“All of us have to stop spending more than we earn every year.”
Who does she mean by we? If it is countries then the comment is nonsense. As I mentioned recently, countries can sustain a stable debt level while spending more than their income. So long as the deficit is less than the nominal growth rate multiplied by the debt ratio, the debt will not increase as a proportion of GDP. For example keeping the debt below 60% of GDP in a country with 5% nominal growth means keeping the deficit on average below 3%.
If she means businesses then how are they to finance investment? A small business with an opportunity to expand typically borrows from a bank. A large firm may borrow by issuing bonds. Without "spending more than they earn", businesses would have trouble to grow, modernise or innovate.
If she means households, then it is sensible not to spend more than you earn, but only measured over a lifetime. In youth, people borrow to fund education, buy a house, etc. In middle years people may save to fund retirement when spending is based on past income.
Even stranger was her claim that East Germany failed due to a lack of competitiveness:
“We witnessed in the GDR and in the entire socialist system that an economy which was no longer competitive was denying people prosperity and ultimately leading to great instability.”I can think of many reasons why the GDR economy collapsed, but wrapping them up in one portmanteau word is a feat beyond even Humpty Dumpty.
Finally, Mrs Merkel hinted at even scarier ideas to come:
Although Ms Merkel stopped short of suggesting that a ceiling on social spending might be one yardstick for measuring competitiveness, she hinted as much in the light of soaring social spending in the face of an ageing population.The right is out to cut the welfare state and Mrs Merkel is aiming to cut social spending in pursuit of the chimera of competitiveness.
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