Fiscal policy

As recent economic data shows, the German economy is dramatically slowing. Exports experienced their biggest fall for five years, growth forecasts for the next year have been downgraded by research institutes. It is quite possible that the country is already in recession. These are not just cyclical developments. A much bigger swing is on the way, which will end all talk about the economic powerhouse in the heart of Europe.

Juncker has not even started his new job as President of the European Commission yet and he is already showing why there was so much resistance to his appointment, particularly in economically liberal and conservative circles. In the pursuit of his policies, he is free of any guiding economic principles and indifferent to legal constraints.

In an ideal world, an economic liberal like myself would happily enter a debate supporting the moot that it is financial fundamentals driving investment markets. But it is not an ideal world, neither for economic liberals nor for investment markets.

For the Germans, July 8 was a good day. Not just because it also happened to be your columnist’s birthday or because of Germany’s emphatic 7-1 win over Brazil in the World Cup, but because this year, it also marked Germany’s Tax Freedom Day.

Bill English’s achievements of the past six years of adversity are remarkable. He now has to defend them in the coming years of plenty.

Markets are very good mechanisms for allocating resources via the price mechanism. By destroying the price mechanism, and by also undermining the incentives to disciplines of the market place, government almost by definition weakens the economy’s potential.

There is no shortage of issues in New Zealand that need to be tackled: the housing affordability crisis, or the challenges to our superannuation system, to name just two examples. But the opposition did not provide any game-changing policy ideas on either of them.

Stopping the absolute growth of government debt, let alone repaying it, is illusory. Therefore the alternative must be to grow the denominator in the debt to GDP ratio. This would at least allow the eurozone to leave its acute debt problems behind by growing out of them.