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The End of Little Germany

With the finance ministry in SPD hands, a greater emphasis on public investment, rather than tax cuts and further reductions in public debt, has also become a possibility. Germans are beginning to grow tired of the decade-long ideology-driven pursuit of lower deficits. The country’s constitutional fiscal rule, known as the debt brake, does allow for higher public spending. Slight economic overheating as a result of higher private and public investment would help boost wages and import demand, which might help reduce Germany’s current-account surplus.
The new German government should also develop a new trade policy that recognizes and is willing to use the country’s economic clout, and that of the EU, more strategically. The increasingly protectionist tone of the Trump administration presents a perfect opportunity for Germany to step into the breach. The US will soon impose tariffs on all steel and aluminum imports, and this requires a firm European response.
It is notable that the German debate about the US-EU Transatlantic Trade and Investment Partnership was focused primarily on consumer rights and protecting domestic regulations and standards. But narrow economic goals such as these, to which a small country would give priority, no longer suffice for today’s German neo-hegemon. The same is true of overly optimistic support for a form of trade multilateralism that has largely run its course.
Instead, the incoming German government needs to develop a trade policy that supports economic reforms and social standards, while promoting market economics and the rule of law in its neighborhood. Germany could also be doing more to push the rest of Europe to be more forceful at the World Trade Organization on social rights, environmental protection, fair taxation, and improved political standards.
These proposals require German politicians to shift the debate. As the eurozone’s dominant country, Germany needs to make sure that the bloc benefits all of its members and is a stabilizing force in the world economy. Germany must finally start thinking of itself as the major economic player it is, and behave accordingly – preferably before new ministers settle into old routines.

Copyright: Project Syndicate, 2016.

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