The German Finance Minister Dr Wolfgang Schauble is chief architect of the German Austerity Doctrine. According to this Doctrine peripheral European countries must be subject to brutal austerity for their own good. Schauble believes that levels of sovereign debt above 90% of GDP damage growth. Therefore there is no option but to impose crippling austerity on already broken economies for their own good.
Dr. Wolfgang Schäuble MdB: PositionA permanently stable European currency is an indispensable part of this European growth model. As we discussed in Tokyo, and on several other occasions again and again, our conviction is that an excessive level of sovereign debt poses a risk to sustainability. Therefore I strongly believe in the research of Rogoff and Reinhart, for example, that as soon as you have reached a certain limit of sovereign indebtedness, increasing the deficit and the debt will not create more growth but will actually harm growth. For this reason, we have to know that if we want to achieve sustainable growth, we have to reduce sovereign debt in nearly all advanced economies.
Unfortunately, it turns out that the Rogoff & Reinhart research is based on flawed methodology and ..um.. coding errors.
Holy Coding Error, Batman - NYTimes.comAccording to the review paper, R-R mysteriously excluded data on some high-debt countries with decent growth immediately after World War II, which would have greatly weakened their result; they used an eccentric weighting scheme in which a single year of bad growth in one high-debt country counts as much as multiple years of good growth in another high-debt country; and they dropped a whole bunch of additional data through a simple coding error.
Fix all that, say Herndon et al., and the result apparently melts away.
It seems that the research that Dr Schauble "strongly believes in" and which justifies the German Austerity Doctrine is an innumerate pile of crap.