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Comment by Despegar | Hacker News Reader

There's nothing I enjoy more than the plight of the German Saver, who's obsession with "fiscal responsibility" has led to shitty austerity politics all across the EU (to be fair some other northern European countries like Netherlands also share the same view) and depressed growth for the poorer southern European countries.

Germany has benefited most of all from the unfinished project of the EU. Without becoming a federal union like the US, but having a common currency, Germany's exports have been artificially cheaper and thus more competitive for over 20 years.

This is the natural outcome from the obsession with running fiscal surpluses. Now Germany is on the brink of recession and they're finally starting to make some noises about fiscal spending, but the politics will likely limit it to modest deficits than anything transformational. Enjoy the negative rates.

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Virtually nothing in this rant about German economic policy has anything to do with the article except for the expression of delight at the idea of individual Germans losing money.

Germany has absorbed a large number of refugees at huge social cost precisely because they believed they could afford it. It seems disingenuous to ignore Germany's role in overall European stability and suggest that the good German burghers hoard money in order to rape the rest of the continent with cheap Volkswagens.

Yeah why not buy Volkswagen shares then?

It's not a rant, it's a slightly tongue in cheek but also slightly serious, analysis of the political and economic reality of Germany and the EU.

Individual Germans would actually end up benefiting the most from a change in national religion about saving if their government opened up the purse strings.

It is absolutely relevant! The reason for these negative rates is because of Germany's fiscal and the EU's (influenced by Germany) monetary policy. This is happening because the average German does not understand that having a budget balanced is sometimes not a good thing. As this has caused a lot of misery to southern countries, I think the parent's complaints are totally valid.

The "misery" of the southern countries is merely one of not being able to spend profligate amounts they haven't earned on sustaining unaffordable social policies.

To take the most extreme example, Greece, and some problems evident when they hit the buffers a few years ago.

Hairdressing and playing the trombone are/were considered dangerous professions by the government, because that allowed people to retire at 50. The pensions in question are vast and the state cannot afford it.

Public sector wages rose 50 percent between 1999 and 2007.

Tax evasion was rampant.

Salaries were very high, industry near none existent. Its books were fraudulent - the country was only able to join the euro at all because it misrepresented the state of the economy.

Attempts to fix these problems triggered riots and political chaos, much of which had explicitly anti German rhetoric. The Germans, you see, were being totally evil by not shovelling all their savings into this money furnace disguised as a developed country.

What about Spain?

Home of the famous airport to nowhere: https://psmag.com/economics/airport-to-nowhere-spains-costly...

And a giant housing bubble: https://en.wikipedia.org/wiki/Spanish_property_bubble

Has a large (>2% GDP) government deficit but raised the minimum wage by 22% last year.

Germany isn't inflicting misery on southern countries, they inflict it on themselves, and it should by all rights be dramatically worse - and if it weren't for Germans sending them such huge wealth tranfers it would be much worse.

And yet, here we are with people buying Greece 10Y treasuries yielding 2%. Almost risk-free...

Jesus, this comment sounds so bitter. You’re complaining that the average person in Germany wants to save money and be fiscally responsible? Coming from my viewpoint (in the US), we could definitely use more of that.

A poor economics understanding has led people to believe that saving is somehow a virtue. Government budgets aren't the same as household budgets. The former is what I'm talking about. I don't care if any individual wants to save his/her money and consume nothing.

> Government budgets aren't the same as household budgets. The former is what I'm talking about.

Why though? The article is specifically about private savings.

Even though certain economists and politicians know better, they ultimately reflect the political will of the people. So while at an individual level it doesn't matter that someone saves all their income and spends nothing, if that becomes the "culture" then it influences politics (which it has). Even the leftist parties in Germany don't drift far from this orthodoxy.

The great thing is that negative rates are self-correcting. While the story mentions the German finance ministry is considering making it impossible for banks from passing on the negative rates to depositors, so clearly they're going to try literally everything to keep the delusion going, eventually after putting their banks at risk and realizing the negative rates aren't going away they'll figure out they need to actually spend on a national level.

> they ultimately reflect the political will of the people

That requires some proof. The German public loves to save, the German state doesn't. The German public hates bailouts with tax money, the German state loves them. Germany isn't a good example for "individual interests form policy".

> Even the leftist parties in Germany don't drift far from this orthodoxy.

Why would they, leftist parties love generous state spending and high debt. The somewhat surprising part in Germany is that the conservatives love spending and hate saving, too.

Are you aware of the schwarze Null? Germany has had a balanced budget for many years. It's almost a political religion in Germany.

I am aware of it. I'm also aware of the fact that it's a lot of bookkeeping, i.e. not counting bank bailout costs, pension guarantees etc, the implicit public debt looks very differently. And keep in mind that the last few years with little to no new debt (on the federal level) were during record tax income and strong growth that is now turning into a recession. With explicit public debt hovering around 65% of GDP, Germany is pretty average in both the world and Europe.

In this environment, talking about the German government as if it were spending money carelessly seems to me to not reflect the reality.

People are willing to pay money for the privilege of lending money to the German government. Yet the German government, including the supposedly left-wing SPD, is still holding to the schwarze Null ("black zero," meaning a balanced budget). A rational policy in this environment would be to take advantage of negative interest rates to finance stimulus. Instead, they're dogmatically holding to the zero-deficit policy.

Look at Germany's spending, and then predict how it will be financed a year or two into a recession, especially with falling exports. Since it's hard to cut the expenses, you either increase taxes, or you increase debt. Taxes are already pretty high and unpopular. The "balanced" budget has been a thing since 2012, but hasn't in the past 50 years before that. It's not like it's virtually unknown for Germany to take on debt.

As for the SPD being left-wing: traditional political categories quickly break down when applied to Germany, the continuum is "far left, nothing, nothing, the super majority in the center, nothing, nothing, far right". There's very little actual difference between the "conservative" CDU, "social democrat" SPD, the socially progressive Green party and the "free markets will take care of that, whatever it is" FDP when it comes down to policies, which is also why Germany's policies don't change a lot when the government changes (the conservatives removed the military draft, the social democrats cut back the social system, and the pacifist Greens & social democrats went to war in Kosovo).

> A rational policy in this environment would be to take advantage of negative interest rates to finance stimulus.

In a time of growth, record tax income, strong-ish inflation (thank god for cellphones and smart tvs or it would shoot up like crazy)?

> Taxes are already pretty high and unpopular.

Taxes on income, yes. Taxes on spending, yes. Taxes on capital gains, not really. And taxes on property are virtually nonexistent. And where's that financial transaction tax people were talking about 10 years ago?

> Taxes on capital gains, not really.

The share of tax revenue they provide isn't that large, it's about as much as car tax. Even if they doubled it, it wouldn't really matter. Property taxes do exist, but they aren't a federal issue, they (together with a tax on company earnings) fund the local communities, the federal level is funded by income tax and sales tax, mostly.

> And where's that financial transaction tax people were talking about 10 years ago?

It was mostly activists talking about it in a "if we all got together and did this world wide, it would be so nice" kind of way. I don't see that happening any time soon.

> In a time of growth, record tax income, strong-ish inflation (thank god for cellphones and smart tvs or it would shoot up like crazy)?

Germany is on the verge of recession. Growth was negative last quarter. Inflation is around 1%, which is rather low.

So is the rational policy you recommend to go into debt for stimulus, and pay off the debts in subsequent years, through lower government spending? Or would it be to go into debt permanently, passing the interest payments on to future generations?

The interest payments here would be from the bond holders to the German state.

Right, but if you issue a 10-year €x bond and spend the €x, in 10 years you have to repay the bondholders, which means you either have to have saved up €x over the intervening years, or you have to take out another loan of €x at the prevailing interest rate.

Unless the state is expecting bond rates to remain negative indefinitely.

Debt is usually paid off by inflation. As in: If you have a non-zero inflation, your GDP grows accordingly (all other things being equal), so you can take on new debt and still have your debt-as-percentage-of-GDP stay the same.

"Even though certain economists and politicians know better, they ultimately reflect the political will of the people. So while at an individual level it doesn't matter that someone saves all their income and spends nothing, if that becomes the "culture" then it influences politics (which it has). Even the leftist parties in Germany don't drift far from this orthodoxy."

I cannot believe that we are this far through this discussion, with 80+ points and 120+ comments and not one person has mentioned the underlying cause that is deeper than the "german culture of savings".

None of them had any kids.

Their birthrate is well below replacement.[1] You can't produce an inflationary environment when households aren't being established and the major, overriding driver of consumption has been removed from the lives of so many Germans.

There is a reason they have all this money to save ...

[1] https://en.wikipedia.org/wiki/Demographics_of_Germany "The total fertility rate was rated at 1.57 in 2017." (vs. a replacement rate of 2.1 ...)

While the demographic time bomb is a long-term issue for a lot of advanced economies like Japan (but also China), it's kind of a separate issue than what's happening in the EU today (and has been for the life of it).

Ideally there'd be enough political will to finish the EU project, but that's even more of a long shot than Germany seeing the light on fiscal spending. Then there'd be actual transfer payments between rich and poor EU members, but barring that, Germany and the other rich EU members need to spend.

All the single Germans should probably start taking more vacations in Greece and Spain and the rich ones should buy some Ferraris.

Rsync isn't talking about the demographic time bomb. What they mean is: Consumers having children directly causes higher consumer spending, because the child needs food, clothes, shoes, transport, education, medical care, furniture, holidays, sport, childcare and suchlike. And less directly they might want more bedrooms, a safer neighbourhood, a safer car, a stay-at-home parent, and so on.

USDA figures [1] put the costs of having a child at 12% to 24% of household income (for richer and poorer families respectively) while some UK estimates [2] have put it as high as 38%

Of course a childless couple can build savings like crazy, if they've got as much income as their peers who are parents, but their outgoings are that much lower!

[1] https://en.wikipedia.org/wiki/Cost_of_raising_a_child#Dual-P... [2] https://www.lv.com/about-us/press/cost-of-a-child-2016

Sure but I guess my point is that how Germany ends up allocating their fiscal spending doesn't really matter, as long as on balance they run deficits for a long period of time.

Germany could give every German with a child a stipend to subsidize families (and if they're already doing that, increase the amount they get per child). I don't actually think that would make more Germans have children, but the ones that have families would be able to spend more.

The administration has been trying to get people to have more children for a long time. Around the early 2000s, our birth rate was actually 1.4 children per mother, so the current 1.6-ish is already a significant improvement. This increase is usually attributed to three things:

1. "Elterngeld" (parental leave money): After a child is born, parents can take up to 14 months off and the state pays a portion of their last salary (70% afaik). Employers are required by law to accommodate parents who wish to take parental leave.

2. A few years ago, a "right to child daycare" is introduced. If you're working and want to give your child into daycare, the municipality has to offer you a place in their daycare facilities or, if they don't have enough, compensate you for lost income.

(This isn't to say that you don't have to pay for that daycare, but "free child daycare" is now a popular slogan among many political parties and some states have already implemented it afaik.)

3. Not a policy, but there is ongoing pressure from society on employers to improve the work-life balance of parents. Things like making it easier to both men and women to work part-time after a child is born etc. It's still a problem that women are low-key discriminated against, as in "We cannot promote her into an important role. What if she has a child?", and the gender pay gap is still significant, and fathers doing parental work are still looked at funny sometimes, but it's all getting better. (Frustratingly slowly.)

on a slightly related note; daycare thing does not work though, every couple I know of in Berlin has been looking for kita like crazy even before the baby is born.

Well, Merkel took in 1M of (young) refugees and took flak from the same people that are now complaining about recession.

As we speak there are millions of people wanting (hell, willing to pay hundreds of euros to smugglers) to be European consumers, younger than the Euro average (I don't have hard numbers on this, but I would be real money), but they are driven away and left for dead in dinghyes.

There's more than one way to grow the population.

Yet the PIGSS have been struggling under a mountain of debt.

Government budgets might not be the same as household budgets but you can’t borrow endlessly.

Because Germans prefer saving money to buying exports of Italy or Spain or Greece, or go on holiday there.

Ironically, for the time being, the British do all of the above.

PIGSS is the european version of "fly-over states", a derogatory term that should be avoided.

States or nations that are not doing has well economically deserve respect and help or we should stop calling ourselves a Union.

This is ridiculous. Flyover states is about contempt for people and a culture, PIIGS is about poor economic and financial decision making. Germans, Danes and Czechs don’t think the Irish, Italians and Spanish are racists who might assault a trans person or an Indian if they see them whereas some Californians do think that way about Texas or Wyoming.

Government budgets of sovereign nations that own their own currency are not the same that households and can borrow endlessly, in fact they don't need to borrow at all.

The countries in the Eurozone don't own the Euro: for all effects is a foreign currency. Their finances work like a household.

What you're missing is that the EUR is not the reserve currency of the world and by running a massive deficit the markets will penalise you. (much higher yields, debt spiral, inflation etc.)

The ECB can put an end to that if it wants to, as it did in July 2012 when Draghi uttered the magic words "whatever it takes".

Austerity politics aren't actually fiscally responsible, as far as I can tell. There's good reason to be bitter.

I think a view of "while things are running let's not spend more than our income, that way we can make debt in a crisis" is fiscally responsible, and in essence what Germany does.

It's much more difficult when you then ask Germany what to do about a country like Greece, where years of spending and a recession left the government with more debt than it could bear. "just save money" probably wasn't the best response, but it's not like "just take on massive debt to fix your economy" was an option either (it would have been an option if Greece had taken on less debt in better years).

Southern Europe couldn't possibly be suffering from high corruption and a massive untaxed shadow economy.

Take a look at this list of wealth per adult [1]

Germany is at no 29. It's not like the median German has profited. If anybody has profited then it could be the average German, i.e. the top 1% that has made some money.

That said, why do you think government spending will lead to prosperity? They can get some people off the streets, but sooner or later, resources will be misaligned to the point that the economy is not competitive anymore. Germany had a state-run economy in one part, guess which one almost vanished.

[1]: https://en.wikipedia.org/wiki/List_of_countries_by_wealth_pe...

See my other comment in this thread about German capital benefiting from this arrangement more than German labor.

I'm not saying Germany has to nationalize industries, they just need to run large fiscal deficits over a sustained period of time. One thing they could do right away that doesn't cause "resources to be misaligned", is to cut taxes and increase the benefits for the poorest German workers.

I enjoy making fun of Germans just as the next European but beware what you wish for. Other European economies suck up to German economy so at the end of the day what is good for Germany is also good for the rest of us.

Germany is at the brink of recession due to prolonged weakness in Chinese economy and inability of German automotive industry transitioning into XXI century. Both engines of growth failed simultaneously and lets hope German economy can avoid crash landing. Otherwise it will drag entire Europe down into abyss.

>>"Other European economies suck up to German economy so at the end of the day what is good for Germany is also good for the rest of us."

If that was true we should be all in excellent condition because the Germany commercial balance surplus of the last years have been ridiculously high.

First paragraph I can agree with pretty well.

But you don't need to share a currency to have artificially cheap exports, do you? Selling things at a discount is usually very easy to accomplish.

Californians can buy cheap rocket parts from Alabama without worrying about exchange rate risk just as Germans can buy cheap olive oil from Greece.

However fiscal transfers between the two states (I.e. taxes -> welfare payments, labor standards etc) mean that the cheaper goods are more likely to be up to standards and that Alabamans can buy California almonds and Roku boxes. (This is one way cutting welfare hurts capitalism). The EU has no such fiscal mechanism thus the process drifts out of a crisis.

Germany’s Länderausgleich is actually more extensive than the US’s, which has made its economy so strong for so long, yet the country is loath to extend its benefits (much of which would flow back to Germany!) to the rest of the EU.

"labor standards"

These exist EU wide you know.

Additionally money is allocated to poorer regions to develop industries, not welfare payments but still wealth redistribution.

Indeed that’s why I explicitly said “The EU has no such fiscal mechanism...”

Edit: oh I see that poor editing on my part implied that labour standards were part of fiscal transfers, a nonsensical connection. My apologies)

As a former EU resident of two different countries I have benefitted from EU labor laws.

Regional development funds are practically below the noise floor as a part of the Zone’s GDP (and are in fact EU-wide, not just eurozone-wide). Most of the money is squandered (not necessarily through corruption, just lack of macro efficacy) as it’s such a small amount it gets little attention.

I'm amused that we're getting downvoted when our comments should be at the top of this thread.

I know, it’s not like I wrote anything unorthodox. Most criticism of the Euro from both right and left come from claims that it is not an optimal currency area primarily due to lack of fiscal integration.

I assume the downvoting comes from economics being a popular topic on which people like to opine whether or not they understand it (insert joke here about economists being subject to this rule as well)

It has been proposed indeed, the Surplus Recycling Mechanism: https://www.yanisvaroufakis.eu/2011/02/09/what-is-a-surplus-...

Seems to me it'd be tough to sell Germans on Länderausgleich to Greece without much greater European integration.

After all, the US is a single country, with common news reporting, a common language, common political systems and parties, common tax enforcement and so on.

I mean, if an Alabamian thinks that Californians are all surf bums he can find employment statistics for both states gathered under identical standards, read press coverage in his language, and even move there if he feels like it, as he already knows the language.

It seems unlikely the EU will ever achieve that level of integration.

Remember that over the past couple of centuries the US went through several explicit processes of integration specifically to overcome the barriers (including linguistic!) you correctly describe for the EU.

> It seems unlikely the EU will ever achieve that level of integration.

I disagree but it's unlikely to happen in my lifetime.

> Seems to me it'd be tough to sell Germans on Länderausgleich to Greece without much greater European integration.

Hopefully this threat of recession will light a fire under the correct asses.

If Germany switched back to the Deutsche Mark tomorrow, their currency would instantly shoot up in value relative to the rest of the EU. That'd make their exports less competitive and make the exports of Greece, Portugal, Spain and Italy more competitive.

It's not just the currency though. The "German model" has been to keep wages depressed. That's also how their exports are "cheaper". Make no mistake the result has been to enrich German capital at the expense of labor (even German labor).

https://www.economist.com/leaders/2017/07/08/why-germanys-cu...

https://theconversation.com/questioning-the-claim-of-germany...

> If Germany switched back to the Deutsche Mark tomorrow, their currency would instantly shoot up in value relative to the rest of the EU.

I don't see how that stops them from selling things at the same price as ever, denominated in a neutral currency.

> It's not just the currency though. The "German model" has been to keep wages depressed. That's also how their exports are "cheaper".

Paying your workers less does make things cheaper, so I'm not sure why you used scare quotes.

if German wages were depressed and labor was so cheapened, how come they are still able to save more than their counterparts?

They consume less. Their economy is heavily tilted to being an export power rather than a consumer economy. Household consumption is around 52% of their GDP. For the US it's closer to 67-68%.

Germany's personal savings rate is about 10.x%. The US - infamously tilted toward consumer spending - is actually not far behind at 8.x% (up from a low of 2.2% in 2005).

>Household consumption is around 52% of their GDP. For the US it's closer to 67-68%.

Wonder how much of that is healthcare and education which is wayyy expensive in US.

>Make no mistake the result has been to enrich German capital at the expense of labor (even German labor).

it's simply a cultural preference. Germans have accepted lower wages for general full-employment and job security even in times of recession. It is exceedingly rare for qualified German workers to ever have to switch jobs during economic downturns because the somewhat lower levels of negotiated pay give companies breathing room to act socially equitable.

the hire and fire and short-term consumption mentality that dominates american labour contracts has never been perceived as desirable in Germany.

> Germans have accepted lower wages for general full-employment and job security even in times of recession.

They haven't really, they ended up giving up more and more job-security, with stagnating wages, to keep the sham of "full employment" going. Something that's been especially affecting West Germany since reunification, where previously wages were extremely high.

But contrary to popular belief, even in Germany the labor markets were quite "liberalized" over these last couple of decades [0].

Nowadays plenty of low/middle-class Germans having to work two part-time jobs and still receiving government assistance, or unemployed people getting "loaned out" by the Arbeitsagentur to private companies as cheap 1€ labor force [1].

With programs like those, it's not very difficult to make your employment statistics look amazing: On paper barely anybody is actually unemployed because in reality most of them are "hidden away" in pointless training programs or straight up subsidizing the labor costs of private companies.

[0] https://www.diw.de/documents/publikationen/73/diw_01.c.56768...

[1] https://en.wikipedia.org/wiki/Working_opportunities_with_add...

yes, the hartz reforms have liberalised the very low-end of the labour market, but it seems like a mis-characterisation to declare the German model dead as a result. If you pick up a vocational training path in Germany and you get hired by a large company, you're still in a very, very stable employment relationship.

Germany's middle-class relatively speaking to many other countries is still fairly intact which is reflected in the low priority that class issues or employment has in German politics. Not many people in Germany fall into the 1$ job market, and it should be pointed out that (IIRC) as time went on the majority of part-time jobs has converted into full-time employment.

> Germany's middle-class relatively speaking to many other countries is still fairly intact which is reflected in the low priority that class issues or employment has in German politics.

Employment is pretty much one of the main topics of German politics. High employment needs to be presented even if those employed can't even live from that income. While the low-income issue has been ignored with "Be glad you got at least some work!". As German culture is very quick and harsh to shame people for not working a job. Which has been one of the factors the AfD played on:

Many low and mid-income Germans feel like they've been missing out, the German right has pitted that feeling against the arriving refugees in a "We don't have money for German pensioners [0], but we do for Syrian economic migrants?!" way.

As such I never declared the German model as dead, I was merely pointing out that it ain't as perfect as many people from the outside often perceive it to be. There's a whole lot of shining up the numbers going on, not just in terms of "who counts as unemployed", but even with "who counts as poor/low income". [1]

[0] https://www.zeit.de/wirtschaft/2019-02/altersarmut-rente-arm...

[1] https://www.deutschlandfunkkultur.de/der-geschoente-armutsbe...

I don't disagree, but I think that switching back to Deutsche Mark wouldn't be such a big problem since it would essentially be the Swiss situation. The exchange rates don't have to be high because Germany could print money or go on a buying spree until a target rate is reached.

I we wanted to we could always spend almost unlimited amounts of money on reducing our GHG emissions. Now would be a good time.

Yes that would be a great use! They should also repave the Autobahn, build some gas pipelines so they aren't dependent on a geopolitical enemy, invest in a broken military, and cut taxes and increase benefits for people with a high marginal propensity to consume, that is, the poorest people who work for a wage.

I don't think gas pipelines are good investments. Any investment into fossil fuel infrastructure creates vested interests in the continued use. Similarly, I'd prefer investments in rail infrastructure over investments in the Autobahn.

Power to gas will be necessary for a future with 100% renewables. The existing gas infrastructure will then come in handy but coal plants and their mines probably can't be saved.

The existing gas infrastructure is sufficient to distribute gas within the country. The pipelines that are currently being discussed are for transporting gas from where it's produced to Germany. Or maybe there are pipeline projects that I haven't heard about.

> They should also repave the Autobahn

People are already complaining about too many construction sites on the Autobahn. The main issue there is that we don't have enough workforce in the construction industry, mostly as a result of demographics and everyone wanting to go to university instead of learning a trade.

Have you been reading Krugman recently?

Krugman, leave that body, I command thee!

Why would you enjoy the suffering of others? That is truly monstrous regardless of the form that suffering manifests in. It's frankly disgusting.

So borrowing and overspending at the cost of the future generations is the way to go? Then go Greece style, default every decade until nobody will ever lend you any money?

It's not overspending, it's investing in the future generations. The quantity of Euro it's just a number in some computer.

Infrastructure, knowledge, education, and a better life in general is a real thing.

TBH, that works as long as your demographic pyramid is healthy. For most of Europe that is not the case. On top of that, return on additional debt has been stagnant since the 90s in OECD countries. There's simply almost no place to put your money in the developed nations. IMO this is the first time since the beginning of the industrial revolution where allocative efficiency has a higher return than investment efficiency.

What the hell?

Who do you think managed to maintain the Euro as a going concern?

And don't forget Germany suffered quite a lot after the introduction of the Euro, and it didn't really have anyone else to bail it out.

Edit: In the first paragraph in referring to the aftermath of the financial crisis, when PIIGS was an acronym, and France wasn't looking too great either.

And in the second paragraph in referring to immediately after the introduction of the Euro. The Euro appreciated, German exports lost competitiveness whilst it lost the power to devalue its currency. It managed to increase its productivity per worker though and has reaped the benefits since. It too has seen the downsides of not having control of its own currency.

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