Duncan’s Economic Blog

Why listen to Merkel?

Posted in Uncategorized by duncanseconomicblog on June 3, 2009

Yesterday Angela Merkel launched a stinging attack on the Fed and Bank of England.

“What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed’s actions and the way the Bank of England has carved its own little line in Europe,” she told a conference in Berlin.

This reminds me of Finance Minister Peer Steinbruck’s attack on the Government’s policies as ‘crass Keynesianism’.

Obviously both are breaking long standing conventions on not commenting on the policies of others, and in the case of Merkel a very long standing convention not to comment on monetary policy but this is beside the point.

On what basis do they presume the right to criticize others?

The Germany Economy is shrinking faster than either UK or USA.

Unemployment has just hit 8.2%.

Inflation has fallen to 0.0% and deflation will set in as early as next month.

Whilst the Fed and BOE have been proactive in responding to the crisis, the ECB raised rates as recently as July last year.

The German economy is as unbalanced as our own, with tepid domestic demand, too high savings and a massive over reliance on exports. The Merkel Government has made no effort to address this.

The German banks, according to the IMF, have more write downs to come than either the UK or US banking sectors.

The first bank to fail in the West was not Northern Rock but German IKB three months earlier.

Debt to GDP is expected to hit 80% by 2010 – not far from the UK.

What planet is Merkel living on? And why is anyone listening to her?


And for the second time in three weeks support from Lombard Street.

SUMMARY: Mrs Merkel and the German élite are divorced from the realities of the global economy, as well as flouting received economic wisdom from Keynes to Friedman. Their budget policies will prolong dangerous global and European imbalances, and biting the (deficit) US/UK hand that feeds them could damage free trade and German incomes.


8 Responses

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  1. newmania said, on June 3, 2009 at 1:11 pm

    Yes indeed why would we want to ape this sclerotic economy let alone be subject to its rule on 83% of our laws . The odd thing is that in recent article there was a summary of who had thrown more “Keynsian” funny money into the air and hoped for the best and Germany excluding ordinary stablisers had done more than we had.
    It was in the Guardian so it must be true

  2. duncanseconomicblog said, on June 3, 2009 at 1:44 pm


    They are indeed now having a stimulus – the delay though was costly.

    The thing that really has surprised me is Merkel attacking central abmks. Very unusual. especially from a German Chancellor.

    Possibly she is just trying to shore up Trichet, given the internal fight on the ECB Governing Council – but still very strange.

  3. Paul said, on June 3, 2009 at 9:29 pm



    Paul Krugman argued back in December that the German government is being very canny, and simply freeloading on the rest of Europe, which its size enables it to do.

    I covered it here at http://www.bickerstafferecord.org.uk/?p=424, in the second half after the algebra bit which was really just homework for myself.

  4. Paul said, on June 3, 2009 at 9:30 pm

    Even though they are now going for something of a stimulus (presumably after much internal debate) I should add.

  5. […] he’s been covering Angela Merkel’s outburst, as reported in the FT yesterday, in which she attacks the Bank of England and the Fed for their […]

  6. Tyrone said, on June 3, 2009 at 11:10 pm

    >> Debt to GDP is expected to hit 80% by 2010 – not far from the UK

    It’s quite appalling that they’ll have a smaller debt than the UK. Do remember that West Germany had the extraordinary bad luck of having to absorb East Germany – a country that had been bankrupted by 50 years of Socialism.

    The UK at this time was basking in an oil windfall. Isn’t it is terrible that at the end of their respective paths Germany has a lower debt than the UK.

    >> What planet is Merkel living on? And why is anyone listening to her?

    Well, perhaps because of their trck record.

    • duncanseconomicblog said, on June 4, 2009 at 3:11 pm


      Aha! The oil we had…


      • Tyrone said, on June 5, 2009 at 2:30 am

        Duncan, what John Hawksworth says is absolutely true. If the blessed Margaret had not inherited a huge debt and a wrecked economy from the Labour government (sounds familiar doesn’t it) then the oil money could have been used to build a sovereign wealth fund. I should not speak for Maggie but it does seen that this would be more consistent with Maggie’s thinking than, say, with our current premier.

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