Germany may be booming but its neighbors are suffering
Financial Times, September 20th, 2013.
Wolfgang Schauble’s confidence in Europe’s return to economic health (‘Ignore the doomsayers: Europeis being fixed’) echoes the recent claims by Senor Barroso (reported by Peter Spiegel in the FT of September 11th), and seems equally fanciful, not to say delusional.
Germany’s recent economic recovery was based on a euro exchange rate which was much lower than a free-market DM rate would have been; hence their export boom (much of it with the peripheral Eurozone economies) and the build-up of the massive intra-Eurozone imbalances evidenced in the Target 2 accounts. The peripheral Eurozone economies are in exactly the opposite position, with a euro exchange rate much stronger than their economic competitiveness can bear. Their populations are now in consequence being sacrificed on the altar of austerity.
Furthermore, as the European Commission’s government debt-to-GDP figures in the article on the Greek debt crisis in today’s FT make clear, the debt of Italy, Spain and France now approaches or exceeds 100% of GDP. Unless these countries can return to significant and sustainable growth in excess of their borrowing costs (the recent figures for growth from France and Italy have been weak or negative) or unless the European Central Bank is prepared to buy their debt without limit as to time and amount,
they face default.