German Tycoons Want The Cake And Eat It Too

By Julio Godoy* | IDN-InDepth NewsAnalysis

BERLIN (IDN) – Several recent economic news from the Eurozone illustrate the way the German industry bosses want to have their cake and eat it too: As the German federal statistical office (Destatis) informed earlier in December, the country’s export reached a record of some 100 billion euros, some 135 billion U.S. dollars, the highest amount ever measured in a month.

This record followed another – of surplus in the German trade balance – of more than 20 billion euros, beating the top score of June 2008 by more than one billion, as the Destatis stated in a press release on November 8, 2013.

More important for the purpose of this analysis is that Germany exported goods to the value of 35.3 billion euros (+4.4 per cent) to the Euro area countries – Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain – in September 2013.

The value of the goods Germany received from those countries was 33.0 billion euros (+1.8 per cent). That is, the German balance of trade with the other country members of the Eurozone increased again, aggravating the imbalances within the area.

At the same time, the European Central Bank (ECB) announced its decision to cut interest rate to an all-time low of 0,25 percent, as reaction to a dramatic drop in Eurozone inflation, to an annual rate of 0.7 percent in October, well below the bank’s official target of about two percent.

This fear of deflation is mostly based on the development of prices in the southern Eurozone countries, especially Greece and in Spain. In Greece, prices fell in October by 2 percent compared to the same month one year ago, marking the highest level of deflation registered in the country since 1962, according to figures by the independent Greek statistical agency ELSTAT.

The Greek price level started falling March 2013, for the first time since 1968. Greece is in the sixth straight year of recession, provoked by the compounded crisis of global finance, the bailout of banks, and sovereign debt, which led to a dramatic cut of public spending, the austerity measures imposed by the so-called troika, of International Monetary Fund (IMF), the ECB, and the European Union. As consequence, Greek disposable income has fallen by more than 30 per cent since 2008, and unemployment reaches an all-time high of almost 28 percent.

In Spain, price level in October 2013 also fell by 0.1 percent compared to one year before. Although this fall appears negligible, compared to the inflation rate of September 2013 (+ 0.3 percent), the fall of prices is indeed quite worrisome, as indicated by Instituto Nacional de Estadistica (INE) in a press release.

Similar to Greece, Spain is suffering of a deep fall in economic performance, at worst expressed by a record rate of unemployment, of almost 26 percent. As in Greece, the economy suffered between 2009 and 2013 a deep depression, and only in November 2013 started a mild recovery. This recovery is endangered by the fall of prices.

Italy, France, Portugal, and other Eurozone countries are facing similar economic downturns, as consequence of the austerity measures.

All in all, then, the decision by the ECB to cut interest rates and thus make more money available to drive investment and consumption both public and private appear to be a timely policy. Also the move makes the Euro more competitive compared to other currencies, in particular to the U.S. dollar, the Japanese yen, and the Chinese yuan.

The measure also guarantees that the battered countries in the Eurozone, such as Greece, Spain, Portugal, and Italy, can borrow money from international capital markets at relative low interest rates, thus guaranteeing their further membership in the Eurozone. Without the ECB policy of extreme low interest rates, and its buying of unlimited amounts of government bonds from such countries, it is likely that the Eurozone would have cracked long ago.

The Euro devaluation, however marginal, has certainly improved Eurozone trade balance with the rest of the world. The more so for a country such as Germany, that has made the surplus of its balance of trade its most important economic target.

The ECB decision

And yet, German authorities could not hide their disapproval of the ECB decision. As the Association of German Public Banks expressed with dismay, “Unprecedented low interest rates substantially devalue savings in Germany and the euro area and increase the danger of bubbles.”

The hawkish German Central Bank president, Jens Weidmann, opposes both policies too: In an interview with the German weekly Die Zeit, Weidmann complained, “We (in the Euro zone) have lowered interest rates and are offering banks unlimited liquidity. But … the money printer is definitely not the way to solve it. It will still take years until the causes of the crisis are eliminated.”

Apart from that, neither Weidmann nor the Association of German Public Banks offered a solution for the deflation risks in Greece, Spain, and elsewhere in the Eurozone. But Weidmann, representing the German government and the German industry, also opposes these countries leaving the Eurozone.

In yet another development, the new German government coalition formed by the conservative Christian Democratic Union (CDU) and the Social Democratic Party (SPD), announced it will introduce a minimum wage of 8.50 euros an ahour that should be operational in 2015 and be fully in place by 2017.

For comparison, the minimum wage in France is at present 9.43 euros per hour, and will rise to 9.53 euros on January 1, 2014. In Britain, the kingdom of neoliberalism, a minimum wage is in place since 15 years, and presently amounts to 7.54 euros per hour, for workers older than 22 years.

The introduction of a minimum wage in Germany has been demanded by German partners in the Eurozone, who argue that the country must increase its domestic demand, as a contribution to alleviating the trade imbalances within the zone.

German unions also put the minimal wage top on their agenda; the IG Metall, the largest union in the country, had demanded a minimal wage of exactly 8.50 euros in 2006 – seven years ago. If you consider the inflation rate since then, which according to figures by the Organisation for Economic Cooperation and Development (OECD) statistics has gone up by 10.4 percent, this minimal wage is actually worth only 7.60 euros at 2007 prices.

The minimum wage is also necessary to compensate the fall of real salaries in Germany, which has been occurring practically since the mid-1990s.

As the German Institute for Economic Research estimated in 2009, “Net real wages in Germany have hardly risen since the beginning of the 1990s. Between 2004 and 2008 they even declined. This is a unique development in Germany – never before has a period of rather strong economic growth been accompanied by a decline in net real wages over a period of several years. The key reason for this decline is not higher taxes and social-insurance contributions, as many would hold, but rather extremely slow wage growth, both in absolute terms and from an international perspective. This finding is all the more striking in light of the fact that average employee education levels have risen, which would on its face lead one to expect higher wage levels.”

Falling net income

After a short period of rising real wages, Germany is experiencing again falling net income for workers: From January through September 2013, the German inflation rate was 0.3 percent higher than the gross wages increases.

The other side of this fall of real wages/salaries is the growing injustice in income distribution: Numerous studies show that relative income poverty increased from 10 to 15 percent between 2000 and 2005 relative to the poverty risk threshold, that is, to 60 percent of median income. The change in income inequality in Germany is thus more than twice the OECD average by international comparison.

Despite that, the German industry complains that the devaluated minimal wage to be in place in 2017 would lead to higher unemployment. As the new head of the Confederation of German Employers’ Associations Ingo Kramer put it, “Those who promise a minimal wage of 8€50 for all, must also say that they want to pay it at the price of sacrificing the high level of employment we have reached in Germany.”

Kramer was referring to the alleged German employment success, which in the official interpretation line has been brought about by the controversial Agenda 2010, the neoliberal package of measures that reduced salaries and social standards for workers to achieve full employment.

Unfortunately, this is yet another German illusion: the Agenda 2010, introduced by the former Social Democratic-led government of Gerhard Schroeder in 2003, aimed at reforming the labour market and social welfare system, and used the neoliberal models practiced in the United States under Ronald Reagan and in Britain under Margaret Thatcher und Anthony Blair as template.

In the German official interpretation, the Agenda 2010 is the basis for the present economic success of the country, both in international trade as well as in the labour market. Germany has an official unemployment rate of 7.6 percent, the lowest registered since 1991. As the federal statistical office says, Germany also has the highest number of employed people ever.

And yet, the figures do not tell the whole truth about the German labour market. In another recent report, the very same agency confirmed what most critics of the Agenda 2010 have always said: The total national work volume, that is, the total annual hours of work are now lower than 1991, and steadily fallen since then, implying that the Agenda 2010 never created a single new full job. Indeed more people are working now, but most of them do it only part time, and under harsher social and salary conditions.

The agency indicates that despite the fictive high national employment rate, ever more German workers are affected by poverty than four years ago. This risk is higher among the older working people, that is, those aged between 55 and 64: the risk of poverty in this age group went up from 17.7 in 2007 to 20.5 percent in 2011. The poverty risk among young workers (aged 18 to 24) is similarly high, but has remained constant since 2007.

One could add examples of how the German economic elite in general, and the industry in particular, with the help of practically all German political parties, want for them the best of all worlds, however contradictory that might be:

Germany wants Greece, Spain, and Portugal to remain members of the Euro zone, but it does not want to pay for any of the costs this membership imply.

Germany laments the social costs that the austerity measures have brought upon these societies, but is not ready to ease them.

Germany wants that the Euro zone countries continue to import its goods, but it also wants that they lower their living standards, as sole solution to the sovereign debt crisis.

Germany boasts about full employment and economic success at home, but it does not want to share the benefits of these achievements, neither with its own workers nor with the European fellow citizens.

In a nutshell: German tycoons want to have the cake and eat it too.

*Julio Godoy is an investigative journalist and IDN Associate Global Editor. He has won international recognition for his work, including the Hellman-Hammett human rights award, the Sigma Delta Chi Award for Investigative Reporting Online by the U.S. Society of Professional Journalists, and the Online Journalism Award for Enterprise Journalism by the Online News Association and the U.S.C. Annenberg School for Communication, as co-author of the investigative reports “Making a Killing: The Business of War” and “The Water Barons: The Privatisation of Water Services”. [IDN-InDepthNews – December 26, 2013]

Top image credit: Wikimedia Commons | Bottom Picture: Julio Godoy – Credit: ICIJ

The writer’s other IDN articles:

2013 IDN-InDepthNews | Analysis That Matters

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