Monday, January 9, 2012

Modell Deutschland über alles

Sigh. Chancellor Merkel and President Sarkozy have met again, and Sarkozy sums up their agreement thus: "What our German friends have done with their industry must undeniably become a model for us." And what have our German friends done, exactly? Merkel is of no two minds about that: they have restrained wages and made German industry competitive around the world. But this idea--to generalize the German export-led growth model to all of Europe through Europe-wide wage restraint cannot work, as many observers have repeatedly emphasized. EU countries trade mainly with each other, and all cannot have export surpluses. German industry is specialized in certain niches, such as machine tools, where it has a comparative advantage. This advantage does not exist elsewhere. Und so weiter. Merkel and Sarkozy are deluding themselves, living in a fool's paradise. The difference is that Merkel may actually believe what she is saying; Sarkozy cannot, but neither can he risk an open breach with Germany at this stage in his re-election campaign. So he is trying to paper over the differences.

UPDATE: Here is Paul Krugman's take on the issue.

1 comment:

Anonymous said...

Having no long term vision for the country they are following a model, the German one. What Else?
Should they follow UK, US, Greek, China model?