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Entrenchment

Berlin reaffirms its faith in austerity, while Japan returns to growth thanks to monetary expansion

Germany’s resistance to a change in economic policy in the euro zone surfaces now and then in the form of statements that back austerity measures, and criticize countries that, like France, reject the doctrine of a single solution for emerging from recession. Berlin is denying that there will be any substantial changes in tack after the September elections; it will not accept any softening of the conditions for budget cutbacks, nor longer time periods to carry out the adjustments that are being demanded. And, as if to show that this orthodox policy comes ahead of any other consideration, Germany seems prepared to sacrifice the Paris-Berlin axis, a fundamental element in European cohesion. This is what we can gather from the attacks made by the president of the Bundesbank, Jens Weidmann, on the ECB’s monetary permissiveness, and on the time extension granted to France to stabilize its deficit.

Weidmann is one of the most conspicuous ideologues of the austerity and reform policies that have been imposed on the countries with critical debt problems by means of Germany’s prevalent weight within the political machinery of the EU. The fundamentalist positions of the Bundesbank (the institution is already known as the Bunkerbank) and of Chancellor Merkel against the demands for flexibility being led by François Hollande have deteriorated the Franco-German axis perhaps beyond the point of no return.

Germany wants a euro zone where there is no transfer of wealth from the rich countries (beginning with Germany itself) to the countries of the south: this is the essence of the resistance being put up by Merkel and her government, with support from a society that is mistrustful of the commitment that the Mediterranean countries have made to budgetary stability. It is now known, too that the resistance of the German government and its central bank is not just a containment tactic until after the elections, but a permanent conviction that will remain until the European recession ends, regardless of the consequences for Europe’s citizens.

But inflexible policies generate problems that turn against their promoters. Budgetary restriction in the south limits German foreign trade and thus indirectly punishes the German economy. The Mediterranean governments are beginning to lose patience with the financial flows that are moving from their countries into German banks, favoring their financing; and it is growing harder to believe that “austerity and reform” policies are better than laxer ones. The facts belie such a claim. The United States is now in a better economic condition than the practically stagnant economies of the euro and the sharply expansionist decision adopted in terms of Japanese monetary policy is producing results: the first quarter saw growth of 0.9 percent, equivalent to 3.5 percent annually.

Can Berlin and the Bundesbank seriously defend the claim that extreme cutbacks are the best policy? This looks more questionable all the time, if only on account of the harmful social costs of hardline austerity.

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