A Crisis Made In Germany

The headline in my latest article for The Independent may seem like a wild exaggeration. But if we are talking about a crisis that impacted on unemployment in the entire Eurozone (except Germany) rather than just the periphery, then I think it is reasonable. It was German policy makers that insisted that the Eurozone embark on general austerity in response to problems in the Eurozone periphery. It was the influence of the Bundesbank and others in Germany that helped the ECB raise interest rates in 2011, and delayed a QE programme until 2015. Those two things together created a second Eurozone recession.

Even if we stick to the periphery countries, the crisis outside Greece would have been a lot more manageable if the ECB’s OMT programme (which allowed the ECB to act as a sovereign lender of last resort) had been implemented in 2010 rather than 2012. It is politicians in Germany that have attempted to declare the OMT programme illegal. And none of this touches on the impact of Germany on Greece. I could also add (although it is not in the article) that if the Eurozone had adopted sensible countercyclical fiscal rules from 2000 the scale of the periphery crisis would have been reduced, and Germany had a large role in the deficit focused rules that were actually adopted.

Of course Germany did not make Greek governments behave in a profligate manner. Of course Germany did not force Irish banks into reckless lending. Their own banks may have helped facilitate both, but so did banks in other core countries like France, and in the UK for that matter. Yet German influence helped magnify the periphery crisis, and Germany was central in turning a periphery crisis into an existential event that impacted on pretty well every Eurozone country, except Germany.

This post was first published on Mainly Macro.