Germany Walks the Walk on Austerity
Despite Germany's economic robustness, at least compared to the balance of Europe, it will not use that health to stimulate gross domestic product, despite the threat that troubles among it neighbors could cause it harm. Germany, according to the Financial Times, will adopt its own version of the austerity it has tried to force on other members of the European Union. The Times reports:
Wolfgang Schäuble, German finance minister, said on Wednesday that his budget for 2014, involving spending cuts of more than €5bn to trim the total below €300bn, was "a strong signal for Europe".
The plan means Germany will reach budget balance in 2015, a year earlier than required under the "debt brake" written into its constitution.
The move might be viewed as leverage, as it presses other countries to sharply reduce government spending. However, the decision has merits and risks of its own that do not reflect any attempt at influence outside its borders.
The first and most obvious reason for Germany to pick the austerity course is its own constitution. It probably wishes the constitutions of other EU countries were written with the same provisions. Although those provisions might have been broken, they also could have been a brake on government spending in countries like Spain and Greece, where the spending got out of control.
Germany also can bet that its internal consumer activity and demand for its goods and services outside the EU will allow its GDP to grow even if it cuts its own federal budget. Given the size of Germany's industrial, services and intellectual property-based businesses, the approach has a reasonable chance to succeed.
Even if Germany has taken austerity measures strictly of its own accord, and not as a way to bully other countries, an unintended lesson for the rest of the EU makes little sense. None of Europe's other nations have the export economies and strong internal consumer bases to match Germany's actions. What Germany can do, its neighbors cannot.
Filed under: 24/7 Wall St. Wire, International Markets Tagged: featured