Business

Friday 28 April 2017

Merkel may yet sell out Germany's economics professors

AS befits a country which will lose almost 20pc of its population in the coming decades, Germany is becoming greyer, more conservative and more obsessive about saving, rather than spending.

This evolution, while understandable, has left debate over economics in Germany something of a barren pursuit.

As the 'Financial Times' quipped a few weeks ago, in most countries economics is a passionate and loud debate between Keynesians and monetarists, in Germany there are simply no Keynesians worth speaking of in key positions.

As a result, the economic advice funnelled through to German Chancellor Angela Merkel is apparently somewhat one-sided.

But this does not mean Merkel won't at some point look at fresh ideas -- produced by those outside the German economics establishment, which is led in public terms by Jurgen Stark.

Even though Stark is due to depart the Frankfurt-based ECB before the end of the year for "personal reasons'', his motivation for leaving is known to be connected with the bank's bond-buying activities, known as the Securities Markets Programme (SMP).

Stark appears to hold the view that SMP, which could shore up Italy and Spain in the long term, has already gone too far, with the ECB exceeding its strict legal mandate.

But Stark and most of the German economic establishment must be somewhat concerned that the idea of eurobonds -- while officially off the table -- is still lurking somewhere in the next room, held in the cold hands of EU economics commissioner Olli Rehn. The US is also rather keen on the idea, while China appears to at least be neutral on the idea.

Only recently 'Spiegel Online' has one banner headline, which sums up their fears: "Will Merkel change her tune on eurobonds?''

So far all public statements suggest she will not change her tune on that or the ECB as firefighter. But something resembling an Italian default could start the intellectual juices flowing again.

Either way there must be increasing nervousness among Stark and Co that Merkel will eventually behave, well, like all cornered politicians, and cast aside all her previously held economic beliefs. Watch this space.

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