That is what Josef Joffe, editor-publisher of Die Zeit, writes in response to an article the financier and philanthropist George Soros (pictured here) published in Der Tagesspiegel. Soros argues that Angela Merkel’s policy of austerity has caused a depression comparable to the Great Depression of the ’thirties. Germany, he says, is now a European version of the Tea Party.
Not so, says Joffe. The Great Depression reduced the GDP in the U.S. by a third, ruined 25,000 banks, raised the unemployment rate to 40% and cut the value of stocks to ten percent of their highest value before Black Friday.
Compared to that, Joffe writes, the Great Recession of 2007/8 was a mini-crisis. In the euro area, unemployment never rose above twelve percent and shares lost only a quarter of their value. The GDP sank by less than ten percent. Europe is not “at rock bottom.” The only country that will not grow this year is Cyprus. Everywhere else the curve is going upwards, even in Greece, where a growth of a half a percentage point is expected.
The same applies to Italy. Spain is expected to grow by one percent, Ireland by two percent.
Are the Club Med countries recovering, Joffe asks, because the German queen has forced a brutal austerity program down their throats?
Source: Die Zeit, February 27
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Global economics can not be reduced to such cartoonish simplifications. No single leader within the EU, not even one as influential as the German Chancellor dictates the economic policies of Europe. Further, policies can not necessarily be directly linked to economic results. Government policies have to be considered alongside Central Bank interventions, private consumption, and private investment, much of it only indirectly influenced by government policies. We also must consider the flows of capital returning to the taxpaying countries of Europe given the progress of the G20 opening foreign accounts in Switzerland and other tax havens to tax department scrutiny. (Reuters report recently pegged assets in tax havens approaching $20 Trillion/Trillion.)
Separately I pose the question whether and to what extent both EU nations and central banks followed policies of austerity. Were some not expansionist and others austere?
Joffe is, of course, right…….at this stage. His words, however, seem to imply that the current “mini-crisis” is over. The Zhou Enlai quote may be worth considering: “It is too soon to say.”
It is interesting to note that historically Conservative and Republic government usually end up with deficits, while Liberal and Democratic governments end up with balanced budgets. Deficits are caused more by fewer taxes collected and not by cutting services and jobs. If austerity reduces the tax base a deficit is a result. Austerity also encourages privatization which usually results in lower paying jobs and thus a reduced tax base. Ideally there should be a large tax base from an employed populace in well paying jobs. Soros might exaggerate, but he has a point.