Germany needs a new economic model


By Yanis Varoufakis / Athens

It’s never easy to wake up to the news that your country’s economic model is broken. It’s hard to recognize the obvious: that your political leaders either deceived you or lied to you when they assured you for decades that your hard-earned standard of living was secure. May your immediate future now rest on the kindness of strangers bent on crushing you. That the European Union (EU), in which you placed your trust, had engaged in a permanent exercise in concealment. May your partners in the EU, to whom you are now appealing for help, see you as a villain whose reward is long overdue. May the economic elites in your country and elsewhere seek new ways to ensure that your country remains locked down. That you have to endure massive and painful changes to make sure nothing changes.
The Greeks know this feeling. We lived it in our bones at the beginning of 2010. Today, it is the Germans who face a wall of condescension, antipathy, even mockery. As ironic as it may seem, no European is better placed than the Greeks to understand that the Germans deserve better; that their current situation is the result of our collective European failure; and that no one – especially the long-suffering Greeks, Southern Italians, Spaniards and Portuguese – benefits from schadenfreude.
The tables were turned on Germany because its economic model was based on repressed wages, cheap Russian gas and excellence in medium-tech mechanical engineering – especially the manufacture of internal combustion engine cars. This resulted in massive trade surpluses in four distinct phases after World War II: under the US-led Bretton Woods system, which provided for fixed exchange rates and access to markets in Europe, Asia and the Americas; then, after the collapse of Bretton Woods, when the single European market proved very lucrative for German exports; again after the introduction of the euro, when seller financing opened the floodgates for both goods and capital flowing from Germany to the periphery of Europe; and, finally, when China’s appetite for intermediate and final manufactured goods took over after the euro crisis dampened demand for German goods in Southern Europe.
Germans are now slowly accepting the demise of their economic model and are beginning to see through what their elites have been repeating for three decades: fiscal surpluses were not prudence in action, but rather a monumental failure, during the long years of ultra-low interest rates, to invest in clean energy, critical infrastructure and the two crucial technologies of the future: batteries and artificial intelligence. Germany’s dependence on Russian gas and Chinese demand has never been sustainable in the long term; and these are not simple bugs that can be fixed.
The claim that the German model was compatible with European monetary union is also proven to be false. In the absence of fiscal and political union, the EU was always going to burden governments, banks and Club Med companies with unpayable debts, which would ultimately force the European Central Bank (ECB) to choose between letting the EU die. euro and engage in a permanent policy. bankruptcy project-receipt.
The Germans realize this today as they watch a crippled ECB that is damned if it raises interest rates dramatically (causing Italy and others to implode) and damned if it doesn’t. does not (allowing runaway inflation). While the ECB’s job should never have been to save the euro from its flawed foundations, Germans can see that their politicians lied to them by saying that their economic model could survive the 2008 crisis as long as others eurozone countries were practicing enough austerity. They also come to understand that the stimulus-phobia of their leaders has led to the permanent socialism of Southern European oligarchs, Franco-German bankers and various zombified societies.
Once upon a time, those of us who were critical of the idea that every eurozone country should become like Germany objected that the German model only worked because no one else had adopted it. Today, with the end of cheap gas and the new cold war between America and China, the German model is outdated even for Germany. Yes, German exports will rebound, helped by the low value of the euro. Volkswagen will sell many more electric cars once supply chains are restored. BASF will rebound once energy supplies are secured. What won’t come back is the German model: Much of Volkswagen’s revenue will go to China, where battery technologies come from, and mountains of value will flow from the chemical industry to energy-related sectors. AI.
Some German friends are pinning their hopes on the fall of the euro to restore health to the German model. This will not be the case. Countries with low savings with a structural trade deficit, such as Greece or Ghana, benefit from the devaluation. High-savings countries with a structural trade surplus don’t – all that happens is that the poorer domestic consumers subsidize the richer exporters, which is precisely the opposite of what the economy does. German social needs.
My message to German friends is simple: Stop the mourning. Break through denial, anger, bargaining and depression, and start designing a new business model. Unlike the Greeks, you still have enough sovereignty to do this without creditors’ permission.
But first, you must solve a critical political dilemma: do you want Germany to retain political and fiscal sovereignty? If this is the case, your new model will never work in this euro zone which is ours. If you don’t want to go back to the Deutsche Mark, you need a model rooted in a fully-fledged democratic European federation. — Project syndicate

• Yanis Varoufakis, former finance minister of Greece, is leader of the MeRA25 party and professor of economics at the University of Athens.


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