Germany: No one can accuse Angela Merkel of being inconsistent. The serious budget cuts the German chancellor proposed this week are in line with her defiant attitude towards the rest of the world in the last six months. They come too early considering the current state of European economies, and will dampen growth both in Germany and in the rest of the European Union.
But maybe Merkel feels she can take the chance: exports account for more than 40 percent of Germany’s GDP and the euro is down 17 per cent against the dollar this year. She may well publicly complain about the euro crisis, but she also knows that Germany has most to gain from it.
Over the last six months Merkel has consistently thumbed her nose at her western partners. She disagreed with other euro zone members on the need for an early Greek bailout plan — which eventually made it more costly. She irked the EU when she spooked markets with unilateral regulatory outbursts, such as an ill-devised short-selling ban. And she has rebuffed repeated calls by the United States that surplus countries do more to stimulate their economies, thereby helping to address global imbalances.
Merkel often sounds like she wants to force the German model on everyone else, but she has to deal with an aging and thrifty electorate which doesn't like government profligacy.
She has also become hostage to the ill-advised constitutional amendment she initiated last year, which forces Germany to near-balance its budget by 2016.
Her deficit-cutting plan this week is serious on the spending side and odd on the tax side: job cuts in the public sector and sensible limits to unemployment benefits go in the right direction. But the chancellor still seems bizarrely intent on unilaterally taxing and regulating the financial sector - which, considering the sorry state of German banks, could come back to haunt her. And taxing nuclear plants is not precisely the type of energy policy that Germany needs at the moment.
Germany has always defended the need for a strong currency. The irony is that it is the biggest beneficiary of the euro’s weakness.
