Mercantilism is Official German Government Policy

February 5th, 2015
in Op Ed

by Dirk Ehnts, Econoblog101

I have just seen Dirk Becker (socialdemocrats) talking in front of the German parliament (in German, obviously). It is very important to recognize that the German government seems to be identifying a net exporting position (exports are higher than imports) with a policy that maximizes welfare of Germans.

Follow up:

There is no other way to understand the speech by Becker, given that another colleague of his pointed out that the Germans are accumulated foreign debt because of their current account surplus and Becker argued strongly (in voice; weakly in argument) against this point. That the German economy has a private sector surplus and a black zero for the public sector is just possible because the rest of the world moves into debt (or decreases foreign assets).

Message to the rest of Europe: if you think that German domestic demand policy will be geared towards European economic needs, forget about it. Low inflation rates or even deflation are a problem? Still there is no admitting that weak German domestic demand has played a role in this. The German government also denies that the ECB should use quantitative easing to tackle this problem. Apparently, the German government believes a. whatever the market produces is just and b. that nations can only be successful by net exporting (= building up foreign assets). This is clearly mercantilist policy, and this has been pointed out by many economists already (like here). Germany, as it stands, is abusing the euro to force other nations into taking large debt positions. Given the high amount of debt there, a fall in nominal wages will increase the financial troubles in the periphery.

The European nations that are in crisis will be dependent on this German government if they want to increase the welfare of their population. I wish them all the best.

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