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Special Report

ESG: The metrics jigsaw


Stop blaming foreigners

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Recent weeks have seen some nasty exchanges over the causes of Europe’s economic plight. On one side is a German-led camp which puts a lot of blame on the ultra-loose policy of the European Central Bank (ECB). On the other side, there are many who criticise what they regard as Germany’s obsession with saving.

The bitter row is public and involves some high-profile figures. Wolfgang Schäuble, Germany’s finance minister, has blamed the ECB’s easy-money politics for the rise of the populist Alternative für Deutschland (Alternative for Germany) party. Mario Draghi, the ECB president, responded that Germany’s savings glut bore much of the responsibility for low interest rates.

Backing each side are prominent members of the commentariat. High-profile Anglo-Saxon pundits such as Paul Krugman and Martin Wolf have repeated their long-standing criticisms of what they see as German excess savings. Their German counterparts, such as Hans-Werner Sinn, argue that the lack of competiveness in Europe’s southern periphery is the key imbalance in Europe. There are exceptions, such as Wolfgang Münchau in the Financial Times, but the general pattern is for high-profile pundits to back whichever view is prevalent in their own countries.

Although the details differ between experts, in broad terms it is possible to identify the key premises of each side. For a start, it is important to recognise what both camps have in common. They both see the key problem in European and indeed world economies as one of imbalance. The disagreement is over who is responsible for the problem.

The mainstream German view is that not only the likes of Greece but many other western countries are living beyond their means. The conclusion is that they should rein in consumer spending to bring their trade back into balance and bolster competitiveness. It is not usually said explicitly but the implication is that, where possible, such as in the UK and the US, interest rates should be raised.

In contrast, the opposing view is that Germany’s obsession with saving is depriving the rest of the world of demand. If only the Germans would spend more, so the argument goes, they would suck in more imports and help create the basis for a balanced global recovery.

What both camps struggle to appreciate is that it takes two sides to create an imbalance. There is a strong case, for example, for Germany to bolster infrastructure spending. On the other hand, if France or the UK bolstered their own competitiveness, that would also help restore balance.

More fundamentally, there is a desperate need for the whole of the developed world to bolster its productivity and investment levels. One-sidedly focusing on the weaknesses of particular foreign countries can only detract from the urgent task at hand.

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