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Home Publications Blogs Beat the Press Charles Lane on Merkel's Re-election: More From the Bizarro World at the Washington Post Op Ed Page

Charles Lane on Merkel's Re-election: More From the Bizarro World at the Washington Post Op Ed Page

Tuesday, 24 September 2013 09:43

The hit to Europe's economy from the collapse of its housing bubbles has been larger than the downturn it suffered in the Great Depression. So naturally the assessment of columnist Charles Lane on the Post op-ed page is:

"So far, Merkel has managed the crisis of the euro zone well."

It's not clear what would count as managing the crisis poorly, although Lane does tell us in the next sentence that in his view the breakup of the euro would be the ultimate disaster. If keeping the euro together is the sole criterion, regardless of how many trillions of dollars of lost output results, and however many millions of lives are ruined by prolonged unemployment, then I guess the euro crew is a winner.

Lane's piece is deeply mired in confusion. Early on he tells readers;

"Two contradictory fears threaten these Germans’ contentment: what might happen if the government spends their hard-earned national savings on a bailout for Greece or Italy, and what might happen to Europe if someone doesn’t prop up those spendthrifts."

Of course the most obvious route to restarting Europe's economy would be to have the European Central Bank (ECB) act like a central bank and agree to underwrite the sort of deficits that will be needed to bring Europe's economy back to full employment. This does not require using any of Germany's savings. In fact, by boosting Europe's growth it is likely to increase Germany's "hard-earned national savings."

Lane is also confused about the nature of budget deficits in Europe when referring to Greece and Italy as "spendthrifts." While the former characterization has some real foundation, this description of Italy might seem a bit dubious to folks familiar with the data. Here's a chart showing the primary deficits (this excludes interest payments) of two euro zone countries since 2000.

btp-09-2013-italy-and-germanSource: International Monetary Fund.

If you guessed that Country B, the one that has generally had the larger primary budget surplus, is that spendthrift Italy, you got it right. In fact, Italy has had substantial primary budget surpluses for most of this century. It did have a large debt built up over prior decades which gives it a large interest burden now. The other reason that it has a large interest burden at present is the decision by the ECB to maintain a degree of ambiguity as to whether it would stand behind Italy's debt. If it ended this ambiguity, the interest rate on Italy's debt would be little different than the interest rate on German debt. This would make the country's debt burden easily manageable.


Note: Country reversal corrected, thanks Joe.

Comments (7)Add Comment
written by JSeydl, September 24, 2013 10:18
Confusing chart. It's showing budget balances, not surpluses, right? Also, according to the key, I think Country B should be Italy.

The debate in Europe is not just about economic gains/loses. As Dean points out, if it were just about economics, Germany and the ECB would have an interest in getting the PIIGS back to full employment. But the political gains Germany stands to get from the status quo are huge, which is probably a reason why Merkel was re-elected.
written by JDM, September 24, 2013 11:01
When they started up with the Euro I thought it was a brilliant idea that would push Europe into a lead in the world economy. Now I see the big problems it brought, and so I've changed my mind and admit my error. It's not so hard to do. I confused the political union with the currency (much like the US rightwing confuses our flag with our constitution). One thing that being an adult should bring is the understanding that changing your mind when you've been wrong is a strength, not a weakness.
written by Peter, September 24, 2013 11:12
It might be helpful to explicitly state that Country A is Germany. I wasn't sure if it was Greece until following the link to the source.
Charles Lane likes to use big words to fool his audience into thinking he has any idea what hes saying
written by Jim, September 24, 2013 11:50
Having pushed austerity as far as she could, she acquiesced in the European Central Bank’s crucial decision to ease monetary policy, despite the misgivings of her economic advisers.

How does this guy get a column? Why do all of these commentators suddenly think, A Angela Merkel won big when the FDP didn't gain entry to the Bundestag or B Angela Merkel is going to pivot towards being rational? Very curious times in the world.
Truth? You can't handle the truth!
written by Squeezed turnip, September 24, 2013 12:46
Charles Lane just knows things that the microbes in his gut whisper to him. Sounds like he needs to get on some probiotics.

The entire world economy is being ruled by the bacterial colonies in the guts of overfed, overpaid Serious People. In this way, more food is fed into said guts, to the benefit of trillions and trillions of bacteria. Now that's what I call success.
Germany is ok
written by jonny bakho, September 25, 2013 5:15
Germany is doing ok but it comes at the expense of the rest of the Eurozone. Germany and the rest of the EU could do better with better policy.
We also know...
written by Carl Weetabix, September 25, 2013 3:00
We also know that the Greeks are lazy, which as the oh-so-liberal Economist points out:

"The Greeks are some of the most hardworking in the OECD, putting in over 2,000 hours a year on average. Germans, on the other hand, are comparative slackers, working about 1,400 hours each year. But German productivity is about 70% higher."



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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.