Friday, November 15, 2013

Germany Bashing With Bad Economics and Wrong Facts

If this were a football game, the referee should call unnecessary roughness for piling on Germany. The American Left led by Paul Krugman (The Harm Germany Does and Those Depressing Germans) excoriates Germany for forcing austerity on the rest of Europe. The U.S. Treasury (no newcomer to spending) demands that miserly Germany spend more to pull the PIIGS (Portugal, Italy, Ireland, Greece and Spain) out of their economic doldrums. Angela Merkel and her scrooge Germans are pictured as eating their Kuchen mit Schlag as Greek public employees lose jobs and unemployed youths riot in the streets. Even the sober Financial Times (Germany Is a Weight on the World) accuses the German juggernaught of piling up export surpluses to “beggar their neighbors.”

To understand the liberals’ beef against Germany, we must go back to the PIIGS borrowing spree that followed the creation of the Euro. As part of a single currency with strong partners to the North, even the PIIGS could borrow at low interest rates, and they borrowed voraciously not for investment but to pump up public spending. Their solvency in doubt as the financial crisis exploded, the PIIGS could no longer borrow. Suddenly, they had to live within their own means, except for the limited official loans the European Union, the European Central Bank and the IMF begrudgingly handed out to prevent the collapse of the Euro. Greece, Spain, and Portugal descended into deep recession with one quarter of the work force unemployed.

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