really pushed beyond limits. And let’s remember augthies (until the Great Recession) was a pretty well period for Germans in terms of growth. Was there an upward pressure on wages? Nope! Also, some of the fiscal spending should be geared towards pensions and other transfers to German public which will increase their perceived well-being, meaning even less pressure on wages. So, at the end of the day, with increased fiscal spending (which, nevertheless, will never take place) Germany would simply be even more affluent and richer than its Southern neighbors before.

The only way troubled South can recover (part of) its competitiveness is by breaking away from euro. But, let’s be honest: There is absolutely no chance that any of the political incumbents will try that (including Syriza of Greece if they ever come to power).

Ipso facto, the Japanification of Europe is not just imminent, but actually is taking place as we speak.