Summers and Schauble Debate European Economic Fate

German Finance Minister Wolfgang Schäuble and former U.S. Treasury Secretary Larry Summers went head to head on Thursday, in a discussion over the best way to reinvigorate the European economy.

Speaking as a panelist at a CNBC-chaired International Monetary Fund (IMF) debate in Washington D.C., Summers claimed Europe’s economic measures were simply “not working”.

The renowned economist also compared Europe’s lackluster growth to Japan’s stagnation in the mid-1990s. He warned that, like Japan, the region could face years of deflation and “dismal” economic performance if it did not start investing more and reverse some of its current policies.

“What’s happening in Europe is not working. What followed in Japan was 15 years of deflation and dismal economic performance, followed by dramatic declines in interest rates – that is the path that Europe is on without a substantial discontinuity in policy,” Summers said at the debate.
Summers said Europe, and Germany in particular, should follow recent advice from the IMF to invest in infrastructure projects, which would “pay for itself ” by lowering sovereign debt burdens.

However, Germany’s Schäuble refuted comparisons with Japan, saying Europe was a “specific” case. “You can’t compare (Europe) with Japan, nor with the U.S., to be very frank,” he said in response to Summers.

“You have to know the specificities of Europe— on average (Europeans’) expenditure for social purposes in relation to GDP is double compared to the U.S., Canada and Australia,” he added.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza