Fiscal Issues

Germany’s Surplus Obsession Hurts the Eurozone

Angela Merkel
German chancellor Angela Merkel attends the G7 summit in Biarritz, France, August 25, 2019 (Bundesregierung)

If the German economy does poorly, so will the eurozone’s. A mere .2 percent growth is projected for the first quarter of 2020. This should be a wakeup call to German policymakers.

There are the usual suspects: underdeveloped infrastructure, underinvestment in education, export dependency.

They all stem from Germany’s obsession with surpluses. Revenues generated by exports are not reinjected into the economy. Rather, they sit comfortably in savings accounts. This is the reason for negative interest rates.

Not spending money is one way to get rich. But to grow its economy, or prevent a slowdown, Germany must put its money to work: invest in education, infrastructure and public goods.

Its reluctance to do so affects everyone in the euro area. Germany accounts for nearly 30 percent of the eurozone’s GDP. If Germany spent more at home, it would reduce its current account surplus and increase demand for the products and services of other European nations. Read more “Germany’s Surplus Obsession Hurts the Eurozone”

Germany Under Pressure to Spend

Angela Merkel Mark Rutte
German chancellor Angela Merkel receives Dutch prime minister Mark Rutte in Berlin, May 16 (Bundesregierung)

In the face of weakening economic growth, outgoing European Central Bank president Mario Draghi has called on the fiscally conservative governments of Germany and the Netherlands to spend more.

The Dutch are heeding his advice with plans for a long-term economic investment fund. Will the Germans follow suit? Read more “Germany Under Pressure to Spend”

Italy Backs Down from Budget Fight with EU

Italian labor minister and Five Star Movement leader Luigi Di Maio eyes Prime Minister Giuseppe Conte during a news conference in Rome, July 3
Italian labor minister and Five Star Movement leader Luigi Di Maio eyes Prime Minister Giuseppe Conte during a news conference in Rome, July 3 (Governo Italiano)

The leaders of Italy’s ruling populist parties have backed down from a fight with the European Commission over their 2019 budget.

Luigi Di Maio, the labor minister and leader of the Five Star Movement, and Matteo Salvini, the interior minister and leader of the far-right League, said after a meeting on Sunday that they had given their blessing to Prime Minister Giuseppe Conte’s revised spending plan, which reduces next year’s shortfall from 2.4 to 2 percent of GDP. Read more “Italy Backs Down from Budget Fight with EU”

Eurozone Budget Could Take Years

French president Emmanuel Macron speaks with Dutch prime minister Mark Rutte during a European Council meeting in Brussels, June 24
French president Emmanuel Macron speaks with Dutch prime minister Mark Rutte during a European Council meeting in Brussels, June 24 (Elysée)

The Financial Times reports that Emmanuel Macron and Angela Merkel have made a “breakthrough” on eurozone reform: the French and German leaders agree the currency union should get its own budget.

The move is good news for the French president, who has long believed that giving the single currency area its own resources will make it more resilient to economic crises.

But it is unlikely to come into being any time soon. Read more “Eurozone Budget Could Take Years”

Italy’s Budget Standoff with the European Commission, Explained

Flags of the European Union outside the Berlaymont building in Brussels, July 22, 2016
Flags of the European Union outside the Berlaymont building in Brussels, July 22, 2016 (European Commission)

The European Commission has told Italy to revise its budget for 2019, accusing it of “openly and consciously” reneging on the commitments it has made.

This has been reported as the commission “rejecting” Italy’s budget proposal, but that is too strong a term. It has no such power.

Here is what’s really going on — and what is likely to happen next. Read more “Italy’s Budget Standoff with the European Commission, Explained”

Boehner Did More for Fiscal Conservatism Than Ryan

Paul Ryan
Republican House speaker Paul Ryan meets with religious leaders in Washington DC, March 2, 2016 (Bread for the World)

What a disappointment Paul Ryan has turned out to be.

The Republican congressman from Wisconsin, who leaves the speakership of the House of Representatives — and politics — early next year, was hailed as the last best hope of fiscal conservatism in the United States, but in fact his much-reviled predecessor, John Boehner, did more to shrink the deficit. Read more “Boehner Did More for Fiscal Conservatism Than Ryan”

Spain’s Sánchez Seals Spending Deal with Far Left

Spanish party leaders Pedro Sánchez and Pablo Iglesias meet in Madrid, February 5, 2016
Spanish party leaders Pedro Sánchez and Pablo Iglesias meet in Madrid, February 5, 2016 (PSOE)

Spanish prime minister Pedro Sánchez has negotiated a spending deal with the far-left Podemos party that could keep him in power for another year.

Sánchez’ Socialist Workers’ Party does not have a majority of its own. In addition to Podemos, it leans on the support of regional parties in the Spanish Congress.

Some of them have mounted a challenge, though: the Catalans have proposed trading their support for a legal and binding referendum on Catalan independence. Sánchez has ruled that out.

He may just get his budget through if one of the Catalan parties abstains and parties from other regions vote with him. But it will be tight. Read more “Spain’s Sánchez Seals Spending Deal with Far Left”

Rome on Collision Course with European Allies, Financial Markets

The sun sets on Saint Peter's Basilica in Rome, Italy
The sun sets on Saint Peter’s Basilica in Rome, Italy (Unsplash/Matthias Mullie)

I cheered too soon. A few weeks ago, I reported that Italy’s populists were coming to terms with reality. Now they have introduced a spending plan that puts them on a collision course with the European Commission and financial markets.

Reneging on the commitment of the last government, the coalition of the anti-establishment Five Star Movement and far-right League, formed four months ago, proposes to run a deficit equal to 2.4 percent of GDP in 2019.

That is still below the EU’s 3-percent ceiling, but it is a reversal of the fiscal consolidation path followed so far and it means Italy’s public debt, already one of the highest in the world at 130 percent of GDP, will rise rather than fall. Read more “Rome on Collision Course with European Allies, Financial Markets”

Thanks to Republicans, the Next Economic Crisis Will Be Worse

The skyline of Manhattan, New York, January 24
The skyline of Manhattan, New York, January 24 (ANG/Matt Hecht)

Ten years after the collapse of Lehman Brothers, economists Brunello Rosa and Nouriel Roubini — who famously predicted the Great Recession — warn that the next financial crisis is already in the making.

Of the ten warning signs they see, six are due to the policies of the Republican government in the United States. Read more “Thanks to Republicans, the Next Economic Crisis Will Be Worse”