The ECB has recently announced further measures to deal with one of the major plagues of the failing Eurozone at the moment; completely stagnant growth – particularly in the demand side of the economy. There have been many causes of this, but this time maybe it’s a little surprising. No, the people at fault here are not the British, nor the Greeks, the Portuguese or the Spanish. Not even the French, unfortunately. It’s the Germans.

A little bit of History

In complete and ironic contrast to the original intentions of the European Economic and Monetary Union, Germany have managed to establish absolute hegemony over the course of the Eurozone and it’s economics. Back in the early 90s when the monetary union was being decided upon, a driving factor – particularly in the French camp – was the hope that establishing an EU-wide currency would dislodge the German dominance over monetary policy, which they had established under the ERM. The Bundesbank set the pace, and that meant keeping as tight control over your supply of money and rates of interests as the Germans were. If they went down, you went down, and if they went up, then so did you. The problems of this were most aptly demonstrated with the German reunification, where the enormous increase in demand was met with a rate-rise from the Bundesbank. This was not part of ERM-plan; it was German economic rigour that was supposed to be exported to the rest of the EU, not the resulting unemployment in the then booming southern states.

However, with the establishment of the ECB, once again the Germans have managed to secure the reigns of monetary policy and by extension the speed of the Eurozone economy. It is from here that flows the tidal wave of austerity that has been the buzz word of the Eurozone economy. What did the 19 members of the Eurozone have to implement to get into the bloc? Austerity. What did the Eurozone turn to after 2008? Austerity. 7 years later when Greece’s economy has been utterly pulverised by austerity, what should they do? More austerity goddamn it, we told you. The Germans, when they think they’ve got something right, they don’t let you forget it. They also don’t let you deviate from it. In the early 90s, Karl Otto Pöhl – then leader of the Bundesbank – only agreed to joining the monetary union on the condition that the euro have the same rigorous controls around it that the Deutsch Mark had had. And France thought they’d get away with such a coup.

Of course, tight monetary policy and the fiscal discipline that goes with it has worked for the German economy – now with single largest current account surplus in the world, and the economic powerhouse of Europe – you can understand there might be some ground for German policy makers to think they understand economics better than anyone else. However, they are still wrong. First of all, the Eurozone was structured around the position of the German economy rather than, say, the Spanish one. To that end, interest rates were set very low and the turn of the millennium to counter a German economy in bust, when Spain’s best interests would have seen them much higher, to slow down their overheating economy. Since then, it has been all about moving in step with Germany, rather than a collective effort on both sides. Hence the austerity. Well now, it’s about time that we recognise that it’s not going to work.

Fast forward to today

Mario Draghi – ECB President – announced last Thursday that the central bank is willing and able to use all the tools at its disposal to stimulate growth in the Eurozone. However expansionary monetary policy can only get you so far in a recovery. At least he’s realised the current round of QE is not sufficient towards sustainable growth. But when looking at it, it’s clear there’s little much else he can do. Especially with his hands tied by the Bundesbank and all the other legislation restricting the level of budgetary deficits in the Eurozone (budget deficit is another dirty phrase in European politics. Maybe I should start a list of all these), there’s little the ECB President can do to encourage real growth. But there are many tools a country can use to get itself out of an economic crisis, even if for the Eurozone, monetary policy has been stripped from that armoury. It’s time that the whole Eurozone – Germany included – faced up to the fact that added to the stimulus package (which, as it happens, German economists already see as more than sufficient), we need spending policies by the national governments to stimulate the demand-side. Without a collective effort to encourage spending, investment and growth, no one is going to take the current QE package seriously. Italian Prime Minister has been trying his best recently work his way round the Eurozone budgetary rules to stimulate demand in his own country, and that has got to be the focus of other euro-nations as well. Deficit should not be a dirty word. In order to stimulate the demand side of an economy – necessary to get out of a crisis – the government needs to encourage spending with its own expansionary fiscal policy.

Two takes on the ECB’s new course

Europe’s divide on economic policy can be clearly seen in two articles about Draghi’s announcement. In Britain, Wolfgang Münchau wrote in the Financial Times on Sunday, and took the lack of economic growth with the current plan as the most critical message from the announcement. The ECB has to be more creative in the tools it pulls out of its box, and critically, absolute-austerity-and-no-deviance-permitted, has to go. Sure, budgetary discipline is important, but not when you’re in a crisis. As we’ve seen from Spain, Portugal, Italy, and no where clearer than Greece, it’s not the only path to prosperity, and in Greece’s case it may not be a viable path at all. Even the ECB’s (Bundesbank’s) star pupil, Portugal, has finally had enough of the supply-side, right-wing rhetoric, and this month the centre-right Forward Portugal Alliance (PAF) lost its parliamentary majority in favour of anti-austerity. Remind you of anything? Syriza in January did the same in Greece, and Podemos in Spain look set to make waves in December (a pattern becoming clearer yet?). It’s clear by now that the Eurozone wants an end to austerity, and the FT has argued this.

On the other side of the North Sea, we see a different take on the announcement being articulated in the Frankfurter Allgemeine Zeitung, one of Germany’s top newspapers. Last Thursday, the FAZ took the potential impact on the strength of the Euro as a currency as the main issue to be considered after the announcement. Quotes include “in such a situation, the ECB has to keep its powder dry” and (you won’t see this coming) “the Bundesbank president, in light of current developments, sees no reason for a further easing of monetary policy” – the main thrust of Draghi’s announcement (oh wait, you did). Later on Thursday it published another article stressing the impact of Draghi’s announcement on the strength of the euro. It’s clear the Germans have a completely different perspective on the what’s important on economic management. And that wouldn’t be a problem, except they’re in charge. Germany needs to wake up and realise that this imposed regime of fiscal and monetary rigour will only win them so many friends. However, with rising anti-euro/austerity (widely perceived as one in the same these days) sentiment appearing across the continent, they might not get the chance to do so on their own.