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Angela Merkel’s austerity condemned Europe and Germany to decline

4 95 18
24.09.2021

Photo: ATTILA KISBENEDEK/AFP via Getty Images

At the height of the eurozone crisis, one of Angela Merkel’s close advisers explained to me her driving ambition: to bequeath to her successor a stronger chancellery than she inherited. If so, as Merkel prepares to retire, she should be delighted.

Germany’s trade surpluses, and thus political clout, are far greater now than when she took office in 2005. However, the policies responsible for enlarging Germany’s surpluses, and thus strengthening the chancellery, have condemned the country to secular decline and the European Union to stagnation. Power and paradox seldom mixed more grippingly than during Merkel’s tenure.

Wall Street’s collapse in 2008 revealed two painful truths to her: that, judging by the unfathomable size of their dollar-denominated bets, German banks had been even more criminally reckless than American ones. And that persistent trade surpluses, on which Germany’s business model relied, had forced rich Germans to trust indebted foreigners with their savings, while undermining the living standards of poorer Germans. How did she respond? By spending the rest of her tenure covering up these defects.

Merkel is not responsible for Germany’s current business model. That was established by Gerhard Schröder, her social democratic predecessor, whose administration stole a competitive march on France and the rest of the eurozone by embedding austerity into Germany’s postwar mercantilist model. Merkel’s responsibility lies in the way she sought to maintain this approach once the 2008 financial crisis revealed its unsustainability.

The crash rendered Germany’s banks insolvent. Disguising this fact, so as to maintain the country’s business model and the eurozone’s flimsy economic architecture, required........

© New Statesman


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