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Krugman blog: The economic consequences of Herr Steinbrueck (December 11, 2008)
There's an extraordinary -- and extraordinarily depressing -- interview in Newsweek with Peer Steinbrueck, the Germany finance minister. The world economy is in a terrifying nosedive, visible everywhere. Yet Mr. Steinbrueck is standing firm against any extraordinary fiscal measures, and denounces Gordon Brown for his "crass Keynesianism."


The reason is that the European economy is so integrated: European countries on average spend around a quarter of their GDP on imports from each other. Since imports tend to rise or fall faster than GDP during a business cycle, this probably means that something like 40 percent of any change in final demand "leaks" across borders within Europe. As a result, the multiplier on fiscal policy within any given European country is much less than the multiplier on a coordinated fiscal expansion. And that in turn means that the tradeoff between deficits and supporting the economy in a time of trouble is much less favorable for any one European country than for Europe as a whole.


In short, there's a huge multiplier effect at work; unfortunately, what it's doing is multiplying the impact of the current German government's boneheadedness.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Sep 28th, 2012 at 05:10:58 AM EST
[ Parent ]
I doubt that these elections will bring much surprise. Steinbrück will become vice-chancellor in a grand coalition.
by Katrin on Fri Sep 28th, 2012 at 06:33:53 AM EST
[ Parent ]
And so the SPD will be destroyed as a fighting force for the following elections, which Merkel will win. Then she will lead a Black-Green coalition until 2021.

I distribute. You re-distribute. He gives your hard-earned money to lazy scroungers. -- JakeS
by Migeru (migeru at eurotrib dot com) on Fri Sep 28th, 2012 at 06:50:02 AM EST
[ Parent ]
Unless the aliens come and take her back to her home planet.

They can have Paul Ryan back while they're at it.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Sep 28th, 2012 at 07:22:42 AM EST
[ Parent ]
the SPD will be destroyed, period.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Fri Sep 28th, 2012 at 07:45:38 AM EST
[ Parent ]
The SPD will move to the right, which should strengthen Die Linke, unless Die Linke fucks it up terribly (sigh. It's not improbable). This will not kill the SPD, though. The example of Hamburg has proved that a black and green coalition is a disaster for both partners (and for the city). We won't see a repetition of that, I think. More likely grand coalitions forever.
by Katrin on Fri Sep 28th, 2012 at 08:03:15 AM EST
[ Parent ]


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