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January 15, 2012

Define Ridiculous: Europeans Want Germany to Spend More??!!

Only the New York Times would write about something like this, but apparently forces in Europe are urging Germany to spend money under some illusion that it's going to save the European continent from falling into recession in 2012.

The beginning of the article says it all:

"Spain, Italy and Greece are taking a knife to public spending because they have no choice. But Germany is still healthy enough that it could do its troubled trading partners a favor and focus more on promoting demand and less on cutting debt."

So basically, the government should spend and borrow because they aren't having a fiscal crisis? It's ridiculous to think that a country should wait until they are in the condition of Spain, Italy, or Greece to address their spending problems. Has anyone seen how difficult of a time these countries are having in reducing their deficits? None of these three countries will make a dent on their excessive borrowing costs until they balance their budgets, even if it condemns their countries to recession.

In fact, Germany has a pledge in place to balance its budget by 2016. This pledge may come too late if the euro crisis spreads to the point that investors don't trust the sovereign debt of any euro denominated countries. With the amount of new sovereign debt in 2012 at $10.5 trillion versus almost half of that in 2005, should any investor feel comfortable about a government's ability to repay long term debt?

Besides, even if the German government wanted to borrow more, shouldn't they focus on selling the debt they are currently scheduled to sell? As you can see in the below video, they've had trouble selling debt already as a result of the Euro crisis. What would more government spending do?

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