There’s been no shortage of headlines out of Germany this week, showing just how much the country is now pitted against other eurozone countries, central bank authorities and international institutions.
Germany, which was so recently Europe’s saviour for helping bail out the Greeks, now finds itself isolated inside the EU. In general, the European Central Bank wants Germany to increase its fiscal government spending in order to stimulate the economy. Europe as a whole is faltering, and it needs its biggest national economy to stimulate demand. But the Germans prefer fiscal austerity and balanced budgets. They don’t see why they should be the ones running up debts and deficits just because everyone else — France, Greece, Italy, Spain — can’t get their act together.
Finance minister Wolfgang Schaeuble slammed suggestions during the IMF meetings last week that Germany should change its economic course, calling the attempts to get Germany to change course “spin doctoring”.
The cooling relations are spreading into the European Central Bank too, according to Germany’s Focus magazine. The relationship between Draghi and Bundesbank chief Jens Weidmann, responsible for promoting Germany’s interests at the ECB, has now become “impossible” according to an editorial.
It’s one thing for Germany to be criticised by members of France’s socialist party or the Prime Minister of Italy, attacks that it can probably fend off. It’s another thing for the IMF and international policymakers to turn against the country.
A change in ECB voting rules that requires a rotation of votes among different countries means Germany will sit on the sidelines for two months next year. In May and October, Weidmann won’t be voting on eurozone monetary policy. That’s a massive cause for concern in Germany, where the public already thinks the country is too lenient towards the southern euro users.
Two charts from Pantheon Macroeconomics sum up the argument Germany finds itself in.
Firstly, Germany is running an enormous current account surplus:
This means Germany is a net lender and exporter to the rest of the world, while the IMF reckons it should be focusing more on its own public and private investment, and heightening domestic demand with more imports.
Secondly, Germany’s public finances are very strong.
It’s the only major eurozone economy that has managed to reduce its public debt in recent years, but this looks increasingly odd as the country drifts towards a recession.
There’s some sign of a tide turning. Germany is at risk of turning its balanced budget goals into a “fetish”. That’s according to Olaf Gersemann, the business editor of Die Welt, one of Germany’s largest conservative newspapers.