Can Germany Really Lead Europe?
Fireworks flew at a debate hosted by the World Economic Roundtable in New York on Wednesday, with U.S.-based economists from various schools of thought challenging and questioning whether Germany has what it takes to lead Europe out of a series of current crises.
It’s a question that has come up repeatedly throughout Handelsblatt’s 10-day road trip through New York and Washington, especially when it comes to the most recent refugee crisis facing Europe. But rarely has the debate been more blunt and impassioned than at a packed gathering of some 50 economists and fund managers from the United States, Europe and other regions.
“What does Germany stand for today?” asked Emmanuel Petrakis of Rhode Capital. “From what I hear, you want to have your cake and eat it too.”
Bearing the brunt of the ire was Handelsblatt’s publisher Gabor Steingart, who aggressively defended his own country’s prescriptions for how to get the European Union back on a stable growth path.
Much of the arguments revolved around good old-fashioned economic differences – a long-running debate between German, U.S., British, French and other schools of economic thought that was unlikely to be settled during a two-hour long discussion in New York. What the debate did highlight, however, is that the feelings on both sides are as raw as ever.
A number of U.S.-based economists accused Germany of not necessarily having Europe’s interests at heart for much of the past few years by continuing to run large trade surpluses, showing little understanding of the plight of southern Europe and opposing efforts by the European Central Bank’s efforts to ease monetary policy further.
“You’re not obeying the rules,” said Robert Brusca of FAO Economics, who called on the ECB to do more to boost its balance sheet. Mr. Brusca accused Germany of arguing for a rules-based union on the one hand but ignoring rules when it comes, for example, to the ECB’s own mandate and credibility in the face of weak inflation. “This is crazy!” he said.
Mr. Steingart argued that those who advocate for a more aggressive monetary policy had actually won the battle of ideas at the ECB over the last few years – Germany was repeatedly voted down – but their prescriptions had failed to turn the situation around.
“Your policies are in charge and that’s what is not working,” he said in response to the monetary-policy doves at the table. “We believe that economic growth doesn’t come from this way of thinking. If there is no underlying innovation, you cannot simply push money into the marketplace.”
The irony: Many of Germany’s critics said they would like to see more leadership from Europe’s largest economy. The question is what form that leadership should take. Tom Ferguson of the New Institute of Economic Thought accused Germany of ignoring the plight of the periphery, both in southern Europe and further afield in northern Africa or the Middle East.
“I don’t get what German leadership is doing here. How are you going to stabilize two peripheries?” Mr. Ferguson asked.
Mr. Steingart acknowledged that Germany is isolated in Europe today and has been outvoted on a number key issues facing the continent. But he argued the country is reluctant to take up a stronger leadership role unless it can convince neighbors to abide by German principles such as the importance of saving and abiding more strongly to budget discipline.
“Germany would like to take a greater leadership role… but it comes with certain principles,” Mr. Steingart said.