David Cameron, Angela Merkel and John Maynard Keynes

The Financial Times reported from London on Friday that German Chancellor Angela Merkel wants a “core group” of European countries to push forward with more steps toward integration to fight the Eurozone crisis.
The FT reasoned that Merkel’s call was a direct slam at British Prime Minister David Cameron, who last week visited Berlin and said afterward that the Eurozone needs to enact more short term measures to fight the crisis.
The Chancellor said that the countries in the "currency union have to move closer together", reinforcing the shift to "a multi-speed Europe" which began with the introduction of the single currency. "We cannot just stop because one or other doesn't want to join in yet."
This comment was certainly aimed at Britain, which has always refused to adopt the Euro as its currency, and at the same time, has offered advice to the Eurozone leadership about what it should be doing.
If Germany and its Chancellor are irritated at Great Britain for having the good sense to stay out of the Euro common currency, perhaps the irritation is the result of Germany’s own rather bitter experience as a Eurozone member.
The fact is that while Germany has profited from the Euro because it has helped Germany to capture a market for its industrial products, Germany is now on the darker side of the Euro moon. The reality is sinking in all over Europe that only Germany has the financial clout and deep pockets necessary to save the Euro and perhaps the European Union as well.
As you can imagine, this is not the best of news for a German population that has spent the last 20 years paying to re-integrate communist East Germany into the German state and economy, a very expensive job that is not yet complete.
So, imagine the cost of saving 15 other countries from fiscal collapse. Even Germany’s pockets might not be deep enough.
And, to have the British Prime Minister remind Germany of its duty and tell it to get cracking on the job at hand does not sit well either with German voters or Mrs. Merkel and her government.
But, it must be said that David Cameron, and all the British Prime Ministers before him who have rejected the Euro, are right.
The current European attack against Cameron and his government these days is that they have cut back on government spending to the point that Britain is close to recession.
The unspoken premise is that John Maynard Keynes and his economic philosophy of spend-to-jumpstart-economies-in-trouble is out of mode in Britain. It may be that Britain will have a few quarters of flat growth (don’t you love that term for stagnation?), but in the medium term, Britain will be much better off because it is not saddled with the expensive and non-performing Euro common currency experiment.
And what are the rules the German Chancellor wants to adopt?
Tighter fiscal controls so governments cannot drastically outspend their income stream - doesn’t that sound a lot like what the British Prime Minister is already doing? Or re-capitalizing Eurozone banks to provide a cushion when they are left with zero-value government bonds they bought from Eurozone member countries. Britain has already recapitalized its banks.
Even the United States is jumping on the bandwagon, telling Germany and the other Eurozone leaders to solve the problem NOW.
Keep in mind that America recapitalized its banks during the 2008-2010 period as part of pasting together the banks hit by the housing market collapse. And, America has already spent a lot on staving off recession, but Federal Reserve Chairman Ben Bernanke said last week while testifying before Congress that more spending to bolster banks would be done only if things deteriorate from hereon.
So, dear readers, we have two examples of countries whose governments spent early then cut back so that the private sector could re-calibrate and get on its feet again - Great Britain and the United States. It must be said that the Republican House and its Speaker John Boehner have put on the spending brakes while President Obama and the Democratic Senate would like to go on with Keynsian style spending.
We also have 16 Eurozone countries that have delayed taking their spending brakes medicine for so long that the dosage and suffering of the patient will be even worse when the medicine is finally swallowed.
And, the fault can be laid at the door of Germany and its Chancellor, Angela Merkel, whose wait-and-see and don’t-ask-Germany-to-foot-the-entire-bill attitudes have made the Eurozone weaker and perhaps have killed off Greece’s chances of ever recovering as a Eurozone member.
It should also remind American voters that more government deficit spending is not the answer to the remaining problems in the US. Jobs and economic growth will come when the private sector is convinced that the federal government in Washington is its ally in the fight and not its enemy.
Mitt Romney is right about this, just as David Cameron is right. There comes a time when economies must correct their problems in the private sector and that time is now for Britain and the US.
Keynesian economics cannot be a free lunch forever.