Due to high unemployment and weak economic growth Germany was considered the sick man of Europe in the 90s.
After the introduction of the euro however a recovery of the German economy admired by many began.
The unemployment rate has dropped from about 10% in 2002 to about 5% in 2019.
[1]
Meanwhile there are warnings about an imminent recession of the German economy.
So the question arises what lies behind the supposed miracle of the German economy.
[2]
[3]
[4]
[5]
Under German Chancellor Gerhard Schröder (SPD) (1998-2005) a supply-side and employer-friendly policy was established in Germany. Although Schröder was and is a social democrat the low wage sector has been expanded under him. In the context of Agenda 2010 among other things the level of social welfare was lowered, the protection against dismissal limited and temporary work extended. The goal was to reduce unemployment. The logic was that unemployment would fall if the price of labor in the form of wages declined. And in a state with a welfare system there is always an implicit wage in the amount of social assistance.
The result was not that additional work was created but that the available work was distributed to more people. While unemployment has fallen the number of hours worked remained almost unchanged. At the same time Germany has built up enormous export surpluses to the detriment of others and has thus become a correspondingly large creditor. And reducing wages has also increased the number of those who live in poverty despite work.
While the number of unemployed steadily decreased the number of hours worked remained the same. So no further work was created. The available work was only distributed to more people.
[9]
This becomes especially clear when the numbers are standardized.
[9]
Germany also joined the Euro-Monetary Union. And a monetary union is characterized by the fact that there is only one key interest rate. And above all exchange rates disappear with a monetary union. As a result the key interest rate was too high for some countries and too low for other countries. In addition exchange rates eliminated the possibility for countries to balance their foreign trade balance. An even development of wages and labor productivity in all euro area countries was thus necessary.
But this was not the case. With a minimum wage of 9,19 Euro (10,31 US-Dollar) (2019), Germany is below Luxembourg, France, Ireland, the Netherlands and Belgium. This is visible in the unit labor costs. These are the wages in relation to labor productivity. [10]
[11]
As one can see other countries succumb to German wage restrain. As a result Germany provides lower prices through lower wages. And due to the lack of exchange rates the other euro countries are at the mercy of Germany's exports. But even without Germany the imbalances would remain due to different unit labor costs. If Germany were no longer in the euro then the next country would take on the role of the surplus country.
The trade balance of a region compares the goods and services that are imported with those that are exported. This includes profits from investments. The balance of trade therefore shows how much other regions have been in debt for a region in this case how much foreign countries have been in debt to Germany. A surplus country like Germany receives for the exported goods and services a promise to receive goods and services from abroad in the future. Or short receivable accounts. The surpluses of Germany are thus inevitably the deficits of other countries.
Germany generates its own surplus primarily with other countries which also use the Euro. That means Germany has built up a lot of foreign assets in the euro area and these are the liabilities of other countries.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Germany is thus operating at the expense of other countries and exports unemployment to other countries. Thus Germany violates the German Basic Law and the Maastricht Treaty. Since Germany has an export surplus and this exceeds the contractual limit of six percent. [12] [13]
[14] [15]
[14] [15]
Whether the debt will ever be repaid is uncertain. If foreign debtors can no longer settle their payment then companies go bankrupt. For whole countries their currency is depreciating. This would then also invalidated the claims.
With currently 39 % export share, Germany is more dependent on exports than China. Thus Germany's economy is enormously dependent on exports and particularly prone to international crises or a trade war. And the domestic part of the German economy ist increasingly left behind. And even the export surplus is currently 8 % higher than China's export surplus.
France also joined the Euro-Monetary Union. So if the supposedly pro-European president promotes Europe, then he means the EU and thinks of the French export deficit. If the demands of the French government were met, this would pave the way for a transfer union. And with an export surplus of about 250 billion Euro a year such a transfer union would amount to about 3,000 euros per year in Germany. However given past supply-side and employer-friendly policies it is likely that such a tax would hit companies the least and hit the working class the most.
With membership in the EU Great Britain is also in its free trade zone. If Britain leaves the EU and does not remain part of the free trade zone then trade between the two would no longer be duty-free. Then exports from Germany to Great Britain of about 77 billion euros per year would decrease. And this also explains the non-cooperative attitude of the German Federal Government in the negotiations for Brexit.
[22] [22,A03]
The proportion of people affected by poverty in Germany despite being employed has also increased since the introduction of the Euro and low-wage policies. According to the EVS (Einkommens- und Verbrauchsstichprobe/Income and Expenditure Survey) and the SOEP (Sozio-ökonomisches Panel/Socio-Economic Panel) the proportion of people affected by poverty despite gainful employment in Germany rose from around 5% in 1995 to 10% in 2015. [22] [22,A03]
[1] Arbeitslose und Arbeitslosenquote 2019-03-19
https://www.bpb.de/nachschlagen/zahlen-und-fakten/soziale-situation-in-deutschland/61718/arbeitslose-und-arbeitslosenquote
[2] Economics - German Economy Heads for Worst Growth in Six Years 2019-04-17
https://www.bloomberg.com/news/articles/2019-04-17/germany-2019-economic-growth-forecast-cut-in-half-to-0-5-percent
[3] Germany's economy is flashing yet another 'grim' warning after more weak data and a slump in demand 2019-04-18
https://markets.businessinsider.com/news/stocks/german-economy-car-industry-in-crisis-after-grim-manufacturing-data-2019-4-1028121039
[4] The German economy is slowing. Brexit could make it worse 2019-01-28
https://www.aljazeera.com/news/2019/01/german-economy-slowing-brexit-worse-190128031440710.html
[5] 'This is a serious recession warning in the German economy' 2019-03-27
https://www.businessinsider.de/this-is-a-serious-recession-warning-in-the-german-economy-2019-3?r=US&IR=T
[6] Viertes Gesetz für moderne Dienstleistungen am Arbeitsmarkt
https://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&jumpTo=bgbl103s2954.pdf#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl103s2954.pdf%27%5D__1545063076015
[7] Davos Annual Meeting 2005 - Gerhard Schröder 2007-04-30
https://youtu.be/k6ElcwqoOqM
[8] Hamburger Appell
https://web.archive.org/web/20130226021243/http://www.wiso.uni-hamburg.de/fileadmin/wiso_vwl_iwk/paper/appell.pdf
[9] NEWS - Germany minimum wage remains one of lowest in region: report 2019-02-14
https://www.dw.com/en/germany-minimum-wage-remains-one-of-lowest-in-region-report/a-47517931
[10] Frohe Kunde aus dem "Jobwunderland" Deutschland. Da lohnt ein genauerer Blick auf die Zahlen und die andere Seite der Medaille| 2018-01-03
https://aktuelle-sozialpolitik.blogspot.com/2018/01/frohe-kunde-aus-dem-jobwunderlanderland.html
[11] NOMINAL UNIT LABOUR COSTS, TOTAL ECONOMY
http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[12] Grundgesetz Artikel 109
https://www.gesetze-im-internet.de/gg/art_109.html
[13] Maastricht-Vertrag
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=OJ:C:1992:191:TOC
[14] Exportanteil/Export Share
https://www.destatis.de/DE/ZahlenFakten/Indikatoren/LangeReihen/Aussenhandel/lrahl01.html
[15] Exportüberschuss/Export Surplus https://www.destatis.de/DE/ZahlenFakten/GesamtwirtschaftUmwelt/VGR/Inlandsprodukt/Tabellen/BruttoinlandVierteljahresdaten_xls.html
[16] Where does the United Kingdom export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/gbr/show/all/2017/
[17] Where does Germany import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/deu/show/all/2017/
[18] Where does the United Kingdom import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/gbr/show/all/2017/
[19] Where does Germany export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/deu/show/all/2017/
[20] 20 Jahre Euro: Verlierer und Gewinner 2019 February
https://www.cep.eu/fileadmin/user_upload/cep.eu/Studien/20_Jahre_Euro_-_Gewinner_und_Verlierer/cepStudie_20_Jahre_Euro_Verlierer_und_Gewinner.pdf
[21] Eurostat-Daten - Wenn Arbeit nicht vor Armut schützt 2018-10-24
https://www.tagesschau.de/inland/beschaeftigte-armut-101.html
[22] Armuts- und Reichtumsbericht
https://www.armuts-und-reichtumsbericht.de/DE/Startseite/start.html
Under German Chancellor Gerhard Schröder (SPD) (1998-2005) a supply-side and employer-friendly policy was established in Germany. Although Schröder was and is a social democrat the low wage sector has been expanded under him. In the context of Agenda 2010 among other things the level of social welfare was lowered, the protection against dismissal limited and temporary work extended. The goal was to reduce unemployment. The logic was that unemployment would fall if the price of labor in the form of wages declined. And in a state with a welfare system there is always an implicit wage in the amount of social assistance.
The result was not that additional work was created but that the available work was distributed to more people. While unemployment has fallen the number of hours worked remained almost unchanged. At the same time Germany has built up enormous export surpluses to the detriment of others and has thus become a correspondingly large creditor. And reducing wages has also increased the number of those who live in poverty despite work.
The Origins
On January 1, 2005 the fourth law for modern services on the labor market (Vierte Gesetz für moderne Dienstleistungen am Arbeitsmarkt/Hartz IV) was introduced. It regulates social benefits in Germany. With this change social benefits were cut. These indirectly serve as a minimum wage as people are less inclined to work for wages below social benefits. The German government has thus lowered the minimum-wage. This is also one of the reasons for the promotion of labor migration of the German Federal Government. The German Federal Government calls this shortage of skilled workers (Fachkräftemangel). See: [Dossier] Migration Business [6] And at the World Economic Forum in Davos in Switzerland former German chancellor Gerhard Schröder praised the low-wage sector created by it.We have a fantastic labour market in germany at the moment. A very well funtioning good low wage labour market. [7,21m10s]This started the period of wage restrain in Germany. This was praised in an appeal by various economists. Various economists such as Hans-Werner Sinn consider this behavior to be good. [8]
While the number of unemployed steadily decreased the number of hours worked remained the same. So no further work was created. The available work was only distributed to more people.
[9]
This becomes especially clear when the numbers are standardized.
[9]
Germany also joined the Euro-Monetary Union. And a monetary union is characterized by the fact that there is only one key interest rate. And above all exchange rates disappear with a monetary union. As a result the key interest rate was too high for some countries and too low for other countries. In addition exchange rates eliminated the possibility for countries to balance their foreign trade balance. An even development of wages and labor productivity in all euro area countries was thus necessary.
But this was not the case. With a minimum wage of 9,19 Euro (10,31 US-Dollar) (2019), Germany is below Luxembourg, France, Ireland, the Netherlands and Belgium. This is visible in the unit labor costs. These are the wages in relation to labor productivity. [10]
[11]
As one can see other countries succumb to German wage restrain. As a result Germany provides lower prices through lower wages. And due to the lack of exchange rates the other euro countries are at the mercy of Germany's exports. But even without Germany the imbalances would remain due to different unit labor costs. If Germany were no longer in the euro then the next country would take on the role of the surplus country.
The Bill
As a resault Germany was crowned world export champion again. The German trade balance has been showing a rising export surplus for several years. Many and especially politicians in Germany are proud of it.The trade balance of a region compares the goods and services that are imported with those that are exported. This includes profits from investments. The balance of trade therefore shows how much other regions have been in debt for a region in this case how much foreign countries have been in debt to Germany. A surplus country like Germany receives for the exported goods and services a promise to receive goods and services from abroad in the future. Or short receivable accounts. The surpluses of Germany are thus inevitably the deficits of other countries.
Germany generates its own surplus primarily with other countries which also use the Euro. That means Germany has built up a lot of foreign assets in the euro area and these are the liabilities of other countries.
The export surpluses displace additional jobs in countries with export deficits. Since the local economy is replaced by imports in this case German imports. Germany is thus operating at the expense of other countries and exports unemployment to other countries. Thus Germany violates the German Basic Law and the Maastricht Treaty. Since Germany has an export surplus and this exceeds the contractual limit of six percent. [12] [13]
[14] [15]
[14] [15]
Whether the debt will ever be repaid is uncertain. If foreign debtors can no longer settle their payment then companies go bankrupt. For whole countries their currency is depreciating. This would then also invalidated the claims.
With currently 39 % export share, Germany is more dependent on exports than China. Thus Germany's economy is enormously dependent on exports and particularly prone to international crises or a trade war. And the domestic part of the German economy ist increasingly left behind. And even the export surplus is currently 8 % higher than China's export surplus.
Macron
Again and again, this dilemma plays a role within the EU. French President Emmanuel Macron is often praised by the left-liberal milieu for his supposedly pro-European attitude. The demand for reforms however stems from the economic plight of France. France still has an export deficit. In addition France together with other euro countries have been accused of being insufficiently competitive. Germany and the Netherlands for example have significant export surpluses.France also joined the Euro-Monetary Union. So if the supposedly pro-European president promotes Europe, then he means the EU and thinks of the French export deficit. If the demands of the French government were met, this would pave the way for a transfer union. And with an export surplus of about 250 billion Euro a year such a transfer union would amount to about 3,000 euros per year in Germany. However given past supply-side and employer-friendly policies it is likely that such a tax would hit companies the least and hit the working class the most.
Brexit
A similar dynamic also overshadows the relations of Great Britain and Germany as well as the EU. Britain itself also has an export deficit of about 190 billion Euros (223 billion US-Dollar) a year. And with Germany, Great Britain has an export deficit of about 44 billion Euros (51 billion US-Dollar) per year. [16] [17] [18] [19]With membership in the EU Great Britain is also in its free trade zone. If Britain leaves the EU and does not remain part of the free trade zone then trade between the two would no longer be duty-free. Then exports from Germany to Great Britain of about 77 billion euros per year would decrease. And this also explains the non-cooperative attitude of the German Federal Government in the negotiations for Brexit.
Working Poor
In the study "20 Jahre Euro: Verlierer und Gewinner" (20 Years of Euro: Losers and Winners) by the "Centrum für Europäische Politik" (Center for European Politics) Germany is presented as the biggest winner of the Euro. In addition the study attests a wealth gain of 23,116 Euros (26,000 US-Dollar) per inhabitant on average. However these wealth gains took place in favor of the upper or highest income groups. [20]Deutschland hat mit Ausnahme von 2004 und 2005 jedes Jahr von der Euro-Einführung profitiert, besonders seit der Euro-Krise ab 2011. Kumuliert von 1999 bis 2017 hat der Euro in Deutschland zu Wohlstandsgewinnen von 1,9 Billionen Euro bzw. 23.116 Euro pro Einwohner geführt. Von den untersuchten Staaten hat Deutschland damit am meisten vom Euro profitiert.For ordinary workers the introduction of the euro was accompanied by an increase in of the working-poor. The proportion of those at risk of poverty in Germany rose from 12.7% in 2007 to 20.5% in 2016. According to the EU criteria one is endangered to poverty if one has less than 60% of the total income of the total population. [21]
With the exception of 2004 and 2005 Germany has benefited every year from the introduction of the euro, especially since the euro crisis from 2011 onwards. Cumulatively from 1999 to 2017 the euro has led to prosperity gains of 1.9 trillion Euros (2.1 trillion US-Dollar) or 23,116 Euros (26,000 US-Dollar) per inhabitant in Germany. Of the countries surveyed Germany thus benefited most from the euro. [20,p.7]
[22] [22,A03]
The proportion of people affected by poverty in Germany despite being employed has also increased since the introduction of the Euro and low-wage policies. According to the EVS (Einkommens- und Verbrauchsstichprobe/Income and Expenditure Survey) and the SOEP (Sozio-ökonomisches Panel/Socio-Economic Panel) the proportion of people affected by poverty despite gainful employment in Germany rose from around 5% in 1995 to 10% in 2015. [22] [22,A03]
[1] Arbeitslose und Arbeitslosenquote 2019-03-19
https://www.bpb.de/nachschlagen/zahlen-und-fakten/soziale-situation-in-deutschland/61718/arbeitslose-und-arbeitslosenquote
[2] Economics - German Economy Heads for Worst Growth in Six Years 2019-04-17
https://www.bloomberg.com/news/articles/2019-04-17/germany-2019-economic-growth-forecast-cut-in-half-to-0-5-percent
[3] Germany's economy is flashing yet another 'grim' warning after more weak data and a slump in demand 2019-04-18
https://markets.businessinsider.com/news/stocks/german-economy-car-industry-in-crisis-after-grim-manufacturing-data-2019-4-1028121039
[4] The German economy is slowing. Brexit could make it worse 2019-01-28
https://www.aljazeera.com/news/2019/01/german-economy-slowing-brexit-worse-190128031440710.html
[5] 'This is a serious recession warning in the German economy' 2019-03-27
https://www.businessinsider.de/this-is-a-serious-recession-warning-in-the-german-economy-2019-3?r=US&IR=T
[6] Viertes Gesetz für moderne Dienstleistungen am Arbeitsmarkt
https://www.bgbl.de/xaver/bgbl/start.xav?startbk=Bundesanzeiger_BGBl&jumpTo=bgbl103s2954.pdf#__bgbl__%2F%2F*%5B%40attr_id%3D%27bgbl103s2954.pdf%27%5D__1545063076015
[7] Davos Annual Meeting 2005 - Gerhard Schröder 2007-04-30
https://youtu.be/k6ElcwqoOqM
[8] Hamburger Appell
https://web.archive.org/web/20130226021243/http://www.wiso.uni-hamburg.de/fileadmin/wiso_vwl_iwk/paper/appell.pdf
[9] NEWS - Germany minimum wage remains one of lowest in region: report 2019-02-14
https://www.dw.com/en/germany-minimum-wage-remains-one-of-lowest-in-region-report/a-47517931
[10] Frohe Kunde aus dem "Jobwunderland" Deutschland. Da lohnt ein genauerer Blick auf die Zahlen und die andere Seite der Medaille| 2018-01-03
https://aktuelle-sozialpolitik.blogspot.com/2018/01/frohe-kunde-aus-dem-jobwunderlanderland.html
[11] NOMINAL UNIT LABOUR COSTS, TOTAL ECONOMY
http://ec.europa.eu/economy_finance/ameco/user/serie/SelectSerie.cfm
[12] Grundgesetz Artikel 109
https://www.gesetze-im-internet.de/gg/art_109.html
[13] Maastricht-Vertrag
https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=OJ:C:1992:191:TOC
[14] Exportanteil/Export Share
https://www.destatis.de/DE/ZahlenFakten/Indikatoren/LangeReihen/Aussenhandel/lrahl01.html
[15] Exportüberschuss/Export Surplus https://www.destatis.de/DE/ZahlenFakten/GesamtwirtschaftUmwelt/VGR/Inlandsprodukt/Tabellen/BruttoinlandVierteljahresdaten_xls.html
[16] Where does the United Kingdom export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/gbr/show/all/2017/
[17] Where does Germany import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/deu/show/all/2017/
[18] Where does the United Kingdom import from? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/import/gbr/show/all/2017/
[19] Where does Germany export to? (2017)
https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/deu/show/all/2017/
[20] 20 Jahre Euro: Verlierer und Gewinner 2019 February
https://www.cep.eu/fileadmin/user_upload/cep.eu/Studien/20_Jahre_Euro_-_Gewinner_und_Verlierer/cepStudie_20_Jahre_Euro_Verlierer_und_Gewinner.pdf
[21] Eurostat-Daten - Wenn Arbeit nicht vor Armut schützt 2018-10-24
https://www.tagesschau.de/inland/beschaeftigte-armut-101.html
[22] Armuts- und Reichtumsbericht
https://www.armuts-und-reichtumsbericht.de/DE/Startseite/start.html
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