Germany to Europe – do as we say and do

by | Mar 20, 2010

Listen to Germany

A few weeks ago, I questioned German wage restraint, pointing out that other Eurozone countries would prefer Germany to allow salaries to rise, thus stimulating domestic demand, and helping address Europe’s economic imbalances.

French finance minister, Christian Lagarde recently made the same point:

Clearly Germany has done an awfully good job in the last 10 years or so, improving competitiveness, putting very high pressure on its labour costs. When you look at unit labour costs to Germany, they have done a tremendous job in that respect.

[But] I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence.

In the FT, Otmar Issing – who did his best to ensure the European Central Bank was run on Bundesbank-approved lines – reacts to the suggestion with characteristic restraint and good humour:

This idea, presented as a panacea for Europe’s problems, is so economically erroneous and politically dangerous that it would hardly deserve being taken seriously – were it not for the risk that it might actually prevail…

At a time when the EU has launched a new initiative to make the continent’s economies more competitive, after the failure of the “Lisbon agenda”, an approach that deliberately tried to reduce the competitiveness of one of the most successful exporters in world markets would look like a bad joke.

I’ll take that as a ‘no’ then. Issing, who has been lobbying hard against a Greek bailout, reflects a worrying trend in German opinion. According to this line of thinking, other Eurozone countries should buckle down, cut wages and public spending, and do what their richer and more prudent masters in Berlin Brussels tell them to.

And if this medicine is too bitter, then they should bugger off, re-adopt the drachma, lire or peseta, and spend the next hundred years or so paying back the Euro-denominated debt they have incurred while in the single currency.

It’s a depressing vision. And, for Europe, it looks like it’s stagnation ahead.


  • David Steven is a senior fellow at New York University, where he founded the Global Partnership to End Violence against Children and the Pathfinders for Peaceful, Just and Inclusive Societies, a multi-stakeholder partnership to deliver the SDG targets for preventing all forms of violence, strengthening governance, and promoting justice and inclusion. He was lead author for the ministerial Task Force on Justice for All and senior external adviser for the UN-World Bank flagship study on prevention, Pathways for Peace. He is a former senior fellow at the Brookings Institution and co-author of The Risk Pivot: Great Powers, International Security, and the Energy Revolution (Brookings Institution Press, 2014). In 2001, he helped develop and launch the UK’s network of climate diplomats. David lives in and works from Pisa, Italy.

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