Germany is the reason for Euro crisis, economist says

Erisa Şenerdem ISTANBUL

An employee is seen walking at a German printer manufacturer’s factory in Augsburg. AFP Photo

Germany is the reason for the crisis that Europe faces today, rather than periphery countries of the European Union like Greece, Italy, Spain and Portugal as commonly believed, according to a prominent London-based economist.

“The problem in Europe is Germany,” John Weeks, professor emeritus and senior researcher of economic development at the University of London, said recently at the sidelines of a seminar at Istanbul’s Kadir Has University. “Germany’s current giant trade surplus is equivalent to the trade deficit of most European countries.”

The German government pursued policies of holding wages down, which have made the country more competitive and turned its $33 billion current account deficit in 2000 to a surplus of $200 billion, while all other European countries have a deficit, Weeks told the Hürriyet Daily News.

“All the allegations that Greeks are lazy people and retire earlier, or that Italians work less [than Germany], are not true,” he said. Italians worked 38 hours and Greeks 38.5 hours per week in 2009, while the figure for Germans was 35.7 hours, he said.

Germany’s trade surplus cannot be the result of market forces, but rather mercantile government policies, Weeks said. “That is why we have a crisis.”

Unless Germany reduces its trade surplus, other countries will either go into more debt to pay for their imports, encourage foreign investment flows or force down wages to reach inflation rates below that of Germany, he said. He said such a move by Germany was rather unlikely, so further proposed the country follow fiscal expansion policy, importing more and exporting less.

“Germany is not prepared to do any of these,” Weeks said. Normally, a German businessman would not want the eurozone economy to collapse, he said. “Germany has this nice big market in Europe, but does not want to see it.”

Weeks said things have been happening so late that Germany’s reduction of exports alone was not enough to address the crisis in Europe. “Issuing common eurobonds is a step to be taken immediately and the European Central Bank has to agree to be the lender of last resort,” he said. This would temporarily solve the problem of speculative pressure as well as allow countries to sell long-term bonds, he said. “With such an aggressive speculative market, it is difficult to sell long-term bonds.”
European countries may be too late now to properly address the deep crisis the EU is about to enter, he said. The latest agreement made for Greece is “clearly not sustainable,” he said, adding that unless a new bailout package is approved, Greece will have to leave the eurozone.

‘Greece will leave the euro’

“I believe a year from now Greece will be out,” Weeks told the Daily News. The possibility of Italy and Spain leaving the euro is less likely, he said. However, EU countries will enter a deep depression that may be more severe than the 2008 crisis, he said.

Greece’s leaving the euro should not necessarily result in the country leaving the EU, unless governments in Germany and other countries vindicate it, he said.

Should Greece drop out of the eurozone, a political crisis might burst in Germany that will either drive to change Merkel’s policies or replace her, Weeks said. This will increase Germany’s domestic support for the creation of a common European fiscal authority for eurozone countries, he said.

One year left for Turkey to act

Turkey’s rapid economic growth is based on exports mainly toward the EU, Weeks said, adding that the Turkish government will have to reduce the country’s serious current account deficit “certainly within the next year, before growth rates start reducing [due to the depression in Europe].” Otherwise, Turkey may become a target for speculators, he said.

Apart from diversification of exports to countries less affected by the crisis, Turkish government could also apply temporary import controls, according to him. “For instance, it could encourage domestic import substitution of intermediary products.”