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The joint statement after the G-8 summit stated that "our imperative is to promote growth and jobs." It stated the budget deficits need to be addressed but said "spending cuts must "take into account countries' evolving economic conditions and underpin confidence and economy recovery." Germany's Merkel in her remarks said growth and deficit reduction supported each other, that "we have to work on both paths, and the participants have made clear, and I think this is great progress." Opposition Social Democrats in Germany say Ms. Merkel is adept at changing as the situation changes, and it appears Merkel is making the transition away from strict austerity policies she had championed earlier. Especially now with fresh elections in France, Netherlands and Greece, and the election of Francois Hollande on a pro-growth platform, the German position of strict austerity is being increasingly questioned on all sides. French president Hollande met U.S. president Obama at a pre-arranged meeting prior to the summit. Obama and Hollande see the need to reduce high unemployment in the U.S. and Europe by encouraging growth, creating a common interest....

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China's trade surplus rose to $457 billion at an annual rate in the 4th quarter, 50% bigger than in the same period for 2007. Exports dropped by 13% in the 4th quarter but imports dropped faster by 21%, which explains the growing trade surplus. With the stimulus spending kicking in in 2010 imports should pick up just as exports decelerate fast, reversing the direction of the trade surplus.

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Krugman questions whether the assumptions behind the austerity policies are true- that they would inspire confidence in economic recovery, or that in the absence of austerity policies borrowing costs would go through the roof. The recent events in Holland with the collapse of the government in the Netherlands- when a party leader supporting the government said he did not want to hurt pensioners in the Netherlands just to satisfy German opinion- and the mood in France with economic anxiety vote going to Marie Le Pen and Francois Hollande in the first round of presidential elections, shows that very little confidence has been created. High unemployment and economic anxiety are leading to a reappraisal of austerity cuts that depress the economy and reduce tax revenues, but Krugman says no changes are taking place to correct these policies. This is true for Spain with its high unemployment, and Britain which now has two quarters of negative growth.

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Krugman says austerity measures alone won't work as the economies in the eurozone shrink in 2012.

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Russia experts Robert Nurick of the Atlantic Council, and Graham Allison of the Belfer Center of International Affairs at Harvard, see a sea change in attitudes to Russia following the interventionist policies of president Putin. The Obama administration will now focus on limiting Russian influence for the remaining two years of Obama's second term. There is a loss of faith in Putin on the part of Obama and close advisors. Russia is seen as a regional power, and the Ukraine crisis is seen as having a serious impact on the Russian economy through decline in trade, foreign investment and capital outflows. Russia is a regional power because it is not the same as the old Soviet Union, it is much smaller, with a declining population, and dependent on oil revenues, and in this sense not the Russia U,S, president Truman and Kennan faced during the Cold War. Obama advisors see Putin's actions as counterproductive for Russia, as the economy is now seen as contracting in 2014, making its actions in Syria, and in Ukraine, unwise foreign policy moves that hurts Russia's economy and future prosperity. Democratically elected leaders in Turkey and Russia with control over the media and shutting down the opposition using control of the judicial process, have shortchanged democratic ideals, and in the process concentrated powers in one leader. This creates risks of arbitrary exercize of power without the checks and balances that are built into a truly functioning democracy, with foreign policy errors eventually leading to a resolution of the conflicts created as these policies are increasingly called into question. Putin and Erdogan were reelected because of economic growth- a contractionary economy or steep declines in growth put everything at risk. A footnote on Kennan, American diplomat and linguist, is appropriate. A quick reading of Wikipedia's excellent account of Kennan will show that Kennan was in favor of a nuanced approach to Russia based on changing conditions. He observed that policies that were seen as anti-Russian actually helped Russian leaders throughout history solidify autocratic type rule, which actually hurts Russia's normal evolution and development. Normal development and evolution similiar to ways Germany and other nations left behind Prussian history and traditions for a open, free society, and in the ways even the U.S. left behind older practices such as slavery in the south and limited representation democracy. In fairness to Kennan it should be said that containment of the Cold War was more a Truman-Acheson doctrine- continued under Eisenhower by Dulles-Nitze, and under Kennedy by Rusk-McNamara- which has roots in Soviet intentions of destabilizing war ravaged western Europe starting with Greece, following similiar efforts in Eastern Europe. Truman was right in aiding Greece, but the U.S. needed to be aware of changing conditions and not take a rigid stance, and get locked into supporting client states just because they were "our guys," a lesson Kennan emphasized throughout his life. Putin and Erdogan use appeals to Russian and Turkish nationalism to improve electoral support and stifle free expression of ideas necessary for growth in any society. This also provides a way to have a discussion with our German friends on engagement and economic relationships, without the rigid outlook of a Wilsonian or Acheson-Dulles kind. ...

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Lee describes the problems the Russian economy faces with the depletion of the Reserve Fund following collapse of oil prices. Finance minister Siluanov says the Reserve Fund could run out by 2017. The National Wealth Fund hols $73 billion and is used for infrastructure projects and bank bailouts, and pensions. The defense budget is expected to decline by 5% in 2016 as the military buildup slows from a slower economy. The World Bank predicts a poverty rate of 14.2%. The 50% decline in the ruble has hurt imports. The lack of access to international capital markets has also hurt growth, even though Russia has only small debt.

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Germany benefits from the lower value of the euro in relation to other currencies. Germany's exports to the eurozone as a percentage of all exports increased from 38.4% in 2009 to 41.7% in 2011, according to the Germany Federal Statistical Office and the German Chambers of Industry and Commerce. Exports to China increased from 4.64% to 6.11%, and to Asia from 11.8% to 13.73%, and to the U.S. from 6.77% to 6.95%. This increases the gap between Germany and other eurozone countries with smaller exports. Ireland with its large export base and foreign investment is likely to benefit from the lower euro. German companies VW, BMW, Mercedes, Heidelberg Cement and EADS also benefit from the weaker euro. France's Peugeot with sales concentrated in Europe does not benefit from the weaker euro compared to German auto companies with higher sales overseas, especially in China.

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

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The caretaker government of prime minister Mark Rutte in the Netherlands will commit to following austerity plans in its Stability Program report to the European Union. Elections are now set for September 12, 2012. The government was able to get the support of two smaller left-leaning parties to austerity plans. Opposition parties have questioned the policies and said they will reverse them if elected. Rutte's Liberal party and Jaeger's Christian Democrats, with the help of the Christenunie, D66, and Groenlinks, now hold a slim 2 seat majority in the 150 seat Dutch parliament. The Freedom party that had previously supported Rutte withdrew support for austerity policies that it said would hurt pensioners. The moves help avert a credit ratings drop by the credit ratings agencies leading to a loss of the Dutch triple A credit rating. The measures will increase the sales tax from 19% to 21%, make health care spending cuts and impose a pay freeze on civil servants. Savings achieved will be 11 billion euros. Rutte described his actions as: "the government's respose to the acute crisis in confidence in the financial markets." Earlier in the week Fitch Ratings had threatened to lower the Netherlands credit rating. The measures will reduce the Dutch deficit to 3% in 2013 from 4.5% in 2012 to meet EU fiscal compact rules. The changes to the health system are part of changes advocated by the OECD and the IMF because of surging health care costs for an aging Dutch population. There is concern about the sales tax increase because of its effect on consumer spending, and recent comments by S&P managing directors and others in financial markets emphasize the need for economic growth, as austerity measures by itself are inadequate solutions....

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Porter cites a report by Kai Daniel Schmid and Ulrike Stein of the Macroeconomic Policy Institute in Dusseldorf. The report shows the top 10% of Germans having 26% of the country's income before taxes and transfers in 1991. This increased to 31% by 2010. For the same period of about 20 years the bottom half of the population took in 17% in 2010 dropping by 5% from 22%. The growing income inequality in Germany is comparable to what has happened in the U.S. over this period.

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Greg Ip provides useful insights into the nature of the economic recovery in Britain compared to the U.S. by 2015. The recovery in Britain has done better than in the U.S. in job creation, but has lagged behind in productivity gains. The labor force participation rate is 72% in Britain compared to 68% in the U.S., going back up to 2007 levels in Britain, whereas in the U.S. it has steadily declined with some older working class Americans too discouraged to look for work and left behind. Stagnant wage growth is a major issue in Britain, more so than in the U.S. where wage growth is slow. Economic austerity is not the main cause of the economic difficulties as the coalition government of prime minister Cameron relaxed earlier goals for austerity by 2012 with tax revenues and growth below forecasts. The structural budget deficit has been reduced by 6.6% of GDP since the peak, and the Office of Budget Responsibility estimates the UK economy was 1.5%-2% smaller by 2013 because of the austerity policies. Britain was also affected by the eurozone crisis to a larger degree than the U.S. Productivity remains a long term challenge- with needed investments in housing, education and infrastructure, improved lending for new business, and higher tech improvement exports....

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The Social Democrats leader Sigmar Gabriel is Economics Minister in the coalition government of Angela Merkel in Germany. He is sympathetic to French premier Manuel Valls effort to reduce austerity in the 2015 French budget now being reviewed by Brussels. Here he takes the initiative to call for discussion on the issue of growth and austerity facing the European Union, by joining French Economics minister Emmanuel Macron in asking two economists Pisani-Ferry and Enderlein at the Berlin Institute of Governance for advice on generating growth. The process started in late summer with the defeat of the centre right government in Sweden which supported Merkel's strict austerity policies for balanced budgets. The elections to the European parliament showed the dire situation facing Cameron in Britain and Hollande in France with the unpopularity of austerity policies, higher taxes and cutbacks. The Socialist Hollande government has the lowest public opinion ratings of any postwar government in France, at 18%, and it is unwilling to go further down the road with austerity. At the same time Valls has found a partner in Italy with the growing popularity of Matteo Renzi in Italy who won 40% of the vote in Italy for the EU parliamentary elections of 2014. ECB president Mario Draghi, has generated the debate by saying at a October 2014 Brookings Institution conference in Washington D.C. that countries that have fiscal space (referring to Germany) should use it. He added that governments that did not take action in the economic crisis facing the eurozone of no growth will be swept away by public opinion. IMF president Lagarde, a former French Finance Minister under Sarkozy, has also questioned policy of strict austerity. For the first time since the start of the eurozone crisis in 2010 there is an opportunity for open discussion on future policies for renewal in the eurozone....

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Shiller says policy is captured and communicated by metaphors, the most effective being belt tightening for a family. However what works for a family does not work for a country in the same way, especially if not accompanied by other measures and implemented in a strict manner without looking at the real situation. Better suggests Shiller, and more real is the metaphor of "winter on the family farm," where people work to do other chores than planting and harvesting, because a lot of other things need to be done and this is a good time to do it. This would include cleaning up the place, fixing the farm and the barn, fixing machinery, building fences. The farm's members pay a tax in terms of donated labor which goes to do all the work needed and helps the farm's productiveness as the weather changes. Similiarly the Salant-Paul Samuelson balanced budget theorem from the FDR days shows an increase in national output by the amount of a tax, such as the one proposed in France by president Hollande; that would then be invested in hiring more teachers (the labor) and investing in education infrastructure....

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The Russian economy gets an exceptional boost with the behaviour of ruble currency separating from the oil prices. Russia benefits from higher oil prices at the same time as it benefits from a weaker ruble. The ruble has declined 15% since April after more sanctions on Russia. The revenue earned in dollars converts into more rubles for imports and other financing for the Russian economy. At the end of 2017 a barrel of oil brought in 3,835 rubles for Russian sellers, when converted into rubles from U.S. dollars. In October 2018 each barrel brings in 5,262 rubles, an increase of 40%.  Russia deftly managed its emerging market crisis with lower ruble following the crisis in Ukraine by adapting its economy to a lower ruble, lowering imports and using import substitution. Initially Russia split with OPEC and Saudis to produce oil all out, but by 2018 with the Saudi economy hurting and Russia feeling the impact of lower oil prices, an OPEC agreement with Russia has pushed prices higher with production limits. Earlier adaptation by 2016 to the lower ruble, further decline of the ruble in 2018 with sanctions by U.S. for Russian interventions in other countries including the U.S. election meddling, have combined with higher oil prices to strengthen the Russian economy. Russian private and government debt held by foreign investors has fallen since 2016 to 32% in the first quarter, according to Societe Generale. This means Russia is less sensitive to foreign investor exit from the country with political and economic winds changing. Russia's current account surplus increased to $18.3 billion in the first quarter of 2018, up from $14.6 billion in the prior quarter. A weaker ruble has translated into more inflation which reached 5.5% at the end of 2017, above 4% target. Russia's central bank made quarter point increase to 7.5% for the interest rate in September 2017. Overall the management of the emerging market crisis since 2016 as Russia responded to NATO expansion and adopted its own policy is remarkable considering the damage from earlier emerging market crises. Countries such as Argentina, Brazil, and even India are feeling the impact of the current emerging market crisis, each with its own version of the crisis- Argentina with dollar denominated debt, Brazil lacking money in the budget after high pensions, and India with higher energy costs and weaker rupee.   ...

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Saudi Arabia continued to follow a policy of high oil production in 2016, and reported that it produced 10.67 million barrels a day in July 2016. Iran is producing at a pre-sanction level of 4 million barrels a day. 2017 oil demand prediction by OPEC is at growth of 1.15 million barrels a day. Experts says that the interests of Iran and the Saudis may be converging to reduce production as they face low oil prices. Iran needs to make large investments and Saudis face budget cuts with low oil prices. They point to this cooperation being temporary as there are issues of competing politics in the region, and beyond that both countries seek to expand their market share.

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A very relevant comment about the media coverage on Putin's negotiations in Beijing for supplying natural gas to China, by a reader of the WSJ, Frank Peel. He points out China and Russia do not share the same goals and Putin talked about the Chinese as tough negotiators after signing the deal. The price as a "commercial secret" is because its years, could be 5, before gas actually flows to China from Siberian fields. Russia, is a smaller oil based economy- having failed to make the transition to a diversified economy- and very susceptible to the economic conditions in Europe and the U.S., as the 2008 crisis showed with very steep drops in output. President Obama has also pointed to this. Russia also shares with Argentina the tendency for elites- in the case of Russia a newly created oligarchy of business interests under Putin and his predecessor- to shift capital out of the country, making it even more susceptible to loss of value of the currency, the ruble. Devaluation of the ruble experienced under Yeltsin was severely traumatic for Russia, and the head of Russia's central bank went on state television recently to reassure ordinary Russians that this would not happen. The rainy day sovereign fund of over $400 billion acts as a cushion for shocks in short periods, but sustained loss of foreign investment would damage prospects for future improvements in standards of living or economic growth....

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The WSJ's Spencer Jakab points out the role of politics- with Saudi Arabia in a standoff with Iran and Russia in Middle Eastern conflicts- and Saudi policy of full output with no cuts unlikely to change, ensuring lower prices for 2016-2017.

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The yuan is up 5.5% since the peg to the dollar ended in 2010, reaching 6.469 to the dollar. But this is not helping the U.S. trade deficit. The U.S. Bureau of Labor Statistics shows the price of imports from China are up 2.8% in May over the same month prior year. And the trade surplus for China in the first four months of 2011 is higher than the same period in 2010. What is happening? The improvements in productivity of Chinese manufacturers and the acceptance of lower margins is reducing the effects on trade balance of a small appreciation of the yuan, so that only a fraction of that appreciation is showing up in higher prices for Chinese goods. Also significant is that the yuan's small appreciation against the dollar is not enough to make up for the dollar's fall against other currencies. The yuan is down 8.3% against the euro and has actually declined 3.7% on a trade weighted basis in the last year.

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Krugman points to the connection between the failure to achieve debt reduction through debt forgiveness and the sluggish economic growth in the eurozone and U.S., five years after the global banking and financial crisis of 2009 and four years after the beginning of the eurozone debt crisis in 2010. In the U.S. debt reduction for homeowners was delayed with a wave of foreclosures, and in Europe austerity budgets were the norm as Germany pushed hard for austerity policies. In 2014 small relaxation of austerity to give relief to voters took place in Greece, France, Italy and Spain, with austerity budgets still in place. Growth also slowed in Germany to slight contraction in the third quarter and no growth in the fourth quarter of 2014. This is leading to the formulation of new policy to address growth challenges in the eurozone. Debt to GDP is growing in eurozone countries and Britain because of lack of growth, even though spending cuts have been made, showing the need for rethinking policy. ...

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....