The G8 Austerity Assault
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!
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“.
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.