Writing in The New York Times, Reason columnist and Mercatus Center economist Veronique de Rugy discusses why a split between France and Germany is pending with regard to bailing out European Union members and inducing inflation. French native de Rugy notes that part of Germany's official national story is that hyper-inflation in the 1920s paved the way for the Nazi regime in the '30s. As a result, Germans are particularly reluctant to inflate away debt. France, says de Rugy, has a substantially different take on printing money. Moreover,
The official government debt and deficit numbers of France and Germany are substantially different. The Organization for Economic Cooperation and Development projects Germany’s debt at 87.3 percent of G.D.P. with a deficit of 2.1 percent of G.D.P. —possibly sustainable levels. However, France’s levels of debt and deficit are higher and unsustainable (debt of 97.3 percent of G.D.P. and a deficit of 5.6 percent of G.D.P.).
...attitudes toward reforming social programs differ too: in recent years. Germany has engaged in significant structural reforms to tackle the rigidity in the labor market as well as demographic pressure on the private and public pension system. France, however, has been reluctant to change any “acquis sociaux,” France’s famous social entitlements.
With higher levels of debts and no will to reform entitlement programs, sooner or later France is likely to need a European Central Bank “bailout” to keep paying its bills (and French banks may also be in big trouble). The need for a rescue plan makes France more inclined to set a precedent [for a bailout]. However, Germany, after 60 years of desperately trying to avoid inflation, is reluctant to pay that bill.Whole thing here.
De Rugy's piece is part of a "Room for Debate" discussion of the matter. For the other contributions, go here.
For de Rugy's Reason archive, including a year's worth of "Reality Checks" done for Bloomberg TV, go here.