Rival to German Chancellor says austerity measures too severe

Reuters reports that a rival to Angela Merkel has said that the austerity measures being required of the eurozone peripheral countries are too severe.

Regular readers know that the austerity measures are the result of adopting the Japanese Model for handling a bank solvency led financial crisis and protecting bank book capital levels and banker bonuses at all costs.

By attacking austerity that has turned a recession into a depression in the eurozone peripheral countries, the rival has put the Chancellor in the position of having to defend the indefensible.

I call defending the Japanese Model and any of the policies that result from it indefensible because there is an alternative that has been shown to work everyplace it has been tried:  the Swedish Model.

Under the Swedish Model, banks are required to recognize upfront the losses on the excess debt in the financial system.  By recognizing the losses, the debt service associated with this excess debt is not placed on the real economy where it diverts capital from reinvestment and social programs.  This preserves the real economy and the social contract.

Former German Finance Minister Peer Steinbrueck, who is running against Chancellor Angela Merkel in next year's election, said austerity measures being imposed on struggling euro zone countries were too severe. 

In an interview with the Frankfurter Allgemeine Sonntagszeitung (FAS), Steinbrueck said austerity measures were pushing some countries to do too much too soon. He said there would be massive protests in Germany if such a heavy dose of austerity were to be imposed so quickly. 

"The savings measures are too severe, they're leading to depression," said Steinbrueck, 65, a Social Democrat (SPD) who was finance minister from 2005 to 2009 in Merkel's right-centre grand coalition government. 

"Some societies are being forced to their knees. Budget consolidation is in some ways like medicine. The right amount can save lives while too much can be lethal." 

Steinbrueck noted that some countries were being forced to make spending cuts that amounted to five percent of their gross domestic product (GDP). 

"In Germany that would amount to 150 billion euros (of spending to be cut)," Steinbrueck said. "You can imagine what the protests would be like on German streets with that."