BLOOMBERG BUSINESSWEEK: The news out of Nuremberg, Germany, today that the number of unemployed Germans unexpectedly rose in April could have big implications for the rest of Europe.
Exhibit No. 1 for Germany’s pro-austerity case is the strength of the German economy. “See,” the Germans’ message goes, “we are keeping our belts tight and our economy is still strong. Follow our example.” If Germany weakens, it would have two conflicting effects—hurting the rest of Europe by decreasing Germany’s demand for their products, but possibly helping the rest of Europe by making Germany more sympathetic to the need for stimulus to restore growth.
In truth, Germany hasn’t even embraced the austerity it urges on other countries, because it hasn’t had to, says Steven Kyle, an economist at Cornell University’s Dyson School of Applied Economics & Management. Economic growth has produced enough tax revenue that spending cuts have not been needed to keep the federal budget in rough balance.
“What will be interesting now will be to see if they will take the medicine they’ve been urging everyone else to take and cut their own spending,” says Kyle. “If they do, they will get a contraction.” » | Peter Coy | Wednesday, May 02, 2012
