Back in June, 2010 Barack Obama and Angela Merkel had a disagreement. President Obama told Merkel that that the only way to prosperity was for governments to spend their way out of economic recession. A NY Times article, headlined “Obama Asks G-20 States to Maintain Stimulus” said the President wrote to Europeans warning them against cutting their stimulus programs.
“We must be flexible in adjusting the pace of consolidation and learn from the consequential mistakes of the past when stimulus was too quickly withdrawn and resulted in renewed economic hardships and recession,” Mr. Obama wrote.
But Angela Merkel disagreed. And Channel News Asia described the Barack vs Angela argument.
Europe and the United States were on a collision course on Friday over how best to sustain the fragile global economic recovery, as G8 leaders launched talks in Canada.
Germany’s Chancellor Angela Merkel showed her hand early, insisting members must move quickly to slash soaring public deficits and restore financial stability to their battered economies. …
“It is time to reduce the deficits. Europe has experienced what it means to have too big deficits … We need growth that doesn’t rely on debt but is based on real grounds,” Merkel told journalists at the venue.
Today, with the BBC reporting the fastest German growth in 20 years and the US economy in the doldrums there’s some evidence to suggest that the German economic Merkel may have a point. The European economic performance figures of the last few months are suggestive. In the winner column are the ants. In the loser column are the grasshoppers. The BBC writes: “Such quarter-on-quarter growth has never been recorded before in reunified Germany,” the national statistics office of Germany said. Cameron was doing well too. “The UK has also reported higher-than-expected growth of 1.1% for the period.” On the other hand Greece saw its economy shrink by 1.5%, nearly 2/3th the German pace, but in the negative direction. Maybe those riots in the streets demanding an end to the crisis don’t have any practical effect.
In the US, however, second quarter growth was 0.6%, down from 0.9% between January and March, raising questions about the strength of the recovery in the world’s biggest economy.
Something about Germany has stimulated its economy indirectly. Perhaps by increasing confidence that their country was headed in the right direction, Germany persuaded its consumers to open their wallets. Ben Shore, the BBC’s European business reporter said:
Not since the Berlin Wall divided the country has Germany seen growth of 2.2% in a single three-month period. …
But the most surprising element of the numbers is an apparent contribution from the German consumer. They have traditionally been very cautious in their spending habits, but appear in 2010 to have finally opened their wallets with gusto.
But the Second Stimulus crowd is unlikely to give up. “Nobel Prize-winning economist Joseph E Stiglitz said last week the US economy faces an ‘anaemic recovery’ and will need another round of stimulus measures. ” One criticism that is sure to be heard is that Merkel’s success cannot have been due to austerity measures which have yet to take effect. Moreover, the Merkel austerity program is a combination of tax increases and spending cuts, something that may not be popular in the US. And the proponents of the stimulus have not yet given up proclaiming they’ve saved the world. Harry Reid, describing the $26 billion dollar stimulus package aimed at propping up Medicaid and education said “we saved people’s jobs”, according to The Daily Caller. The Daily Caller suggests that they were mostly union jobs.
This newest stimulus, like most of the other legislation hurriedly pushed through by the Obama administration, in actuality does little more than protect the revenue stream that flows back to the union coffers. That money will then be used to support Democrat party candidates in Senate and House races come November. Nancy Pelosi has been openly vocal of late about the good union members do by lobbying, “volunteering” their time, and generally supporting efforts at keeping the Democrat party strong.
So when Senate Leader Reid says jobs have been saved, he’s not lying. He’s just talking about the potential job retention on The Hill rather than the jobs saved in the classroom.
Maybe that judgment is a little harsh, but interestingly enough the first sector to criticize Merkel when she unveiled her austerity package were the German trade unions. Tne New York Times reported their reaction to the Merkel plan. “It was immediately criticized by the opposition and trade unions, which pledged that they would unite to fight cutbacks they claimed would undermine the country’s generous social welfare system.” Still, the debate between those who would fix the economy by getting the government off the people’s backs and those who think a larger government can help carry the load — while perched atop the public — has now heard the bell marking the end of the first round. Score: Merkel ahead on points. No political KO.
Below: the macroeconomic argument in 3 minutes and twenty seconds. Hat tip: Panday