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Towards a Resilient Eurozone

Economic, Monetary and Fiscal Policies

John Ryan

This book examines the Eurozone crisis and the possibility of fiscal and political union in Europe, with contributions from some of the most respected experts on these topics. The book explains the complex, multidimensional crises in competitiveness, fiscal matters, banking and politics. During the crisis Germany has been criticized for misjudging the causes, focusing too much on fiscal deficits and insisting that the solution is fiscal consolidation and austerity. For many, especially those inspired by Keynesian economics, Germany has been seen as pushing the whole continent into a depression. By misjudging the causes of the crisis, insisting on widespread austerity, constraining the European central Bank (ECB) in its role of Lender of Last Resort for the sovereigns, rejecting the mutualization of Eurozone debt and providing financial help in small amounts and too late, Germany is perceived to be responsible for the possible break-up of the Eurozone. The aim of this book is to analyse whether this description, one that is shared by numerous policymakers, academics, pundits and opinion leaders, means that there is a lack of resilience in the Eurozone’s economic, monetary and fiscal policies.

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Is Germany’s Current Account Surplus ‘Unfair’? (Michael Wohlgemuth)

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Michael Wohlgemuth Is Germany’s Current Account Surplus ‘Unfair’? Introduction With German exports reaching record highs, the German ‘business model’ has come under attack from various places including Washington and Brussels. Germany is made responsible for imbalances in the world econ- omy and the Eurozone. But are the allegations justified? Has Germany really been profiting unfairly from the common currency? What are the reasons for Germany’s current account surplus? Is it likely to stay? Would boosting imports in Germany really help the peripheral economies in the Eurozone? The answers to these questions are complex, but blaming a ‘neo-mercantilist’ German conspiracy or beggar-thy-neighbour policy is way off the mark. It is much more the logic of the common currency in Europe that is to blame. Finally, for better or worse, the imbalances are quite unlikely to persist. The argument For some years now, the German current account surplus has been criti- cized from many sides. In 2013, the US Treasury published a Report to Congress (US Department of Treasury 2013) in which it states: ‘Germany’s anemic pace of domestic demand growth and dependence on exports have hampered rebalancing at a time when many other euro-area countries have 70 Michael Wohlgemuth been under severe pressure to curb demand and compress imports in order to promote adjustment. The net result has been a deflationary bias for the euro-area, as well as for the world economy’. This view has long been held also by Nobel laureate Paul Krugman who argues: ‘We are still in a...

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