Growth Without New Debt

Once upon a time, U.S. President Barack Obama and his cabinet put serious pressure on Chancellor Angela Merkel to change her course with regard to the European crisis. Obama argued that Germany should not press for budgetary discipline alone, but must foster growth. Otherwise the spiral of depression would continue – austerity would lead to contracting state economies. As a consequence, tax revenues would decrease, which would lead the government to increase austerity measures, and so on.

At that time, many in America and Europe were listening to economist and Nobel prizewinner Paul Krugman. In his weekly column, he put pressure on Obama to enact a new billion-dollar economic stimulus plan, since the first one, with a value of $800 billion, had seemed to fall short.

To this day, Krugman continues to recommend debt-financed growth programs for Europe, too.

If Obama had ever allowed himself to be led by Krugman, that time is now past. He no longer presses Merkel as earlier, but rather has become closer to her. Naturally, he calls for further growth. Everyone does: Obama, Merkel, Cameron, Hollande. It’s nearly impossible to find anyone who objects to growth, or who argues that the problems of the Euro-zone can be solved without growth.

Obama no longer appears to consider austerity and growth to be opposites, but rather complementary parts of the whole solution. A spokesperson for the president described the goal of the G8 Summit as “a balanced approach that includes not just austerity but growth and job creation.” In response to the question of where that growth should come from, he didn’t say ‘state-sponsored stimulus,’ but rather, ‘reform.’

Citizens also play a part in the outlook of the Euro states

America sees itself and Germany as examples. As of yet, the U.S. has done little to bring down its high debt, but it has put the brakes on increases in public spending, dramatically reduced the number of public employees, and still attained a higher level of growth than the Euro-zone. In Germany, reforms to the labor market and the social system have made growth possible. Liberalization in markets like telecommunication has also done its part. Customers pay less than before, and the industry is growing. The problem-countries of the Euro-zone will need to catch up in these areas.

It seems as though Obama’s shift has not reached the public. Before the G8 Summit, outdated photos were circulated showing the likely battle formation – austerity-fanatic Merkel against the Superpower of the advocates for growth. Insiders describe it differently – isolation threatens newcomer François Hollande, insofar as he seriously recommends taking on even higher debt as a source for economic growth programs.

America has very specific requests for the Germans. For them, things are going well. They can help weaker countries to grow. This appeal is addressed not to the German State, but to the people: Spend your money! Buy Greek, Spanish, Italian products – and go there on vacation! The advice to everyone else: growth without new debt.