Ordnungspolitik fail

Adalbert Winkler has a nice text in Wirtschaftsdienst (in German). In it, he summarizes very nicely the inconsistencies of German Ordnungspolitiker. Ordnungspolitik translates as regulatory policy, however that is a bit misleading. Ordnungspolitik is a school of economists that come from the liberal side. They believe in free markets and that the government should not interfere with market results.

In 2008, the German government guaranteed for all liabilities of German banks. This was a policy response to the crisis, and it was completely against traditional Ordnungspolitik. It did not help the economy much, but the interesting thing is that according to Winkler nobody said anything against it. Now that Merkel proposes to guarantee for the all banks – the banking union – the Ordnungspolitiker are up in arms. That is odd, giving that German banks – and therefore, German taxpayers – are major lenders to other European banks. So, guaranteeing for national banks is ok, while it is not ok to so for European banks, even though Germans would stand to lose a lot of money from bankruptcy of both?

Instead of more integration, Ordnungspolitiker claim that responsibilities rest with nation states. These, however, do not have the policy tools to stop the vicious circle of banking sector and sovereign bond crisis. Therefore, the idea that an exit of Greece would leave the rest of the euro zone and Greece better off should be discarded. I would think that a Grexit would lead to more economic growth in Greece within months, while the rest of the euro zone would see its exports and hence output fall as the Greeks import less and export more. Then, Germany will have the structural problem and unemployment in the overblown export sector will rise. I would guess that those Ordnungspolitiker that see structural unemployment problems in Greece or Spain would not use that word for German unemployment in the export sector. Instead, they will revive the beggar-thy-neighbor vocabulary.

For some, economics is a religion, not a science.