Tuesday, December 17, 2013

Schäublefreude revisited

The return to Angela Merkel's cabinet of the austerity-fixated Wolfgang Schäuble is a tragedy for the eurozone periphery 

By Phillip Inman, economics correspondent, the Guardian

Wolfgang Schäuble is back on his throne. Confirmed as finance minister in Angela Merkel's new cabinet, his commandments will be as keenly followed in the corridors of Brussels as in Berlin. Such is the power of Germany's economy that Schäuble holds a key vote, and in many instances a veto, when the eurozone's economic direction is debated. For Spain, Italy, Greece and Portugal, his reappointment is a nightmare: they have massive debts to pay, and according to the Schäuble doctrine those debts must be honoured.
For Europe's low-skilled, poorly paid workers and the young, it is a message that austerity must go on while the benefits of recovery, in the form of corporate profits and tax receipts, are transferred to the old and wealthy. Schäuble makes no apologies for the huge increase in Germany's working poor: they are necessary for the country's survival in the global race and to pay for his generation's retirement plans.
The unemployed of Europe? They must price themselves back into jobs so they can join the working poor.
No doubt figures on Monday showing a small majority of the eurozone's manufacturing and services industries making a modest recovery endorsed his worldview, ignoring the struggle of many countries to provide basic services.
In his first pronouncement since taking office, he refused to deviate from his line. The resignation of Jörg Asmussen from the European Central Bank's executive board offered him the chance to replace a doveish supporter of the ECB governor, Mario Draghi, with a hawk. He has found one, in Sabine Lautenschläger, a German bank supervision expert with no monetary policy record. Her role will be to resist further interest rate cuts or any other attempts by the ECB to make credit cheaper.Yet if the periphery must repay its debts, cheaper rates will make the job easier. Businesses could also invest, should cheaper credit be available. Jobs could be created – maybe even good jobs.Schäuble says no. He has offered the 49-year old Lautenschläger his endorsement.
So Germany will keep saving the spoils of its efficiency and lending to the highest bidder. There will be no artificially cheap money to support those countries still in trouble: like children, they would only spend it on sweets.

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