[...]German 2009 GDP Forecasts Getting Revised Down | afoe | A Fistful of Euros | European Opinion[...]…

I guess in the case of Germany the unemployment benefits will be extended by half a year. The benefits for recipients of compensation for shortened working hours has been extended. Not doing so for the unemployed would be very difficult politically.

If by the second half of 2010 unemployment is still high, the reforms of the previous administration will backfire and people will take to the streets.

“Any research about “Authomatic Stabilibilisers” versus fiscal stimuli?”

The real point I am trying to make is that the automatic stabilisers don’t work, since this contraction is structural and not cyclical(a credit crunch followed by a large correction, and then a slump in global trade – the WTO forecast a 9% contraction this year, export dependent economies like Germany and Japan simply cannot “resist” a fall of this magnitude, stimuls pans of 2 or 3 percent of GDP are a drop in the ocean). The contraction – except possibly in the case of France where the stabilisers work to some extent – now feeds on itself, and the national governments are more or less out of ammunition because of what happens to the bond spreads.

Also, the fiscal side as Bernanke is now practising it has now got more to do with provoking inflation (and avoiding deflation) than it has with stimuli as such. This is what I am arguing we need at the ECB, or we are going to shoot off into some sort of hopeless deflation.

I mean, at this point, how can there be “research” on any of this. This is the first time since 1930 we have been here, and last time round there were no automatic stabilisers, so we have nothing to compare with.

The issue is going to be, what do we do when the stabilisers run out. The problem in the 1930s were the millions of unemployed with no available benefit. We aren’t there yet, but if Europe’s leaders don’t wake up we could get there.

I think Oliver is more or less on the right lines. The thing is, with demand for products (apart from what I think is likely to be a short term uptick in cars) falling, there is a limit to how long they can keep people employed as the inventories pile up.

Germany is getting shock waves of several orders of magnitude from the East, and since the economy is export driven, if the customers are worse of in H2, then so will the German economy be. Up to now, the labour market and consumption have more or less held up, but that is going to change.

Over the entire period 2009-10, discretionary measures adopted in Germany total 3.5% of GDP, but the contraction is greater, so the stimulus simply gets eaten up and spat out at this point I think. See my bigger article.

I thought that the stimulus plan will take some time to take off. This means that spending has not even started yet, and most of it will be spend in the second half of this year. But maybe I am worng with this.