Tuesday, February 7, 2012

An Interpretation of Germany's Support For Fiscal Austerity In The Eurozone

This is a description of one person's view of the prevailing wisdom within Germany that have led to its predisposition towards the imposition of fiscal austerity as the solution to problems in the eurozone. Among other things, Germany imposed austerity on itself and it worked. They are now reaping the benefits of their painful restructuring. They also fear hyperinflation more than deflation. They believe that the US and the Uk are setting themselves up for rampant inflation because of policies designed to curb deflation. Moreover, it has been politically difficult to redistribute money from the wealthy parts of Germany to the less wealthy northern and eastern parts of Germany. There is no way that Germany will use taxpayer money to bailout the irresponsible nations that are in financial trouble. They can do what Germany did successfully if they have the will.

One of the implications is that restructuring the eurozone by paving the way for a less disruptive exit for some countries is on the horizon. There is no easy way to fix things in the eurozone without making austerity work. The author of this article has the view that the global economy is troubled by a lack of demand that can employ the excess of labor and capital that exists. He is predisposed to dealing the problems of inadequate demand rather than structural changes.

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