Wolfgang Schnaubel wrote an Op-Ed, which appeared in last Wednesday’s NY Times.  In it, he claimed that Europe–seven years after The Great Recession–is on the right track.  He also suggests that Austerity is the proper on-going solution, rather than Stimulus.  Schnaubel specifically dismisses any idea that Germany is the driving force behind continued Austerity.  The Op-Ed link is as follows:

Eurostat reported that the 2014 gross domestic product (the total of goods and services produced) for all 29 countries in Europe was 1.3%, while that of the 19 nations that use the Euro was only 0.9%.  Eurostat is the statistical arm of the European Union.

The International Monetary Fund, in October, had forecast a 2015 growth rate of 3.5% for World GDP.  The US GDP grew by 2.4% last year and, due to the strong dollar (which hinders exports), an earlier projection was lowered to 3.1% for 2015. The IMF projects the Eurozone, on the other hand, to grow by just 1.5% in 2015.

I specifically compare the GDP statistics for Europe and the U.S. since they are comparable in size, and the two have each historically produced approximately 25% of World GDP.  The two have taken different approaches in re-energizing their respective economies:  Europe has opted for Austerity, which generally results in economic contraction; and the U.S. has consistently used both fiscal and monetary stimulus.

As I have often noted in the past, the lack of close coordination between fiscal and monetary policy is a major problem for the Eurozone.  The European Central Bank manages the monetary policy for the entire Euro area; however, each of 19 member nations is responsible for managing their respective fiscal policies.

Minister Schnaubel surely is grasping at straws when he cherry picks certain statistics which appear, even temporarily, to meet his preferred theory.  He specifically points to Ireland and Spain as countries that are now reaping the benefits of having had successful “reform and consolidation” efforts.  After posting a negative GDP in every year between 2008 and 2012, except for 2011, Eurostat reports a 0.2% in 2013 for Ireland, and an anticipated growth rate of 4.8% for 2014. (Remember that one quarter, or one year, does not really constitute a turnaround.)

And Spain, the fourth largest economy in the Euro, is reported by Eurostat to have had a negative GDP in every year from 2009 to 2013, except for 0.0% in 2012, and it had projected 1.4% for 2014.  Even powerhouse Germany was reported to have only grown by 1.6% last year.  So Wolf, some people do check-out your assertions, do you?

Lastly, Mr. Schnaubel suggests that, when countries reduce spending and begin to pay-down the debt, that builds consumer confidence.  Is Finance Minister Wolfgang Schnaubel really suggesting that when consumers do not have enough money to buy anything except necessities, that an economic contraction would really give them the confidence to spend more?  That’s hardly solid economics.  I believe that someone really needs to hide the schnapps!


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  1. #1 by Fernando Leanme on April 26, 2015 - 1:43 PM

    These comparisons work better if done on a per capita basis.

    • #2 by cheekos on April 26, 2015 - 2:11 PM

      I have pointed-out, in many past blog posts, the value of per capita GDP, such as before one applauds the growing size of the Chinese economy. Population, and a heavy focus on export (rather than domestic consumption) are not necessarily the panacea that some people think.

      With regard to Mr. Schnaubel’s Op-Ed, I believe that the growth of GDP in Europe is sorely lacking. He is truly re-trying to sell the Austerity concept even though the proverbial handwriting is on the wall. He claims that Europe is “on track”; but, what have they done differently, why did it take so long and where is the proof? When referring to developed economies–and across a large region–any importance of the population, at least to me, when the reference is to growth, just does not apply.

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