Germany’s idiosyncratic views test cohesion of eurozone

The following is another letter to the Financial Times. This one was published May 11th, 2016. Here is the article on the FT website. It was written as a response to an op-ed by Martin Wolf, the FT’s chief economics commentator, entitled “Germany is the eurozone’s biggest problem”. The important point is that if Europe wants to provide prosperity for all (as stated in the manifesto) it is also Germany that needs to change. The interesting thing is that the required policies are actually rather appealing for German citizens.

Germany’s idiosyncratic views test cohesion of eurozone
by Olaf Dreyer

Sir, I am writing to you to comment on Martin Wolf’s column (“Germany is the eurozone’s biggest problem”, May 11). I live in Germany but receive most of my news from abroad (chiefly from the UK and the US). The divergence of views in economic matters between Germany and the rest of the world is frightening, especially when it comes to such important matters as the future of the eurozone.

How different the views are can be seen if you look at one more piece of data in addition to the figures in Mr Wolf’s article. Since the structural reforms in 2000, inequality in Germany has grown. The Gini coefficient rose from 0.26 in 2000 to 0.29 in 2011. This was a predictable outcome of the reforms and is a driver of the growing current account balance because decreasing household income increases the saving rate. This connection between internal policy decisions and the current account is never acknowledged in Germany.

It seems that internal changes in Germany, including higher wages for lower income workers and tax cuts for lower and middle income households, could help alleviate three problems: they could fight inequality, improve the European debt problem by reducing the current account and make the world more balanced.

The fact that there is no major political party advocating steps such as these is indicative of the very idiosyncratic view Germany has of the current situation: for Germany there can be no such thing as too much saving.

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