singular_me
4th April 2010, 06:30 PM
spend or die .... spend and die anyaway
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April 5, 2010
Germany must save less and consume more
The sovereign debt crisis has focused a lot of attention on the responsibility and capability of large debtor nations to mend their errant ways. No one denies that they all face a painful and protracted period of fiscal restructuring. But creditor nations also have an important role to play in resolving the crisis. This role, unfortunately, is all too quickly denied, and barely discussed.
Difficult restructuring and reform has already been forced on debtor countries such as Iceland, Latvia, Hungary and Ireland. Greece has been obliged to plan for a massive decline in public borrowing over the next three years, Spain and Portugal are being closely monitored for their intent in pursuing similar retrenchment and the UK, the US and even Japan will follow suit, voluntarily or otherwise
These painful and drawn-out adjustments would be eased, without question, if creditor nations — China, Germany and Japan — did their bit to try to rebalance global demand. If debtor nations have to save more and borrow less, creditor countries have to save less and consume more. Otherwise, we will revert to a beggar-thy-neighbour world in which everyone loses.
..........
In the next two weeks, the US Treasury may label China a currency manipulator, further chilling relations between the two countries. Neither will see the wood for the trees, because the exchange rate itself is less of an issue than the inflexibility of the exchange-rate system. The currency system is part of an economic model, based on exports and capital investment, in which the consumption share of GDP has fallen to a lowly 36 per cent. China needs to embrace structural reform to adapt its economy to a post-crisis world, but shows few signs of wanting to do so.
Germany is in a similar position in the euro area. Private consumption is only 57 per cent of GDP and households and companies save roughly 10 per cent of GDP. Its current account surplus, while lower than two years ago, is about 5 per cent of GDP. By contrast, Greece and Portugal are running current account deficits of about 10 per cent of GDP, Spain’s is about 5 per cent of GDP and all three have run up substantial increases in public debt. Remember that euro area countries cannot print money or depreciate their currencies, unlike in the UK and the US. So, how can Europe’s debt crisis be resolved? ........
In the meantime, Germany could play a constructive European role by expanding its own consumer and investment demand, rather than writing cheques directly, and by opening up to higher imports from Southern Europe.
This is no simple task in an export-centric economy with a cultural aversion to debt and where private savings are for the moment sustained by rapid ageing in the population. But the Government could target higher employment rates and consumption growth using the tax and social security system, public capital-spending programmes, and reforms to pension systems, labour laws and labour markets, working practices and property ownership. ...........
more
http://business.timesonline.co.uk/tol/business/economics/article7087566.ece#cid=OTC-RSS&attr=6939452
-----------------------
April 5, 2010
Germany must save less and consume more
The sovereign debt crisis has focused a lot of attention on the responsibility and capability of large debtor nations to mend their errant ways. No one denies that they all face a painful and protracted period of fiscal restructuring. But creditor nations also have an important role to play in resolving the crisis. This role, unfortunately, is all too quickly denied, and barely discussed.
Difficult restructuring and reform has already been forced on debtor countries such as Iceland, Latvia, Hungary and Ireland. Greece has been obliged to plan for a massive decline in public borrowing over the next three years, Spain and Portugal are being closely monitored for their intent in pursuing similar retrenchment and the UK, the US and even Japan will follow suit, voluntarily or otherwise
These painful and drawn-out adjustments would be eased, without question, if creditor nations — China, Germany and Japan — did their bit to try to rebalance global demand. If debtor nations have to save more and borrow less, creditor countries have to save less and consume more. Otherwise, we will revert to a beggar-thy-neighbour world in which everyone loses.
..........
In the next two weeks, the US Treasury may label China a currency manipulator, further chilling relations between the two countries. Neither will see the wood for the trees, because the exchange rate itself is less of an issue than the inflexibility of the exchange-rate system. The currency system is part of an economic model, based on exports and capital investment, in which the consumption share of GDP has fallen to a lowly 36 per cent. China needs to embrace structural reform to adapt its economy to a post-crisis world, but shows few signs of wanting to do so.
Germany is in a similar position in the euro area. Private consumption is only 57 per cent of GDP and households and companies save roughly 10 per cent of GDP. Its current account surplus, while lower than two years ago, is about 5 per cent of GDP. By contrast, Greece and Portugal are running current account deficits of about 10 per cent of GDP, Spain’s is about 5 per cent of GDP and all three have run up substantial increases in public debt. Remember that euro area countries cannot print money or depreciate their currencies, unlike in the UK and the US. So, how can Europe’s debt crisis be resolved? ........
In the meantime, Germany could play a constructive European role by expanding its own consumer and investment demand, rather than writing cheques directly, and by opening up to higher imports from Southern Europe.
This is no simple task in an export-centric economy with a cultural aversion to debt and where private savings are for the moment sustained by rapid ageing in the population. But the Government could target higher employment rates and consumption growth using the tax and social security system, public capital-spending programmes, and reforms to pension systems, labour laws and labour markets, working practices and property ownership. ...........
more
http://business.timesonline.co.uk/tol/business/economics/article7087566.ece#cid=OTC-RSS&attr=6939452