NP - Europe’s Demand Must Come From Somewhere

[David Morris]

http://thinkprogress.org/yglesias/2011/11/07/362616/europes-demand-must-come-from-somewher/

"GIPS is Greece, Italy, Portugal, Spain."

"What you’re looking at here [see chart] aren’t budget deficits,
they’re trade deficits and trade surpluses. And what you can see is
the problem with trying to address the overall European economic
situation purely through GIPS austerity. The way the European economic
machine works is that Germany produces more than it consumes and the
GIPS consume more than they produce."

"But if GIPS citizens consume less, then Germany is going to end up
producing less and German citizens are going to end up regretting
having twisted GIPS governments’ elbows to impose austerity packages
that ended up boomeranging against Germany’s interests. At least
German citizens would regret it if they understood the situation
properly. More realistically, though, German citizens will watch their
economy decline after the bailout/austerity combo is done and will
blame the bailouts rather than the austerity."

Now it’s a bit difficult not to sympathize with the poor Germans’
perspective on this. After all, why should Portugese people get to
consume more than they produce while Germans produce more than they
consume? One perspective on this would be to simply abandon the
nationalism. Here in the United States people don’t run around talking
about how New Jersey runs a persistent trade surplus and Kentucky has
a persistent deficit and it’s unfair for productive New Jersey to be
subsidizing uncompetitive Kentucky. What we say instead is that the
federal tax-and-transfer system is redistributive. [...] The real
issue here isn’t Kentucky versus New Jersey, it’s the big picture
ideological fight over progressive taxation and the welfare state.

[...]

But if Germans do want to be nationalistic about this and don’t want
to be perennially subsidizing Portugal, then it’s in their  interests
to recognize that German producers are currently counting on GIPS
demand. If they don’t want their own economy to suffer in the face of
GIPS austerity, they need to raise their own domestic consumption.
Having a bunch of people take expensive vacations to Italy and eat a
lot of bellota ham would probably be more fun than engineering
enormous bailouts. What they can’t do is count on continuing to run
trade surpluses of this volume even while insisting that their EU
partners all follow Ireland in reducing their trade deficits. The
numbers need to add up.