By Mathew D. Rose, a freelance journalist in Berlin
Germany will have clocked up a number of dubious concomitant successes this year. But these products of German hubris look like pyrrhic victories.
What has appeared beneficial for Germany, as the most powerful member of the European Union, could well have serious repercussions not only for itself, but for the rest of Europe in the coming year.
Recently Germany trumpeted its economic growth of 0.1 percent in the third quarter, enabling the nation to escape a return to recession. In year seven of the Great Recession such anemic growth can be designated as many things, but surely not as a success. In the foreign media this sort of growth, or lack of it, is labelled “stagnation”. The talking heads in Germany meticulously side step this lacklustre result, giving it the euphemistic epithet “stability,” for Germans a positive term like discipline and order.
Germany’s current fiscal policy is not pulling Europe out of its economic malaise, but intensifying it. Yet the German media has said nary a critical word about the government’s fiscal programme. If you wish to impress family and friends with a magic trick over the holidays, simply purchase a German newspaper, open to the financial section, and – voila! – economic reality disappears.
“Solid,” “reliable,” and “stabile” were the adjectives recently used by Germany’s Finance Minister, Wolfgang Schäuble, to describe the nation’s budget for 2015, which for the first time in 45 years does not, at least as planned, entail a deficit. That there might be a correlation between the lack of a deficit and the lack of investment and growth has of course not been seriously raised in German media. Marcel Fratscher, President of the much respected and much ignored German Institute for Economic Research (DIW Berlin) summed up the economic situation for the past 20 years: “German growth has been very weak, its productivity growth marginal, and its wage development also very disappointing…Germany has one of the lowest rates of investment in the world. Relative to economic output, in the last 20 years, investment in Germany has plummeted.” Germany has been able to export these negative tendencies, producing a sustained prodigious trade surplus at the cost of others. The looming question is how long this beggaring thy neighbor policy is sustainable, as other nations with increasing current account deficits will eventually be forced to reduce their imports from Germany.
A case in point is Russia. The decrease in exports to Russia, due to the weak ruble and reciprocal economic sanctions has had a dramatic effect upon Germany’s manufacturers and agriculture. German businesses, fearing substantial losses, were vociferous in their opposition to their government’s aggressive policy towards Russia, but the political advantage outweighed such arguments.
One has to understand that the basis of German politics since the Second World War until unification was the Cold War. In West and East, the black and white delineation between the capitalist and communist systems dominated the political programme and discourse. There is nothing like hate and fear to unify a society.
Germany’s political class has sorely missed this polarization in the past quarter century. With external threats absent, many voters had occasion to look more critically at what their parties had on offer: For the common citizen, not much. Voter participation decreased dramatically. One of the principal West-German political parties of the Cold War, the Liberals, is moribund. For political parties, with the exception of the leftist party “Die Linke,” the opportunity to reanimate this polarization once so conducive to their fortunes through the conflict in Ukraine appeared well worth the negative economic consequences. As in the Cold War, a rational public discussion concerning German policy in Ukraine is neither desired nor possible. Critics of the government’s policy are ostracized as “Putin Empathizers”.
Support for the government by the German media has been impeccable, their reporting tending to have more in common with Goebbels than a modern democracy. Probably the apogee of this bias occurred as German state television, trying to mobilize anti-Russian sentiment, made the egregious error of showing “freedom fighters” of the Ukrainian government displaying Nazi symbols on their helmets and uniforms (http://www.zdf.de/ZDFmediathek#/beitrag/video/2234384/ZDF-heute-Sendung-vom-08-September-2014, 02:17 – 02:28), apparently assuming the sight of SS flashes and swastikas would stir German hearts and create a sense of solidarity with the newest set of corrupt oligarchs running the Ukrainian government and bring the two nations closer in their common struggle against the Beasts in the East. Much to the credit of Germans, many found this was going far beyond the exigencies of war propaganda.
The conflict in Ukraine has caused further internal problems. Perverting Theodore Roosevelt’s foreign policy motto, Chancellor Merkel has been pursuing a course of speaking loudly and carrying a small stick. Despite her hardline and belligerent rhetoric toward Russia, it has been discovered that much of the German military hardware is dysfunctional due to austerity and endemic corruption, politely referred to as “incompetence” in German media. European nations have been radically reducing their defense budgets for years in an attempt to reduce their deficits, making them in the meantime completely dependent upon US military might, with the exception of maybe France and Britain, who can still manage to take on rebel groups in Africa.
The most worrying success of Germany’s political establishment is a recrudescence of xenophobia. When things start to go seriously wrong politically in Germany – and they are going very wrong in the Grand Coalition – German political parties have traditionally channeled discontent into racial hatred.
Xenophobia is an integral characteristic of a large portion of German society. It is an issue that is suppressed, but can boil over at any time. The anger and resentment towards their political class of many Germans, who have been socialized not to question authority, can be convenientlychanneled against minorities. In Germany in the past, if the political climate is favourable, a party that propagates xenophobia can mobilize up to 20 percent of the vote on short notice in state and regional elections. The political climate is currently favourable.
Catalyst for this current development is the recently founded political party Alternative for Germany, an anti-EU and anti-Euro party. In the Bundestag elections of 2013 Alternative for Germany just missed winning 5 percent of the popular vote needed to enter parliament. To win over voters they have since courted the far right and neo-Nazi groups, consequently achieving success in state elections.
In such a situation the established parties follow suit in an attempt to reclaim lost voters. This began months ago, as EU citizens from the East, mainly Romanians, were accused of moving to Germany to misuse the social security system to their advantage. Once again the mainstream media promulgated this story. Should such claims be true, I cannot imagine that it involved more families than the number of companies that have avoided paying taxes thanks to loopholes in Luxembourg. The damages to German taxpayers in the first case could be calculated in thousands of Euros. With regard to Luxembourg we are surely speaking of hundreds of millions of Euros or more. Germans however rarely question institutions of authority, be it government or business.
This campaign against Romanians was recently followed up by the Christian Social Union (CSU), the dominant political party in Bavaria and the sister party of Ms Merkel’s Christian Democrats, which proposed forcing foreigners to speak German at home. This may sound like something from Orwell’s 1984 or Germany’s former Nazi government, but was seriously discussed in Germany.
It is no wonder that in the past months demonstrations against foreigners and refugees in Germany have increased markedly. In Dresden there have been large protests against “Islamisation of the West”. Oddly, the city has very few foreigners. The closest thing to a mosque that Dresden can boast is a cigarette factory built in 1909 to look like a mosque. In Bavaria a refugee compound was in the meantime set ablaze by neo-Nazis.
There is however a latent danger when the established political parties in Germany foster xenophobia for their own ends: The situation gets out of control, or other parties like the Alternative for Germany become the beneficiaries of newly unleashed racial hatred. Both have occurred. To counter this development the established political parties are trying to explain to the public why their racial hatred is good and that of Alternative for Germany and the demonstrators is not.
What no one in Germany seems to be willing to confront is the fact that the nation has a serious problem: The Grand Coalition is failing the German populace and Ms Merkel is doing a very poor job as chancellor. It may be very satisfying exercising hegemony in Europe, not having a budget deficit, squaring up to Germany’s traditional enemy Russia and blaming foreigners for a government working against the own interests of its citizens, but it is a poor perspective for a nation that is supposed to be part of a peaceful and prosperous Europe.
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Germany’s successes are far more concrete (and far less dubious) than those of the United States. Germany has comparatively little in the way of oil or other natural resources, yet out-exports the USA with less than a third of the United States population. Oh, and Germany’s exports are based on real tangible goods, not financial manipulations, real estate bubbles, massive debt in health care and college tuition and various other bubbles propagated by the Fed and FIRE sector. Not to mention the Germans have relatively high wages, very low debt, a real middle class, cooperation between unions and management, plus a multiparty (proportion based) political system with real choices and democracy, as opposed to the American plutocracy where a few oligarchs basically choose the candidates and buy their policies.
Germans have universal health care and go to college for free if they qualify (or to good apprenticeships, all without student loans), low-cost childcare and 4-5 weeks of vacation a year. Yet their taxes are about the same or even a bit lower compared to the US. (You have to look at all the taxes not just income taxes to the Feds– all the property, payroll, county, municipal, small business, shipping and other taxes and ridiculous licensing fees in the US are much lower or are even not levied at all in Germany. Especially property and payroll taxes.) And Germany actually does have a decent military so it’s not like they’re freeloading on our bases (which are used in any case for all our wars in the Middle East and Africa, and for treating our wounded soldiers, as in Landstuhl.) Germany in other words is committed to an economy based on real goods rather than wasteful rent seeking and bursting bubbles like the US today.
Germany’s system has its problems but considering what they’re able to do in comparison to the increasingly corrupt, plutocratic, crony capitalist USA, I’d take their model any day. As I suspect would 99.9% of Americans.
Re: As I suspect would 99.9% of Americans.
Those of us living off the scams in USA society might disagree. One of the things people forget is a LOT of people in the US are participating in the various government and corporate debt fueled scams. Even those of us in 20-10% income range are benefiting greatly from helping run and manage the scams.
A scam based economic system is really great IF you are one of the leaches. I might be a libertarian in my brain, but I’m duplicitous enough to know that the Krugmanians are my “bread-n-butter”.
(Here’s to achieving “Keynesian” escape velocity in my life-time! My the scam be with you.)
Good point – and let’s name names:
the US military – the largest most corrupt and wasteful welfare program in the history of mankind – 700 billion a year to make the world more dangerous for Americans, and their retirements more comfortable,
financial talent – see 8 yrs of naked capitalism
the AMA – not all American doctors are having fun splashing around in the bilge produced by the American health racket, probably just the vast majority of them
health care adminstrators – very few wall-flowers among these party animals.
higher ed faculty and administrators – regularly asking themselves how much longer they’ll be able to get away with this incredible scam
the list could include insurers, pyschiatrists, real estate brokers, internet providers, and finally the entire management class that looks on as GM declares bankrupcy knowing that it is happening because the firm can’t meet health care commitments to its workers because health care has become so expensive!?! becasue there is no single payer!!!
higher ed administrators and faculty who look into the faces of students and
I would. Germany can actually go to zero growth because they have all the social safety nets in place. We can’t because we don’t, by a long shot. And we still need to create fake revenue in order to give 50 million americans food stamps and medicaid. It is grossly inefficient. But everybody skims and so everybody’s happy.
Gee I wonder if it might have to do with the fact that the boards of practically every German company have someone, and in the case of many large companies many board members, representing *workers*. Ooh, ooh, Red Scare! Communism! Wouldn’t want the people actually doing the work (and buying the products) to have any say in how things are run…, better to just vote another massive pay package for the CEO so he can figure out new ways to borrow and fund buybacks, dividends, and offshoring.
While I don’t deny most of what you say, I take exception to one thing: Germany out-exports the U.S. because they are in a fixed-currency monetary union i.e. the EU, that prevents their weaker trade partners from devaluing their currency to compete. It’s no coincidence that the two largest exporters, Germany and China, are in mercantilist monetary unions with their largest trade partners (Germany, de jure with the rest of Europe; China, de facto with their dollar peg).
While I don’t deny that Germany has cultivated other advantages like skilled labor, R&D in advanced manufacturing, etc., there’s no denying that the EU monetary union has been an incredible advantage to Germany and a large reason why it’s been able to maintain its export-oriented economy while its trade partners are literally going bankrupt.
100 prose bonus points is hereby awarded for effective use of the word “recrudescence”.
Holy Budweiser 12-pack! A law that would make people speak German at home! Ohh man. What if you don’t know any German??? That would be bad. You wouldn’t want to get arrested so you’d have to make it up — and hope for the best. You could say stuff like:
schnact feieden reich mine fieden ach haagen daz — that could be “What’s on TV now?”
or
hach vine mach neesh ein goot rief schmeegal — that could be “Is it supposed to rain today?”
sometimes it might be hard to make up fake German and you’d end up saying the same guttural sounds over and over — feeling slightly guilty about your lack of creativity.
It wouldn’t be that hard to speak fake German, as long as you were willing to sound sort of stupid. You’d just have to weave in some “ach”s and “reesh”s and “ein’s and “aagen” but even then somebody might think you’re speaking Dutch. Why is it that fake German always sounds like a Hitler speech? Maybe because that’s all some people know about German. The old news reels. That might be bad, if you have to try and speak German at home to comply with the law — but you don’t know it so you fake it as best you can, hoping they’ll write it off as a bad audio recording from the microphone in the ceiling and let you pass — then you get arrested for being a Nazi sympathizer!
Oh man. You do the best you can, but sometimes it’s just not good enough.
Ach! Ich kann nicht mein gummischue finden.
Maybe you can help: I stayed in a hotel in Zurich recently and the little card you put on the door handle to get the room cleaned said “Bitte Ausfraunen”. Um…could that possibly mean “Please Womanize the room”?
Are you sure you read that right? Most likely it said “Bitte aufräumen”, which means “please tidy up”.
‘Support for the government by the German media has been impeccable, their reporting tending to have more in common with Goebbels than a modern democracy.’
Thank goodness for our skeptical, independent media here in the USA!
While this is no slam against Mr. Rose, and I have no reason to doubt his conclusions, one could substitute the words “Americans” and “the USA” in place of “Germans” and “Germany” and the article would be almost indistinguishable.
An analysis of how the German economy benefits from the austerity of other EU members would be helpful. Sadly the author fails to use this space to do so. Instead he squeezes out a series of malodorous and generally spurious complaints, indulging while doing so in the obligatory scare of Goebbels and the H-man leading the current Bundestag choir in a resounding “Deutschland über alles!” Pullleeeeze. Much of the Bundeswehr’s equipment is dysfunctional so lurking enemies should not hesitate.
Mathew here. As I have already gone through these points in my past articles, I thought I would spare regular readers of Naked Capitalism having to read material previously published. Naked Capitalism has an archive, so you can get up to speed easily.
This is pretty much what I said in yesterday’s Water Cooler and about Merkel several weeks ago. Germany has become a malevolent force in Europe, a regional colonial power led by a self-styled Iron Frau. More’s the pity too, since the Europe is tightly bound to German policies (which are pretty much guided by US policies) through the EU. The French really thought they had found a way to control Germany, didn’t they? I’m afraid it will only get worse before the rest of Europe throws off the shackles of the EU and EC.
Bonus: a parody of the German media’s Ukraine coverage. “But we are fighting for freedom of speech!” — “Yes, but in Russia, not here!” Indeed.
Schaeuble likes the new budget because it is solid and stable. Germany’s goal is not a 2% growth rate, it’s more like no growth. They are intentionally creating a depression. For the first time in 45 years the budget contains no deficit spending. No government money invested. Like the USA. All the better to attract private investment. Since there is such an excess of useless private money out there. And if private money does not like the offer it will not invest. All that private money will remain uncapitalized, as Stiglitz might say. But the big problem is that the sort of investments the world now needs are not profitable financially. Only environmentally and socially. So only government can make these investments. And all the previous money-making ventures – when capitalism could make and sell any garbage it chose while trashing the planet and publishing elaborate justifications, etc – can no longer make money because there is an acute awareness of the problem. So the question is, Why are governments refusing to invest in socially beneficial programs and environmental cleanup? It makes me wonder if it is a political standoff between governments and private money and we-the-people are caught in the middle. There is no reason for this misery. Governments should be spending to fix the world.
Good comment but seems to me those are “second order” problems, when the malaise actually lies at the very heart: in the money system itself. Bank debt money with no backing and intellectually-bankrupt and corrupted Ph.Ds controlling the spigot of course leads to all sorts of malinvestment as you describe. Changing that usually ends up in the “too hard” bucket but wait until people see what technologists have in the pipeline: fully-compliant, fully reserves-backed private money distributed, managed, and used entirely independent of banks (and I don’t mean Bitcoin). Right now Ecuador is leading the way, making it legal tender and mandating its use (SDE program) but lots of jurisdictions including 3 G-20 countries (ex-U.S. and ex-China) are nearly set with the legal frameworks for this to be a very big deal. Watch this space.
In Germany in the past, if the political climate is favourable, a party that propagates xenophobia can mobilize up to 20 percent of the vote on short notice in state and regional elections.
This is not specific to Germany. In France, Marine Le Pen can routinely score 20% or more. Her daddy once found himself in the 2nd round of the French presidential elections. I suspect you would find similar figures in many other European countries. However I’m very surprised that the German mainstream media are fanning the flames of racial hatred. I’m not familiar with French TV but I suspect they’re generally sympathetic to immigrants.
Other than agreeing with the above that Germans have no particular monopoly on xenophobia, subservient media, or a State that prefers to generate hobgoblins rather than solutions, I’d give the article a thumbs-up.
Seems things don’t change.
http://youtu.be/wveW9Tw2JKE
Situational Awareness
You’ve seen the artificial business cycle, and should be in front of it. If not, don’t waste your time chasing. The empire reigns stupid, all in pensions. Have a raincoat handy.
The majority, regardless of government system, adopts technology that it can twist to its own end, war, over perceptions of History, load gravity. The Bat Area wasn’t always a military moron generator, and not everyone in Silicon Valley is a moron.
There are three ways to look at History productively: everyone is wrong, everyone is right in their own way, or both. Government didn’t invent radio, TV or Internet, but you would never know it watching its media. What Edison ignored, Tesla didn’t, but Edison is in the school history books and Tesla motors is building batteries, with a pyramid at the door waiting to apply for the make-work.
Corporate Russia is like a bear in a cave, waiting for stupid to walk in assuming that the bear is hibernating. America is like that guy in a car across from the elementary school, with a gun under the seat, offering kids candy. Corporate Europe is like a child, playing both sides against the middle. And Asia is like feuding cousins, all with feudalism as input and artificial scarcity as output.
The NFL is paying its best performers to leave, surprise. Male and female liberation is a simple process. A woman seeks self-sufficiency to the extent possible, and the man is there when she doesn’t turn to government to make the difference. The juvenile male is the one giving the woman no choice but to turn to government, to his own end. Corporal punishment only gets your kid’s attention once.
We are gearing up for MagLev and TK is leading the way, back, with a direct line to the Third Reich. Don’t get me wrong; TK is my favorite, because it gives me the most gravity to work. Money is a symptom, not a cause, whether it’s paper, gold or a stick.
Just when you thought America could not become more European, the critters have another election. To the extent they replace cash with digital, you want to be able to do what is necessary and what others cannot, pop the trap, new world order same as the old. The power of money resides in its anonymity, so you are better off going to the Chicken Pox Party.
The Fed is missioned to be the market-maker of last resort, by printing to subsidize failure to adapt, which requires an external source of labor, your children. The critters bomb half the population on the planet to keep their children in poverty, have a history of slaughtering women and children to expunge indigenous populations, and hand their children over to the propagandists at infancy. Expect them to take your children for non-compliance.
Meth is a scourge because the police are missioned to protect and serve real estate inflation, and getting up everyday to work, eat and sleep, to do it again everyday until you die is not life. Piling in after the turn is way too late.
the ‘mere mortals’ get slaughtered every time, for lack of education, standing in line for fish instead.
I teach the kids to fish, my wife gives them fish, and, funny, when the sh hits the fan, I’m the one that makes sure the shelves at the food bank are full.
What you see is only half.
Considering Germany’s unfortunate demographics (low birth rate, high dependency ratio, population decline, high life expectancy, etc.), one could argue that:
1. The prospects of higher domestic consumption and higher domestic investment in Germany are poor, and therefore
2. Maintaining an annual growth rate of 3% is no longer a reasonable, or sustainable, goal.
3. Because very little growth can come from within the country, Germany has little choice but to lean on other countries’ aggregate demand so that its economy keeps growing (or at least doesn’t contract as much).
4. Because Germany’s population is rapidly aging, the country has the right, as well as the need, to accumulate significant savings, so that it can pay its way in the world in the next few decades. Germany’s current account surpluses are its net savings.
5. Accordingly, countries that have much more favorable demographic conditions (such as the Anglo-Saxon nations) have a moral obligation to run current account deficits, or at least not to actively try to suppress them. Incidentally, some of these countries happen to be among the wealthiest nations in the world, e.g. the US.
6. It is the responsibility of the governments of countries such as the US to make sure that their current account deficits are used to fund productive investment rather than consumption booms.
7. A shortage of aggregate demand in countries such as the US should be relieved by increasing government spending or redistributing national wealth to households with a higher propensity to spend (by imposing more progressive taxation, for example), rather than by increasing net exports.
Regarding the political-cultural defects of German society, I have nothing to add to that discussion, just that other countries have many defects of their own.
After 4 decades living and working in germany I can add a few current facts you will just NOT FIND in the mainstream media:
Over 2,5 million germans don´t have the means to feed them selves and going to the foodbanks which are called “Die Tafeln”.
http://www.ekhn.de/aktuell/detailmagazin/news/tafeln-versorgen-mehr-als-zwei-millionen-menschen.html
This number has trippled in just 5 years!
There are at least (according to the german mainstream sources them selves) 300.000 homeless.According to more independent specialised german organisations the number is at least double as high:
http://sowi.st-ursula-attendorn.de/ba/badoku01.htm
You can see them every where.Not so much in southern germany.But anywhere else.To me it was always strange that there is no real discussion in the german media about these issues since these problems became very serious since 2008.Obviously this is part of of the german way of keeping their folks calm.
Over 350.000 german families were cut from power supplies in 2013 since their could not pay:
http://www.berliner-kurier.de/politik—wirtschaft/bundesnetzagentur-345-000-menschen-wurde-der-strom-abgestellt,7169228,29124840.html
Over 7 Million german households recieved the “final warning” to pay for the power supplies or to be cut off from it(same link).
We talk about almost 10% of their population.
These are some facts most people just don´t know.But these are the real reasons for “PEGIDA” and the rise of the same old in germany.The biggest problem is that the german “leftists” don´t raise their voice about these issues.I don´t know exactly why but I guess it is because most of them are mostly intellectuals from the upper middle class.They just don´t want to see how bankrupt their own country is while most of them have become “experts” about the troika´s war on southern europe.
Add to all this that the biggest german banks (deutsche bank,commerzbank) are still heavily exposed to the derivatives and junk bonds from the lehman-crisis in 2008.Only the deutsche bank has some 60 trillion $ of these papers.
http://investmentwatchblog.com/deutsche-banks-total-derivative-exposure-is-the-same-as-the-gdp-of-the-world/
This piece is right on the money; Germany is currently heading nowhere. Merkel must surely now be aware that her financial policies are wrong (Schäuble probably not as he is a disciple of Milton Friedman and the Chicago School) but of course she must back Schäuble. Merkel has jumped the shark – she is even actively pushing TTIP although no one in Germany wants it.
The problem is, as mentioned in this piece, there is no discussion or debate in the german media, only the socialists (die Linke) are standing up and being counted, but they do not have enough votes to make a difference, and of course they can be written off as old communists. Never the less, they are there and they are speaking out.
Meantime, infrastructure is starting to disintegrate – not to the extent of the UK or USA but it is heading that way.
Germany needs to turn around politically at the next election – maybe a Greexit or Italian collapse would make that possible.