Euro-austerity unpopular ... in US, Paul Krugman quotes

Euro-austerity unpopular ... in US
Chevrolets sold off cheap in the US, as German car exports do well
Chevrolets sold off cheap in the US, as German car exports do well

In the United States right-wing Republicans and centre-left Democrats have joined hands in thundering against the EU’s tough austerity measures.

Germany is their chief target, even though France and Britain are operating along similar lines. Britain is taking advantage of a cheap pound and France a cheap euro making exports more saleable.

The argument is that only the US is maintaining a Keynesian stimulus package that artificially boosts demand, while Europe's mainly right-wing governments enforce austerity.

The view from the US is that German Chancellor Angela Merkel plans to limit German consumer debt while US consumers carry on spending with their credit cards. By the end of the year the German debt will be only slightly larger, while the US debt bloats.

Senior centre-left economist Paul Krugman warns that the situation is getting out of hand and is demanding the US government go into action.

"Merkel says that budget cuts will make Germany more competitive but competitive against whom, exactly?" he asks. "You know the answer, don't you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi [the Chinese currency]. Oh, and while they rely on US demand to make up for their own contractionary policies, they'll lecture us on how irresponsible we're being, running those budget and current account deficits.”

Germany's current account surplus is expected to reach 154bn euros this year, or six per cent of GDP, driven by car exports, which increased by nearly half in May compared with a year ago.

German carmakers Porsche, Volkswagen, BMW and Mercedes owner Daimler exported 367,700 cars in May this year, an increase of 46 per cent on May 2009. In April car sales, many of them to the US, increased 58 per cent year-on-year.

The US deficit will hit more than 10 per cent of GDP this year.

Krugman’s last word is that China and Germany, or "Chermany", are a problem.

China’s "massive currency manipulation" should be punished with extra taxes on imports, he recommends. As for Germany, he says, “Send a message to the Germans: we are not going to let them export the consequences of their obsession with austerity."