Germany's export led growth deflationery for PIIGS countries

[patslatt]

Business Week Germany's Merkel: She's Got the Whole Euro in Her Hands - BusinessWeek argues that Germany's export led growth is deflationery for the rest of the EU. Germany's excessive saving and slow growth of consumer spending makes it difficult for the PIIGS* countries to achieve a proper balance in their trade with Germany. This could result in a dreaded deflationery spiral in these countries given market pressures for more austerity programmes to keep the confidence of government bond markets.

In my opinion,the solution is for Germany to introduce fiscally expansionery policies to offset the effects of any additional deflationery policies called for in the PIIGS countries. However,Business Week thinks that German economic aid needs to be on the massive scale of aid to East Germany since reunification,but this looks very unlikely.

*Portugal,Ireland,Italy,Greece,Spain.

[McDave]

Business Week Germany's Merkel: She's Got the Whole Euro in Her Hands - BusinessWeek argues that Germany's export led growth is deflationery for the rest of the EU. Germany's excessive saving and slow growth of consumer spending makes it difficult for the PIIGS* countries to achieve a proper balance in their trade with Germany. This could result in a dreaded deflationery spiral in these countries given market pressures for more austerity programmes to keep the confidence of government bond markets.

In my opinion,the solution is for Germany to introduce fiscally expansionery policies to offset the effects of any additional deflationery policies called for in the PIIGS countries. However,Business Week thinks that German economic aid needs to be on the massive scale of aid to East Germany since reunification,but this looks very unlikely.

It's not the first time I've heard that argument recently.

To me it's a totally fallacious proposition. Germany makes products people want to buy, and their citizens don't go in for property bubbles or splurge on credit cards. With the resultant accumulation of savings, German banks can reinvest in German companies (the market they know best), companies which in turn have to rely less on more volatile investment via the stock market and the attendant short-termism pressure plcs are exposed to.

If PIGS economies concentrated on proper economic development and less on speculation, they wouldn't be in the trouble they are in. The idea that Germany will give these profligate countries aid is simply laughable (dream on, irresponsible Greek politicians). If this really is what Business Week thinks, then they really don't understand business, economics and Europe.

[Breadan O'Connor]

Business Week Germany's Merkel: She's Got the Whole Euro in Her Hands - BusinessWeek argues that Germany's export led growth is deflationery for the rest of the EU. Germany's excessive saving and slow growth of consumer spending makes it difficult for the PIIGS* countries to achieve a proper balance in their trade with Germany. This could result in a dreaded deflationery spiral in these countries given market pressures for more austerity programmes to keep the confidence of government bond markets.

In my opinion,the solution is for Germany to introduce fiscally expansionery policies to offset the effects of any additional deflationery policies called for in the PIIGS countries. However,Business Week thinks that German economic aid needs to be on the massive scale of aid to East Germany since reunification,but this looks very unlikely.

*Portugal,Ireland,Italy,Greece,Spain.

David Mcwilliams made the same point a couple of weeks ago.

He said Germany is the worlds most efficient exporter and we haven't a chance against them basically. When things were good we blew money on useless property speculation now we suffer the consequences.

[McDave]

David Mcwilliams made the same point a couple of weeks ago.

He said Germany is the worlds most efficient exporter and we haven't a chance against them basically. When things were good we blew money on useless property speculation now we suffer the consequences.

Maybe Maccer is right about not being able to compete. But to make money, you don't have to be as good as the Germans, you just have to be good enough. There's plenty of money and market out there to make your play for. And don't forget, the Germans aren't good at everything.

[patslatt]

It's not the first time I've heard that argument recently.

To me it's a totally fallacious proposition. Germany makes products people want to buy, and their citizens don't go in for property bubbles or splurge on credit cards. With the resultant accumulation of savings, German banks can reinvest in German companies (the market they know best), companies which in turn have to rely less on more volatile investment via the stock market and the attendant short-termism pressure plcs are exposed to.

If PIGS economies concentrated on proper economic development and less on speculation, they wouldn't be in the trouble they are in. The idea that Germany will give these profligate countries aid is simply laughable (dream on, irresponsible Greek politicians). If this really is what Business Week thinks, then they really don't understand business, economics and Europe.

The accumulation of savings in Germany that exceeds internal investment is sent abroad,mostly to finance consumption in other EU states,and regrettably, excessive consumption in the PIIGS.National savings minus investment equals exports minus imports,so the greater the balance of trade,the greater the savings including savings sent abroad.

[McDave]

The accumulation of savings in Germany that exceeds internal investment is sent abroad,mostly to finance consumption in other EU states,and regrettably, excessive consumption in the PIIGS.National savings minus investment equals exports minus imports,so the greater the balance of trade,the greater the savings including savings sent abroad.

So after investing prudently in their own economy, German banks still have money left over to lend to other countries. Isn't it great that other countries have that facility? And isn't it a pity that a lot of those countries chose to use (read waste) that money by inflating property bubbles and spending on luxuries. Like governments and citizens in PIGS didn't have a choice. Oh no. It's all the Germans' fault for being prudent and smart.

Put another way, I'd say it's about time the Irish and the other PIGS took responsibility for themselves. It's just pathetic watching the Greeks trying to blame the Germans taking their gold during WW2 for their current predicament. Not to mention the abnegation of our own national reputation with rubbish "policies" like NAMA. Make no mistake, the PIGS are the losers in all of this. And where there are losers there are winners. Our challenge is to find out how to be on the winning side in future. Over to us!

[Cassandra Syndrome]

Oil is now up to 60 Euro a barrel. 10 Years ago it was 20 Euro a barrel. We are in danger of importing inflation in the midst of a deflationary depression.

[Breadan O'Connor]

Maybe Maccer is right about not being able to compete. But to make money, you don't have to be as good as the Germans, you just have to be good enough. There's plenty of money and market out there to make your play for. And don't forget, the Germans aren't good at everything.

We had the good times and we blew them with speculation and allowing govt spending to rise like crazy. I honestly cant see how we get out of the deflation now!

[MPB]

Oil is now up to 60 Euro a barrel. 10 Years ago it was 20 Euro a barrel. We are in danger of importing inflation in the midst of a deflationary depression.

Won,t it be very interesting when the ECB decide that Germany needs higher interest rates and oil hits the 80 dollar a barrel mark around the same time.

I wonder will the carbon tax, the 13c a litre fuel tax, the levies and the reduced wages look like a good idea then, considering the personal debt levels have not been reduced.

[McDave]

Oil is now up to 60 Euro a barrel. 10 Years ago it was 20 Euro a barrel. We are in danger of importing inflation in the midst of a deflationary depression.

I remember it being down as low as €11 some time during the Clinton administration. But that was a ridiculously cheap level. €60 is starting to get expensive again, but even at around €100 it is still affordable for countries with sustainable development policies. But you're right about the inflation spectre in the interim. Which raises the worst case scenario of stagflation.