As previously suggested, any sign of stabilization will be twisted into ‘austerity works’ rhetoric.

Yes, austerity has pushed deficits up the ugly way- higher unemployment comp and lower tax payments due to the slowing economy- to the point where the deficits gravitate to levels high enough for euro zone GDP to stabilize and even begin to grow a bit. (Presuming they don’t beat it down again with more austerity, which could very well be the case.)

For whatever reason they can’t seem to grasp the notion that it’s the deficits that support growth, as they fill in the ‘spending gap’ caused by taxes and ‘savings desires’ and that they could use deficits proactively to achieve growth from any starting point short of full employment.

German Economic Model Vindicated by GDP Data

By Catherine Boyle

August 14 (CNBC) — Germany’s reputation as the healthy man of Europe has been reinforced by better-than-expected growth in gross domestic product (GDP – click here for an explanation) for the second quarter, as growth contracted in the broader euro zone.

On Tuesday morning, euro zone GDP data for the second quarter shrank by 0.2 percent, as predicted by analysts polled by Reuters.

Germany, Europe’s biggest economy grew by 0.3 percent between April and July – not a huge leap, but better than most of the euro[EUR=X 1.2349 0.0018 (+0.15%) ] zone – as its export strength continued.

“Germany shows to some degree the way forward to other countries,” Daniel Morris, global strategist at JP Morgan Asset Management, told CNBC Europe’s ” Squawk Box” Tuesday.

“Germany’s point is if you run a low budget deficit you can still have economic growth. You can’t depend so much on government spending, fundamentally it has to be about the competitiveness of the economy, and Germany’s shown that.”

2 Responses

    1. @Joe,
      I dug out this one:

      There is no need for a growing public sector deficit if the “foreign country savings” flow is negative (Germany runs a capital account surplus).

      NB the most striking observation when Germany is compared with Spain is the absence of private debt deleveraging in Germany. This is what has whacked the Spanish economy (a massive swing from private sector dissaving to saving caused by the bursting of the real estate bubble).

      The trouble is that the Spanish savers (often the foreign sector) don’t want to spend from their stock of accumulated savings. But the Spanish debtors have to keep repaying the debt (or go bankrupt).

      Money has to come from somewhere outside of the banking sector or saving desires will be frustrated by a shrinking level of the income.

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