How Do You Say “Hypocrite” in German?

Here’s a re-post of mine from New Deal 2.0 on the Germans and their political rhetoric on QE.

Okay, I did a few years of German language study, so I know that the real word for hypocrite is “Heuchler”. But when I read the latest guff from Germany’s Finance Minister criticizing America’s economic policies, I’m afraid that Wolfgang Schaeuble’s name immediately sprung to mind for a substitute. In an unusually undiplomatic manner, German Finance Minister Schaeuble criticized the U.S. Federal Reserve’s recent decision to undertake another round of quantitative easing, arguing that it wouldn’t help the U.S. economy or its global partners.

He could well be right. We’ve argued much the same against “QE2″. Where we draw the line is Schaeuble’s subsequent comments from the same article:

Germany’s exporting success is based on the increased competitiveness of our companies, not on some sort of currency sleight-of-hand. The American growth model, by comparison, is stuck in a deep crisis… The USA lived off credit for too long, inflated its financial sector massively and neglected its industrial base. There are many reasons for America’s problems-German export surpluses aren’t one of them.

No crisis in Europe? The threat to the euro, the establishment of a bailout facility, the involvement of the IMF, these were all figments of the market’s collective imagination? Even Goethe is unworthy of such flights of imagination!

One thing is clear from the remarks that continue to emanate from Germany’s policy makers, including the latest from Schaeuble. They do not understand basic accounting identities. They fail to see any kind of relationship between their own export model and their trading partners.

It is ironic (and more than a touch hypocritical) that Germany chastises its neighbours, like Greece, or its trading partners like the U.S., for their “profligacy”, but relies on these countries “living beyond their means” to produce a trade surplus that allows its own government to run smaller budget deficits.

It’s even more extreme within the euro zone proper. The European Monetary Union bloc as a whole runs an approximately balanced current account with the rest of the world. Hence, within Euroland it is a zero-sum game: one nation’s current account surplus is offset by a deficit run by a neighbour. And given triple constraints — an inability to devalue the euro, a global downturn, and the most dominant partner within the bloc, Germany, committed to running its own trade surpluses — it seems quite unlikely that poor, suffering nations like Greece or Ireland could move toward a current account surplus and thereby help to reduce its own government “profligacy”. It is hardly worth pointing out that these stringent conditions were largely the creation of former German Finance Minister, Theo Waigel, or that Germany itself was a serial violator of the so-called “Stability and Growth Pact” throughout much of the 1990s and early 2000s.

That history aside, the dirty little secret of the European Monetary Union is that it locked Germany’s main export competitors into the monetary union at hopelessly uncompetitive exchange rates, thereby entrenching Germany’s export dominance, and its selfish, mercantilist model.

Germany’s policy-making elites are unprepared to acknowledge any of this. Symptomatic of the current government’s blindness is its agreement to extend the temporary bailout arrangements with the euro zone and make them permanent as a quid pro quo for the EMU nations achieving “fiscal discipline … to bring deficit and debt onto a more sustainable path.”

It is more than stating the obvious to note that the only reason the euro has not blown apart in the past few months is because the European Central Bank, contrary to the wishes of Germany’s policy-making elites, has continued to backstop the PIIGS‘ debt, thereby preventing an even broader economic/financial calamity within the European Monetary Union. How else does a fundamentally insolvent nation like Ireland survive with a budget deficit to GDP ratio of 32%?It could abandon the current system or put the capacity in place to deal with asymmetric demand shocks (that is, a unified fiscal authority) the European Council. But at the behest of Mr Schaeuble’s German government, it has instead just introduced measures which will make the situation worse both in the short-run and in the medium-term, when the next negative demand shock arrives.

The entire European Monetary Union structure is a mess. The euro zone members are all trapped within this monetary monstrosity, Germany included. Germany might occupy the penthouse suite, but it’s the penthouse suite of a roach motel. The EMU was conceived under profoundly anti-democratic circumstances (the German voters never had a chance to vote by referendum on whether to abandon the Deutschemark in favour of the euro), so it isn’t fair to extend the charge of hypocrisy to the nation as a whole. But the German people have been significantly ill-served by elitist technocrats such as Wolfgang Schaeuble. As one of the architects of European Monetary Union during his time under the Kohl Administration, he at least bears some responsibility for this abominable fiscal/monetary halfway house, which serves nobody’s interests, Germany included. Herr Schaeuble would be on much stronger grounds to critique U.S. policy making if he had the guts to acknowledge this and try to sort out what he helped to create before hypocritically lecturing Americans on their profligate ways. Our “sins” enable them to sustain their export juggernaut.

  1. Edward Harrison says

    Here’s my view on Germany’s rhetoric, Marshall: While I didn’t write this post and wouldn’t make these arguments, I do understand your arguments. My view is that the U.S. should first concentrate on increasing its savings rate and decreasing excess consumption and that once it has begun to do so, it can then start talking about the responsibility of others. This is true as much regarding China as it is regarding Germany

    I think the point many Germans make is that German wage prices, while not significantly higher than a decade ago are still very high – and given the overvaluation of the Euro you would expect this to be a headwind. Yet the Germans have a large current account surplus because they are competitive in the areas where they export. I think this is the right approach. Certainly, Germany must increase domestic consumption demand but not in the reckless and unsustainable way that we have seen in the US or the UK.

    1. Daniel says

      I’d sign that.

      I think nearly nobody in germany thinks that consumption doesn’t have to rise to get a full recovery, even Brüderle (FDP) and Merkel say that wages have to rise. The only ones who say that it’s still too early are companies (of course, they don’t like strikes and don’t want to pay more) and economic institutes.

      Brüderle wirbt für kräftiges Lohnplus,1518,721690,00.html

      one thing that people here really don’t like is cutting account surpluses is read as “cut your competitiveness”. That’s a view that really many people have, even the tagesschau (8 pm news on ARD) reported that the USA try to devalue the Dollar because the US economy has become uncompetitive in the global markets. At least in some sectors, this seems to be true…

      Deutsche Konzerne hängen US-Konkurrenz ab,1518,727912,00.html

      meanwhile the recovery in germany is real

      Arbeitslosigkeit 2011 meist unter drei Millionen

    2. plops says

      i dont usually like the MMT crowd for a number of reasons but with regards to germany, marshal is spot on.

      i wonder how many how much of the ecb buying of piigs debt over the last few months has been from german and french counterparties as i don’t think greek pension funds, to use a very simple example, were selling to the ecb …

      i wonder how much germany benefited from excessively lax monetary policy creating real estate booms and busts across the piigs by exporting shiny fancy taps and escalators to them …

      i wonder how many infrastructure projects procurement was guaranteed by cheap german money for financing … and the list goes on.

      the obvious solution is for the piigs to default or restructure, but germany and france would obviously rather inflict the same kind of pain that was inflicted upon the baltic nations over the past 3 years … for what?

      1. Edward Harrison says

        Let me say that I wouldn’t make these arguments because I think the U.S. has its own problems with hypocrisy. Nevertheless, I think Marshall is on target about Germany benefiting from the Euro in a way that has created tension. Your points about the ECB’s interest rate policy is exactly where this has been a problem for Spain and Ireland in particular. And now we see a rescue policy geared as much to protecting German or French banks as to protecting the Euro from free riders.

        There are not a whole lot of solutions here. If you are Greek or Irish you don’t want to default or restructure. If you are Spain, you don’t want internal devaluation. Yet that is what is needed unless we see massive fiscal transfers. And the Germans are particularly negative on this given the trillions already invested in the east. So the euro zone is stuck, with everyone blaming everyone else for this mess when the reality is that the euro zone was flawed from the start and all of this was inevitable.

        If the Europeans can get through this one, perhaps we will see some improvements in the frame work. I am sceptical though because the Germans are talking about a hardened stability and growth pact as if this is the problem. We know the Germans were, relatively speaking, the profligate ones compared to Ireland and Spain over the last decade. So I don’t see how their proposals are going to do anything positive.

        1. plops says

          one of the most useful lessons i learned in business school was that mixing business and finance risk with the same counterparty is tantamount to doubling up on your chips … and a very foolish strategy in the long run … nortel/lucent found this out in the tech bubble, GM more recently and the lists go on … same analogy applies here

          1. Edward Harrison says

            Right. The Germans have been in a hidden form of vendor financing with the Southern Europeans. There This is what we see in the US China relationship too. That’s why there is bad guys to blame this on. The two sides are in what was once perceived as a mutually beneficial relationship. But you can’t pump someone full of more money than they can reasonably pay back. So that’s where we are.

      2. Marshall Auerback says

        Anschluss economics!

        1. plops says

          power to the people … but people need to realize that debtors not creditors have the power … if they chose not to exercise that, it is due to their willingness into serfdom.

          when i told this to a relative of mine that once ran a german bank here in the london, he scoffed and snickered at the thought … of course he was himself german

          1. Edward Harrison says

            plops, I am not into the German-bashing rhetoric frankly.

            However, you’re right about one thing. In a debt crisis it is the debtors who suddenly have power because it imperils the lenders solvency as Jeff alludes to below. Right now, Spain, Ireland Portugal and Greece are most concerned with their international reputations and the cohesion of the euro zone. But as this crisis continues, they will come around.

            A long time ago during the euro zone banking crisis, I suggested that Ireland might want to threaten leaving the euro zone for political reasons. I said:

            Ireland must threaten to leave now if it wants to maximize any EU help it expects to receive, before the scope of other EU banking crises become apparent. Weakness in the financial sector has infected all of the Eurozone members. I have mentioned that Austria has a weak banking system (see posts here and here). But, there is even growing evidence that Germany too has a fragile banking system. To be clear: this is an ‘every nation for itself’ strategy pitting Eurozone members against each other, where those nations savvy enough to request help sooner are likely to benefit at the expense of others. The question is whether the Germans would go along with this. If they do not, tensions will rise and that will change the calculus for Portugal, Italy, Ireland, Greece, and Spain. I don’t have a view on this as yet because the situation is still evolving. However, I lean toward believing the Eurozone will remain intact even while individual nations or banking systems collapse.

            As events occur in Eurozone banking, I will keep you abreast on developments.

            Read more:

            I think this route is still available but would be less effective now because the Greeks have already received the money that Ireland really deserved to receive before them. In any event, the German banking system is more fragile and leveraged than it should be. Losses from debt in the periphery would be crippling.

  2. Tschäff Reisberg says

    We’re all wondering if the euro will eventually take down Germany as well.

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More