Germany and Britain in war of words

Who do you think you are kidding, Mr Steinbrück?

Who do you think you are kidding, Mr Steinbrück?

The attack on Gordon Brown’s fiscal stimulus by Peer Steinbrück, Germany’s Social Democratic finance minister, in Newsweek provoked the predictable chauvinistic responses. London’s Evening Standard talked of a “Berlin blitzkreig” and quoted an unnamed Labour MP as calling it a “rant”.

Steinbrück’s criticism of Labour’s economic policy was certainly pointed:

“Our British friends are now cutting their value-added tax. We have no idea how much of that stores will pass on to customers. Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90? All this will do is raise Britain’s debt to a level that will take a whole generation to work off. The same people who would never touch deficit spending are now tossing around billions. The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking. When I ask about the origins of the crisis, economists I respect tell me it is the credit-financed growth of recent years and decades. Isn’t this the same mistake everyone is suddenly making again, under all the public pressure?”

However, given that the Labour government frequently sets itself up as a model for the rest of the world to follow it can hardly complain about criticism. Not everyone is likely to share New Labour’s self-adulatory assessment of its own achievements.

In any case the Little Englanders do not seem to have noticed that Steinbrück’s main target was America. Although he singled out London it would be possible to make similar criticisms of Washington – including the incoming Obama administration. Only Steinbrück was diplomatic enough to stick to criticising Britain, a relatively minor power, rather than America.

If there is any doubt about Steinbrück’s main target it is worth reading the blog post from Paul Krugman, New York Times columnist and Nobel prize winner, on Steinbrück’s remarks. Krugman talks of the German government’s “boneheadedness” in blocking a substantial European reflation package.

The world looks set for many more of such spats in the coming period.