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Germany’s Passive-Aggressive “Stimulus” Program

This is a syndicated repost courtesy of New Economic Perspectives. To view original, click here. Reposted with permission.

Kilkenomics, being a festival of economists and comedians, has long reflected the economic consensus that austerity in response to a Great Recession is economic malpractice akin to bleeding a patient to make him healthy. One of the great changes in Europe in the last month is that the number of economic voices willing to make this same point have grown rapidly. Germany’s “there is no alternative” (TINA) to austerity claims were always absurd, but now many more European voices are willing to point out that there are superb alternatives – in Germany. A recent Irish Times article provides a good example.

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“Leading economists have criticised Germany on its public investment restraint which, at 18.4 per cent of GDP, is below the EU average of 19.2 per cent. A study by Berlin’s DIW economic think tank suggests a €1 trillion backlog has built up in Germany since 2000.”

There a one trillion euro shortfall on German spending on infrastructure even though such spending (1) improves life, (2) saves lives and reduces injuries, (3) increases productivity, and (4) spurs economic recovery from the self-inflicted disaster of the second, gratuitous Great Depression that Germany inflicted on the eurozone by demanding austerity. Germany is actually running a substantial budget surplus even though this is crippling the German economy’s growth and impairing growth throughout the eurozone. The obvious win-win is for Germany to substantially increase spending on its infrastructure. Naturally, invoking TINA, Germany refused.

But something changed about a month ago. Even Germany’s strongest allies in inflicting austerity on the eurozone have begun to call on Germany to sharply increase its spending on infrastructure. The initial German response was harsh attacks on those allies turned critics and chanting “TINA.” When Germany has pulled such a temper tantrum in the past the eurozone has quickly caved in to her demands, but this time the allies turned critics persisted. Germany has now responded with a passive-aggressive “stimulus” program. Recall that it has a stalled economy, a large budget surplus, and a billion euro shortfall in needed infrastructure. The German proposed response to these self-destructive policies is farcical, but the fact that they felt the need to create a faux stimulus program represents an implicit admission that they know that no one remains impressed by their TINA chants.

“From 2016 to 2018 respectively, [finance minister Wolfgang Schäuble,] the Christian Democrat (CDU) politician will spend an additional €3.3 billion annually. The additional spending would ‘boost growth in Germany and Europe….’”

Spending “an additional €3.3 billion annually” on Germany’s €1 trillion unmet infrastructure needs will cause those unmet needs to increase. The €1 trillion figure built up from 2000 to 2014 at an average rate of over €70 billion annually. Spending “an additional €3.3 billion annually” – for only three years (2016-2018) – on Germany’s unmet infrastructure needs will mean that by 2018 the shortfall will be roughly €1.3 trillion. Simply to avoid falling further behind Germany should be acting as quickly as possible to spend over €70 billion in additional funds to improve its inadequate infrastructure. Note also that while the eurozone recovery has stalled Germany’s economy, it plans no “additional” spending on infrastructure until 2016. It is not surprising that Germany’s initial “stimulus” proposal is an economically-illiterate farce. The surprising fact is that Germany felt the need to gin up even an oxymoronic “stimulus” plan given her constant invocation of TINA.

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