German official ‘simply doesn’t understand’ rest of world

Gideon Rachman of the FT has great run-down of his recent conversations with German officials and diplomats.

There is considerable impatience with the Davos-led, Lagarde-Cameron-Geithner line that Germany has to throw more money at the problem, by building a bigger firewall and rebalancing its trade. “I simply don’t understand them,” says one senior official. “This is a problem that will not solved by the ECB or bazookas or bigger firewalls. It can only be solved by growth. And the only long-term route to growth is structural reform.”

Cool. I will posit two things. First, bureaucrats, diplomats and dare-I-say even economists have never been able to fully explain where long-term growth comes from.

Second, this “simply not understanding” by a senior German official I can only describe as incredibly weak. One has to be talking about willful incomprehension when this issue has been thrashed out and explained ad nauseum over the past 18 months in the major newspapers’ op-ed pages (including the FT) and by too many celebrated/prize-winning economists to cite.

The “Lagarde-Cameron-Geithner line” is really the Lagarde-Cameron-Geithner-Putin-Sarkozy-Krugman-EichengreenRoubini-Sarkozy-andlotsofothersmartand/ordisinterestedpeople line. It’s basically the “everyone-except-Germany” line.

So meh. I’ll chalk that “not understanding” as a case of the cognitive dissonance of one German  official – who must imagine himself serving the public and European interest on some level – having to defend a policy that is manifestly ruining the European economy, destroying the EU’s image across Europe, and is, beside that, unsustainable. It’s interesting, if depressing, that even after the thrashing at Davos the German high authorities appear so completely unreconstructed.

Lots of other good stuff in the post.

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2 Responses to German official ‘simply doesn’t understand’ rest of world

  1. Manny says:

    The point is that Germany trade surplus has nothing to do with it. Austerity measures kill growth, of course, but we are simply speaking here about getting a freaking EU member state back under control and getting their incentive rates less suicidal. If the alternative is to bankrupt Greece, fine. Let them go bankrupt and blame no one except their own policies. An austerity discourse completely misses the point because we are not in a normal mode of operations. Cut the drama. Stop blaming others. Get real.

    • Hi Manny,

      This isn’t just about Greece. The answer there, ultimately, is likely a bigger default. There is no good solution for that country.

      There is a broader question of how, in the rest of the eurozone, to 1) Prevent recession (debt-enlarging/revenue-killing recession) 2) Keep lending rates to sovereigns low. Both these problems have been resolved by having intelligent monetary policies in the U.S., the U.K. and Japan. Only Europe has recession, only Europe has a central bank hamstrung by its autistic mandate and German policies.

      It seems, like Stark, you are implicitly advocating the default of Italy, Spain and others – which would likely cause a Lehman-style run on banks/financial crisis/global recession, not to mention even higher unemployment (often to depression levels) across Europe. I think this would best be avoided, perhaps you disagree.

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