Europe’s Scrooge Spends Lavishly on Domestic Stimulus

The most hated person in Europe is Angela Merkel, the German chancellor who has force-fed austerity on the weaker countries of Europe’s south, deepening their economic crisis. Cicero magazine’s editor writes in Der Spiegel that at home in Germany, she has pursued exactly the kind of government stimulus, anti-austerity programs that she and her government have prevented Cyprus and other countries from enacting.

German Chancellor Angela Merkel was reportedly livid that paparazzi stalked her during her recent Easter vacation on the Italian island of Ischia, circulating revealing photos of her patchwork family. But she should be happy that it was only paparazzi, and not an incensed Italian mob.

Merkel currently holds the title of the most hated figure in Europe outside of her native Germany. She is viewed as the woman with the whip, the domina from Deutschland, the one who bullies all of the ailing euro-zone members into accepting hardship. She forces them to tighten their belts at risk of social and economic collapse — and sometimes beyond. She forces Greece and Cyprus to take extreme measures — though even this won’t win them forgiveness for their inefficiency and unscrupulous financial conduct. In fact, the tough measures make the painful Agenda 2010 welfare and labor market reforms introduced by Chancellor Gerhard Schroder a decade ago seem like a wellness program. If Merkel were to force Germans to endure the kinds of measures she has been demanding from the rest of Europe, they too would take to the streets, setting piles of tires alight.

Still, it’s pointless to take a stance in the dispute over whether her austerity diktat is the right policy. Perhaps those who fervently criticize what they see as Europe-impoverishing policies are right, such as Nobel Prize laureate and New York Times columnist Paul Krugman. But maybe the advisers recommending exactly this course to Merkel are right, too.

One doesn’t have to have a Nobel Prize in economics or be one of the chancellor’s advisers, though. It’s enough just to look at Merkel’s own policies for Germany to recognize that something just isn’t right. The chancellor speaks with a forked tongue and applies double standards. While she wants other Europeans to make do with less, she wants her own people to have their cake and eat it too.

The first example is how Merkel deals with savers. On an evening in early October 2008, when the financial crisis was about to take Germany in its grip, Chancellor Merkel stood before the cameras with Peer Steinbruck, her then-finance minister, and declared that German savings accounts were safe. Of course, even Thomas de Maiziere, Merkel’s then-chief of staff and current defense minister, has acknowledged that this guarantee had no real grounding in reality. But the message was, and has continued to be: We won’t touch your savings, no matter what.

The case is completely different when it comes to Cyprus, though. There, Merkel and Wolfgang Schauble, her current finance minister, number among those who initially wanted to have small-time savers involved in the deal to bail out the country’s banks, though they ultimately settled for only involving bank customers with deposits of over 100,000 euros ($130,000). Of course, Merkel and Schauble dispute accusations that they were the driving forces behind efforts to go after the money of individuals with smaller deposits. But two things speak against that: First, there is no written proof of their opposition to such a move. And, second, it is utterly inconceivable that something would get so close to being agreed upon without the German government’s support.

The second example is how Merkel deals with economic stimulus programs. In the wake of the Lehman Brothers collapse, when the financial crisis was also threatening Germany, Merkel reached deep into the state coffers. She allotted 1.5 billion euros to a car-scrapping bonus plan to keep the country’s leading industry from getting bogged down by the crisis. More than half a million used cars were crushed by the junk press, and 600,000 new cars were purchased, each of them subsidized by 2,500 euros in government funds. Granted, the glut of cars sold in that period has led to a saturated market that now has German automakers somewhat worried. But the measure still proved to be a success.

At the same time, Merkel’s government launched a 50 billion euros economic stimulus program for investments in roads, buildings and seemingly everything else imaginable. Even today, new school buildings that owe their existence to this aid package are under construction and keeping German builders well fed.

But when it comes to Germany’s suffering neighbors, Merkel adamantly opposes the use of economic stimulus. In her view, they need to make cuts until it hurts, slash public services and, of course, refrain from giving any industries the type of cushy deals that her government has given to Germany’s automotive or hospitality sectors, for example.

The question is not about whether Krugman is right when he almost obsessively labels Merkel “dim-witted” and writes that “senior German officials are living in Wolkenkuckucksheim — cloud-cuckoo land.” A lot of criticism from prominent individuals can sometimes indicate just how correct one’s policies are. And it wasn’t necessarily misleading when the British weekly The Economist published one of the best magazine covers of recent years last June, on which a tanker labeled “The World Economy” is sinking into the ocean and a speech balloon coming out of it asks: “Please can we start the engines now, Mrs. Merkel?”

No, it is not the know-it-alls from abroad who spark doubts. It is Merkel’s own policies here at home that prove the error of the measures she champions for the ailing economies of Southern Europe — and feed the suspicion that the outrage directed at the German taskmaster is wholly justified.

Christoph Schwennicke , Editor-in-chief of the German political magazine Cicero.