If Germany can't kick the stimulus addiction, what hope is there for the U.S.?

11/16/2009 8:30 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

We all know that for the long-term health of the global economy and financial system national stimulus packages have to end and governments need to begin paying down the debt that they’ve run up during this crisis.

And we all doubt that governments will do any such thing. We suspect that stimulus and subsidies once extended will never be withdrawn and that instead of discovering thrift national governments will tax or inflate or default their way around this mountain of debt.

Anybody looking for signs that the most cynical projections aren’t the most accurate forecasts has to shudder at the news out of Germany in the last few days.

Germany, the most fiscally responsible major economy in the developed world, has decided to cut taxes and increase its deficit in 2010 and 2011.

The rules of the European monetary union say that no country is supposed to run a deficit of more than 3% of its GDP (gross domestic product). The average deficit next year, however, will be 6.9%, according to the European Commission.

 Germany will be right near the middle of the pack with a deficit projected at 6.5%

Shockingly that’s higher than the 6.2% deficit projected for Italy, long the symbol of runaway deficit spending.

One problem is that, while Europe moved out of recession in the third quarter of 2009, the recovery so far looks to be very weak. U.S. GDP climbed a larger than expected 0.9% in the third quarter from the second quarter of 2009. In comparison German GPD climbed 0.7%.

That was especially disappointing since the German (along with the French) economy had moved out of recession in the second quarter and economists were looking for signs that growth was accelerating as the recovery advanced. Economists had expected 0.8% growth for the quarter. Even after two quarters of growth the German economy is still 4.8% smaller than it was in the third quarter of 2008.

The Berlin government projects that German GDP will grow by just 1.2% in 2010. The unemployment rate is projected to average 9.4% for 2010, up from an average of 8.2% in 2009.

So it’s not surprising that the newly re-elected government for Prime Minister Angela Merkel has proposed $36 billion in tax cuts for 2010 and 2011. (That’s the equivalent of $140 billion in tax cuts in the much larger U.S. economy. The Bush administration tax cuts of 2001, 2002, and 2003 came to about $190 billion.)

Not surprising, but dismaying.

 If German politicians, especially after they’ve won an election victory, can’t find the discipline to move toward fiscal restraint in 2011, if not 2010, then what can those of us who live in historically less fiscally prudent economies expect?
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