The government of Germany has taken a consistently unhelpful attitude since the outbreak of the financial crisis, and today is no exception:
Chancellor Angela Merkel’s government rebuffed U.S. calls to focus on bolstering growth over debt reduction, setting a course for conflict at the Group of 20 summit in Canada this week.
“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.” […]
German Economy Minister Rainer Bruederle, at a separate press conference earlier today, said the U.S. must join Europe in “urgently” cutting spending.
I would categorically dispute that excessive public debts are one of the main causes of the crisis. As John Quiggin persuasively argues nothing about the relative share of public and private debts, pre-crisis, in the capital inflow countries has had any impact on the way the crisis plays out. In Spain, for example, the budgetary practices were extremely sound — almost German — until the collapse of the housing market knocked everything sideways. Fundamentally, what German politicians don’t seem to want to admit is that their high-savings export-oriented economy only works if someone else runs a high-debt economy and buys their stuff. Given the massive develaraging in the private sector of every advanced economy (the US included) if foreign governments balanced their budgets the German economy would collapse:
I’ll note for conservatives in the audience that there’s even plenty of right-wing stuff the German government could be doing that would be more helpful than lecturing foreigners about their budget deficits. Temporary tax cuts, for example, or liberalization of Germany’s retail/service sectors. The Merkel government has also been a bit oddly eager to say that hedge fund regulation is somehow the key to our problem, or that if we don’t let financial markets register pessimism that problems will go away.