…just say no to the Christian Democrats.
Merkel’s party lost a lot of ground in that section of Germany yesterday, and the Social Democrats (the SPD, described as “centre-left”) picked up what the CDU lost. This follows the pattern in the recent election in France, although Merkel is still ahead nationwide:
The blow comes only two days before France’s new president, Socialist Francois Hollande, is due to visit Berlin and press Merkel for a shift away from austerity and more emphasis on growth-oriented measures in Europe.
Other big countries like Italy also want Merkel to take a more balanced approach to the debt crisis and an election in Greece last week showed massive public resistance to tough austerity.
Strangely enough, although I consider myself a fiscal conservative (especially by European standards), I’m not an advocate of austerity-only solutions. And I don’t think that most conservatives would disagree; there’s nothing wrong with growing an economy. The disagreement with the left, of course, is how to do this, and especially on what the role of a central government ought to be.
I’ve tried to discover exactly what it is that the left in Germany is suggesting as an economic growth program. But in a relatively brief search, although I found a bunch of MSM articles alluding to the German election, none of them discussed the proposals in any detail. This far-left Socialist periodical has an interesting perspective, which is that both Merkel’s party and the SDP are advocating austerity and balanced budgets, it’s just a question of the left sounding a bit better (to Socialist ears, that is):
The SPD and Greens hope that following an election win in NRW, they will be back in charge of the federal government by autumn 2013 at the latest. While they fully support the austerity measures and social cuts of the Merkel government, they are trying to create the illusion that this can be combined with investments in economic programmes, education, research, culture, etc. On closer inspection, however, the “Growth Pact” they are demanding is revealed as a further deregulation of the labour markets.
Here’s another article in the leftist press that tries to explain the situation (it’s not that I favor the left’s perspective, it’s just that they seem to be the only ones going into any detail on this. If you can list some links from the right, I’d be curious to read them.) In it, Frank-Walter Steinmeier, the leader of the SPD parliamentary group in the German Bundestag, points out that Europe is in bad trouble economically—as anyone who didn’t just drop down from planet Xenon knows. Specifically, it compares unfavorably in economic growth to even the growth-challenged US:
While countries around the world are making up ground, the European economy will shrink by 0.5% this year – the United States (up 1.8%) and China (up 8.2%) will grow.
And Steinmayer’s description of the problem seems pretty on-target to me:
Unless there is a breakthrough in the current recessionary spiral, no one will be able to guarantee repayment of these loans [made after the 2008 crisis to save the economies of European nations in trouble]. Europe, and especially creditor nations like Germany, are banking on a trend shift that they hope will provide new economic verve. The EU and IMF rescue packages assume that the countries receiving emergency loans today will soon be able to generate primary budget surpluses. If that fails to happen, they will keep needing new loans to prop them up. This will put the eurozone countries to a test of fiscal strength and, above all, political endurance. Ultimately, it could lead to the collapse of the monetary union.
Well, if by “the monetary union” he means the EU—and I believe he does—many would say “good riddance,” and I’d be among them. That is what tied the economies of member countries together so tightly, and put nations such as Germany in nearly the same boat as Greece.
But Europe doesn’t seem to be about to abandon that dream, and in any case it does seem that more growth is necessary for Europe, with or without the EU. But does “growth” mean stimulus spending a la Keynes? Does it mean increasing government regulation of the economy or decreasing it, or just changing its emphasis? And is the big problem something more basic, some decrease in personal initiative that has occurred in Europe in the last few decades?
Steinmeyer discusses the SDP’s proposed solutions, which don’t sound like pure Keynes to me [emphasis mine]:
The debt sustainability called for by the adjustment programmes will only be achieved when Europe regains its capacity for economic growth. That will not happen by itself. Europe will need a growth programme if the consolidation of government finances is to succeed. However, this must not lead to a new round of government debt for the sake of short-lived economic stimulus measures. Instead, Europe needs a comprehensive investment and development programme that overcomes the financial crisis, sets a course that focuses on the real economy, modernises structures, improves competitiveness, increases value added, and strengthens European unity [this last idea seems counterproductive, IMHO; it's "European unity" that magnified the problems in the first place].
The financial crisis exposed the source of European imbalances. If we do not work to fix them, they will lead to a deeper, more serious split. Europe has lost its equilibrium. While countries like Germany and Poland manoeuvred through the crises relatively safely, the economies of countries in the southern eurozone are nose-diving. There is no end in sight to their downward spiral. No wonder growth forecasts diverge so widely between countries in Europe. Poland and Lithuania are expected to grow by 2.5% and 2.3% respectively, while Greece and Portugal are set to shrink by 3% and 3.2% respectively.
Weak growth almost always goes hand in hand with a weak status of real value added. The manufacturing sector has lost its significance in nearly every European country. During the last decade, industry’s share of GDP fell on average from 23% to 16%. However, it is clear that countries which held on to their industrial sector are now doing significantly better than countries that pursued de-industrialisation. Poland is an impressive example…Preserving a broad value chain secures jobs and creates an environment that spurs on new growth.
In addition to retaining a solid industrial basis, boldly implementing structural reforms has also paid off. Germany, for example, has spent the last decade reforming its labour market, which has strengthened its competitiveness for the long term. And following a painful slump during the crisis of 2008-2009, Lithuania introduced structural reforms that have enabled it to set out on a new path to growth.
Boy, it must hurt when Western Europe has to look to Eastern Europe for economic models and guidance.
Steinmeyer goes on to describe how different the countries in Europe are from each other, but he doesn’t draw the conclusion that the EU was a bad idea that’s got to go. And although it’s true that, as Steinmeyer writes, the economies of the European countries are dependent on each other because unless there are markets there’s no way to sell the products or services made, why not let this interdependency happen in natural fashion, rather than yoking them together in an artificially-created union that has the effect of dragging them all down if a few go under, and fails to allow them to tailor individual solutions to fit their individual differences?
Finally, Steinmeyer gets to the specific proposals of his party, the SDP. The first suggestion is a financial transactions tax to raise revenue. Again, I don’t understand the fine points, but my first thought was, “wouldn’t that impede economic growth rather than help it?” And I’m certainly not alonge; there’s some support for that conclusion. The tax would probably be limited, however, to the secondary financial markets (derivatives and their like), the area that supposedly engendered the 2008 problems in the first place, although that would hardly seem to change the fact that the tax would be likely to inhibit growth.
The rest of the SDP plan seems to involve ideas to strengthen what Steinmeyer refers to as “industrial renewal.” Again, nothing wrong with that. The main question on which left and right differ is the government’s role in achieving such a goal. The SDP seems to think that the EU must be involved in a trans-European project to do it, which is about what you’d expect from the left but seems both unnecessary and potentially counterproductive to me.
The devil tends to be in the details, and in the amount of time available to me to write this post I couldn’t become expert enough on the economic policies and proposals of the different political parties in Europe to be able to critique them as effectively as I’d like. I rely on you, my trusty readers, to take up the discussion—especially a few of you who live in Germany and could probably shed a lot more light on the subject than I.