Monday, 30 January 2012
Germany offends Greece
Germany has suggested that as Greece is not succeeding to work out financial miracles, delivering increased tax and privatisation revenues when its economy is imploding under the weight of austerity measures imposed upon it, than Greece should lose its fiscal sovereignty and have its Budget controlled by the EU Commission in a direct manner.
Greece has obviously retorted that this would amount to a national humiliation and just a veiled version of a German re-occupation.
Greece should reconsider its approach. It may well be in its interest to agree to such external control of its budget, but subject to one important proviso:
That, as the great economist John Maynard Keynes had suggested when discussing the architecture of the IMF at Bretton Woods in 1945, the same arrangement would apply to countries in chronic surplus as much as to countries in chronic deficit.
Disequilibria come both from chronic deficits and as much as from chronic surpluses. The same arrangement for budgetary control should apply for Germany that is causing as much instability for the Euro system from the virtuous side as Greece from the vicious side. I would dare to suggest that unless Germany leaves the Euro system temporarily and rejoins at a revalued rate to the tune of 25% the Euro system will remain in crisis and under pressure.
Germany should beware what it wishes for.