I wrote in this space almost a week ago about economic policy chaos in the German government, and a new piece in Berlin’s Der Tagesspiegel confirms that that bunch has become little more familiar with actual economic reality in the interval. Steinmeier warns EU-partners about turning away from the Stability Pact is the headline; the lede: “Germany’s Foreign Minister is worried about finances. Not in connection with the current crisis, but the stable euro. He takes the other EU-lands to task – they need to follow the euro-rules again soon.”
Don’t recall the Stability Pact (more properly, the EU Stability and Growth Pact)? That’s too bad, since it was a favorite topic of this weblog back in the day, especially in 2003. It’s the agreement that underpins the euro, and in fact preceded the formal establishment of the euro, by which all EU states (but especially those using the euro as their currency) pledge to keep their budget deficits to 3% of their GDP or less, and to either keep their national debt below 60% of GDP or – if it already is above that level – to make steady progress in getting it so that it’s below. The idea is to prevent euro-using states from taking advantage of the euro’s benefits (e.g. lower interest rates for their government debt) while at the same time undermining its stability through profligate government spending. All that commentary back in 2003 mostly had to do with the revelation of the ugly political reality that Germany and France – the Union’s heavyweight countries – could violate the Pact whenever they wanted, without facing adverse consequences, all while lesser states (Portugal, the Netherlands) were still forced to take it seriously. Ironically enough, this was a German initiative in the first place, required in exchange for their willingness to give up the deutsche mark, to keep those profligate Latin countries (like the Italians) from ruining the common euro-project.
But December, 2008, finds Europe in quite a different economic and fiscal climate. There’s very little talk anymore about government profligacy; rather, there is common agreement that governments need to start spending quite a bit more to try to prop up both their own economies and those of their trade partners – and worries over deficit spending be damned!
The Die Welt article that formed the basis for that previous “German government” post only revealed about Foreign Minister Steinmeier that he was a strong advocate of taking common European positions on counteracting the current global economic crisis. At the time, I could only assume that that meant that he was in the Sarkozy camp, taking after the current EU president who has been very active in trying to coordinate a European response from the very beginnings of the crisis back in September, coming up with all sorts of spending programs to try to keep France on its feet economically but also urging all other EU lands to do the same and in a harmonized manner for maximum effect. But no, it now seems that Steinmeier hankers after common EU positions from much further back in time, certainly from before the current difficulties.
As I say, the world situation has greatly changed in the meantime, so that many believe that old arrangements such as the Stability Pact deserve rather less respect nowadays, and certainly should not be allowed to block whatever measures are needed for economic recovery. Germany so far has been conspicuous as the big dissenter to this view: “don’t panic, there’s no need to spend huge sums of money” has been the firm position held by both Chancellor Angela Merkel and her Finance Minister, Peer Steinbrück (as opposed to many others within the same government and governing political constellation, but Merkel and Steinbrück hold the ultimate authority, so what they say goes). This news about Steinmeier disabuses me from my previous assumption that Steinmeier somehow disagreed with that Merkel-Steinbrück party-line. No, he is clearly also of that “no need to panic” camp – and, again, that may indeed be the correct policy to carry out. It’s just that most of the rest of the world sees things in rather more alarming colors, and will inevitably regard Steinmeier’s reminder about respecting the Stability Pact as the equivalent of insisting that students do not run in the hallways even as they are trying to escape a burning school building.
UPDATE: To be fair to the Merkel-Steinbrück-Steinmeier position, here is an argument from an economics weblog that spending huge sums of public money is not necessarily the way to get out of the economic mess.