Heiner Flassbeck: Germany must learn to understand international trade

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The economist Heiner Flassbeck once again criticizes German economic policy. The reaction to the US “Inflation Reduction Act” shows that Germany has not understood international trade. A fresh start is needed in terms of economic policy.

On the news portal Telepolis comments the renowned economist Heiner Flassbeck on the subsidy dispute between the USA and the EU. Flassbeck spoke at length about Germany, where, in his opinion, the economic and political context and the basics of free trade were not understood. For this reason, the country also attracts negative attention internationally due to its destructive economic policy agenda.

Germany and the EU criticize the US “Inflation Reduction Act” (IRA) as a protectionist measure. Flassbeck agrees: the IRA serves less to fight inflation and more to protect the US from dependence on imports from abroad. This is understandable, however, as is clear from what Flassbeck then explains in more detail.

Germany in particular has fundamentally misconceptions about what free trade means.

“What is at stake is not easy for the Europeans and especially the Germans to understand because they have been convincing themselves for decades that they are the greatest free traders in spirit and in their actions. They are not allowed to say that free trade can never be a one-way street convey.”

Flassbeck points out that the US current account vis-à-vis Europe has been negative for decades, with few exceptions. Within the EU, on the other hand, Germany is the country with the largest export surplus.

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The fallacy that Germany is caught in is that it sees countries as companies. Companies can gain a temporary competitive advantage through innovation – countries cannot. Germany has gained advantages through the policy of wage moderation and wage settlements below the distribution margin, which lead to global imbalances.

The IRA is an answer to these imbalances, as will become clear in the following article. Flassbeck then concludes:

“Europe needs a fresh start that, like in the USA, focuses on the domestic market and less on the world market. But this can only succeed if Germany goes ahead with a completely new economic policy orientation.”

But that requires a completely different understanding of economic policy, explains Flassbeck. Everyone involved should be able to participate in economic growth.

“The focus must be on the income of the great mass of people. What is needed is not the best low-wage sector in the world, as a social democratic Chancellor once proudly called it, but the best participation of all citizens in economic success.”

In Germany, however, people are a long way from this realization.

This economic policy background and the long-lasting economic policy dispute between Germany and the USA also sheds a different light on the act of sabotage against the Nord Stream pipeline, which according to a recent media report was planned and carried out by the USA. It drastically reduces Germany’s competitiveness, since it increases the prices for German products because German industry is particularly energy-intensive. At the same time, the loss of Russian energy sources due to sanctions is forcing Germany to become dependent on the USA, which is partly filling the gap and will in future be supplying Germany with fracking gas at far higher prices. From this point of view, however, the attack on Nord Stream in Germany has hardly been discussed.

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