Did it not appear odd to you that Chancellor Merkel of Germany was so willing to accept a million migrants, whilst other countries in Europe, USA and beyond, were reluctantly prepared to take ten or twenty thousand of them?
Was it because she was overwhelmed by the humanitarian implications that the displacement of these people represented? Had she taken account of the social disruption and ramifications of this number of migrants on the equilibrium existing population? Hasn’t Germany got enough racial unrest with the Turks who build their cars at present?
The answer is all to do with inflation.
Parable of a perfect economy
Modern Germany today is a ‘parable’ of a perfect economy. It has a trade surplus, balanced budget (if not a surplus), acceptable growth, albeit slower than they would like, half the unemployment average of Europe with practically full employment and very low inflation.
Whilst they may certainly be the second largest exporter in the world, they are nevertheless ‘paranoid’ about the emergence of inflation in their economy. This is a ‘hang over’ from the ‘giddy hyperinflation’ of the late ‘20s which has left them with a permanent stigma.
Interest Rates are the most effective economic tool against inflation, but since ‘one size must fit all across Europe’ they are stymied from putting pressure on the ECB to increase Interest Rates, since parts of southern Europe are in a parlous state with 50% unemployment and were they to try to use this lever, it would send many other EU countries into deep recession.
Saved by Quantitative Easing
After the ‘Credit Crunch’ of 2008 the UK and American economies were saved by the use of Quantitative Easing which can be a very effective mechanism to reflate a stagnant economy after recession. Germany were very reluctant to use this device since in the past it has been associated with hyperinflation and frankly they would rather the rest of Europe suffer with recession and high unemployment than to participate in this process.
Fiscal controls are the next most potent weapon at Germanys disposal in the fight against inflation, but they cannot meaningfully increase direct taxation as it is high enough already and will ‘snuff out’ growth and incentive to work. Indirect taxation, i.e. VAT, on the other hand, needs to confirm with the European norm, ahead of Federal Europe, and cannot be significantly raised by them beyond its present level.
There are no other financial instruments available, other than to keep wage inflation down from their workforce and the only way they can do this is by absorbing migrants who they can ‘put to work’ in jobs that other Germans may not want to do. This, they hope, will keep the ‘lid down’ on wage increases for their work force generally.
A ‘juggernaut without breaks’
Germany is, in effect, a ‘juggernaut without breaks’ which is why they would prefer a manageable, lower growth of their economy rather than rampant, uncontrollable growth which will increase inflation and the money supply.
Whilst this lack of fiscal and monetary control may be a huge disadvantage to the Country, by being in the EU this effectively represents a devalued Deutsche Mark, which makes their exported goods more affordable to the rest of the world.
Whilst having 27/8 countries within the Euro Zone may be an unwieldy number for decision-making, nevertheless, they provide a ‘huge basket’ of ‘tame’ consumers for their goods, which is what Germany needs so badly.
Until there is Federal Europe there are no legislative financial controls between EU countries of diverse economic circumstances, which puts huge pressure on the Euro. Germany, for the reasons outlined above, effectively underwrites the currency and for its own selfish reasons will never let it fail whether there is a Federal Europe or not.