How Germany Became the China of Europe
time.com
time.com
> "There is frustration with Germany," says André Sapir, a senior fellow
> at Bruegel, a Brussels-based think tank. "Germany is moving ahead,
> but what are they doing for the rest of Europe?"
And (stupid?) sources of these commentaries keep forgetting that Germany and France (but AFAIK mostly Germany) are footing majority of "european" expenses. German workers are the ones willing to tolerate lower wages so that others will be able to develop and compete with them easier.
I mean think of it - these guys dug themselves out of shit, while bailing out the rest of Europe. Using mostly common sense and hard work. They also had a retirement plan reforms, which changed retirement from 65 to 67 (!!!!!) for men and they took it with grace, no riots no thrashing of commonwealth (Greece? France??).
Disclaimer: I am not German, but I wish that my national leaders would have the integrity and vision of German leaders.
unions, pensioners, students, etc... got their own leaders which are defrauding the people they should lead.
Thats the difference between Germany and the rest of the Europe. Maybe in industry the fact that workers get to share the board with investors help, I don't know. But I know that Germans manage to not shit in their plate time and again.
Edit: Why am I getting down voted on this?
What I care for is the counterview or an explanation that might help me perfect my worldview :).
It isn't paper that the world is borrowing from Germany; its the labor of Germans.
If the rest of the world stops subsidizing credit and balanced their budgets, the principle effect will be a decline in interest rates in Germany. And Germans will find it more reasonable to consume more or start new companies at home.
Its not a problem. Germany wins either way.
And those that keep consuming more than they produce will continue to lose, just as individuals do that behave unwisely.
(There were people who benefited from the economic growth - I count myself among them - but that doesn't invalidate the argument regarding the whole work force)
The net lender countries didn't experience the same wage growth. But they didn't see their currencies inflate either. Except for those otherwise soundly managed countries that for some reason share a currency with a bunch of poorly managed countries. These countries got the stable wages and the privilege of subsidizing their partners.
The comparision between private households and state households is invalid. That's on of the main errors of Neo capitalism. What is wise for individuals is dumb for states.
Because states households are circuits. They press and rotate money. The money they spend comes back partially.
Private individuals households are linear they receive and spend money. The money they spend is lost forever for them.
Money spent by government comes back as tax income by stimulated economic growth.
You're ignoring the fact that said money was stimulating economic growth before govt took it.
Govt spending is not stimulating. Stimulating spending is stimulating, regardless of who does it. Unstimulating spending is unstimulation, regardless of who does it.
The difference between private spending and public spending is that private spending is usually an attempt to make money while public spending is a combination of keeping govt employees happy and buying votes. (Yes, the two are related.)
Private investors are much more likely to earn a return on an investment. Which means they can keep re-investing it.
Yes, you get all the "stimulating" effect without destroying wealth. Of course, its been that way wherever societies become wealthy.
And government handles all of the "investments" wherever societies become poor.
Of course, the answer is whenever the group becomes large enough so that people lose track of who's taking what.
Government likes to make waves on the pond, point out the highs and distract you from the lows and how much disruption is created.
When the group is small, its a lot easier to identify someone that's just splashing around and claiming to create value.
If other nations became more productive, the German current account surplus would shrink and the global productivity level, by implication, would be higher than now. My argument rests on a simple assumption: Higher productivity equals greater wealth. This can of course be questioned on a philosophical level, but not on the basis of mainstream economics.
I don't, but I believe someone has to buy this production or increased productivity doesn't help anyone.
Your assumption sounds correct, but isn't the base of Germany's economic growth in the last years: Germany didn't increase productivity (at least not by a significant margin), but decreased wages (compared with it's neighbors). And this decreased wealth.
I don't deny at all that there are many short term effects and flucuations that have nothing to do with productivity. But we're talking about the different speeds of European economies and those different speeds correlate very well with different levels of productivity.
And look at the Greek stock market. The biggest non financial companies there are a Coke bottling company and the lottery. The biggest German listed company (I believe) is Siemens, which makes high tech industrial equipment like power plants or health care equipment. The Chinese want that. They need energy, they don't want to play in the Greek lottery and they can bottle their own Coke. That's the reason for the two speed economy.
I agree with your argument -- IIUC you're invoking comparative advantage. But the two concepts above are fundamentally different. Wealth is a stock, while productivity is a flow multiplier (e.g. A(t) in Solow model: http://en.wikipedia.org/wiki/Solow_residual). Saying "equals" is a bit adventurous, IMHO. Probably a bit pedantic, but then you do stress that that statement is on the basis of "mainstream economics".
The motivation of trade is simply comparative advantage. Trade is beneficial regardless of whether the products being traded have equal value.
In a true free market scenario with freely floating currencies, currencies in countries like Spain, Italy, Ireland, Greece would have devalued. Germany's currency would have strengthened. This would have made German exports (to other EU countries) much less competitive than they currently are.
However, the Euro tightly integrates these other countries with Germany and makes it very difficult for them to revive their economies.
Using a single currency without a single federal government was a risk for all countries involved. Germany has a huge interest in keeping the Euro alive and the EU as a single unit. It shouldn't be surprising that many people in other European countries expect something in return (for having given up the options that they had before the Euro)
try politicians, imposing their priorities on the population. soeculation has about zero relevance to this question. it's a matter of political will.
I'm from Germany, I'm not pissed. I wouldn't vote against the currency and was actually glad when it was introduced. qed.
Jeder Zweite will zurück zur D-Mark
Every second german wants the D-mark back
Date: 27.12.2010
That doesn't sound inaccurate. Tabloid != incorrect, you know. Tabloid is merely a pejorative label applied to newspapers which don't attempt to hide their opinions.
They reach (according to Wikipedia. YMMV) > 12 million readers. If after their anti Euro campaign (again, ignoring the facts at all) still 50% of the population are in favor, how does this even remotely make the non-supporters a majority?
Having done the numbers: The track record for facts from that specific newspaper is poor. Even if you like their agenda in this point, please don't implicate that they are NOT largely misleading (to avoid harsher terms).
Likewise the German opposition to default is not widely examined: weak German banks, esp. the Landesbanken, are heavily exposed to peripheral Euro debt (who was better placed to offer loans for those shiny German exports?), and the farce that was the stress tests would quickly be exposed if there were defaults in Greece, Ireland, let alone Spain. Why was the Germany finance ministry to openness about the stress tests.
The problem is a hangover from a slack money culture that existed before the crash, and slack money requires more than feckless borrowers, it also requires irresponsible lenders. There may be a morality tale in here somewhere, but it's not the simple good country bad country one from the Bild.
The Euro may not have been welcomed by the people but it was welcomed by corporations and banks. Corporations and banks had (have) more power.
Personally, I find the success of Germany not terribly surprising given that they were going okay before union. The thing that perplexes me is these other countries that are falling apart, as they didn't strike me as so terribly fragile either.
People say "oh, they are lazy", but laziness creates a vacuum, and somebody will step in to take advantage of the opportunities.
Well, even without free-floating currencies, countries like Greece could just lower the wages, which would in turn reduce the price-level of Greek products, making them more competitive.
In a truly free market situation the bond market likely would have stopped buying Greek bonds because of the fear of currency devaluation long before their structural problems became overwhelming. Sometimes though the bond markets make a bad bet and currency devaluation becomes necessary. That's the free market. There's risk in buying bonds. However, in the EU the bonds have an implicit guarantee from the ECB, Germany, and France.
There's a reason why this kind of thing might be true, because bond holders might hope for intervention, as indeed happened. But I doubt it in this case: (i) the Euro treaty forbade intervention, and (ii) the CDS markets, which one would think would be very sensitive to risk of default, were not worried until shortly before the bond markets proper were.
But note that the Euro is for the purposes of this situation equivalent to the gold standard. Fixing exchange rates means trading the risk of currency depreciation for an increased risk of default, as we seem to be assuming the bonds are issued in the local currency.
The issue here seems to have been ignorance on the part of bind investors to the reality of the Greek situation.
Ironically the states most in need of help have been saying "Nope, don't give me any stimulus money. Don't give me money for high speed rail"
Edit: I apologize to readers and commenters - I got out of context, I'm not referring only to the current monetary/fiscal position of Germany, but to the whole process that got everybody where they are.
This ruin was in the making for decades. While germans were busy figuring out how to produce better stuff for cheaper PIIGS were busy figuring out how to sell shit for more.
One strategy is hard short term, but bears long term dividends - the other is awesome short term but spells ruin in the long term and the ruin came.
And now the Germany is at fault for all the years of support, encouragement, warnings and leading by example to these countries? I don't buy it :)
The gains to Ireland from 1990-2000 or so were real; the Celtic Tiger wasn't hype. Much of the gains in the past decade, however, were from too low an interest rate.
As to the idea that the monetary union was voluntary: the monetary union was a political project, not an economic one. By opting out, nations were to some degree dissenting against the entire EU project. Without some degree of fiscal union, it was probably a mistake; but it's unlikely such a union could have ever occurred without a monetary crisis. In many ways, the monetary union was a leap of faith into greater union, with the idea that we could sort out the problems later (never let a good crisis go to waste, etc.).
I remember the discussion over Greece at the time - about how extra leeway was made to squeeze Greece in a couple of years late. Everybody knew about it. The explicit extent of it was in the news not long after:
Sep 2004 http://euobserver.com/?aid=17351 : "Greece was in breach of the euro rules at the time it joined the single currency, according to new figures produced today by the Greek government."
Re Germany - it was at risk of deflation! German politicians were constantly moaning about how high ECB rates were, and how they had to be lowered, and that was the wide consensus of economists too:
Apr 2003 https://www.economist.com/node/1695123 : "Most economists agree interest rates are too high for Germany"
Jun 2003 http://www.wsws.org/articles/2003/jun2003/doll-j04.shtml : "German Finance Minister Hans Eichel said that the strong euro gave the ECB the opportunity to cut interest rates"
Apr 2004 http://www.economist.com/node/2608090 "Even if Mr Schröder does not get the interest-rate cut he wants [...]"
Aug 2004 http://www.telegraph.co.uk/finance/economics/2893715/Economi... "It is widely appreciated that rates haven't been cut far or fast enough for Germany."
No-one forced Germany into the monetary union either...
The Greek were not forced or pressured to join the MU. The article does not say that at all. They wanted to join and the other countries didn't want to block them even though they suspected the numbers weren't quite right. The full extent of Greek book cooking was only revealed in 2010 (or 2009?).
Still, I think, it is deplorable how little respect the Germans get for simply making what others want. They're doing that very well and other European nations should ask themselves how they do it instead of complaining about a two speed economy. Get up to speed guys!
Germany has benefited greatly from the expansion of the European internal market, and has always had, and still does have, a very good name. Everything from cars to electronics, down to appliances and kitchenware, Made in Germany still speaks volume on the continent.
Despite the somewhat higher prices of German goods (and they are actually kept quite low due to various work-sharing labour arrangements), weighing things on a quality-price scale, they still come out better value than a lot of alternatives. So it's really no surprise that the country is running such a huge trade surplus against the rest of the continent.
On the other hand China does export a lot to Europe, especially in Eastern Countries; since they are cheaper. I don't have any stats, but I see "made in China" stuff everywhere.
But for example China exports a lot of textiles. Many clothes are still made in Europe, but a large percent of textiles come from China.
That said, I'm glad that Germany can be the powerhouse that it is by focusing on quality rather than cheap-labor. It shows that it is possible. Good for them.
Maybe because of Europe's location, I see textiles sourced from places like Turkey and even Latin America, rather than purely from China/Asia in general. What kind of things do you see coming out of the UE?
The reasons there are probably quite different and also have very little to do with China.
GDP growth Germany: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Sy... GDP growth Poland: http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Sy...
And countries like Germany and China run trade surpluses, because the bubble countries are not borrowing paper; they're borrowing the labor of all those savers.
That labor must be delivered somehow and that's why there has to be a trade surplus.
The bubble countries can't resolve this imbalance by cajoling the savers into not saving or somehow obstructing trade. The trade imbalance HAS to equal the net borrowing of the country.
The only way is to correct the trade imbalance is balance their budgets AND stop artificially lowering their own interest rates, which causes the private sector to borrow more than it otherwise would.
Policymakers have bought into the idea that somehow there is a shell game to be played that magically creates prosperity. But the reality is that all the game playing wastes an enormous amount of resources.
> That labor must be delivered somehow and that's why there has to be a trade surplus.
How so? How can labor be borrowed? How can it be delivered?
And these things can be exchanged for money, which can then be given to other people in exchange for their labor.
Yes, technically you are borrowing money, but it has no effect until its used to purchase the results of labor, which is what you actually want to borrow. Your mortgage is actually borrowing the results of all of the labor required to build it, including the labor to make the sheet rock.
If there's a disaster in Haiti and the US lends Haiti a billion dollars, that money will be used to buy things. Or pay people to do things, who will then go and buy things with the money.
Demand then rises for these things and more of them must be imported. Even if they come from a third country, that additional demand causes imports to increase there. Ultimately, that additional demand affects exports from the US.
And, if Haiti ever pays the money back, Haiti will be the one experiencing an increase in its exports.
The beauty is that we are not locked into buying just the products and services the lender offers. We can get anybody's.
To learn more about this, you could check out Austrian economics and the division of labor.
Being the No. 1 financial contributor in the European Union, maybe?
But one must take notice that Germany's eastern half has more in common with Poland, Czech and Slovakia than with western Germany - the workforce is still socialistic,... So real contribution of western population is enormous.
The eastern part of Germany has big unemployment problems (http://ryouready.files.wordpress.com/2009/11/germany_by_unem...)
Baden Württemberg (South West) and Bavaria (South East) and basically the powerhouse inside the powerhouse
(also: nice wine and good weather)
So these countries are full of people who have "slacked" throughout their lives and are now expected to become competitive. This stands for public and private sector - with the difference that private sector had to improve a bit.
Everything is highly unionized - but unions are not the same as in western world. In socialist countries union was a paradox - so their existence in industry was limited to being a political propaganda apparatus - and they haven't changed a bit from then. So instead of working in the workforces interest - they are only working on their political position and promoting populist policies that will spell ruin in the future.
Thats what I mean with "socialist" - basically these countries are in transition to capitalism, declaratively theyre already there, but in truth it will take them at least a whole generation (or two) to catch up.
A good example is a very new running shoe brand named Lunge that manufactures its premium running shoes very close to my hometown here in germany, a product that is usually produced in asian low-cost-countries. As far as i know and in contrast to their competitors Lunge refuses to put their money into marketing and instead focuses its efforts solely on the development and manufacturing of their products. Of course they can't compete on the price level, but I hear lots of good feedback from customers that won't go back to asics, nike & co. and don't mind paying the bonus for substantial products. This also applies to me. More here: http://www.lunge.com
(I'm from Germany)
Personally, I think that if all capitalism can ever hope to give us is cheap garbage then it's a failure (I don't think that is all it can give us, but some people seem to).
- Other "cheaper" countries are getting more expensive as well, at a staggering pace. - In Europe, Germany is actually much cheaper than 10 years ago. - Currently the employment for qualified persons is doing very well
Germany's problem is rather that it's going out of qualified engineers at a very fast rate, thus accepting immigration should be a key politic.
Germany's politicians and CEOs have been very good at scaring people to keep their salary down, but if you look at the state of workforce now you'll see that all this doom speech that all jobs are moving to China and India was not quite true.
"estimates that the disposable income of the German middle class hasn't increased at all in the past decade. About a fifth of the workforce, he says, is stuck in insecure and poorly paid jobs, often earning a dismal $550 a month."
And doesn't concentrating on the high end exposes Germany to improving capabilities of Chinese companies , and improvements in the Chinese brands ? china is working on those capabilities , how can Germany defend against those ? move to the higher end ?
So it's not just black and white.
AFAIK $550 is something I can hardly believe to be true, except in Eastern Germany for people aged 40/50+ without any knowhow or qualifications.
Could you please share more details ?
1. What is the minimum wages in Germany ?
2. What's the rent for nonprofit apartments , or are they free and provided by government ? decent size , reasonable quality neighborhood , or small apartments and shitty neighborhood (junkies , etc ? ) ?
3. What's the starting age for state provided kindergarten , what happens before that age , do women get social security ?
4. In short could german people earning those minimum salaries have a stable living with all the basics provided ?
2. The rent is provided by state for jobless for the apartments. There are also programs for poor people which aren't jobless to get the rent from the state. The allowed size of the apartment depends on family size afaik. The quality depends on the city you life in, but is usually not too bad (no junkies).
3. Half-time from the 3rd year is guaranteed. There are programs for younger children and full-time places, but that's not guaranteed (but usually one can get a place). I do not understand the question if women get social security?
4. This is a topic of heated debate within Germany, so no conclusion here.
1. 13 Euro/day for a period of 14 weeks (6 weeks before the birth of the child, 8 weeks after the birth)
2. 67% of their last wage (maximum 1800 Euro) until the child is one year old.
3. 184 Euro "Kindergeld" (money for the child, roughly translated) from the day of birth till the child is at least 18 years old (and maybe longer .. as said: complex)
Regarding point 4 - Short answer would be IMHO yes. You could live a stable life - but that is pretty much it. No mediterranean holidays, No gaming computers, etc...
OK I did some quick checks: 1. There is no minimum wage in Germany, 2. Social housing starts around 4€/m2 (http://goo.gl/NujS3) 3. This one I admit that I would only research I were German. 4. My opinion is above.
Could you share your point of view?
I dropped out, I stay a perpetual traveller and out of Germany because my conscience forbids me to feed this corrupt destructive apparatus and the greater EU with the fruits of my labour. The only legal way for me to still be able do this and keep my citizenship is to stay outside the country for 180 days or more a year, and not stay inside more than 2 months in a row -- roughly. But hey they the left was already calling to tax permanent travellers so I guess I'm not the only one.
I am not saying there are no problems here, but I do enjoy the social benefits and I am happy to pay 50% tax for that.
Don't confuse your personal perspective with that of the general population.
All political parties, for example, share the view that it is important to preserve the welfare state. They might propose little tweaks here and there but that’s about it. There is no controversy about the fundamentals. The “socialist” party is not socialist at all and the “libertarian” party is not libertarian at all.
When I look at the current governing coalition I see it much more as a continuation of Kohl’s coalition.
The left is far, far weaker than it was in Kohl's day.
That doesn’t matter much anyway because it doesn’t change the fundamentals. No party in Germany wants much change.
The downfall of most parties is due to the fact that they do have no distinct marks anymore. For many socialdemocratic parties in Europe this began with embracing neocon agenda's. Christdemocratic parties turn to nature preservation, ecological parties advocate engagement in afghanistan ...
Tells me that the era of differences is over, calling parties extreme left or right in european parliaments is mostly uninformed bogus.
We still have an extremely inflexible labor market, extremely high taxes/social security payments, and excessive regulation.
Becoming more competitive by keeping down wages works, but is also the stupidest way to do it, since, well, it means you get paid less than you could.
Basically German people decided that it's OK to earn less, but cutting taxes, benefits and government interventions would be too much change.
On the other hand, I just realized that complaining about a situation that other people envy you for is a very German thing to do...
I think the general argument is that Germany and China both run huge current account surpluses. China accomplishes this partly through structural regulations and by holding the yuan at an undervalued rate. Germany, on the other hand, cut taxes and reformed its labor and welfare systems in the mid-2000's but in a way that prevents the system from equalizing. The main reason the author gives is that wages don't rise because workers are willing to accept reduced pay raises for job security.