What About Germany?
Many people are now holding Germany up as proof that austerity is good.
There are a number of reasons that’s foolish, among them the fact that Germany’s austerity policies have not yet begun — up to this point they’ve actually been quite Keynesian.
But it’s also worth having some perspective on actual German performance to date. Here’s a chart:
Everything you’ve been hearing is about that uptick at the end. But I’m not willing to declare an economy that has yet to recover to the pre-crisis level of GDP an economic miracle.
Basically, here’s the German story: it’s an economy that didn’t have a housing bubble, so it wasn’t caught up directly in the bust. But it’s very export-oriented, with a focus on durable manufactured goods. Demand for these goods plunged in the early stages of the crisis — so that Germany, remarkably, had a bigger GDP decline than the bubble economies — but has bounced back since summer 2009. This has pulled Germany back up; exports to China have done especially well.
If there’s a slam-dunk argument for austerity in there, it’s remarkably well hidden.