German growth goes negative but Merkel’s press becomes more glowing

By William K. Black

It is good to be Angela Merkel.  Growth in Germany goes sharply negative in the last quarter of 2012 and press reports emphasize how sound the German economy is because it is a net exporter.  This article analyses how the Wall Street Journal and the New York Times presented the news about Germany’s economy.  I show that the presentation reveals more about the pathologies of our major media than about the pathologies of Germany and the Eurozone.

The Wall Street Journal article about Germany has one glancing reference to austerity, in the tenth paragraph.  The journalists used a power shovel to bury the lead.

“Germany’s contraction suggests euro-zone GDP declined for a third straight quarter at the end of last year, and failed to expand for a fifth straight period as fiscal-austerity programs and rising unemployment likely spurred additional output declines in Spain and Italy. A report Tuesday from the European Union’s statistics office showed a euro-zone trade surplus of €11 billion ($14.7 billion) in November, which should limit the expected decline in GDP.”

We have a grudging admission that the story in Europe is austerity, which has thrown most of the continent back into a second recession.  The article mushes causality by implying that unemployment is a separate cause of the recession unrelated to austerity.  The reality is that austerity drives reduced demand, which reduces output, which reduces growth (and can turn it negative), which reduces employment, which increases inequality, emigration, and budget deficits.

Berlin’s insistence on inflicting austerity on the Eurozone has produced five quarters of no growth or negative Eurozone growth.  Spain, Italy, and Greece have Great Depression levels of unemployment – and unemployment is rising.

The WSJ journalists tried to impart a positive spin on the catastrophic effects of austerity by talking about the Eurozone trade surplus.  The surplus is larger than expected, so the actual decline in Eurozone GDP may be less than the “expected decline in GDP” due to austerity.  Yes, Berlin knew that inflicting austerity would throw the Eurozone into recession when Berlin insisted that the Eurozone embrace austerity.  (Be cautious about whether the Eurozone’s actual loss of GDP will be less than projected.  Germany’s preliminary estimate is that its GDP fall in the last quarter of 2012 was far greater than expected, and the German economy is the largest Eurozone economy.)

Why German austerians are praying that Obama does not inflict austerity

But there are broader problems that the WSJ journalists (implicitly) report, but do not explain.

“The downturn should be short-lived, analysts said. Key export markets such as the U.S. and China are starting to pick up, while improved sentiment surrounding Europe’s three-year-old debt crisis is expected to spur a recovery in the euro zone this year.”

Again, note the positive spin.  The journalists do not claim that German exports will surge in 2013 primarily through increased sales to Eurozone customers due to austerity producing a strong recovery in the Eurozone.  Germany’s leading trade partners are the Eurozone nations, but the journalists report accurately that Germany’s hopes for recovery rest on “the U.S. and China” because both nations have demonstrated continuous growth through stimulus.  Germany hopes that the U.S. and Chinese economies will act like tow trucks and pull Germany out of an incipient recession.  Germany’s only realistic hope for avoiding a recession (two consecutive quarters of negative growth) rests with the two Nations that most famously used stimulus to respond to the Great Recession.  Stronger growth in the U.S. and China leads to increased demand for German exports.  The great irony is that German austerians are praying fervently that the U.S. not adopt austerity.

Note also that the hope for Eurozone recovery does not come from austerity, but from “improved sentiment.”  Austerity has harmed consumer sentiment.  The great improvement is that the ECB (finally) jawboned the financial markets into believing that it would prevent the bond vigilantes from taking down any Eurozone member.  It was the dramatic expansion of ECB governmental intervention in the bond markets, in order to preserve the ability of Eurozone nations to borrow and spend that caused the large fall in sovereign debt yields.  The ECB’s quasi-guarantee massively expanded the ECB’s potential liabilities.  It was the ECB’s anti-austerity policies that improved “sentiment.”

Germany’s export-based strategy cannot work for the world.  We cannot all be net exporters.  Indeed, the more that Germany exports the harder it is for other nations to export their way out of recession.  The journalists also fail to note the tremendous loss that the German export strategy imposes on German workers.  Unemployment is low, but German workers’ wages have been reduced materially in real terms as productivity has grown.  The result is very large corporate profits and ever higher inequality.

The New York Times’ article about the Germany’s negative economic growth mentions austerity several times, but its analytics are often incoherent.

“Throughout the European debt crisis Germany has managed to float above the bad news, enjoying record employment, rock-bottom borrowing costs and export-led growth that kept chugging in spite of the cloud hanging over the euro zone. But Germany’s European partners are also among its biggest customers, leaving it vulnerable to the Continent-wide slowdown made worse by the very austerity policies championed by Chancellor Angela Merkel.”

This paragraph ignores the effect of austerity on German workers.  The NYT journalist informs the reader that Berlin’s insistence on inflicting austerity on the Eurozone has “made worse” “the Continent-wide slowdown,” which has had the ironic effect of harming Germany.  The human cost of the gratuitous recession that Berlin is inflicting on Europeans is hidden by the journalist’s framing of the crisis as a mere “slowdown” and describing it as a “cloud.”  Europe’s second recession, the Merkel recession, was made in Berlin.  The NYT journalist reverses the facts in these three paragraphs.

“Within the region, Germany has served as a crucial counterweight to the struggling economies of Southern Europe, and helped to stabilize the euro zone as a whole.

The country’s economic might has also given Ms. Merkel an especially strong say in euro zone policy. Her clout and insistence on fiscal austerity in return for German financial support has often irked other leaders, but it has made her popular at home. She is an overwhelming favorite to win a third term in nationwide voting in September.

‘Most of the decline can be blamed on weakness in the rest of Europe,’ said Martin Lueck, an economist at UBS in Frankfurt. ‘Voters will not blame it on Ms. Merkel.’”

The first paragraph takes Merkel’s propaganda and makes it a statement of “facts” that are so unassailable that they require neither reasoning nor citation.  The actual facts are, as the article admitted in the first paragraph, that Berlin demanded the policies that took the “struggling economies of Southern Europe” and threw them into Great Depression levels of unemployment that are causing their university graduates to emigrate in droves.  Berlin did not “stabilize the euro zone as a whole” – it threw it into recession.  In so doing, it did not help ordinary Germans.  German growth would have been far more robust but for their own austerity.  It is no coincidence that German growth went sharply negative as soon as it balanced its budget.  The NYT author, of course, spins this as another positive

“And the German government achieved a budget surplus for the first time since 2007, without having to impose the kind of austerity that has choked growth in France, Britain or Italy.”

Note the journalist’s incoherence.  She concedes that it was Berlin’s “insistence” that forced the nations of the Eurozone to inflict austerity on their people and economies and she concedes that it was austerity that “choked growth” in the Eurozone and forced it into a recession.  Only paragraphs before, however, she claimed as fact this pearl of Prussian propaganda:  “Within the region, Germany has served as a crucial counterweight to the struggling economies of Southern Europe, and helped to stabilize the euro zone as a whole.”  I have heard IMF economists call austerity policies that are certain to cause recessions “stabiliz[ation]” but I expect unintended self-parody from that source.  To be clear, Berlin’s insistence on austerity is not a “counter-weight” to the periphery’s problems – it is the backbreaking weight Berlin has forced on the necks of Europeans that has brought misery to tens of millions of Europeans for no positive purpose.  A recession does not “stabilize” an economy.

Merkel’s austerity policies were once unpopular among many Germans, but the sad paradox is that the euro, whose proponents claimed it would lead to “ever closer union,” is now the single greatest threat to European unity.  As the peoples of the European periphery have been pushed into far more strident ideological and ethnic divisions by austerity and depression-level unemployment they have often directed their ire at Berlin.  The dominant German meme spread by Merkel’s party is that the virtuous Germans have selflessly bailed out the profligate South and received scorn in return.  Only Prussian discipline can save southern Europeans from themselves.  Merkel’s popularity has surged as this meme of the slothful peripheral ingrates engaged in Berlin-bashing has become dominant in Germany.  The NYT article captures the political implications of this meme nicely in predicting the likely German reaction to Germany’s sharply negative “growth” in the last quarter of 2012.

“‘Most of the decline [in GDP] can be blamed on weakness in the rest of Europe,’ said Martin Lueck, an economist at UBS in Frankfurt. ‘Voters will not blame it on Ms. Merkel.’”

Lueck is probably correct about the voters.  The obvious point, except to Germans and the NYT journalist, is that it was Berlin’s insistence on “bleeding the patient” (austerity) that caused much of the “weakness in the rest of Europe.”  German voters will not blame Prime Minister Merkel for imposing self-destructive austerity on the Eurozone.  They will not blame her for causing millions of people to be unemployed.  They will not blame her for making one of the standard things an Irish, Italian, or Greek university student does upon graduation is to emigrate.

Only German voters can hold Merkel accountable unless the sovereign nations that are EU members rise and take back control of the EU and the ECB from the European hyper-power – Germany.  It took a decade for the full scale of the Latin American rage against the “Washington Consensus” to be felt in the form of electing a dozen national leaders dedicated to ending that failed neo-liberal regime (austerity was its first principle).  If the Berlin Consensus continues to be inflicted on the periphery the results are likely to be similar.  Indeed, a delegation of Latin American heads of state recently sought to convince the extremely conservative leaders of Spain and Portugal to learn from the failure of austerity in Latin America.  Ecuador’s President Correa is an economist who wrote his doctoral thesis in part on the failures of austerity.  In his discussions with his Spanish and Portuguese counterparts he was able to combine his academic expertise with his real world knowledge gained from having to respond to the crises inflicted by austerity.  In the early years of the Washington Consensus, many conservative and moderate Latin American leaders eagerly endorsed the Washington Consensus and austerity.  Most of the European periphery is still at that stage, but politicians of the periphery who endorse the Berlin Consensus are increasingly unpopular with their people.  The Berlin Consensus will ultimately lead to the election of leaders in the periphery who run on platforms that promise to end the disastrous policies that emerge from failed neo-liberal dogmas such as austerity.


9 responses to “German growth goes negative but Merkel’s press becomes more glowing

  1. Yea! Both articles serve as good pr reports for Merkel but good pr doesn’t change the bleak financial outlook for other eurozone countries. If Germany had 2 yrs of 3% growth and then it drops to .07% in 2012 and are predicting .05% for 2013 I don’t see this as some growth pattern to be proud of. Sounds more they are just getting by because of exporter power. If Obama agrees to let US join the austerity parade, Germany might make not even get their .05% growth.

    Yow! Great Britain is planning another 3 yrs of austerity. What a waste for a country with its own currency to choose suppressing its own economy. US financial-media analysts seem to believe that the euro economy is at bottom of typical recession period with recovery just around the corner. I wouldn’t be surprised that when year 2015 rolls around they will be predicting that Europe has finally hit bottom.

    ECB has only applied bandaids so far to keep Euro’s struggling governments afloat. ECB needs to create lending agreements for Spain, Italy, France and Portugal that are made without the crushing interest rates now demanded. Those same European countries could use some low cost investment spending from European Investment Bank. And most of all….Austerity is not working…period.

  2. Germany starved chicken which was bringing golden eggx. Marx was right. Not many folx know that Marx and Engels were in Britain and their work is based on observations when import based British East India Co destroyed British economy from military conquered India and China. For propaganda purpose Marx is superstar, Germany has also lot better thinkers from Marx era: Silvio Gesell and Gottfried Feder.

  3. Why is that when the private sector builds a new factory it is good, but when government builds a road to GET to that factory, it is bad?
    The real question though is, why does Euroland borrow money from the ECB when it can create money itself, debt-free, or at least the individual countries used to be able to?
    See: The Cure for Europe: A Public Option for Money and a Public Bank

  4. The Dork of Cork.

    Its only a months data but what more significant from a German car makers perspective is the dramatic drop of German Regs in December (although 2 less working days this year)

    I think its the lowest German Dec reg for a long time and may suggest the chickens are coming home or may not….
    Dec car reg : – 16.4 %

    this is 40,000~ less cars then last December………….half of the total yearly Irish consumption in one month !

  5. The comment made on the prior post:
    The British PM and his gofer, Cameron and Clegg are like Asterix and Luminix, starshine that is brilliant if the observer is kept in the dark. It is certainly what the Washington/Wall Street/The City/Tel Aviv axis of evil is counting on.
    certainly can be used here.
    Both The Guardian and BBC have reported online that Britain is facing or is in a triple dip recession. The error is in the misnomer – recession; the appropriate term is depression and all the politically unpleasant baggage that word carries. A recession is a slowing or stalling of aggregate economic activity. A depression is the loss of aggregate economic activity. The BS that the difference between one and the other is quarters endured of the phenomenon is garbage fed the public to hide the failure of the supposed economic theory forming the basis of observation. People need to pull their intelligence from pleasuring their rectums and try to understand the world about themselves; if the facts they are being told do not fit what they observe, then better facts need be found and stop listening to those telling/selling disinformation. Certainly a better economic construct is necessary, one that takes a less distorting view of economics whilst also providing effective economic tools to address reality.

  6. The Dork of Cork.

    I came across something interesting on the Dublin opinion blog.

    “The impact of interventions on government finance statistics depends on their specific
    features. Certain interventions, where losses of financial institutions have already been borne
    by government, require immediate recording of government expenditure. This is the case of
    HRE Bank, WestLB, SachsenLB and KfW in Germany, Anglo Irish Bank, Irish Nationwide
    Building Society and EBS Building Society in Ireland, Parex Banka in Latvia, ABN AMRO
    in the Netherlands, as well as Northern Rock, Royal Bank of Scotland and Lloyds Banking
    Group in the United Kingdom.”

    A spike in government expenditure for 2010 is mainly due to massive amounts injected into
    Irish banks as well as into federal and state-level liquidation agencies in Germany.
    Overall, the most significant increase in deficit due to government interventions in financial
    institutions is noted for Ireland (more than 26 pp, cumulated over the reference period of
    2007-2011). For several other EU countries, such as Germany, Latvia, the Netherlands,
    Austria, Portugal, Slovenia and the United Kingdom, the deficit increased to a significant, but
    a more limited extent: from around 0.5 pp to 3 pp over the reference period. Spain and
    Lithuania also reported a negative impact, but for smaller amounts.
    In some EU countries (Belgium, Denmark, Greece, France, Italy, Cyprus, Luxembourg,
    Hungary, and Sweden) government deficits were marginally reduced due to government
    interventions. This resulted mostly from the increased government revenue from fees on
    guarantees granted to financial institutions and from the interest accrued on the financial
    instruments acquired by governments (debt securities and loans)

    The only case where government liabilities increased much more than government assets is
    Ireland. This can be explained by the fact that most interventions have been immediately
    recorded as deficit-increasing government expenditure and not as financial transactions.
    The impact on the stock of government assets and liabilities across the Euro area and the EU
    is summarised in the graph below. It shows a growth in the balance sheet until 2011, with the
    stock of liabilities slightly, but consistently exceeding that of assets.”

    Refer to the striking graphs 3 & 8

    Ireland is not a jurisdiction worth talking about anymore.
    It just funny really .
    A shadow banking joke.

  7. It’s not just their jackbooting of the periphery coming home to roost, either. It’s their domestic wage depression and micro-job miasma as well. Nicely done, Angela.

  8. Thomas Bergbusch

    Merkel having finally driven itself into recession, not just the peripheral countries, there are now calls for a new “Marshall Plan” from the German labour movement:

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