Opinion

Euro meltdown won't be avoided by German makeover

By Matthew Lynn (China Daily)
Updated: 2010-07-01 13:02

Who is to blame for the state of the world economy? To listen to a range of presidents, investors, pundits and finance ministers, just one country: Germany.

US President Barack Obama suggests the Germans are sending the world back into recession. George Soros says they are destroying the euro. French Finance Minister Christine Lagarde thinks they are pushing the euro area into deflation.

It is all crazy.

Germany's huge trade surplus isn't part of the problem. Handicapping the strongest link won't help the European economy. And Germany couldn't change direction now even if it wanted to. Instead of criticizing the Germans, other nations should be learning from the world's second-biggest exporter. German brands such as Siemens AG, Bayerische Motoren Werke AG and Bayer AG didn't just appear for no reason.

It's not hard to find people blaming the Germans for everything going wrong in the world. The country hasn't been getting this much flak since World War II.

Before the Group of 20 summit in Canada, Obama scolded countries cutting government debt as another recession threatened. US Treasury Secretary Timothy Geithner this month called for "stronger domestic demand growth" in European countries that have trade surpluses, such as Germany.

In response, German Chancellor Angela Merkel said in a speech last week she had told Obama that cutting spending is "absolutely important for us".

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Billionaire investor George Soros said in a lecture last week that Germany "is the main protagonist" in the euro crisis, and the austerity plans of Europe's biggest economy may inflict deflation on the region.

That echoed a theme pushed by Lagarde in March, when she argued that Germany should cut its trade surplus to help out the nations running deficits.

The consensus seems pretty clear. If the world does slip back into recession, and if the euro collapses, it's all the fault of the Germans. Their insistence on saving money, living within their means, and getting debt under control is the greatest threat the world faces.

There's just one snag with this analysis: It's upside down.