VOTERS OF GERMANY, I salute you! On Sunday you delivered a fair, constructive and intelligent verdict on your political class. The fact that all respectable commentators in the German and European establishment agreed in declaring this election to have been an utter disaster — “the worst of all possible outcomes” is the cliché of the hour — merely confirms the democracy’s main premise: the collective wisdom of the people is usually wiser than the conventional wisdom of a self-regarding elite.

The German election was a triumph of democracy in the same way as the referendums in France and the Netherlands. Just like those referendums, it has created a political stalemate, neutered diplomacy and paralysed the economic reform process. But political paralysis was exactly what German voters wanted — and quite rightly so.

Germans were right to vote for political paralysis for the same reason that the French and the Dutch were right to immobilise Europe: because German politicians were all, without exception, determined to push their country in the wrong direction, and if you are moving in the wrong direction towards the edge of a precipice, immobility is a better option than dynamism. This was true in the spring when the French and Dutch voted to stop Europe’s headlong rush into the precipice of federalism. It was even more true on Sunday, when Germans voted to stop their politicians pushing the economy over the cliff from stagnation into outright depression.

This may sound perverse, since conventional wisdom has long maintained that a strong government, preferably led by Angela Merkel, was an indispensable condition for Germany to pull itself out of the economic doldrums, just as Britain did in 1979. For example, the Financial Times reported on its front page: “Germany’s election ended in a stalemate, casting doubt on the country’s ability to enact the policy changes needed to bolster faltering economic growth.” The statement that policy reforms would boost economic growth was offered not as an opinion, but as a matter of plain fact.

Yet if we consider these policies more closely, it is obvious that economic reforms of the kind debated in the election — higher taxes, cuts in wages, reductions in pensions — would make Germany’s dire situation even worse. If these were the policies that could pull a country out of recession, then Herbert Hoover would be remembered as the greatest US President of the 20th century and Montagu Norman would be more celebrated as an economist than Maynard Keynes.

To propose an increase in VAT in a country that has suffered from falling consumption and mass unemployment for the best part of a decade is not just “controversial”, “unpopular” or “politically risky”, as German political commentators have now belatedly concluded; it is irresponsible and destructive. When Frau Merkel proposed to combine the increased VAT with higher health charges, lower pensions and removal of tax breaks for lower-income families and homeowners — all in the midst of the worst recession that Germany has suffered since the 1930s — she was not just making a political blunder. She was engaging in an act of economic vandalism, and the top priority of German voters was to stop her. This seems a perfectly adequate explanation for the failure of the Christian Democrats, who recorded their lowest share of the vote since 1945.

Unfortunately for the German voters, the other parties’ economic policies were almost as bad. Gerhard Schröder, having presided over seven years of rising unemployment, could promise nothing more encouraging than a continuation of his failed policies, but with greater gusto. Given that the Greens were totally implicated with Schröder’s economic failure, while the Liberals failed to distance themselves from Merkel’s sado-monetarism, the only hope for the voters was to tie all their politicians in knots.

While political paralysis was a perfectly rational choice last Sunday for German voters, it offers no hope for the future. So how could Germany respond?

The answer is quite clear. German politicians of all parties must understand that they have made two fundamental, but easily remedied, mistakes. First, they have forgotten the fundamental economic lesson of the great depression that Keynes discovered in the 1930s, and which has never been refuted or even questioned by serious economists since then: an economy suffering from mass unemployment and weak consumption must be cured by boosting economic demand. No serious economist would dispute that an economy like Germany today needs a boost to demand.

But the symbiotic relationship between supply-side policies and demand management also leads to a second, much more cheerful, conclusion. In an economy where consumer demand is growing, supply-side reforms will make it far more efficient and prosperous. In such conditions, economic reforms can actually be popular and can get politicians re-elected.

There is one, and only one, requirement for Germany to restore its voters’ faith in politics, as well as its national self-esteem and its diplomatic role in the world: Germany needs an emergency programme to expand economic activity and reduce unemployment — not with vague promises of more “flexible” labour markets and more “competitive” markets sometime in the future, but with firm commitments to faster economic growth, driven by expansionary monetary and fiscal policies, implemented right now.

The only problem with this prescription is, of course, that monetary and fiscal policies are now controlled by the European Central Bank and the European Commission and not by national parliaments. As long as the ECB and the Commission keep control of monetary and fiscal policies, national economic reforms in Europe will be doomed to failure. And European voters will be right to treat with contempt the national politicians who allow this usurpation to continue.

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