German Insistence On ‘Punishing’ Europe Is Slowly Killing German Economy

Angela Merkel wants to punish the rest of Europe for not treating its people like dirt:

Angela Merkel was unmoved by another roller-coaster day that saw Portuguese debt being downgraded to junk status, Italian bond yields pushed into the bail-out zone, and doubts cast over France’s AAA rating: the German Chancellor refused to allow the ECB to become Europe’s lender of last resort.

Ms Merkel instead used a three-way summit with France and Italy in Strasbourg to insist that new treaty powers to intervene and punish sinner states remained the key focus of Europe’s rescue efforts. She said: “The countries who don’t keep to the stability pact have to be punished – those who contravene it need to be penalised. We need to make sure this doesn’t happen again.”

That’s right, Angela! Punish those Frenchies and Italians and Greeks! Payback for being made a pariah state after World War II! Hoo-rah!

Except, of course, that it’s slowly strangling the German economy (h/t David Dayen): “Germany’s central bank on Monday cut its forecast for German economic growth in 2012, projecting gross domestic product to expand by 0.5% to 1% versus an earlier prediction of 1.8%, Dow Jones Newswires reported.”

Is Austerity Killing Europe’s Recovery? Well, Duh.

The WaPo’s Howard Schneider (or his headline writer) asks “Is austerity killing Europe’s recovery?”

He then proceeds to answer his own question:

The campaign to reduce government deficits has come in response to a European debt crisis that could endanger the global banking system. And the budget cutting has been coupled with a reluctance by the the European Central Bank to stimulate economic growth like the Federal Reserve has in the United States; the ECB has instead raised interest rates twice this year to contain inflation.

Those steps have sucked hundreds of billions of dollars out of a European economy that may be edging towards recession.

Such a downturn, by choking off government revenues and increasing the demand for public services, could put struggling countries such as Spain and Italy at risk of missing the very deficit-reduction targets that budget cuts and other austerity measures were meant to achieve.

You don’t have to look at Spain and Italy for proof that austerity kills economies — just look at the UK. Their recovery ground to a halt once Nick Clegg fell for the extortion of the BNP Paribas ratings agency, which threatened to downgrade the UK’s credit rating if Clegg didn’t form a government with the austerity-jonesing Tories.

I’ve been seeing more pro-Keynesian rumblings lately. Could it be that some of the elites realize that they may be slowly smothering their own golden geese and need to back off from the neoliberal plan to destroy public social services worldwide?