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10 May 2012

FT: Berlin reaches out to the periphery


Germany has often been blamed for holding Europe hostage to its economic conservatism. But at a critical moment in the eurozone crisis, there are signs that the mood in Berlin is loosening up.

The traditionally inflexible Bundesbank signalled that it might be prepared to tolerate Germany having a higher rate of inflation than its eurozone partners. This follows eye-catching comments by Wolfgang Schäuble, finance minister, who argued in favour of wage increases for his country’s workers.

These remarks raised hopes that Germany might, at last, be willing to pull more of its weight in addressing Europe’s longstanding current account imbalances. Higher German wages could reduce the gap in competitiveness between Europe’s industrial motor and the periphery. More money in workers’ pockets could also give a boost to domestic consumption, which in turn might offer greater export opportunities to countries struggling with austerity.

To accelerate the resolution of the crisis, policymakers in Berlin may want to supplement this month’s encouraging statements with some further steps. The German government could loosen its fiscal policy or, at the very least, take steps that encourage workers and companies to spend rather than hold cash. While the Bundesbank should keep a prudent eye on the banking system, it should be willing to allow credit provision to expand.

Full article (FT subscription required)



© Financial Times


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