12 November 2005

WILL THE GERMANS SHOW US HOW? AGAIN?

Bertrand Benoit (Extracted from "German coalition parties reach budget accord", Financial Times, 11 November 2005)

"After four weeks of talks, Germany's two largest parties reached a breakthrough on Friday night when they agreed on a government programme that will focus on bringing the country's budget back in line European Union's fiscal rules by 2007."

[Ed: It is going to be fascinating to see if Germany succeeds where all other large developed countries are failing. One wishes it all the best, of course, but it is hardly likely. Government deficits are driven by two powerful forces which are hardly likely to change anytime soon. The first is the increasing need of politicians to bribe the electorate with hand-outs of various sorts in order to be voted back in power in the next election. The second is the incessant growth of bureaucracies. There is only one inevitable economic solution and this is that inflation will follow in due course. And, strangely enough, it was the hyperinflation of Germany in the 1930s which led the way in showing the rest of the world how to do this.]

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