All Roads Lead To Austerity

Germany isn’t going to allow the Eurozone free spenders unfettered access to its pocketbook. The Germans aren’t going to pay for other people to retire at 60 when they have to wait to retire at 67. Nor should they.

*MERKEL SAYS ECONOMIC GROWTH MUST BE SUSTAINABLE
*MERKEL SAYS LIVING BEYOND MEANS LED TO EURO DEBT CRISIS
*MERKEL SAYS SHARED EURO-AREA DEBT ‘COUNTERPRODUCTIVE’ NOW
*MERKEL REJECTS JOINT EURO BONDS, JOINT EURO BILLS
*MERKEL REJECTS JOINT DEPOSIT INSURANCE IF MEANS JOINT LIABILITY

This leaves the free spenders between a rock and a hard place. Their choices are between austerity enforced by their inability to borrow money from the credit markets at interest rates they can afford, or austerity enforced by Berlin.

Claiming that huge government deficits are necessary for “growth” isn’t impressing the Germans. By and large, they understand that the Keynesian fantasy of growth through perpetual deficit spending is just that, a fantasy. Of course liberal politicians clinging to their perquisites will be the last to admit that, but even in economics you can’t sustain a contrafactual forever.

Given the choice, the free spenders will ultimately agree to whatever fiscal control the Germans demand on the theory that they’ll be able to cheat that much more easily than they can fool the bond market – just as Greece is openly ignoring the agreement that it signed a few months ago. However, even with the cheating, there will be new constraints on government spending.

Edit: Ms. Merkel just laid it on the line, per Bloomberg:

GERMANY’S MERKEL SAYS EUROPE WILL NOT HAVE SHARED LIABILITY FOR DEBT AS LONG AS SHE LIVES

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