The entry into force of the new “Treaty on stability, coordination and housekeeper in the Economic and Monetary Union” gives a more robust legal basis to the previous Regulations (the 6 that go by the name of six pack, in force since December 13, 2011; and the next 2 that go by the name of two pack, and have been in force since 30 May last year). All these rules (a hundred pages, with an infinite number of new obligations!) that the Commission had proposed in November 2011, aim to reinforce and extend the original "Stability and Growth Pact" (Amsterdam, 1997).
For now, they represent the main reaction to the eurozone crisis and measure the diagnosis prevailing in Brussels on its causes: the failure to prevent macroeconomic imbalances due above all (but not only) to budgetary policies that are not compatible with the constraints posed by the priority attributed to monetary stability.
To avoid this happening again, we therefore have new surveillance and prior evaluation procedures by the Commission (two pack) of the economic policy of the member countries and their problems (six pack).
To understand what is happening this week and in the future, we recall that by 15 October each country presented its own "2014 stability law" to the Commission. The following month, on Friday 15 November, the Commission published its assessments. Which will be discussed by the ministers of the Eurogroup on 22 November. The goal is that the approval process - national and community - with any corrections, ends by 31 December.
The importance of the findings of the Commission are different depending on whether the country is respecting the budget constraint of 3% (and Italy is among these); or is under excessive deficit procedure: in the latter case, the Commission's recommendations are binding.
And what does Germany have to do with it?
The picture of its public finances does not give cause for concern. But another chapter opens here: pursuant to Regulation 1176/2011 (the penultimate of the six pack) concerning the "prevention and correction of macroeconomic imbalances", the Commission prepared (and published on 14 February 2012) a "Alert Mechanism Report” which identifies a series of indicators and related significant thresholds to give a early warning of future macroeconomic imbalances to be prevented and if necessary corrected. This table shows – among the many indicators proposed – the threshold +6/-4% of GDP referred to the current balance of payments. And this is the indicator that triggered – as indicated by the EU Commission last November 15th, the need for an in-depth analysis relating to Germany; pursuant to articles 3 and 4 of Regulation 1176/2011.
In conclusion, no judgment has been formulated on the economy or economic policy of Germany, but only the activation of an "alert mechanism".
How the German economy works
However, many comments have already affirmed that the Commission shares the US concern of a Germany which has an embarrassing current account surplus, i.e. damages the economy of other countries, due to an excess of its own savings (the reference to the saving gluten years ago used to explain the troubles of the American economy). But is all this true?
At first glance, the statistics presented by balances of payments serve to measure excess spending or saving; and therefore the (more or less sustainable) impulses given to the world economy by each country. But if we look at how the global economy is changing, what is still true at a national level is less so if we think in terms of industrial chains (supply chains) and multinational-owned manufacturing.
These are all new aspects that are only now beginning to be studied in depth.
It is worth considering two recent studies on the new role of Germany: the first (September 2013) is by the BIS and discusses "Global and euro imbalances: China and Germany”; the second (October 2013) is from the International Monetary Fund and defines "The Germany-Central European Supply Chain".
In the first study, the difference in both real and financial terms between China and Germany is well underlined. The possibility of an EU proceeding against Germany is recalled, even if it is specified that the IMF's analyzes do not result in "incorrect" German policies, and that in recent years Germany's growing surplus is no longer vis-à-vis the Euro-area .
The IMF study, on the other hand, measures the growing integration between German industry and that of its neighboring countries (Poland, Hungary; Czech Republic, Slovakia): their industry is complementary to the German one and represents its supply of components, destined more to serve the world (as German exports) than German domestic demand. In other words, the economies of these countries would suffer if Germany aimed to replace the current growth in its exports with domestic demand.
Attachments: Is Germany Too Competitive?
