I appreciate that Merkel is a bit slow to respond, but I don't like the 'ZOMG we must do something, more, yesterday, more!!' directionless panic. The Germans have already laid out a stimulus package worth 31 billion euros and I can understand that they want to wait a month or two before deciding whether and how to add to that.
Now of course we will see that VAT cuts in countries with high consumption economies (the UK) will end up to some extent driving German exports, but that is also their own fault for not having an industrial policy.
As far as I know, France opposes VAT cuts, too.
The differences are over-reported and the reality is that for now we do have a somewhat coordinated response in Europe.
Yahoo finance | Germany rejects French call for more stimulus funds
French President Nicolas Sarkozy and German Chancellor Angela Merkel failed earlier this week to overcome their differences on an EU-wide effort to boost economic growth in the wake of the global financial crisis. After a joint cabinet meeting on Monday, Merkel said Berlin would stick to a growth package already approved in cabinet and review the situation in January rather than commit new funds to a plan unveiled by the European Commission on Wednesday. The EU proposal called for states to unite in a common fiscal stimulus package worth 200 billion euros ($258 billion), or 1.5 percent of the 27-nation bloc's gross domestic product, in an attempt to stave off recession. Under the proposal, member states would commit some 170 billion euros, or 1.2 percent of their GDP, to their national rescue packages, while the remaining 30 billion euros would come from EU funding. Germany says its stimulus plan amounts to 1.3 percent of national GDP, and that it is thereby 'over-fulfilling' the Commission's plans.
French President Nicolas Sarkozy and German Chancellor Angela Merkel failed earlier this week to overcome their differences on an EU-wide effort to boost economic growth in the wake of the global financial crisis.
After a joint cabinet meeting on Monday, Merkel said Berlin would stick to a growth package already approved in cabinet and review the situation in January rather than commit new funds to a plan unveiled by the European Commission on Wednesday.
The EU proposal called for states to unite in a common fiscal stimulus package worth 200 billion euros ($258 billion), or 1.5 percent of the 27-nation bloc's gross domestic product, in an attempt to stave off recession.
Under the proposal, member states would commit some 170 billion euros, or 1.2 percent of their GDP, to their national rescue packages, while the remaining 30 billion euros would come from EU funding.
Germany says its stimulus plan amounts to 1.3 percent of national GDP, and that it is thereby 'over-fulfilling' the Commission's plans.
Tax cuts are one way to say things, but look closely at what they are rejecting - a VAT tax cut, which is by definition a progressive tax cut, and income vouchers, which are also progressive. In both cases, you are getting ready to help those who will be needing the help, and in turn helping get the economy working.
What's more, while I recognize Münchau downplays public investment as a proper vehicle for stimulus, even Germany could use some, which would pay off in future. Alternative energy; improved transportation grid; public housing.
But where Steinbrück really shows he is out of his depth is when he says the following:
He also rejected the idea of issuing spending vouchers. He said these could boost consumption in lower income categories, but added: 'That has nothing at all to do with lasting support for economic growth.'
If the German economy follows the trajectory that is currently forecast (and remember, the risk is on the downside, not the upside, that's pretty much an established fact) then he is absolutely wrong. The lasting damage a couple of years of severe recession and negative growth in the -2 to -4% territory (if not worse) is real. The impact this will have on the health of Germany and the Eurozone makes a couple of year's deficit spending pale in comaprison.
Deficit spending, it should be added, wich is much easier to pay for when the size of the economy is larger thanks to the stimulus.
Too bad the Germans (and the Dutch for that matter) can't be asked to have the severe recession for themselves, since they seem so hell-bent to make it as bad as possible. Alas, we all will be treated to it, just like in the early 1990's... Fai de bèn a Bertrand, te lou rendra en cagant
As for spending vouchers, that's a better idea, as long as they have some investment aspect. The Süddeutsche had a nice idea in that context which I wholly favour:
The World From Berlin: Merkel Puts on the Bailout Brakes - SPIEGEL ONLINE - News - International
The center-left Süddeutsche Zeitung writes: "The level of the discussion in this country about the wisdom or folly of a stimulus program has been meagre. Instead of first considering what the criteria for such a program ought to be, all parties are contenting themselves with taking old ideas and presenting them as new. What we're getting is a hodgepodge of proposals which in the best case won't damage growth, but which will also certainly do no good to reverse the current trend." "If we really want to put people in a buying mood, than we simply have to give them some money. If every citizen were given a climate-voucher worth €250, which could be used until Jun. 30, 2009 to buy energy-saving household and garden appliances, it would not only boost consumption, it would also promote climate protection... In order to stimulate corporate investment, they should be allowed as an exception to deduct the cost of new machine purchases in 2009 from their taxes."
The center-left Süddeutsche Zeitung writes:
"The level of the discussion in this country about the wisdom or folly of a stimulus program has been meagre. Instead of first considering what the criteria for such a program ought to be, all parties are contenting themselves with taking old ideas and presenting them as new. What we're getting is a hodgepodge of proposals which in the best case won't damage growth, but which will also certainly do no good to reverse the current trend."
"If we really want to put people in a buying mood, than we simply have to give them some money. If every citizen were given a climate-voucher worth €250, which could be used until Jun. 30, 2009 to buy energy-saving household and garden appliances, it would not only boost consumption, it would also promote climate protection... In order to stimulate corporate investment, they should be allowed as an exception to deduct the cost of new machine purchases in 2009 from their taxes."
Note the nuance: lasting support. While I have serious doubts that Steinbrück would favour a lasting support in the form of a permanent spendable income increase like a payrise or a minimum wage definition (where non-existent)/raise (where existent), the vouchers will be an extra income and consumption that'll end. (Anso see my comment downthread.) Then again, Steinbrück may be out of his depth discussing lasting supports in the context of temporary anti-cyclical measures. *Lunatic*, n. One whose delusions are out of fashion.
