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Only Stimulus Measures That Make Sense

Only Stimulus Measures That Make Sense

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Published by: api-25904262 on Dec 11, 2008
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12/11/08 3:24 PM‘It Doesn’t Exist!’ | Print Article | Newsweek.comPage 1 of 2http://www.newsweek.com/id/172613/output/print
‘It Doesn’t Exist!’
Germany's outspoken finance minister on the hopeless search for'the Great Rescue Plan.'
Stefan Theil
From the magazine issue dated Dec 15, 2008
Since markets took a turn for the worse in September, there has been a chorus of calls for aPan-European response. Most of those proposals have been vetoed by a group of countries ledby Germany, the European Union's biggest economy and leading paymaster, on whose backmany of these costs would fall. Leading the German defense has been Peer Steinbrück, theSocial Democratic finance minister in Chancellor Angela Merkel's cabinet. Speaking withNEWSWEEK's Stefan Theil at the Finance Ministry in Berlin, Steinbrück explains why he doesn'tlike any of the proposals he's seen.
Theil: You're facing a lot of criticism inside and outside Germany, particularly from Franceand the EU Commission, that you should do more to fight the crisis.Steinbrück:
We have a bidding war where everyone in politics believes they have to top upevery spending program that's been put to discussion. I say we should be honest to our citizens.Policies can take some of the sharpness out of it, but no matter how much any governmentdoes, the recession we are in now is unavoidable. When I look at the chaotic and volatile debateright now, both in Germany and around the world, my impression and concern is that the dailybarrage of proposals and political statements is making markets and consumers even morenervous. Still, Brussels is pressing for a joint European approach. For a while the position inBrussels and a few other places has been "We're now very much for setting up large-scalespending programs, but we're not really going to ask what the exact effects of those might be.And since the amounts are so high, well, let's get the Germans to pay because they can." Ms.Merkel and I are trying to calm them down a bit just now, and understandably that's getting uscriticized.
What is wrong with the stimulus proposals?
The speed at which proposals are put together under pressure that don't even pass an economictest is breathtaking and depressing. Our British friends are now cutting their value-added tax. Wehave no idea how much of that stores will pass on to customers. Are you really going to buy aDVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain's debtto a level that will take a whole generation to work off. The same people who would never touchdeficit spending are now tossing around billions. The switch from decades of supply-side politicsall the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis,economists I respect tell me it is the credit-financed growth of recent years and decades. Isn'tthis the same mistake everyone is suddenly making again, under all the public pressure?
Doesn't an unprecedented crisis call for unprecedented measures?
 It's the yearning for the Great Rescue Plan. It doesn't exist. It doesn't exist! Dealing with anunprecedented crisis is a puzzle, a trial-and-error. Honestly, I don't know. I tend to be skepticalbecause it is human nature to see the crisis as even worse than it is. I don't want to downplayanything; 2009 looks like it will be a very difficult year. But we are not about to collapse. We are just about to ratify our 
31 billion stimulus in Parliament. As long as we haven't even given that achance to work, I am not going to participate in this bidding war over who can do the most. I tryto exude a little steadiness and continuity instead.
What entails the greater risk to the economy: not acting now before the pain gets worse or the negative consequences of overspending now?

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