This is a response to beatroot, who commented on my recent piece on the constitution : "I doubt that liberalisation is on many agendas at the moment. (...)Even Merkel has gone quiet on those much needed German reforms."
Believe it or not: Germany most competitive and profitable big country of Euro.
Evidence strongly suggests that the mantra "Germany needs reform" has already become true long time ago. Germany is again the biggest exporter of the world, and the German companies are profitable beyond historic precedent. The competitiveness of an economy is measured in unit labor costs. They get cheaper when productivity outgrows labor costs. That is what has happened in Germany. In fact, Germany's unit labor costs have remained at the same level since 1995, whereas eg Spain's have risen about 30%.
German reforms itself and fucks up European economies
The reason is an already decade-long restraint in wage increases in Germany. In fact, wage restraint has made Germany so competitive that it damages the other economies of the Euro-zone, as a study of the Paris institute OFCE suggests. Economist Robert von Heusinger argues in Die Zeit that Spain, France and Italy would have to outbalance Germany's reforms with long years of wage restraint and social cuts of their own or - leave the Euro-zone.
Profit doesn't mean growth
So, why is there still so little growth in Germany although the exports roar and the companies are profitable like hell? The answer is that with all social cuts and wage restraints the domestic demand - usually creating the biggest share of growth - could not grow.
So, the message of the economists is out (and some European national parties are finally responding): liberalization per se does not fix anything. At the moment, misguided liberalization policies are mainly responsible for the lack of growth in the Euro-zone.
German labor reforms more expensive and less effective than old system. But unemployed people are punished nontheless.
Talking about misguided liberalization policies: "Hartz IV", the German labor market reform is now proven that it not only pushed part-time workers and folks without job beyond the poverty line, but also costs more than the old system and is less effective in putting people in jobs, according to the German Court of Audit. (Sueddeutsche, 5/22/06)
Tuesday, May 23, 2006
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3 comments:
An interesting point of view (in general, I've enjoyed reading your blog). Certainly, maintaining a single market and coordinating the different countries is a major challenge to those who believe in European unity and social prosperity. My party, Europe United, being new and just formulating its policies could certainly use your perspective. We are neither left nor right in ideology, but committed to placing the power in the hands of the citizens and giving all Europeans an equal voice and vote in the formation of policy. You can check out the site at www.europeunited.org .
Hey now, stop criticizing the Germans!;-)
Hartz IV was a disaster. Yet even I have to admit that there are some labor reforms needed in Germany. Especially in East Germany(where I lived and will be living for a year starting in July...), people are still weaning themselves off Communism. People have less incentive to work hard than the U.S.
Overall, obviously I support the strong labor unions, universal health care, shorter work week, etc. But Germany's 11% unemployment doesn't benefit anyone.
"Some reforms" is exactly the problem. In which direction do we want the country to go? I don't see the direction of "some reforms", and neither do the Germans.
1) The German economy is making record profits, the labor regulations are obviously ok. It's true that labor is too expensive, but this has nothing to do with labor regulations. Labor is too expensive because in Germany (as in Austria) the major burden of taxes and contributions rest on labor, whereas taxes on capital and profit are too low.
A shift of the tax burden would make it immensely more attractive to hire again, and would make the decision easier to invest in labor when the market is up.
2) A quick note on the reform of the unemployment benefits (the so-called "labor reforms"). The strategy of Hartz IV was: hurting the unemployed as much as possible so that they finally go get a job. This obviously didn't work out, with unemployment rates soaring.
Let's get back to basic economy: only a growing economy creates jobs. And the German economy doesn't grow sufficiently because there is too little domestic demand. And this, in turn, is because wages have stagnated in the past 10 years. And therefor the German economy announces record profits, but the country profits little.
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