It has been widely noted that the "originators" of the current crisis - i.e. the US, Britain and Spain - are suffering less in terms of GDP contraction than "virtuous" Germany. According to The Economist's latest projections, 2009 GDP will contract as follows:
USA: -2.9 %
UK: -3.7 %
Spain: -3.3 %
Germany: -5.2 %
The obvious reason for Germany's below-average performance is the steep decline in Germany's current account surplus, whereas the other countries are helped by declining current account deficits.
But there's a second reason: Fiscal deficits.
There's been a lot of discussion about who provides the largest stimulus, and how to properly calculate the size of the different stimuli. But a very simple and straightforward thing to do is to simply look at projected budget deficits in % of GDP. The Economist has the following numbers for 2009:
USA: -13.1 %
UK: -12.3 %
Spain: -9.6 %
Germany: -4.4 %
Aren't those numbers simply unbelievable? The US is taking on additional debt equal to 13 % of GDP, and the UK 12 %. And in spite of this totally unprecedented volume of deficit spending, and a massive improvement in their trade balances, their economies are still only expected to contract a little bit less than Germany's.
I'm not saying it's wrong to run these fiscal deficits. They have to do something to soften the blow to their economies. But it tells you something about the size of the underlying problem. And I must say I find it a tad bizarre how Krugman and others still seem to be saying it's "not enough". How can a 13 % deficit possibly be "not enough"?