Germany’s Passive-Aggressive “Stimulus” Program

By William K. Black
Kilkenny, Ireland: November 7, 2014

Kilkenomics, being a festival of economists and comedians, has long reflected the economic consensus that austerity in response to a Great Recession is economic malpractice akin to bleeding a patient to make him healthy. One of the great changes in Europe in the last month is that the number of economic voices willing to make this same point have grown rapidly. Germany’s “there is no alternative” (TINA) to austerity claims were always absurd, but now many more European voices are willing to point out that there are superb alternatives – in Germany. A recent Irish Times article provides a good example.

“Leading economists have criticised Germany on its public investment restraint which, at 18.4 per cent of GDP, is below the EU average of 19.2 per cent. A study by Berlin’s DIW economic think tank suggests a €1 trillion backlog has built up in Germany since 2000.”

There a one trillion euro shortfall on German spending on infrastructure even though such spending (1) improves life, (2) saves lives and reduces injuries, (3) increases productivity, and (4) spurs economic recovery from the self-inflicted disaster of the second, gratuitous Great Depression that Germany inflicted on the eurozone by demanding austerity. Germany is actually running a substantial budget surplus even though this is crippling the German economy’s growth and impairing growth throughout the eurozone. The obvious win-win is for Germany to substantially increase spending on its infrastructure. Naturally, invoking TINA, Germany refused.

But something changed about a month ago. Even Germany’s strongest allies in inflicting austerity on the eurozone have begun to call on Germany to sharply increase its spending on infrastructure. The initial German response was harsh attacks on those allies turned critics and chanting “TINA.” When Germany has pulled such a temper tantrum in the past the eurozone has quickly caved in to her demands, but this time the allies turned critics persisted. Germany has now responded with a passive-aggressive “stimulus” program. Recall that it has a stalled economy, a large budget surplus, and a billion euro shortfall in needed infrastructure. The German proposed response to these self-destructive policies is farcical, but the fact that they felt the need to create a faux stimulus program represents an implicit admission that they know that no one remains impressed by their TINA chants.

“From 2016 to 2018 respectively, [finance minister Wolfgang Schäuble,] the Christian Democrat (CDU) politician will spend an additional €3.3 billion annually. The additional spending would ‘boost growth in Germany and Europe….’”

Spending “an additional €3.3 billion annually” on Germany’s €1 trillion unmet infrastructure needs will cause those unmet needs to increase. The €1 trillion figure built up from 2000 to 2014 at an average rate of over €70 billion annually. Spending “an additional €3.3 billion annually” – for only three years (2016-2018) – on Germany’s unmet infrastructure needs will mean that by 2018 the shortfall will be roughly €1.3 trillion. Simply to avoid falling further behind Germany should be acting as quickly as possible to spend over €70 billion in additional funds to improve its inadequate infrastructure. Note also that while the eurozone recovery has stalled Germany’s economy, it plans no “additional” spending on infrastructure until 2016. It is not surprising that Germany’s initial “stimulus” proposal is an economically-illiterate farce. The surprising fact is that Germany felt the need to gin up even an oxymoronic “stimulus” plan given her constant invocation of TINA.


9 responses to “Germany’s Passive-Aggressive “Stimulus” Program

  1. I was personally, quite disheartened today that President Obama didn’t use this opportunity to nominate Bill Black for Attorney General, I mean how awesome would that have been……..:-) (with all due respect to Ms Lynch)

    P.S. is there a problem with the comment sections in some of the other posts, they don’t seem to be turned on or something. But this post it was there???????

    • Bill Black as AG…one can only dream!

      I do have a quick question. I thought the issue with the Euro is it makes all countries on it currency users, thus they are limited in the deficits they can run. So while it’s obviously bad policy Germany is pursuing, aren’t they limited in what can be done, and have to keep budgets balanced at least over the “cycle”? I guess my question is, what exactly can Germany do? Run limited deficit spending? Use a lot now but not later? I’m sure it’s been addressed what countries in the EZ can do, apologies for missing it.

      • Under the constraints of the euro and the common market, Germany is doing what is needed to “succeed” under those rules. The rules are highly damaging to both the “winners” and “losers” who end up playing. Perhaps they’ve decided to run a real-world economic version of “Global Thermonuclear War” and they might be better off playing a nice game of “Chess”.

  2. So the Austerity imposed by Germany (or their banks) has slowed down Europe, and sent some into depression, which has of course slowed down Germany. Germany’s own austere policies have slowed their economy, thus harming Europes…Germany managed to float along thanks to exports, which they have since they forced it upon the EZ? Thus, Germany is what holds the whole thing together, but also why it’s been so stagnant? This is like something out of a surreal dystopian novel.

  3. Has any of the article writers at ever sent every sneior economic official in each of the Euro countries a couple of the better articles published on this blog. I personally favor J D Alt’s effort “Mobilisation and Money”. That article clearly points out how, between about 1938 and 1945 the USA went from being in serious depression to being the most productive war machine ever without worrying about where the money would come from. The article also clearly showed how to control inflation in such an expansionary phase by deferring private expenditure until the war machine was converted back to the production of consumer and infrastructure goods. Had Marshall Aid been extended to war worn Russia maybe some of the Cold War problems hardship endured by the peoples of Eastern Europe would have been avoided.

    • I’ve often had that same idea, if this stuff could be printed out and just mailed to every Congressperson and gov official lol more or less force it upon them until some read!

    • Also, as a history nerd, I do have to say that while I agree with you about the Marshall Aid, the Soviet Bloc would never have accepted it. I do believe it was offered…though it was known by all the USSR would never actually accept, that it was a show more than anything.

      I’ve often thought about that brief period directly after WWII, the moment of togetherness we all felt. Shame it could not be built upon. Heck, it began earlier! In Yalta I think…shame it couldn’t be hashed out then, like an understanding “we need to put the past behind” and have Marshall Aid extended to USSR and its bloc. Just idealism though, reality would not have allowed it, even though it was detrimental!

    • @John Turner

      Had Marshall Aid been extended to war worn Russia maybe some of the Cold War problems hardship endured by the peoples of Eastern Europe would have been avoided.

      No, instead, Truman (who was a small-minded, mean man with zero statesmanship and even less sense) decided that after Russia saved the Allies’ bacon by bearing down on Hitler and liberating Europe that the Russians should starve to death and preferably from lack of heat. So Truman ordered a number of things in 1947 that violated the 1945 Yalta agreement (treaty?), and ordered the Allies not to sell food or fuel to the Russians. Truman started the Cold War as a result.

      Read about what Russia did during the war that we don’t acknowledge: A Serious Case of Mistaken Identity
      The U.S. is not the ‘indispensable nation,’ as a growing WWII mythology would suggest.
      June 22, 2000 | BENJAMIN SCHWARZ | Benjamin Schwarz is the literary editor of the Atlantic Monthly

  4. These Hartz reforms haven’t served Germany (aka the folk-community) very well. I found an histrocal data from Maddison Historical statistics that compare countries in Geary-Khamis dollar:
    Germany and others GDP from 1970 to 2010
    Germany is eat and west combined, so before reunion West G would be higher than in the chart.

    Sweden got a new Social democratic Gov. this fall after 8 years with our right wingers. Well EU recovery won’t get much help from this “workers” Gov. The Central Bank announced zero interest rate and -0.75% on banks overnight deposits to squeeze down SEK. Our new “workers” finance minister – that is an economist examined from our most prominent economist school “Handelshögskolan” that produce our “finest” certified neo liberals – have declared in the 2015 budget:

    The tax proposals that are submitted and announced in this bill will contribute to somewhat subdued employment and GDP
    (budget finansplan och skattefrågor, s. 57) [my translation]

    She claim it to be the tightest budget since the 90s budget sanitizing (carnage), which she was part of as political employed at the finance ministry. She is known for her “fearless” management style. A common theme on her public appearances is that now we borrow so and so many millions per hour. That is the general government deficit is expected to be about -2.2% 2014 and the general government accumulated financial surplus is only +27% to GDP, only Norway and Finland have bigger in OECD, these are the only three countries that have accumulated general government financial surplus aka negative net debt. She claim she will half the 2014 deficit 2015, she is pathological obsessed with budget surplus. She paint the picture how the former Gov. have emptied the barns, hardly so When the precious Social democratic Gov. left there was half the financial net surplus about 500 billion SEK, 2013 there was about one trillion in net surplus, in GDP percent more than the double. She deliberately make a budget that will increase about 8% open official unemployment, a number that doesn’t include the “hidden” unemployment. And this is after two decades of permanent abnormal export surpluses. The new “workers” Gov also on their first appearances on the EU stage declared firm support for Germany’s policies of “sound” Gov. finances.