Germany-euro zone: between conflict and coordination

It is obvious that the euro zone has everything to gain from the coordination of economic policies between the countries of the euro zone, from the implementation of a policy of solidarity.

Without these policies, growth will be affected by non-cooperative policies (tax competition, social competition), which will reduce demand and the spending capacities of States since they are carried out by all countries; the heterogeneity of the euro area will continue to increase, with countries increasingly richer and countries increasingly poor relative to the average, which is the normal course in a monetary union without solidarity due to growing, and normal, differences between productive specializations. It is of course essential that Germany adheres to these cooperative policies between countries of the euro zone, but this adhesion can be difficult because of the specificities of the economic philosophy of Germany.

Germany should accept lastingly, and not only in crises, cooperative economic policies

In the short term, of course, in crises, Germany accepts to pursue cooperative policies: this was the case during the crisis in the peripheral countries of the euro zone, with the acceptance of unconventional monetary policies (quantitative easing); this is the case during the Covid crisis with the acceptance by Germany of the abandonment of the usual budgetary rules of the euro zone then of the European recovery plan of 750 billion euros over 3 years, with the passage through Germany has a deficit of 7¼% of GDP in 2020. But Germany would have to accept that cooperative policies are maintained in the medium term; it can be a public investment budget of the euro zone financed by common resources, the coordination of fiscal policies, the pooling of certain elements of social protection (minimum income, unemployment compensation. ..).

But for the European countries (France, Spain, Italy) which want to move in this direction of cooperative policies to succeed in associating Germany with it, they must then understand the philosophy of economic policy in Germany.

In ordoliberalism, there are rules

The conceptual framework of economic policy in Germany, commonly accepted in this country, is ordoliberalism: the state sets up a favorable environment for businesses (competition, absence of financial economic imbalances), does not intervene directly in decisions enterprises, and ensures quality social protection.

In this context, economic policies, to be transparent and credible, are governed by rules, and are not discretionary. It is for this reason that the euro zone has adopted budgetary rules (public deficit below 3% of GDP, structural public deficit below 0.5% of GDP, return of the public debt ratio to 60%) and monetary rules (restrictive monetary policy as soon as inflation threatens to exceed 2%).

If cooperative economic policies are adopted in Europe, to be accepted by Germany, they will also have to be governed by rules, and that they cannot be changed at any time. If, for example, there is a permanent public investment budget in Europe, it will be necessary to clearly specify which investments can be financed, what are the selection criteria ...

Germany's debt rejection

The Germans overwhelmingly hate not only inflation but also debt. Germany is the only OECD country where the private sector debt ratio fell from 2002 to 2008, where public debt fell below 60% of GDP in 2019. To make the government accept In Germany, European financing by the indebtedness of useful public expenditure, it will be necessary to be able to demonstrate that it is a question of financing effective public investments (or of co-financing with companies of private investments), the profitability of which clearly exceeds cost of debt; that there is no risk of creating a moral hazard by which the states of the euro zone would be encouraged to finance unproductive transfer expenditure through debt.

Germany's loss of confidence in other euro area countries

Germany has a considerable external surplus (which hovers around 8% of GDP), that is to say a considerable savings surplus, the result of both aversion to debt and fear of debt. demographic aging. From the creation of the euro in 1999 to 2011, this excess savings was loaned to other euro-zone countries: Germany's external surplus was then counterbalanced by the external deficit of other euro-zone countries. . But since 2012, this excess savings from Germany is no longer loaned to euro-zone countries but to the Rest of the World outside the euro zone, in particular to the United States with very large purchases of debt from the United States Treasury. This situation is disastrous for the euro zone: while its investment rate has been too low since 2009, it lends its savings to the Rest of the World instead of investing them inside the zone. But it must be understood that, if Germany lends its savings to the United States and more to the euro zone, it is because it has lost confidence in the solvency and solidity of other countries, which is understandable. The external indebtedness of the countries of the euro zone, in particular of the peripheral countries, from 2002 to 2008, financed inefficient public investments, the real estate bubble through the financing of the banks.

To bring the excess savings of the Germans towards the financing of investments, in the euro zone, we must restore the confidence of the Germans, which means ensuring good governance of these investments, having strong banks, avoiding bubbles ...

Germany's reluctance is also a lesson for other countries

Germany wants there to be credible rules of economic policy, that the debt finances only productive investments, and not useless public investments or real estate bubbles. Accepting these demands is probably the price to pay for Germany to participate in cooperative economic policies and solidarity between countries in the euro zone. But in reality, these demands are quite reasonable: who wants that the objectives and the instruments of economic policies change all the time, that the debt finances unproductive public spending or real estate speculation, that the States do not ensure their solvency? ?

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