Aliens to the Rescue

An excellent post by Paul Krugman on Germany’s flawed view of the Eurozone. He points to the obvious: unless we trade with Mars, it is plain impossible that all countries base their growth on exports. If the Germans want to sell their Mercedes to Italians, they need to be willing to buy our pasta (I feel so original…).

Germany’s success rests on other countries’ excess consumption, and on converging interest rates, that for a decade led to capital flows into the EMU periphery to finance consumption of German goods. In a sentence, and simplifying: without Greece, Germany would not be in place to lecture other countries today.

The least Germany could do is to give back something through an expansion of domestic demand that could make the adjustment in the periphery less painful. I had myself made this point a while ago. I also remember an old editorial by Martin Wolf that ended saying something like “If Germany wants the rest of Europe to be more German, it needs to be less German itself”. I Could not agree more…

Instead, German leaders and economists  spend their time perpetuating the false narrative of expansionary fiscal contractions, so well debunked by Krugman and De Long among others. The obvious does not seem so obvious to them…

I come back to my first post.  Solidarity and symmetry seem bad words in today’s Europe, but to me are the keys to the exit from the EMU crisis (and if you read Jean Monnet, the founding fathers had the same ideas…)