28 August 2013

Wolfgang Münchau: The money trail - Red-red-green best solution for Europe

In terms of the euro crisis, the German Left Party's election manifesto demonstrates honesty and intelligence. In this respect, they are ahead of the bigger parties - and the ideal partner for the SPD and the Greens, comments Münchau in this Spiegel Online article.

Translated from the German

Apart from the Green Party, the Left Party is the only one whose programme is based on an honest and intelligent analysis of the euro crisis. The SPD shirks the subject persistently, the CDU reduces everything to economic competitiveness, whilst the FDP stokes an irrational fear of inflation.

The Left Party, however, understands the economic crisis as a crisis of imbalances. And it is indeed a crisis of excessive capital flows from the north to the south, whose abrupt end caused an economic shock which ended in soaring budget deficits. On this point the Left Party and the Greens are absolutely right - those who do not understand this fact will never be able to solve this crisis. If one accepts the analysis of the Greens and the Left Party, that we are actually stuck in a financial crisis, then it becomes obvious that the crisis policy of the government is heading for disaster and an end should be put to it sooner rather than later.

Still, as with the Green Party, the Left Party's macro-economic analysis is tainted by ideological reservations. Its programme is hopelessly overloaded. The Left Party exploits the crisis for its demands for higher wages and redistribution. The wage rate - the share of wages in GDP - has fallen ever since the '70s in most developed countries in favour of profits. One of the reasons is certainly globalisation because of increased wage competition. So one can certainly not demand an increase of wages per se, but at most a redistribution of wages between countries and a globally coordinated correction in the relationship between profits and wages. How this will work in practice, however, the Left Party does not tell us.

The biggest problem with the Left Party's programme, however, is that it assumes that one can solve the international financial crisis with national redistribution policies. The party is silent on issues of international coordination, but without which the crisis cannot be solved.

Whatever the reasons for the SPD not to enter into a coalition with the Left Party, the euro crisis should not be one of them. On the contrary, if the SPD were to enter into a grand coalition with the CDU, then they would have to share the responsibility for the failure of Merkel's crisis policies. And so my - certainly controversial - conclusion from the five election programmes must be: From a macro-economic perspective, a red-red-green coalition would be the best solution for Europe and the only coalition that would have a chance of fighting the crisis successfully.

Full article

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