Europe continues to be mired in economic crisis. The International Monetary Fund has issued fresh, insistent warnings about feeble investments and another downturn.
The IMF is calling on European governments to do significantly more to strengthen private and public investments and to finally kick-start the European economy.
But it is above all Germany that continues to refuse a fundamental reconsideration of its economic policy. And it would be a grievous error if the German government withdraws support for the Juncker plan for European investments, as several members are hinting.
Deutsche Bank’s difficulties are proof that Germany is not a blessed isle, but part of the European crisis. Only Ireland has spent more tax revenues since 2008 to save its own banks.
With far too weak imports and an excessive export surplus of almost 9 percent of economic output, Germany is complicit in the economic imbalances blocking Europe’s recovery.
How do Germany’s policymakers propose to end the crisis? Their solution is basically a head-in-the-sand response: They deny the reality of the European crisis.
Deutsche Bank’s difficulties are proof that Germany is not a blessed isle, but part of the European crisis.
Many people in Germany blame the monetary policy of the European Central Bank for low interest rates rather than the ongoing, severe crisis of Europe’s economic and financial system. The expansive monetary policy is attacked, the credibility of the ECB is damaged and a more rapid end to its zero-interest rate policy is prevented.
Moreover, the German government opposes a more expansive fiscal policy in other parts of Europe.
As for fiscal policy in Germany, the political parties are outdoing each other with campaign promises about handing the massive budget surplus of more than €20 billion back to the people.
But the problem of recent years is not weak consumer demand or paltry wage increases, but the huge shortfall in private and public investment.
Spending to maintain roads and bridges is nearly €10 billion less than what’s needed annually. More than €30 billion is needed to renovate school buildings. Germany’s digital infrastructure is one of the worst in Europe.
What is more: Bureaucratic regulations, decaying public infrastructure and a lack of skilled employees keep German companies from investing at home, and thus in future jobs and prosperity.
Sluggish investment is not only a German, but also a European problem. One mistake of the federal government is its resistance and, in some quarters, outright rejection of the Juncker plan for strengthening European investments.
The plan, named for European Commission President Jean-Claude Juncker, calls for €315 billion to be channeled into investments by 2018, through the European Fund for Strategic Investments, or EFSI. About €100 billion in private investments have been financed out of the EFSI so far.
Of course, the Juncker plan has its shortcomings. Investments are not always directed to where they are most needed. The plan must offer better support to small and mid-sized companies.
And of course €100 billion — or slightly less than 1 percent of E.U. economic output — along with 100,000 new jobs created by the plan are not enough to hoist Europe out of crisis.
But the Juncker plan is one of the few concrete measures for confronting the crisis, creating new jobs, bolstering European identity and pursuing a common goal. It also helps Germany to assume more responsibility for Europe – and it benefits German investment projects as well.
The federal government should support the European Commission proposal to extend the Juncker plan for three years and to increase public guarantees by another €21 billion. It should shoulder its responsibility and help to make the Juncker plan more effective and successful.
Feeble private and public investment is the gravest weakness in Europe’s economic policy — and it is preventing recovery. For this very reason, it is crucial that the German government face up to its responsibility.
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