Hans-Joachim Voth: The Euro Crisis - The Spanish Perspective

Welcome to our new video series titled "New Economic Thinking." The series will feature dozens of conversations with leading economists on the most important issues facing economics and the global economy today.

This episode features Institute for New Economic Thinking grantee Hans-Joachim Voth talking about the crisis in Europe. Voth, an ICREA Research Professor at the Universitat Pompeu Fabr in Barcelona and a German native, offers a unique dual perspective of a German seeing the impact of his home country's actions in Spain. Voth explains the short-sightedeness of Germany's handling of the euro zone crisis and suggests what Germany needs to do to help Europe finally emerge from the crisis. Below is an introduction from interviewer and Director of Institutional Partnerships Marshall Auerback. Watch the interview to see what Voth has to say!

Last year, there was a great sense of crisis about Europe, especially Spain.

The alarm was reasonable, as Spain was the one large economy where all the economic numbers appeared to have gone past the point of social acceptability: 25% unemployment and over 60% youth unemployment for those under age 25.

But as the country was collapsing, Germany continued to insist on “fiscal responsibility” and resisted significant recapitalization of Spain's banking system, which had collapsed in the wake of the country's real estate crash. Yet the only way to reduce the country's government deficit, as Hans-Joachim Voth argues in this interview, is by reduction of the private sector’s saving (which has deteriorated rapidly) or by movement of its current account toward surplus. Not coincidentally, Germany is a large net exporter, with competitive advantages over Spain.

Since Spain has adopted the euro, it cannot improve its competitive position by devaluing its currency. Its only hope for increasing exports is through a “race to the bottom” reduction of wages and other domestic prices. But doing so will reduce aggregate income and tax revenues—and this is a precarious path toward a current account surplus in any case because other periphery nations are in the same situation.

It is not clear that Spain can win the race to the bottom—against countries like Ireland, for example—and even if it were to win the race, that would simply mean that some other loser would take Spain's place.

Germany can only be a net exporter to euroland if some other euro nations are willing to be on the other end of the transaction. France, Italy, Belgium, and Spain are among Germany's 11 largest export partners, with each of these countries having a net deficit with it. It is the government and private deficit in these countries that’s effectively financing Germany’s exports and allowing it to run fiscal surpluses. Germany’s push for fiscal austerity combined with its export policy simply amounts to a mercantilist-type beggar-thy-neighbor policy of exporting its unemployment to its trade partners.

Within euroland, this strategy is at best a zero-sum game so long as Germany insists on fiscal austerity for all nations and yet plans current account surpluses for itself.

It is hard to fathom what the Germans are thinking, because as the crisis spreads from the periphery to the core, Germany’s export markets will fall like dominoes. Voth discusses the crisis in these terms in the following interview and illustrates the futility of trying to achieve euro zone-wide prosperity with a race to the bottom in a continent still characterized by woefully deficient demand.

What are his suggestions to end the crisis? Watch the interview to find out!



It is particularly interesting how the brain washing in Pompeu Fabra works (although Prof. Voth is no longer working there), since even a reputed scholar and historian can classify Catalonia as a "colony". Basing this name in the wrong assertion that Catalonia was "conquered by force" by Spain in 1714?
Well, Catalonia was part of the Kingdom of Aragon (or Aragon-Catalonia if you want). The kingdom of Aragon merged with the Kingdom of Castile in 1492. The kingdom of Navarra joined in, conditional on having some local privileges (fueros) and the kingdom of Granada was taken by force. Thus, then the first "modern" State (Spain) was born.
Catalonia was part of Spain before 1714 and after 1714. So what happened in 1714? The end of the war of Succession: a civil war in which some provinces of Spain bet on the Bourbon candidate and some others in the Habsburg candidate. Catalonia, as other provinces, bet on the losing candidate (Habsburg), and as such, the "deal" they have with the Bourbons was not Idyllic.
So, the only region of Spain that have legitimate historical claims of independence is Navarra, and the only region incorporated by conquest into Spain is Granada (plus any region in southern Spain that was incorporated to either Castille or Aragon, before 1492).

Thank you for this webpage, and thank you for the video that, beside the historical inaccuracy, is pretty good.


What? That region never existed as a sovereign nation except for the minds of their "pesseter" nationalists. Dr. Voth seems to suffer from the Xarnego syndrome, i.e.: need to join the native pure Catalans to be accepted despite being from abroad or mongrel. Hopefully, he will be considered now a New Catalan, maybe Joan Joaquim, "que bé"! (it is cool!)


I was in the Sun Coast area in 2004, and it was obvious that real estrate malinvestment had been rampant, and anyone stupid enough to buy into the celtic tiger, dot.com, wtf-ever, did not do their due diligence.

Simply traveling there during peak tourist season made it obvious that bad investments were occurring, because traditional concepts of vacation/space/resort were getting smashed into each other, with projects getting redeveloped during each phase of construction and the major redesigns were clearly reflecting a market that had no idea what it wanted, how large its market was, etc...

krugman even points out his own stupid: What happened to Spain was a housing bubble — fueled, to an important degree, by lending from German banks — that burst, taking the economy down with it. Now the country has 23.6 percent unemployment, 50.5 percent among the young.

no kidding. the original interest rates were too low, and because they have been corrected by Mr Market and not the government, spain is being taken to the woodshed. This lesson is universal. Ignore at your own peril.

Social investment may mean housing, sanitation, education, etc.

Social Investment is NOT: subsidizing timeshares for british tourists with german money. anyone dumb enough to even let that happen deserves slow immolation.

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