One of the few reliable, politically workable means for a country to emerge from a steep recession is export-led growth and Germany shows the way it’s done:
Buoyant German exports, aided by a decline in the value of the euro, helped Europe’s largest economy record its fastest expansion since reunification in 1990, equivalent to an annualised rate of more than 8 per cent.
Two problems with this. One is that the very different underlying competitivenesses of the main Germany/France/Benelux bloc of Euro countries and the periphery looks as unworkable as ever:
In contrast to Germany, the region’s so-called “peripheral” economies – including Greece, Ireland, Spain and Portugal – struggled notably in the second quarter, which was defined by soaring sovereign debt yields in the wake of the Greek bail-out.
Preliminary figures on Thursday showed Greek GDP falling 1.5 per cent in the second quarter, the seventh consecutive period of contraction. Italy grew at 0.4 per cent, and Spain and Portugal at a mere 0.2 per cent.
It’s impossible to imagine a monetary policy that would be appropriate for both Germany and Greece. In a normal country, the differential would be partially evened out by “core” taxpayers subsidizing “periphery” social services (the way taxpayers in Texas and the coasts subsidize social services for the deep south) and young people would move to where job opportunities are. But Dutch taxpayers aren’t going to subsidize Portugal’s social services, and they don’t speak Greek in Germany.
The issue this all raises for the United States is different. It’s not possible for all the world’s major economies to enjoy a simultaneous boom in net exports. For us to do it, someone else—Germany, China, Japan—has to see a reduction. Similarly, our currencies can’t all devalue relative to each other.