Wednesday, 7 December 2011

Why Michael Howard is wrong about Germany

Last night, I had the privilege to attend an event of the Welsh Conservative Party which invited the former leader of the party Michael Howard to Cardiff. Howard gave a brief but thoughtful speech in which he outlined the bleak economic future for Britain. The comments that made me listen up especially however were those when he implored the German government to take responsibility for the Euro. Paraphrasing slightly, he said Germany had benefitted enormously from the Eurozone but now it was time for the Germans to step up to the plate. 
I am always a bit puzzled by these sort of remarks that imply that German leaders have been acting irresponsibly so far. It strikes me as an odd claim to make, not least because the German government is actually a coalition government between the Christian Democrats (Conservatives) and the Free Liberals (Free market liberal party), and just approved an austerity budget which has already shown some good results. Public debt is down and with a bit of luck (the German government found another 55 billion pounds stashed away in the vaults of one of the banks it nationalised in 2008), public finances are very sound indeed. 
But what really puzzles me is when people say that Germans now need to underwrite the debt of the other Eurozone countries. Why should they? Is that something we in the UK would volunteer to do? Let's take this step by step. First, Germany has benefitted from exporting into other Eurozone countries not because of the Euro per se, but because it reformed its employment regulations under Gerhard Schroeder's government, and has introduced the necessary changes to its pension system and public services during the boom times. 
Another factor which contributes to the current competitiveness of German products is wage constraint that has been negotiated between companies and unions in 2008 at the height of the financial crisis. It is  because all Germans agreed to contribute to bearing the burden of the economic crisis together that is now paying off in increased competitiveness. These decisions were not easy and they often incurred high political costs from all political parties and sacrifices from ordinary people. Therefore, to lambast Germans for being irresponsible is a bit rich, to say the least. 
But criticising German leaders for irresponsibility is also a peculiar strategy for British politicians given that, I am convinced, no British leader would countenance the transfer of billions of pounds from the British taxpayer to the the Italian, Greek or Spanish coffers. Think about it for a moment. All you have to do is to put yourself into the shoes of Germans being asked to provide hard earned taxpayers money to prop up profligate governments which have been on a spending spree for the last decade and refused to implement the changes to their public services that are required to remain competitive in the Eurozone. 
Why should somebody working 40 hours at an Aldi till in Berlin or Hamburg pay for a Greek pensioner who retired at 50 and takes home a monthly pension she could only dream of? 
I am absolutely convinced that there will be a solution to the crisis of the Eurozone (which in fact is a debt crisis, not a currency crisis). As part of this solution, Germany will do what it takes to, which may include to approve of the ECB to buy up Italian, French or Spanish bonds. And I am also certain that, at least in part, Germans will pay for the mistakes of other countries. Their notion of European solidarity will move them eventually to bail out much of the Eurozone. But I think it is only fair to insist on some solid guarantees before you part with your hard earned cash. Michael Howard should know that. He would expect nothing less from a British government if things were the other way round. 

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