Monday, October 20, 2014

Angela Merkel - Subdued Style with Subdued Results?

German Chancellor Angela Merkel overshadows American President Barack Obama who tends to 'over promise under deliver' in her eyes. Having assumed chancellery 3 years earlier than Barack Obama and definitely outlasting him in office as well, Angela Merkel is a powerful politician on planet earth; one of the most powerful. That is why it matters what she does and she does not.

During the early years of 2008 recession, she only gave in partially by allowing limited bank guarantees collectively. Contrary to advise of many Keynesians for Debt Relief, she remained unenthusiastic for such prospects. On the strength of American Economy, Global Financial Markets bought into a belief that worst is over for Europe.

But worst is not over for Europe. We do not know how much structural reforms of consequence, countries in Europe have adopted. With persistent high unemployment, France and Italy; rightly so; are on the verge of busting deficit band allowed by EU. With continued economic contraction, Europe is on the verge of 3rd recession in last six years. Needless to say Europe has done badly.

When the right prescription for getting out of this funk is both QE as well as stimulus by government / EU; Angela Merkel is precisely resisting and triangulating the policy of substantive economic intervention by Government. Neither she has taken pains to expend her political capital in educating German voters nor she has given free hand to Euro wide policy makers. At the heart of it is the same thing as what Rick Santelli purported at the dawn of Tea Party in USA - resentment in giving anyone free hand. Germans are acutely vigilant about anyone trying to ride on their success as they naturally feel it is all 'earned by them' and by their discipline. There is some truth in that, but one cannot ignore the downward draft exerted by non-German economies on Euro exchange rate which essentially benefits German Export. In other words, poor Spanish and Italian economies keep Euro down which makes BMW and Audis cheap enough in China in turn soaring the German Export. Those export gains translate to welfare of German workers (all credit to German system) at the expense of essentially Italian or Spanish workers.  All this, of course Angela Merkel, wants to forget conveniently. 

That is why one wonders what judgement History would render - a feckless, over promising American President having delivered, having used all his political capital or an immensely popular German Chancellor having been at the heart of European power allowing Rome to burn while she plays the fiddle of keeping intact ideological misunderstanding of her voter base? 

There are forces in German which are unsettled with this prospect and there are political forces which are pulling Germany towards extreme policy positions. Essentially German equivalent of Tea Party is campaigning further right of Merkel by demanding introduction of Duesche Mark in liue of Euro. May be Germany should indeed get out of Euro. That way not only the fantasy of AfD will be exposed but failure of Merkle regime will be exposed too while liberating Spaniards and Italians of Europe to pursue a sensible economic policy along with French. In that sense, a failed regime of Barack Obama is far positively consequential in the longer term than 'sooth talking', ideologically driven Merkel era in Europe.

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