Europe is in a depression, because Germany is afraid of a recovery [not on its terms].
It's afraid that more inflation and more spending would wreck its export-led growth model. And afraid that southern Europe would stop trying to adopt that model if they had an easier way out. So Germany has left them no way out....
The euro's problem, as the U.S. Treasury points out, is Germany wants the rest of Europe to become sellers too, but isn't willing to buy more itself.
Germany, of course, calls this criticism "incomprehensible." Its Economics Ministry thinks that its massive trade surplus just shows the "strong competitiveness of the German economy and the international demand for quality products from Germany." But that's a non sequitur. Germany doesn't have such a big trade surplus because it sells so many quality products. It has such a big trade surplus because it sells so many quality products and it buys so little. Nobody is asking Germany to stop making quality products. They're asking Germany to start paying their workers more and to start buying more from abroad. In other words, to tolerate a bit more inflation and government spending.
But the opposite has happened. Germany has fought any and all monetary easing out of fear of nonexistent inflation. And it really is nonexistent. In October, overall euro zone inflation fell to a four-year low of 0.7 percent, while German inflation was just a tad higher at 1.2 percent. Despite this, Germany's central bank still opposes easier money, because it sees the specter of inflation in ... apartment prices in its major cities. It'd be funny if it weren't dooming southern Europe to a depression. See, with German prices (and wages) rising so slowly, Europe's crisis countries can't regain competitiveness by having their own just rise slower. They have to cut wages instead—which, as Iriving Fisherpointed out back in 1933, can throw an economy into a death spiral by making debts harder to pay back.
Austerity, though, has already thrown southern Europe into a death spiral.
The Atlantic | Business
Germany's Export Obsession Is Dooming Europe to a Depression Matthew O'Brien