Austeria

It’s clear that the way the European Central Bank (headquartered in Frankfurt, Germany) is configured, defeating inflation is its prioritized mandate. Recessions and depressions are bad, but inflationary destruction of currency value is a cardinal sin. This weighted bias in the European Union is reflective of Germany’s morbid fear of a repetition of the post-World War I destruction of its currency as the rest of Europe forced that country to pay massive “reparations” for the damaged caused by the conflict. The rise of Adolph Hitler is directly attributed to the economic misery.

As we watch economic policies in the EU, particularly in the Eurozone, it is clear that the motivations of European powers to create the union was both to define a non-U.S.-dominated path (the French were obsessed with this choice) and to prevent another world war, particularly one that might be generated by yet another rise in German power. The containment of Germany. The precursor to the formation of the EU, the Treaty of Rome, was signed in 1957 (effective in 1958), so it is important to look at the world as it existed in that still-lingering post-WWII era to understand that the French and British agendas dominated the concept. Germany was still licking her wounds from having lost the war. The treaty spoke of a European Economic Community, but by the time the EU was actually formed, the 1993 Treaty of Maastricht that formed it had deleted the word “Economic” from the overall concept.

Germany had just swallowed East Germany in 1990 and was hardly the integrated Germany we see today. The French only saw a reason to push back against the Brits, whom they perceived were too “American” in their political and economic policies. Germany was still in the background. A decade later, when the euro would become the currency of most (but not all) EU nations, Germany was clearly feeling her economic oats. She used her power to champion the inclusion of other East European states into the EU, bringing such nations into the German sphere of influence as a result. With close to 40 million people, Poland was a particularly important addition to that de facto coalition when it joined the EU in 2004. That Poland experienced only growth during the recession that gripped most of the rest of the world clearly made Germany proud.

As Germany, with her Northern and Eastern European allies, built stronger economies than those of the Southern European constituency, their power in the community expanded. France and Germany seemed to be the dominating forces in the new Europe – Britain having neutralized her power by opting out of the Eurozone – but even in that cabal, France was clearly no longer an equal partner; Germany was the new “decider” of economic policy for the region. “Germany earned a reputation for reliability as it became the main paymaster of the newly born EU… The Germans sacrificed their strong currency, the deutschemark, for a common European currency, the euro. And [then Chancellor Helmut] Kohl told Germans to rejoice because their nation had ended the 20th Century as ‘winners of history’.” BBC.co.uk, October 3, 2010.

The austerity programs that have been the cornerstone of Germany’s “only acceptable solution to the European debt crisis” have been shoved at the profligate debt-lovers of the PIIGS nations, particularly Greece, Spain and Portugal. Rescue packages predicated on huge cutbacks in these countries have resulted in massive unrest and unemployment, with everyone knowing that the bailout debt really cannot be paid back. But since the German economy effectively supports Europe and such rescue efforts, Germany calls the shots. Germany’s obsession against anything inflationary is more relevant to Europe’s economic future than employment figures or stock market values. Most Germans don’t play in the stock market or buy real estate for their nest eggs, preferring cash savings and insurance policies instead (all currency-driven) instead.

But the austerity in the rest of Europe now seems to be deflected back at Germany, as other regional economies are no longer able to order as many German goods as they did in pre-austerity times. Germany only grew .7% in 2012, and the fourth quarter showed an annualized .5% contraction. Indeed, there are many economists who are predicting that the recession gripping most of the rest of Europe will finally embrace Germany in 2013 and drag Europe down one more notch. While German policy-makers are predicting that its economy will actually continue growing, albeit at a meager .5%, in 2013, that forecast is based on assumptions of calm economic seas and stability, two ingredients that may prove elusive in the coming months.

The news around the rest of Europe – still reeling from the German push for pan-EU austerity – is grim. “Portugal’s central bank cut its economic forecast for the year on [January 15^th], saying its economy will contract more steeply than expected. Francesaid it was likely to miss its target for narrowing the budget deficit, raising the prospects of deeper spending cuts and additional taxes. Last month, Britain said its austerity budgets would extend three extra years, to 2018, because of weaker than expected growth.” New York Times, January 15^th.

So much for the containment of Germany. Once again, Germany just doesn’t care. Inflation is under control. Germany’s obsession with inflation continues to put the brakes on global recovery, and if the United States joins in following that German austerity refrain without offsetting efforts to boost growths, we most definitely should expect to see a parallel contraction in our own economy. There is no balancing in this perspective… it is a uniform drive to cut regardless of the consequences.

I’m Peter Dekom, and that Europe has selected this austerity path as the uniform debt-crisis solution (with the painful results we are witnessing) does not make it right for the United States.