by Andreas Hoffmann
I enjoy reading David Glasner’s commentaries. But his latest post, “What Hath Merkel Wrought?“, is absolutely misleading (with regard to Merkel and German elections).
I will not hide that I disagree with David Glasner concerning the best policies for a prosperous EMU. But that’s not the point here. In the last four paragraphs of this post, Glasner comments on Merkel’s fiscal policy and how it may affect her legacy. The interpretation fits his Keynesian story. But it is wrong.
David Glasner writes,
“. . . the damage inflicted by Mrs. Merkel’s ferocious anti-inflation policy did irreparable damage, not only on Greece, but, by deepening the European downturn and delaying and suppressing the recovery, on the rest of the European community, inflaming anti-EU, populist nationalism in much of Europe that helped fuel the campaign for Brexit in the UK and has inspired similar anti-EU movements elsewhere in Europe and almost prevented Mrs. Merkel from forming a government after the election a few months ago (emphasis added).”
Populism in Spain or Greece had very different origins from that in Germany or the UK. The AfD was originally founded as an anti-bail-out party. Had Merkel supported the Southern periphery with further financial means, the populists would have gotten more votes in Germany. Because people have cared less about the euro crisis, the AfD has somehow transformed into an anti-Merkel party. The main reason for their success in past elections was the influx of refugees. Not surprisingly, Germans are no different from other people in the world. When there is a greater wave of migrants arriving, some people get scared or fear unpleasant consequences. It’s got nothing to do with her “anti-inflationist policies”.
In addition, he mischaracterizes the macroeconomic situation in Germany. After praising Merkel for her refugee policy and political courage, David Glasner suggests that
“that admirable legacy will be forever tarnished by the damage she inflicted on her own country and the rest of the EU by her misguided battle against the phantom threat of inflation (emphasis added).”
First, there is no austerity in Germany. Government spending has been growing over time. And second, Germany has been in a boom with record low unemployment rates and (importantly) increasing employment rates. Is that the “damage she inflicted on her own country”?
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Andreas, Thanks for your kind words even if you are being critical. My point about austerity was not German austerity but mainly the austerity conditions being imposed on Greece and other European debtor nations. What could have avoided these draconian measures would have been a more expansive ECB monetary policy, which was eventually provided by Draghi after the disastrous Trichet deflation. Draghi should have been willing to accept even more inflation to alleviate the burden of the debtor countries. Germany would have been better off, not worse off, if the Eurozone countries had recovered faster. I agree that accepting so many refugees was politically a mistake for Merkel, and strengthened the hand of very dangerous forces in Germany, but it was still a very admirable mistake on her part. Finally, I am not a Keynesian, unless by Keynesian you mean that I believe countercyclical policies can sometimes be effective.
Dear David, thanks for this reply. I know you are not a Keynesian. But you are pushing a Keynesian story in this post.
My main point of disagreement was that you link the success of populist parties in Germany to Merkel’s reluctance to transfer additional resources to other member states. However, the opposite is true. Any bailout package signed by the German government led to anti-EU sentiments. It is not at all clear that Germany would still have a Merkel government if she had pushed for a transfer union.
Note that I did not disagree with your comments on Merkel’s refugee policy. It took courage. I merely noted that it was the main reason people voted for populist parties.
Andreas, Was not the necessity to transfer resources to other member states the result of a monetary policy that unnecessarily deepened and lengthened the 2008-09 downturn? Had monetary expansion started in 2009 instead of 2012, debtors and creditors would have been better. By insisting on more stringent repayment terms and by imposing deflation on the rest of the Eurozone, Merkel weakened the pro-European sentiment in Germany and across the EU. Germany surely is well off today, but was it really so well off in the depths of the European depression from 2009 to 2013 or 2014, when Draghi’s monetary policy began to promote recovery?
David,
“Was not the necessity to transfer resources to other member states the result of a monetary policy that unnecessarily deepened and lengthened the 2008-09 downturn? Had monetary expansion started in 2009 instead of 2012, debtors and creditors would have been better. ”
That’s rather unrelated to my main critique. But as you brought these points up. Let’s not forget that Merkel was not the head of the ECB. Moreover, even if you were right concerning the ECB’s failure, would not additional transfers only be reasonable (necessary) when you believe they can improve the situation. But look at Greece. The problems are low productivity (relative to wages), market rigidities, and institutional chaos. These fundamental problems can neither be addressed using transfers nor with additional monetary stimulus.
“By insisting on more stringent repayment terms and by imposing deflation on the rest of the Eurozone, Merkel weakened the pro-European sentiment in Germany and across the EU.”
You may be right about the fall in EU sentiments in some countries. But that is exactly where I believe you got the facts wrong with regard to Germany, which was my point of criticism. The pro-European sentiment in Germany dropped because of the bailouts (ESM etc.) and because the ECB started buying government bonds. That is when the AfD was founded.
“Germany surely is well off today, but was it really so well off in the depths of the European depression from 2009 to 2013 or 2014, when Draghi’s monetary policy began to promote recovery?”
I don’t consider the current recovery a result of Draghi’s policy. Every crisis comes to an end at some point. In the South, we saw 9 years of internal devaluation and unemployment, repressing wages. When it comes to Germany, unemployment had come down from 8 to 5 percent between 2009 and 2012.
Dear David Glasner,
the past couple of weeks I went through several very recent books on the topic of austerity (among them Mark Blyth’s “Austerity: The History of a Dangerous Idea”). After several hundred pages, I still can’t help the impression that “austerity” has become today a similar smear word as is “neoliberaism” – whenever someone dislikes a policy, we can call it “austerity”. As Andreas pointed out, it is quite difficult to see truly restrictive public spending in Germany, the same is true about France. Also, the image of Merkel as the omnipotent politician playing around with the ECB is, in my view, rather simplistic, both under Trichet and under Draghi.
Best,
Stefan