This, from Ambrose Evans-Pritchard, is incredible:
The Kaiser Wilhelm Canal in Kiel is crumbling. Last year, the authorities had to close the 60-mile shortcut from the Baltic to the North Sea for two weeks, something that had never happened through two world wars. The locks had failed.
Large ships were forced to go around the Skagerrak, imposing emergency surcharges. The canal was shut again last month because sluice gates were not working, damaged by the constant thrust of propeller blades. It has been a running saga of problems, the result of slashing investment to the bone, and cutting maintenance funds in 2012 from €60m ($77m) a year to €11m.
This is an odd way to treat the busiest waterway in the world, letting through 35,000 ships a year, so vital to the Port of Hamburg.
Here's some context. Germany's economy shrank at a 0.8 percent annual pace in the second quarter. Its exports and industrial production just fell 5.8 and 4 percent, respectively, the most either has since the depths of the crisis in January 2009. And, after accounting for wear and tear, its net government investment in the economy has been negative the past 12 years. Germany, in other words, needs more spending and needs new infrastructure.
The solution is as obvious as it sounds. So to say it again, Germany needs more spending and needs new infrastructure.
Germany should stop obsessing about its short-term deficit, and start spending more on roads and bridges and schools instead. Markets are all but begging it to. Indeed, investors have actually been paying Germany to borrow over two years — that's right, a negative interest rate — even before inflation.
But out of some misplaced sense of fiscal self-righteousness, Germany would rather let its critical infrastructure fall into disrepair than take this free money. And in the long run, it would be free. That's because, as the IMF argues, better infrastructure could boost the economy so much in the short-and-long-runs that it would almost pay for itself as long as borrowing costs are so low.
But Germany is stubbornly sticking with spending cuts instead, and it's making the rest of Europe do the same.
It's an austerity suicide pact, and Germany doesn't even want the ECB to cushion the blow. It turns out, though, that forcing your customers into a worse depression than the 1930s isn't good for you, either. It's left Germany, which despite its image as an economic powerhouse has only grown 1.1 percent a year the past decade, teetering on the edge of its own slump — with Russian sanctions maybe enough to push it over.
It doesn't seem like it, but Germany is still the sick man of Europe. It's just that everybody else is terminally ill now. The problem, of course, is that Germany won't let any of them, itself included, take the economic medicine they need. It would rather pat itself on the back for following self-imposed budgetary rules than maintain its roads and canals.
It's unaffordable fiscal discipline that's crippling the economy today and tomorrow.