Why economically troubled nations should emulate Germany

Posted on April 20, 2012 in Policy Context

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TheStar.com – business
Published On Thu Apr 19 2012.   By David Olive, Business Columnist

That Germany is an oasis of prosperity amid the economic wreckage of Europe is no secret. That the world’s fourth-largest economy, and by far the largest in Europe, is outperforming the U.S. and Canada, as well, has been a topic of a fascination that would be more pronounced if only we weren’t understandably preoccupied with austerity-driven riots in Athens, across Britain, and in a Madrid where the jobless rate is 20 per cent and youth unemployment is running at 40 per cent.

Germany’s economy will grow this year, while most of the rest of Europe has slipped into recession. German civil servants received a bonus last year, while governments at every level across North America and Europe are cutting government jobs – many of them essential-service jobs – or slashing the pay and benefits of those still on the payroll and forced to do the work of their laid-off colleagues.

Germany, an export-driven economy like Canada, retains its export prowess to such a degree that both Volkswagen AG and Daimler AG posted record profits in 2011, despite a slump in the European auto market. The German jobless rate is about 5 per cent, compared with 7.2 per cent in Canada, and 8.2 per cent in the U.S.

German industry is no less productive and innovative than its top peers, including Korea, Japan and the U.S. Yet organized labour in Germany has long had a significant role in corporate governance, as members of corporate supervisory boards. And Germany has long required employers to provide mandatory five-week vacations to workers.

Germany’s public finances are as sound as those of Canada and Switzerland, and the envy of a U.S. and Britain that are struggling with their public indebtedness. Yet Germany is an unapologetic welfare state, with a social safety net more elaborate than any outside Western Europe.

It has seemed to me, in more cynical moments, that a North America so hard-hit by the Great Recession has not been entirely unhappy that the U.S.-originated global meltdown migrated elsewhere, specifically Europe. Misery does like company. And if Europe, the world’s largest economy, was later to get a taste of the brutal austerity that has swept the U.S., in particular, since the Wall Street meltdown of 2008-09, here was proof for conservative ideologues that the European welfare state was untenable once deep recession struck.

Yet Germany’s current experience repudiates that nonsense. Austerity measures imposed by London, Madrid, and the U.S. Congress and American state capitals, among others, are sapping still more demand from economies whose chief ailment is lack of economic activity. Germany, by contrast, has not attempted, simplistically and foolishly, to slash its way back to robust health. Indeed, that Germany remains in robust economic health is a vindication of the social-welfare state.

Germany continues to be hectored to relax its demands for austerity among rescue candidate-nations. And to be resented for this. It seems not widely appreciated that what Germany is exhorting others to adopt is what has worked so well for it. Not austerity for its own sake, but as the necessary precondition to living within one’s means in a way that has served Germans so well.

George Soros, the billionaire speculator, unburdened himself last week of his opinion that Germany will be the death of Europe if it doesn’t relent on its demands for austerity among rescue-fund beneficiaries.

Nicolas Sarkozy, in a tough re-election campaign for the French presidency, has found a convenient distraction for the shortcomings of his own government by lashing out at Germany for its unrelenting demands that Europe’s supplicant nations get their fiscal houses in order. In Athens, newspaper cartoonists for months have been depicting Merkel in Nazi garb.

It is true that Merkel has been a fiscal hardliner in attaching austerity measures to its benevolence. (“Punitive” was Dublin’s view of the high interest rates for its first bailout, until a second, less punishing, rescue package was offered.) And it’s true that Germany has greatly benefited from a euro of lower value than the old Deutschemark, making its goods more price-competitive in eurozone markets.

But it’s also true that in the main Germany has been showing us how to run a country that can take care of its people in good times and bad, and help rescue others as well.

Much as I agree with many of those calling on Germany to try harder to recognize and accommodate the very different cultures of its European neighbours, it would be wise, I think, to take a step back and examine how it is that Germany works so well. Germany holds invaluable lessons for us that for now are obscured by its odium, deserved or not, as a rescuer determined to ram austerity down the throats of beneficiaries of its assistance.

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