“The bully of Europe is now approaching mendicant status”

Who could that be, that bully? The bully that “lorded its austerity credentials over during the GFC, which caused massive socio-economic damage (entrenched unemployment and poverty, etc) have maintained growth as a result of the revival of tourism over the Northern Summer”.

Germany is in deep trouble and requires a major shift in policy strategy, writes Bill Mitchell.

Its business model of export dominance at the cost of local investment and low labor costs is falling apart.

“Germany is now enduring the combination of stagnating growth and productivity and a major reduction in real per capita incomes as a result of the increasing prices of gas, food and petrol.

Its powerhouse manufacturing sector is in decline as a consequence of short-term factors relating to Covid and the War in Ukraine (supply disruptions) and longer-terms issues relating to poor investment choices (especially its failure to lead the shift away from diesel into EVs).”

To be sure, German car companies bet heavily on E-cars but they face severe competition from China. From China do most of the batteries come, so Germany might want to go very easy on China.

Yet it is the idiotic EU sanctions against Russia that blow full force in the face of Germany. That policy is led by the GREENS which, inexplicable if you are not German, enjoy the highest rating. No comment here.

Not only is Germany dependent on Russian energy – economy minister Habeck’s curtsy was appreciated but no LNG coming from Qatar so far – it is dependent on commodities. Commodities which Russia has in oodles.

Add to this the trouble brewing in Italy. Some new political parties there and Draghi on the sidelines.

Then there is the ECB. A rate hike during times of inflation, in the EU? You can’t be serious. Bill Mitchell:

“As long as the ECB continues to buy the public debt of the Member States (and it knows it cannot stop or else the system fails) the various governments will be able to continue to run deficits.

With Germany in decline, at least for the immediate period ahead, the pressure to return to the Excessive Deficit Mechanisms and start reimposing the SGP austerity is reduced.”

His Conclusion

“The inflationary pressures will ease.

But the dysfunctional architecture of the Eurozone will continue to plague the prosperity of the Member States.

Now with Germany in deep trouble and requiring a major shift in strategy, the future of the region in uncertain.

But a return to the export-led, domestic demand suppression model is not sustainable and the Germans should come to terms with that and make the appropriate strategic shift.

Their Eurozone partners will certainly benefit if they do.”

More at Bilbo.