Matthew C Klein, Columnist

Germany's Chance to Be a Good European

Excessively tight fiscal policy in Germany and the other core countries of the euro area has made things far worse for the periphery than needed to be.Â

October 24, 2013 at 10:28 PM UTC

By Matthew C Klein

Matthew C. Klein writes for Bloomberg View about the economy and financial markets. He previously wrote for the Economist magazine and its economics blog, Free Exchange. Before that, Klein was a research associate at the Council on Foreign Relations, where he spent more than two years studying the history of the Federal Reserve and the intellectual history of monetary economics for an upcoming book by Sebastian Mallaby. He also worked at Bridgewater Associates, where he studied the economies of Central and Eastern Europe and advised institutional investors on asset-liability management. Klein has a bachelor's degree in history from Yale University. Originally from Chicago, he lives in New York.

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

Bloomberg News reports that Germany's Social Democrats are in the midst of negotiating with Angela Merkel's conservative bloc to split the finance ministry in two. One would focus on domestic policy and the other on pan-European issues. On the surface, this won't help the rest of the euro area very much -- the mainstream parties are all opposed to a banking union and eurobonds, and many Germans resist loosening the terms of the existing bailout programs. But the SPD could help the euro area's economy by cutting consumption taxes and spending more on infrastructure. This not only would raise German living standards, it would also make it easier for troubled countries to export their way to recovery.

The consensus among German policy makers is that Spain, Portugal and Greece are suffering because their economies aren't competitive. If only they deregulated and cut wages, the indebted southern European countries could enjoy the success that Germany has had in boosting its economy with exports. Wolfgang Schauble, Germany's current finance minister, recently articulated this view in a column for the Financial Times.