sexta-feira, maio 25, 2012

Germany Goes for Growth

It is good to see that  Germany is finally paying some reluctant attention to the growth (or lack thereof) of its trading partners. The Growth Plan is welcome but it would better start at the beginning:
1.  EU-wide official deposit insurance  scheme, to stabilize local bank funding and stanch capital flight. Protecting local savers and investors is a necessary precondition to any sustainable solution.  This would be a much better use of the bail-out and TARGET2 funds than has been done up to now. In practice, bail-out funds are like "day-traders", they hardly spend a night in Athens, Dublin or Lisbon.
2.  Recapitalization of the banks so their can absorb their share of the losses.  Now that the original cross-border bank creditors have pulled all their inter-bank lines and passed their exposure to ECB and the Bundesbank, the recapitalization need is concentrated in the net borrowing countries, but not exclusively.
3. New revolving credit lines focused exclusively on pre-export finance for the net borrower countries, instead of more import credits for more (luxury) imports that we don't need and can't afford.
4.  Refinance of existing cross-border lending, private or official exposures,  including ECB and TARGET2 credit balances.  Remove the pressure of having to renegotiate roll-overs for as long as possible.
5. Help with small-country export promotion, not just by including local production in the supply chains of the powerful German export machine, but also by helping smaller countries to overcome their natural deseconomies of scale.

And yes, other measures  are welcome:
- Special economic  zones (like the maquilladora belt in northern Mexico)
- Privatization funds (mostly finished in Portugal)
- Dual education and professional training  system with a German-style apprenticeship would be welcome for young people, preferably including German language lessons and undertaken in Germany itself.
- Labour reforms along the lines of Germany's Agenda 2010 
- Recapitalization of the EIB 
- Taxation of financial transactions, namely the application of WHT or withholding tax on all interest payments from net borrowing countries in order to internalize the true cost of over-borrowing, etc...

It remains to be proven whether small fragile economies can thrive in the Single Market, much less in the Single Currency.  The evidence thus far in with the hugely asymetric capture of the gains  from trade and integration in the European Union, and the especially in the Eurozone, could not be worse.

Mariana Abrantes de Sousa
PPP Lusofonia
Source:  der Spiegel, Economico
Agenda 2010