May 9, 2012 · 0 Comments
By Dean Baker:
That fact should have been mentioned in a NYT article that told readers, “few options if Europe turns from austerity.” If there were a political consensus within Europe to reject austerity, the euro zone countries could call Mario Draghi, the European Central Bank (ECB) president, and tell him that he must guarantee debt and run expansionary policy or look for a new job and surrender his pension. (Which is far more generous than the ones that were cut in Greece.)
This piece might wrongly lead readers to believe that the ECB could pursue policies that all the governments in the euro oppose. That is not true. If the governments all agreed that they wanted to reject austerity then they could require that the ECB support this position.
That would mean abandoning its obsession with defending its Maginot line (its 2.0 percent inflation target), but such is life.
It would have been useful to include this fact in an article on how Germans are losing patience with Greece. Germany has been anxious to build up and preserve its export market in southern Europe. However if Germany wants to have an export surplus with these countries, as it does, then it must lend them money. There is no logical way around this.
For this reason, it is absurd that Germans are both upset about the borrowing by Greece and other peripheral countries, but yet refuse to take the steps (most importantly higher domestic inflation) that would allow these countries to regain competitiveness. The Germans are acting like little children who both want to have their cake and eat it too, and then get mad at everyone else because they won’t make it possible.
If Germany wants to keep the euro zone intact, with its current low inflation obsession, then Germans will have to give money to the peripheral countries to buy their stuff. There is no way around this. The Germans’ complaints are against logic, not their southern neighbors.