The Austerity Wars

Why Is Europe So Messed Up? An Illuminating History : The New Yorker

In this summary of why Europe is struggling economically (blame austerity is the gist), I was particularly interested in these paragraphs:

 With so much hinging on Germany, the discussion of postwar German ordoliberalism, which underpins Berlin’s hostility to expansionary policies, is particularly valuable.

As Blyth points out, German politicians influenced by ordoliberalism, such as Chancellor Angela Merkel and Wolfgang Schäuble, the finance minister, aren’t hostile to government activism in the same way conservatives in the United States and Britain are. To the contrary, they believe in a social market economy, where the state sets the rules, including the generous provision of entitlement benefits, and vigorously enforces them. But encouraged by Germany’s success in creating an export-led industrial juggernaut, they believe that everybody else, even much less efficient economies, such as Greece and Portugal, should copy them rather than rely on the crutch of easy money and deficit-financed stimulus programs.

That’s all very well if you are an official at the Bundesbank, or one of the parsimonious Swabian housewives beloved of Merkel, but it ignores a couple of things. First, it’s the very presence of weaker economies in the euro zone that keeps the value of the currency at competitive levels, greatly helping German industry. If Greece and Portugal and other periphery countries dropped out, the euro would spike up, making Volkswagens and BMWs a lot more expensive. Second, it isn’t arithmetically possible for every country to turn into Germany and run a big trade surplus. On this, Blyth quotes Martin Wolff, of the Financial Times: “Is everybody supposed to run a current account surplus? And if so, with whom—Martians? And if everybody does indeed try to run a savings surplus, what else can be the outcome but a permanent global depression?”

 I particularly like the Martin Wolff quote.

Anyway, now all I need to know is:  what's "ordoliberalism"?

UPDATE:   the IMF warns Britain about heavy cuts at this time:

Hit the austerity pause button. Invest more in social housing, schools and road repairs. Growth is more important in the short term than deficit reduction. Couched in suitably polite language, that was the uncomfortable message from the International Monetary Fund to George Osborne .

The chancellor could take some comfort from the fact that the fund was rather more diplomatic about his economic strategy than it was in Washington a month ago, but not all that much. For the past couple of weeks, the government has done its utmost to persuade the IMF that Britain should stick to its current budgetary course. Osborne has tried. The chief secretary Danny Alexander has tried. Sir Mervyn King has tried. They have all failed.

After three years in which it first strongly supported Osborne's austerity programme, then had second thoughts when the economy sank into a double-dip recession, the IMF has finally had enough. It wants further fiscal tightening postponed until the economy is strong enough to take it.

Potentially useful for Labor in Australia if it wants to warn on the effects of a needless hurry to reduce a deficit by harsh spending cuts poorly targetted.