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One anecdote that brilliantly explains Germany's austerity problem

Adam Berry/Getty Images

In 1895, German Kaiser Wilhelm II opened a canal from Kiel on the Baltic coast to Brünsbuttel on the North Sea, allowing ships to avoid a long trip around Denmark. A couple of world wars have broken out in the interim and the canal needed various kinds of modification, but last year, for the very first time, the locks failed, forcing a two-week closure of the canal. And as Ambrose Evans-Prichard lays out it's the perfect symbol of the dysfunction lurking beneath the apparent success story of low German unemployment:

Large ships were forced to go around the Skagerrak, imposing emergency surcharges. The canal was shut again last month because sluice gates were not working, damaged by the constant thrust of propeller blades. It has been a running saga of problems, the result of slashing investment to the bone, and cutting maintenance funds in 2012 from €60m (£47m) a year to €11m. This is an odd way to treat the busiest waterway in the world, letting through 35,000 ships a year, so vital to the Port of Hamburg. It is odder still given that the German state can borrow funds for five years at an interest rate of 0.15pc. Yet such is the economic policy of Germany, worshipping the false of god of fiscal balance.

The debate over fiscal policy in Europe has been dominated by the specter of German "bailouts" of poorer and more indebted countries. But the lowest-hanging fruit would be simply for Germany to become more generous with itself. Cutting sales taxes would raise living standards. Investing more in transportation infrastructure could raise productivity. Both would raise German demand for goods and services, helping some of Europe's higher-unemployment countries.

The canal's current route (Maximilian Dörrbecker)

Instead, Germany's entire economic policy is geared around balancing budgets and keeping wages low to boost net exports. The problem is this further presses the boot down on Europe's other economies, while leaving Germany itself hostage to the whims of external demand. At the moment, German exports are plunging because of events in China and Russia that are entirely out of Germany's hands. A more self-reliant strategy will benefit everyone in the long run.