6/26/2012

Germany won't back down on its austerity plans

German is holding firm.  It is amusing to see that they are starting to speak down to Obama in the same way that he has constantly been lecturing them.  Are they behaving irrationally?   From Der Spiegel:

German Finance Minister Wolfgang Schäuble rebuffed recent criticism of Germany's handling of the euro crisis from Barack Obama, telling the US president to get his own house in order before giving advice.
"Herr Obama should above all deal with the reduction of the American deficit. That is higher than that in the euro zone," he told German public broadcaster ZDF on Sunday night. It is easy to give advice to others, he added,Obama, worried about the impact of the debt crisis on the global economy and financial markets -- and on his own prospects for re-election --has been urging Europe to step up its efforts to tackle the problem.
In the interview, Schäuble also reiterated his opposition to euro bonds, saying countries must remain individually liable for their public debt as long as they were taking sovereign decisions on how the money was being spent.
"If you spend the money from my account, you won't be frugal with the money," said the finance minister. He added that he was against devoting large sums of money -- for example from the European Central Bank -- to fight the crisis. The roots of the crisis needed to be fought credibly, he said, adding that that was succeeding in Ireland and Portugal, which have both received international bailouts. "It's not succeeding so well in Greece," he added. . . .
UPDATE: George Soros weighs in an interview with Der Spiegel:

'A Tragic, Historical Mistake by the Germans'With the EU summit set to start on Thursday, pressure is on European leaders to find a way out of the euro crisis. Investor George Soros is pessimistic that a solution will be found and says time is extremely short. In an interview with SPIEGEL ONLINE, he warns that Germany could develop into a hated, imperial power.
SPIEGEL ONLINE: In Germany, once the motor of European integration, people are openly discussing the possibility of leaving the euro zone. Many Germans believe that a return to the deutschmark would be cheaper than to remain stuck in a flawed currency union. Are they right?
Soros: There is no question that a breakup of the euro would be very damaging, very costly, both financially and politically. And the biggest loss would be incurred by Germany. Germans have to bear in mind that, effectively, they have suffered practically no losses so far. Transfers have all been in the form of loans, and it is only when the loans are not repaid that real losses will be incurred. 

Here is a question: why exactly would countries returning to their own currencies be so bad?  Here are the 10 EU countries who are not using the Euro.
United Kingdom Bulgaria Czech Rep. Denmark Hungary Latvia Lithuania Poland Romania Sweden
Are they doing worse relative to other countries?  It is hard to see how that is the case.  Poland for example has done very well without being in the Euro and so has Germany.  The difference between countries seems to depend a lot more on whether the countries followed an austerity type policy, with those controlling government spending doing much better.

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