Schaeuble Vs. IMF (and Einstein) – Who is right?

Really??Let’s say you have an entity that was supposed to grow by 3.8% at one time. Then within three months the projected growth was cut to 3.6%, which in turn was cut to 3.4% in another three months, and then it was again cut to 3.2% within next three months. Clearly, it shows that a trend is emerging and a logical person will say that whatever that you are doing is not working and that a course-correction is needed.

Would you change course? After all it was Einstein, who said, “Insanity is doing the same thing over and over again and expecting different results.” Not many people will go against the good old professor and neither should you.

The case for doing something different becomes even stronger when another party like, the International Monetary Fund, says something similar. In its World Economic Outlook UpdateIMF warned,

A prolonged period of slow growth has left the global economy more exposed to negative shocks and raised the risk that the world will slide into stagnation, the IMF warned.

The title of the outlook is “Subdued Demand Diminished Prospects”. Specifically, the fund, cites: i) the global impact of ongoing slowdown and rebalancing of Chinese economy; ii) a generalized slowdown in emerging markets; iii) a gradual exit from extraordinarily accommodative monetary conditions in the US; iv) lower commodity prices. It says that if these key challenges are not successfully managed then the global growth could be derailed.

Now, if you are the finance minister of a major economic superpower, say 4th biggest GDP in the world, then what would you say? If your answer was change nothing but double down on what has been done then you would be absolutely right.

The erstwhile Finance Minister of Germany, Wolfgang Schaeuble, wants to maintain the course.

German Finance Minister Wolfgang Schaeuble will press to implement already-agreed international policy steps rather than new measures at a meeting of global finance chiefs in Washington later this week, a government official said.

It is very difficult to understand Herr Schaeuble and the insistence by the like-minded people he leads on continued austerity in spite of its detrimental impact on weaker economies in particular and global growth in general. World is highly inter-connected and policies and actions of Germany has an outsized impact on the world economy. Let’s hope that saner views prevail in this week’s meeting of global finance ministers and central bankers and something concrete is decided to revive the global activity and growth.

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