Perhaps Germans are stupid, but there is a method in this madness.
Carlo M. Cipolla’s third basic law of human stupidity famously states: "a stupid person is a person who causes losses to another person or to a group of persons while himself deriving no gain and even possibly incurring losses". Many commenters think that this is the case of Merkel’s government. The fiscal austerity applied all over Eurozone by Germany and northern followers has reduced to zero or negative the rate of growth; Mediterranean countries, that were obliged to stronger austerity, obtained the worst results. But the slowdown movement hit even Germany: ____________________________________________________________________________________________________
2010 2011 2012
Gdp rate of growth 4,2 3.0 0.6
Internal demand 2,5 2,4 -0,4
External demand 1,7 0.6 1.0
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In a recent paper1 Lucrezia Reichlin and co-authors say that "the Eurozone and US business cycles seems to have decoupled, but is Germany on the US or Eurozone side of the divide? This column presents recent results from the Now-Casting model on whether this US-Eurozone decoupling also applies to Germany". The answer is that the slowdown in the German economy in the fourth quarter of 2012 is not just temporary; Germany is following the Eurozone trend. So "if this is right, the German stock market – which seems to predict Germany’s convergence to the US path – is due for a correction".
Germany had a slowdown because demand from EU countries (in particular Eurozone) went down(2): ___________________________________________________________________________________________________
2010 2011 2012
External demand 1.7 0.6 1.0
Toward Eurozone 0.1 -0.2 -0.1
Toward other EU countries 0.5 -0.1 0.2
Toward all other countries 1.0 0.8 1.2
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In Germany export/Gdp ratio (52%) is much higher than in France (28%), Italy (30,3%) and Spain (32,3%); the ratio was 44% four years ago. Germany is re-directing its export toward Asian countries: export to Eurozone went down from 41% to 36% in the last four years, while export to extra-Europe went up from 38% to 43%. In the last two years, thanks to the ECB monetary policy, the interest rates went down and became negative in real terms, while those of piigs countries went up. The high level of German credit vis a vie Mediterranean countries is lowering, because the balance of current account of these countries had a strong recovery (from 2007 to 2012 export-import improved by 23,1Italy, and 89 Spain), mainly because of the recession.
Perhaps Germans are stupid, but there is a method in this madness. Their nightmare is to become the lender of last resource of the piigs countries. If it is necessary years of stagnation for the Mediterranean countries, well, it is a due medicine. The slowdown of Gdp growth is supposed to be a temporary one; the export towards Brics countries will expand, and a moderate wages increase will keep at pace the internal demand. And even if the euro will collapse, the historical evidence, from Bretton Woods fall, is that the mark revaluation didn’t hamper German export.
The best way to understand the mood of Germans is to note that Spd propaganda is now completely silent on euro-bonds and the like: they know that this a theme that can compromise the few changes of victory in September elections.
1) Reichlin et al.: The decoupling of the US and European economies: Evidence from nowcasting, www.voxeu.org [2], 29-03-2013.
2) C. Parello, www.nens.it [3], 23-03-2013.