Wolfgang Schäuble: he's right about everything
For my part, I have been wrong about everything. German discipline policies for the eurozone have been a tremendous success. I am ashamed for suggesting otherwise.
As the wise, patient, and always self-effacing Mr Schäuble writes today in The Financial Times, the Euro-sceptics talk and write relentless drivel.
"Ignore the doomsayers: Europe is being fixed" is the headline:
The eurozone is clearly on the mend both structurally and cyclically.Mr Schäuble says Germany pulled it off the old-fashioned way earlier this decade, with root-and-branch reform. The UK did it in the 1980s, Sweden and Finland in the early 1990s, Asia in the late 1990s:
What is happening turns out to be pretty much what the proponents of Europe's cool-headed crisis management predicted. The fiscal and structural repair work is paying off, laying the foundations for sustainable growth. This has taken critical observers aback. It should not have, because, in truth, we have seen it all before, many times and in many places.
Despite what the critics of the European crisis management would have us believe, we live in the real world, not in a parallel universe where well-established economic principles no longer apply.
The recipe worked then and it is working now, somewhat to the chagrin and bemusement of its numerous critics in the media, academia, international organisations and politics.So there we have it. The problem is solved. How can I not have seen it? How can any of us on this blog thread have missed it?
In just three years, public deficits in Europe have halved, unit labour costs and competitiveness are rapidly adjusting, bank balance sheets are on the mend and current account deficits are disappearing. In the second quarter the recession in the eurozone came to an end.
Systems adapt, downturns bottom out, trends turn. In other words, what is broken can be repaired. Europe today is the proof.
I apologise for mentioning that unemployment is 27.8pc in Greece, 26.3pc in Spain, 17.3pc in Cyprus, and 16.5pc in Portugal, or for pointing that it would be far worse had it not been for a mass exodus of EMU refugees. Nor was is proper to mention that Greek youth unemployment in 62.9pc. These are trivial details.
I apologise for pointing out that the EU-IMF Troika originally said the Greek economy would contract by 2.6pc in 2010 and then recover briskly, when in fact it contracted by roughly 23pc from peak-to-trough, and will shrink another 5pc this year according to the think-tank IOBE. This slippage is well within the normal margin of error.
I apologise for mentioning that the debt trajectories of Spain, Greece, Italy, and Ireland have accelerated upwards under the austerity plans, and therefore that the policy has been self-defeating.
It was quite uncalled for to point out that Italy's debt ratio has jumped to 130pc of GDP, or to so suggest that debt cannot keep rising on a contracting nominal GDP bas, and I will wash my mouth soap if I ever utter the words "denominator effect" again. It is shabby to use such cheap language.
I apologise for mentioning IMF studies showing that the fiscal multiplier is three times higher than first thought by EU officials in EMU crisis states, and therefore that the contractionary effects of belt-tightening are far greater than first calculated.
As for using that pious and pretentious Greek word "hysteresis" to suggest that mass unemployment and the collapse of investment in southern Europe has lowered the economic growth trajectory of these countries for years to come, outweighing any of the alleged gains from the EU-imposed reforms: this is just trying to blind good folk with posh talk.
I apologise for suggesting that German reforms under Schröder have been vastly overblown, and that German competitiveness gains have been chiefly the result of a beggar-thy-neighbour wage squeeze at the cost of EMU trade partners. Nor should I have said that a small open economy like Sweden in the 1990s may well be able to tighten its way back to vitality in a the middle of a global boom, but if half Europe does so in unison in a slump, it will inflict carnage.
It was unconscionable of me to say that Germany has locked in a semi-permanent trade advantage over Club Med, or for saying that the trying to close this gap by imposing deflation on the South is impossible because this will play havoc with debt dynamics.
How could any of in the eurosceptic camp have stooped to the historical pornography of the 1930s, suggesting for one moment that EMU replicates the worst errors of the interwar Gold Standard, or that the German-led creditor bloc is doing to Spain exactly what the US-led creditor bloc did to Germany from 1928-1933? Just sheer smut.
I apologise personally to Mr Schäuble for calling him a dangerous mediocrity: arrogant, shallow, narrow-minded, provincial, and unscientific in equal degree. This was shockingly rude. It brings shame to Fleet Street.
I should not have questioned his wisdom in thinking it is possible to harmlessly enforce contractionary policies on the South of a single currency zone without offsetting expansion in the North. Events have shown that he has the finest mind in Europe, and a superb grasp of European politics. Moreover, people have seen the light even in Greece, where he is now adored.
I apologise for screaming for two years that the EMU would blow apart unless Germany allowed the ECB to step up to its responsibilities as a lender of last resort for sovereign states, as it finally did at one minute to midnight in July 2012. It was the Fiscal Compact that saved EMU, and the Six Pack, and the Two Pack, and all those rule books from Berlin.
It was carping for me to suggest that recent charts showing a dramatic narrowing of unit labour costs in Spain et al are largely bogus, the mirror of mass unemployment that causes an automatic rise in apparent productivity; and nor should I have quibbled about the low trade gearing of Spain, Italy, Portugal, and Greece, or suggested that exports are too small a share of GDP to lift these countries out of the morass quickly. This is just pointy-headed, clever-clever, anorak stuff, and frankly laughable.
So no, Mr Schäuble has pulled it off. The German Constitutional Court is in the pocket of the German finance ministry and will thankfully run a coach and horses through the Grundgesetz when it rules next month, or soon after. The court will not stop the ECB keeping Italy and Spain afloat. The law has been stitched up, so no problems there.
The eurozone is recovering. It is immune to the sharp rise in the exchange rate of the euro over the last six months. It is immune to a 70 basis point rise in borrowing costs imported from Fed tapering. It is immune to the emerging market crisis. It doesn't matter that the M3 money supply has rolled over again, slowing to stagnation levels, or that EMU credit contracted at an accelerating rate of 1.6pc in July. None of this matters.
I feel like an utter fool. Having read Mr Schäuble's succinct and well-crafted thoughts, I just want to curl in a ball and weep. Es tut mir leid.
Reader Comments
...but it seems that things have reached the point of no return and as thus, comedy fails to come to the rescue anymore. Time for the band to pack up and prepare their life-raft or go down with the ship. Sorry to be so somber, but perhaps a requiem should be made ready? Can't you hear the fat lady warming up off-stage? Alas, it was 'fun' while it lasted, no?