Tuesday, May 8, 2012

Jens Weidmann (who?) In One of the Key Persons Responsible for European Austerity and the Rise of Radical Politicians

A German Central Banker’s Influence Sowing the Seeds of an Ugly Political Future for Europe

The current news out of Europe is the victory of French Socialist Francois Hollande in the Presidential race.  Mr. Hollande has just won a narrow but convincing victory over incumbent Nicolas Sarkozy and his party is favored in the French Assembly elections next month.  But that is not the important electoral news out of Europe.

That important news is the rise of radical political parties on the right and left, personified in the elections in Greece that saw once fringe parties, particularly extreme right wing parties that evoke fascism make substantial gains.  Add to this the strength that Marine Le Pen, a hard line nationalist, showed in the first round in the French election, the strength of a radical right winger in the Netherlands who just brought down the government and the strength of radicals in other countries, and one can start to worry about Europe. 

The continent is not facing  an imminent rise to power of neo-Nazi like parties, but conditions are developing that makes it possible, if not downright plausible that such a thing could happen in the future.  The reason is economic austerity.  In the 20th century harsh economic conditions allowed radical dictatorial governments to come to power in Germany, Italy, Spain and Portugal, and while the horror of that era is still fresh in everyone’s mind, those memories are not perfect insurance against the same thing happening again.

Mr. Weidmann - He Doesn't Look Like
Someone Who is Imposing Misery on Millions
The trend is not good,  and the reason is that Germany, the continent’s economic power is determined to impose economic austerity on the rest of Europe.  That policy is personified in German economist and central banker Jens Weidmann.

As Europe’s strongest defender of fiscal probity, Weidmann is fighting the Keynesian tide. The 44-year-old blond with a diffident smile and a quiet demeanor is austerity personified. Since last year he has been president of the Deutsche Bundesbank, Germany’s central bank, which is fiercely devoted to preventing a recurrence of the hyperinflation that ruined Germany’s middle class in the 1920s.

Weidmann’s devotion to austerity is even purer than that of German Chancellor Angela Merkel, for whom he once worked at the Chancellery in Berlin as an economic adviser and sherpa at G-8 and G-20 summit meetings. “Merkel has embraced European integration as the make-or-break issue of her chancellorship,” says Christian Schulz, a London-based senior economist at Berenberg Bank, Germany’s oldest. “Weidmann has a narrower responsibility. [It’s] not all of Europe or even all of Germany. His responsibility is price stability.”

In the United States the mission of the Federal Reserve is price stability and full employment.  In Germany for the Bundesbank it is just price stability.  And achieving price stability is actually pretty simple and easy if that is the only goal.  All one needs to do to have zero inflation is to adopt policies which will have a very low level of economic activity, zero or negative growth.  When there is excess capacity and insufficient demand, business cannot raise prices and labor cannot get wage increases.  The result – no inflation.

So Germany is imposing austerity on the rest of Europe, helped in part by other conservatives so that there will no inflation.  And these narrow minded policy makers seem to be ignorant that they are creating not only conditions that impose economic misery and devastation on millions, but also conditions that also allow for the rise of the radical right and the radical left.  They probably think given the history of Europe and the horrors of World Wars I and II that it cannot happen again.  They should think differently.

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