Business

Last updated: 10 november, 2010 - 16:24 GMT

Is Merkel 'economically illiterate'?

Roger Bootle

Roger Bootle

The respected UK economist Roger Bootle has attacked Germany's economic policy. Mr Bootle of Capital Economics said he thought comments by the German leader, Angela Merkel, indicated she was "either a very good actress" or "completely economically illiterate".

In a newspaper interview this week, Germany's Chancellor Angela Merkel warned that trade protectionism was the greatest threat to global recovery. She rejected vehement calls from many US politicians that China should be forced to dramatically strengthen its currency in order to boost the competitiveness of US producers.

The BBC's Manuela Saragosa put it to Mr Bootle in an interview on World Business News, that the US looks increasingly isolated.

Transcript is below.

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Roger Bootle: The fundamental fact we have to bear in mind all the time is that America has been supporting world demand, and most of the countries in Asia have been doing the opposite. And that as far as I'm concerned means that the Americans are the good guys and the Chinese and the other Asians are the bad guys. In simple terms, they've been living off the fruits of demand created in America and the Anglo-Saxon world and it can't go on. Germany should be in the dock as well.

I mean, I find the comments by Angela Merkel quite amusing in a way, she's either a very good actress or she's completely economically illiterate. I'm not quite sure which I actually believe. Germany is the China of Europe. And so no wonder she's saying, you know well she doesn't believe in current account surplus targets and so forth. Of course not because she's trying to defend the fact that there's Germany sitting there with this enormous surplus contributing next to nothing to the growth of demand. The German economy's doing quite well at the moment, pretty much exclusively on the back of the growth of exports. If you look at the growth of German consumption over the last 11 years, it's next to zero.

Manuela Saragosa: But that's not Germany's express fault-

RB: It is-

MS: Isn't it partly a function of the euro, and the fact that the euro has been relatively weak internationally-

RB: No-

MS:- and therefore that's helped German exports?

RB: I'm not bothered about German exports, that's fine. The issue is what Germany imports. Export to the clappers, sell Mercedes and goodness knows whatever else - as much as you can. That's absolutely fine. But would you please buy something from the rest of the world? The fact that German demand is as weak as it is, is Germany's fault. Who else's fault is it? The British fault? The American fault? How can we control German domestic demand? The fact of the matter is, this is a country - and China's another one - which adopt mercantilist principles; that's to say, they think it's perfectly okay to get richer at the expense of other countries. Well of course, for the world as a whole, that can't work and we are coming to pay back time.

MS: That doesn't bode well does it? Merkel on this side of the fence and America on the other side of the fence going into the G20. Doesn't look like there's any room for compromise there?

RB: No, I don't think there is much room for compromise and I suspect what's going to happen is one of these ghastly pseudo-compromises. The communique has probably already been written. Maybe some sort of current account target regime will emerge, but it won't amount to anything.

I don't yet think there's any fundamental meeting of minds. My ghastly suspicion is it will take another crisis to bring that about and at the moment the Americans, I think, believe the combination of a bit of pressure and more quantitative easing will lift them out of this and pass, but I don't think it will.

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