"Dealing With Chermany"

Paul Krugman says it's time to get tough with Germany and China:

Dealing With Chermany, by Paul Krugman: So here’s where we are: China has done nothing to change its policy of massive currency manipulation, and its exports are surging. Meanwhile, Europe is going wild for fiscal austerity. Angela Merkel says that budget cuts will make Germany more competitive — but competitive against whom, exactly?

You know the answer, don’t you? Yep: everyone is counting on the US to become the consumer of last resort, sucking in imports thanks to a weak euro and a manipulated renminbi. Oh, and while they rely on US demand to make up for their own contractionary policies, they’ll lecture us on how irresponsible we’re being, running those budget and current account deficits.

This is not going to work — and the United States has to take steps to protect itself.

Let’s start with China. Back in April we were told to lay off on the currency manipulation charges; the grownups would work something out with China. How’s that going, exactly?

Yes, threatening an anti-dumping duty would be a big step, and might pose some risks. But doing nothing is not an acceptable option. The economic recovery is in great danger of stalling — and if it does, the consequences will be a lot worse than a diplomatic tiff.

And it’s also important to send a message to the Germans: we are not going to let them export the consequences of their obsession with austerity.

Nicely, nicely isn’t working. Time to get tough.