"Which brings us to Germany. In the past I and others have written as if this Hobson’s choice faced by periphery Eurozone countries could be partially relieved if only Germany would expand more rapidly. However, as I outlined here, this was not a very realistic wish…. The reason we will not see rapid expansion in Germany is because the economy is doing all right as it is. While inflation of 5% in Germany would certainly be very useful for Spain et al, it would not be in the national German interest. The only possible exception might be if the Eurozone as a whole looked like coming apart, in which case it might be in Germany’s interests to incur these costs….
Seeing the Eurozone as a single bloc, it makes sense to note that fiscal correction in this bloc is far more rapid than in the US or even the UK, and for the area as a whole that will be very damaging. If there was a Eurozone government, it should be undertaking a substantial fiscal stimulus in Germany right now. But to blame Germany for not doing this of their own accord is rather pointless….
So the only real hope is monetary policy"
"I would disagree. It is in Germany's long-term interest to be a good macroeconomic steward for Europe: to be a proper Kindlebergian hegemon. The fact that Germany now has a relatively undervalued internal price level, is experiencing an export boom, and has no internal desire for more-rapid demand expansion is neither here nor there.
A country as large as Germany in the European economy needs to act like a responsible grownup. If it isn't going to be a proper hegemon, then perhaps it should divide itself into six smaller countries, let France become the single largest European economy, and let France try to do the job…"
