It was only just over two weeks ago (two weeks, which following the logic of a historical time which seems far from uniform, now seem like half a lifetime) that guest poster P. O’Neill, said this:
For understandable reasons — the addition of 10, and soon to be 12, new member countries, and the constitutional crisis, the European Union has been preoccupied with foundational questions in recent years. But an older concern is working its way back onto the agenda: how to handle an economic crisis in a member country……However, the risk of the latter type of crisis in a member country is now quite high.
The warning lights are flashing again â€“ this time in eastern Europe, and especially in the recent or imminent member countries of Hungary, Romania, and Bulgaria. Poland is also a source of concern. Some combination of profligate governments, political uncertainty, EU spending booms, and capital inflows have created precarious economic positions for these countries.
In comments here, Edward has addressed a question I was also thinking about this morning. He writes, “So the new coalition’s ‘play’ will be to try and really push-start domestic consumption in 2006. Obviously they hope some consumption will be brought forward in order to avoid the tax.”
Tax and a positive contribution from the ECB are important, of course, but I wonder if there aren’t other hindrances to domestic consumption. I’d be hard pressed to think of an upswing in the German economy that wasn’t led by exports and fed by investment. Domestic consumption brings up the rear.
Add to that strong admonitions in the culture that consumption is bad. Look at any apartment building and count the number of “No ads please” stickers on mail slots. Add in the Ã–ko (“ecological”) position that the best contribution to the environment is to consume as little as possible. Add deep cultural mistrust of credit. Add some of the demographic trends that Edward has written about in detail. All of these suggest that there are barriers to a recovery sustained by domestic demand that go beyond fear of the taxman.
Or I could be wrong. Americans, after all, have famously overthrown their Puritan heritage and consume enough to keep the world economy afloat. The hard-core economists could be right, and culture might play no role at all in household decisions. I honestly don’t know what to think about German consumption. Further thoughts, anyone?