Germany\u2019s austerity prescriptions for crisis countries are problematic.\u00a0 These countries are lacking the external lifeline \u2013 booming exports \u2013 that rescued Germany a decade ago. Instead, they are sinking ever deeper into what is known as debt deflation, when their attempts to reduce indebtedness actually raises the real burden of the debt. To restore their competitiveness, they have to engineer a lower rate of inflation than Germany\u2019s, so that their goods are cheaper. That\u2019s tough given German inflation is only 0.8%.<\/p>\n
And restoring competitiveness by deflation is especially painful. To actually reduce their indebtedness, the countries need to run current account surpluses and grow their GDP. That requires trade partners who are willing to spend \u2013 something that is hard to come by these days.<\/p>\n
Certainly Germany is not returning the favor of increased spending that it received during the last decade. Indeed, the German government is adamant about not spending more. The euro crisis has proved too convenient for Germany, providing super-low interest rates and a euro exchange rate that has allowed the country to shift its notorious surpluses elsewhere. But Germany will be the biggest loser <\/a> if the euro comes apart. Hopefully its leaders will wake up from their austerity-propels-growth dreams before it is too late.<\/p>\n \n <\/p>\n","protected":false},"excerpt":{"rendered":" Germany\u2019s austerity prescriptions for crisis countries are problematic.\u00a0 These countries are lacking the external lifeline \u2013 booming exports \u2013 that rescued Germany a decade ago. Instead, they are sinking ever deeper into what is known as debt deflation, when their … Continue reading ![\"German](\"http:\/\/www.w-t-w.org\/en\/wp-content\/uploads\/2014\/10\/German-Austerity.jpg\")
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