"Why France Favors Bailing Out Greece. And Why Germany Doesn't."
Lifted in toto from
Reason's Hit&Run blog:
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.
