It’s now or never: G20 finance ministers argue in Shanghai while Europe is being shattered by the refugee question

by Heiner Flassbeck

Replacing the G7 or G8 by the G20 was actually a good idea. But as often happens, the way in which the change was realised destroyed anything good about it.
It is clear from the communiqué that the G 20 Finance Ministers (or, more correctly, their Secretaries of State) have worked out that there is serious disagreement over the desired direction of global economic policy (see here). Unfortunately, the text also proves that the Europeans steadfastly continue to adhere to their counterproductive policies. No one seems capable of stopping them.
Remarkably, the ordinary German citizen is not allowed to learn any of this. The Frankfurter Allgemeine (FAZ) wrote, before the meeting even started, that Germany (read: Schäuble) is warning the other countries against further debt deficits and that both the IMF and the Chinese hosts consider his point of view to be correct. In fact, it is absolutely wrong, but that does not matter if one serves the greater cause of marginalising the left and crippling the much-needed state.  If one reads the articles in the New York Times or the Financial Times (here), one wonders if they and the FAZ report on the same G20 meeting.
By contrast, in Spiegel Online the discussion within the G20 created such a huge bucket of indigestible soup that the reader gives up immediately and wonders what the economists have been drinking lately (see here). The policy paper, which Spiegel Online covers in extreme detail, ‘found’ on the basis of calculations of growth averages and extrapolations that the world  has now depleted its potential for further growth. Therefore the whole policy debate has become superfluous. Stupid is as stupid does.
Meanwhile, the European Commission managed to write some critical, or at least some critical sounding remarks vis-à-vis Germany in its report on the MIP (Macroeconomic Imbalance Procedure).  Apparently, it cannot bring itself (or is prevented by Germany from doing so) to openly criticize Germany’s economic policy concept, although it is crystal clear that Germany increasingly violates the so-called six packs rules of the so-called European semester.
We have to praise Sigmar Gabriel, who recognised that the refugee crisis cannot be solved by allocating a pittance here and there to local governments.  Praise where praise is due. Gabriel proposes to spend substantial amounts, not only for the refugees, but also for the local population so as to not create envy and more xenophobia (see here).
Gabriel’s proposal created immediate and aggressive criticism from Schäuble, but Gabriel did not give in. He replied that, so far, the Minister of Finance had understood nothing about the crisis. One wonders if such a provocation can still lead to anything else than the SPD leaving the coalition or pressuring Chancellor Merkel to dismiss Schäuble. But nothing happens. People turn the page, forget about the verbal attacks and move on with the policy work.
But that is a great and even a decisive mistake. Last week, I had a discussion some MPs of the SPD. The meeting left me with the distinct impression that serious awareness about the effects of Germany’s policies on the European economy exists. However, there is still the illusion that one believes, or rather hopes, to be able to prevent the worst and that a number of small operations will be sufficient. A bit of tweaking here and there, Germany will change its course and ultimately save the European patient. That is certainly wrong.
Europe finds itself in a decisive crisis. The fracture that has arisen can only be repaired if deep changes are made. For this to happen, German prejudices and conceptions must be brutally put into the question.
Even Germany’s President Joachim Gauck, who is not known for his excessive sensitivity to European issues, suspects this much. Last week, Gauck said that the problem is not just the refugee crisis. There are many tensions that ultimately risk breaking up the European Union. The disputes on the willingness to take up refugees, the contingents and the safeguarding of the external borders flow over into the debate on the role and competences of the nation-states within the European Union (see here).
This is certainly true. Unfortunately, the German president fails to understand that it was Germany that was responsible for creating the problem that underlies these dysfunctions. The essential promise upon which the European Monetary Union is based was first and foremost broken by Germany. The consequences have been nothing short of catastrophic. As we wrote some time ago:
‘Fixed exchange rates embody as it were the pledges of trading partners to refrain from undercutting others in any way, so that the option of exchange rate change is no longer relevant. The stronger the bond in exchange rates, the stronger must be the promise of non-undercutting by the trading partners, otherwise the system simply cannot function. German mercantilism has been undercutting its partners in the European Monetary Union for many years.  It gained a competitive advantage by moderating wage growth. In doing so, Germany broke the central promise that underlies the agreement of the monetary union. As a result, the trading partners are also no longer bound by the terms of the free trade agreements.  If intelligent treaties could be negotiated, it could well be possible for the member states to introduce import tariffs in order to compensate for the German dumping.
It is time that German politicians understand this and leave their reproaches to the other countries at home. The ‘honest will to act in common’ has been damaged well enough. As long as Germany’s economic and financial policy does not radically change, the will to find common ground will remain weak because the partners feel that Germany has cheated. Unfortunately, the German president fails to understand this. He probably does not even know the charges that the trading partners made against Germany. German politicians and the German media carefully shield him from such heretical thoughts.
European policy simply does not work. Policy-makers tried to solve the crisis by making the wrong diagnosis, concentrating upon some of the symptoms and prescribing the wrong therapies. Nobody tries to understand the causes of the European economic failure.  Instead, people muddle through for as long as they can or blindly follow some of the spokesmen until nothing works anymore. Only recently, genuine insight of what went wrong within the monetary union and who is responsible for it started to gain ground. Even so, the culprit is not asked to explain its behaviour and change course. Germany remains too powerful. So the countries waited for the right opportunity.
This opportunity arrived with the eruption of the refugee crisis. What we see now is not the lack of ‘an honest will to find common ground’ (Gauck), but the revenge of the countries which saw their economies suffer for years because of Germany’s undercutting. This is why Martin Schulz, the President of the European parliament said that it is now ‘paytime in Europe’ (see here). He is right. One can almost see future historians in front of us. They sharpen their pens and write up that Europe broke because of the refugee problem! This is not true: Europe broke a long time ago and the refugee issue is only the lever in the breaking point for which the oppressed have been waiting.

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