The G8 Austerity Assault

German Chancellor Angela Merkel snubbed at G8 Summit, but still wins!

The 2012 G8 economic summit concluded Saturday. It was held at Camp David outside Washington, DC. Top of the agenda was the eurozone economic crisis and Greece.

The G8 are the rich, developed nations who believe they sagely guide global economic growth.

The pro-spending crowd, led by President Obama and newly-elected French President Franςois Hollande, took center stage. The coveted seats next to President Obama went to Hollande and David Cameron of England. Angela Merkel, chancellor of the 2nd largest economy in the G8, was shunned. Symbolically, she was shuttled off three places away.

The New York Times summed up the conference in an article titled, “World Leaders Urge Growth, Not Austerity“.

The view expressed in the NYT is that Germany’s Angela Merkel’s insistence on austerity has worsened Europe’s problems. It suggest that pressure from other more sensible G8 members can overcome Merkel’s wrongheaded approach.

Merkel now stands alone behind the only logical approach to solving Europe’s debt crisis.

The Squawk Box

Those criticizing Angela Merkel seem to think that majority opinion defines truth and that austerity is anti-growth. Both concepts are wrong.

The very first sentence of the above mentioned NYT article reads:

Leaders of the world’s richest countries banded together on Saturday to press Germany to back more pro-growth policies… President Obama for the first time gained widespread support for his argument that Europe… cannot afford Chancellor Angela Merkel’s one-size-fits-all approach emphasizing austerity.
– Helene Cooper, New York Times, 5/19/2012

The NYT points out it says in the G8 Camp David Declaration that “Our imperative is to promote growth and jobs.” It further said, “the right measures are not the same for each of us.”

This is a clear slap in the face to Merkel’s austerity approach.

Merkel Wins Anyway!

Merkel leads… others follow…

What the NYT glosses over is this line in the G8 statement:

we affirm our interest in Greece remaining in the Eurozone while respecting its commitments
Camp David Declaration, 2012 G8 Summit, 5/19/2012

With just 4 words, “while respecting its commitments”, Merkel got all she wanted out of the G8 conference. Greece must stick to its contractual agreement to structural reforms (austerity) made two years ago in what is now simply called “the memorandum“.

Conclusions

Unlike other world leaders, Angela Merkel recognizes that meaningful structural reforms are prerequisite to fiscal recovery. The rotten core of dysfunctional debt growth must be cut out before sustained growth can resume.

Under Merkel, Germany has shown extraordinary courage, sacrifice and leadership in the fiscal crisis.

Germany has contributed more into Europe’s €700 billion EFSF bailout fund than any other nation. It is keeping Europe afloat. Germany committed an extraordinary amount… as much as a whole year’s tax revenues. It’s equivalent to the U.S. contributing $2 trillion to bailout South America.

Greece consistently lied about its debt levels and has reneged on the conditions of its bailout deal once already. Just a month ago Greek creditors agreed to take a 70% loss on Greek debt. Yet Greece still doesn’t even want to live up to the bargain. Led by Germany, Europe has bent over backwards to keep Greece in the EU.

No one can say Germany isn’t doing its part. On top of that Merkel is willing to discuss additional stimulus funding as long as Greece does its part.

For that she’s called a Nazi in Greece and trashed at the G8.

All Merkel asks for is Greece make structural fiscal reforms to prevent future debt problems in exchange for bailouts.

Stick to your gun’s Chancellor Merkel. You are right and everyone else is wrong. That is why Germany’s economy is strong and everyone else is weak.

The United States could take lessons from you on how to handle its own structural debt problems.

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About azleader

Learning to see life more clearly... one image at a time!

Posted on May 21, 2012, in Business, culture, Debt crisis, economics, eurozone, Life, news, Opinion, Politics, Thoughts. Bookmark the permalink. 3 Comments.

  1. Merkel is not wrong about the need to cut spending; but she is not entirely right either. The economies of the PIGS are declining and pure austerity is making thigs worse. Cutting spending is apllying the Rahn Curve. They also need to apply the Laffer Cure and reduce taxes to give their econimies a chance. That is how they get the growth they want, not by raising taxes and trying to stimulate. Well, that’s my two cents worth, anyhow.

  2. I cannot say I am a big fan of the austerity approach, but we live in a strange world these days, never before seen. Here is my angle.

    With low interest rates near zero really in the US just about any rational public works project should have a return on investment of at least 5%. When the ROI is greater than the borrowing cost, using more debt can help get the economy going and lead to a track of growth. But here comes the problem, the programs of ARRA and others just are moving money around and rewarding political favorite causes, so in reality this type of deficit spending cannot fix the debt problem, which then leads to the author above suggestion about lowering taxes and spending. I think that is a different kind of austerity that might work for our times. The tax and spend on crony projects will not work. The tax and cut method does not either. Seems to me the path is lower taxes and cuts in spending where the ROI is nonexistent.

  3. A. Herkenhoff

    One of the main goals of austerity is to help the economy by reducing the burden of debt. So I have to ask has austerity, so far, produced any decline in the debt?

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