Monday, July 19, 2010

A Tale of Two Economies

Ireland went the austerity route:

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Germany went for the stimulus:

If the trend continues, say the experts, the German economy will grow by well over 2 percent this year, or almost twice as much as in most neighboring countries. Economists are already proclaiming a second economic miracle, while a former French foreign minister is complaining that Germany is "number one in Europe" once again.

The unexpected comeback is the result of an unprecedented large-scale economic experiment. After last year's dramatic economic slump, Chancellor Merkel, after some initial hesitation, decided to support a bailout program modeled on the theories of British economist John Maynard Keynes. When the economy is in decline, the professor concluded based on the experiences of the Great Depression, the government must quickly counteract the trend with massive government spending programs.

In keeping with Keynes' theory, the former grand coalition government of the center-right Christian Democrats (CDU) and the center-left Social Democrats (SPD) launched an extensive package of stimulus and bailout measures, which included €480 billion for ailing banks, €115 billion for financially weakened companies and €80 billion for two programs to stimulate the domestic economy. As then-Finance Minister Peer Steinbr├╝ck said, the goal was to "fight fire with fire."

1 comment:

Eine Kleine Maverickmusik said...

It is possible (I am not economist, nor do I play one on TV - I'm just a pal of a German who has ranted and seized about Merkel and their economy in the past, especially while these decisions were being made)
so anyway, I understand the German economy was in really good shape (compared to the rest of Europe) BEFORE the economic crisis and I believe it was because Germany had been going "maverick" with regards to its economy. I believe it had kind of separated itself off as much as possible within the Euro/shared economy situation with some policies for a few years just prior. To stabilize it's economy and kind of "think for itself". The idea of Germany participating in the bailouts was met with quite a bit of concern. They were viewed as good for the rest of Europe but were considerably more risky for the Germans. Some wanted the more protectionist policies to keep going at that point. Even that other European nations had fiddled around and were now getting their karma and why should Germany join in?
It's possible a lot of the success of the plan mentioned here was due to the relatively stronger German situation at the start ?

I could ask my friend what he thinks but he's the most Oppositional Human Being on the planet, he hates staying on topic even more than I do, and loves to talk about what you don't want to talk about when you really don't want to talk about it, but then also loves bursting forth with General's names, Battle dates, and weird history-laden political rants when you're really not in the mood AT ALL. So I probably won't bother. He'll just figure he has a captive audience and fuck around a lot. Cuz he's a German, and that's the way he trolls. oops, I mean "rolls".