[A-List] EU & the imperialist chain: Germany

["Keaney Michael" <Michael.Keaney@xxxxxx>]

Now the Guardian joins in with the FT to trumpet the death of
Deutschland AG and the enforced "modernisation" of Germany...


Locomotive runs out of steam

Germany, once Europe's paragon of industrial and social organisation, is
being pushed towards a Blairite revolution

David Gow, industrial editor
Friday April 26, 2002
The Guardian

Günther Klemm believes that the German industrial model is ailing. The
chief economist at the Hamburg chamber of commerce is not alone. "The
state can no longer finance everything, especially the indirect costs,
which bring people to rely entirely on the state, and that's the German
sickness," he says. "Everything is socially thought-out but has an
unsocial impact; the state wants to protect everyone but achieves the
opposite."

He is critical of the failure of the Schröder government - and its
predecessors - to reform and modernise the tax system, labour market,
pensions and social security system, to stimulate growth and employment
and restore Europe's biggest economy to its leadership role.

Germany, once admired for its economic miracle, its macroeconomic
stability, superb education and training system and consensus-driven
society, is now derided as the sick man of Europe, the brake-wagon
rather than the locomotive.

For the past 10 years, since the boom prompted by unification, it has
been bottom of the European growth league, averaging 1.5% a year. Last
year growth was 0.6%, unemployment topped 4m or almost 10%, inflation
was 2.5%, corporate confidence fell to an eight-year low, investment in
plant and machinery dropped 3.4%, private consumption, despite the
impact of the tax cuts of 2000, rose less than 2% and productivity grew
a paltry 0.4%.

In the five new federal states in the east, which have received the
equivalent of 1.3 trillion marks in the past 10 years in financial
transfers - equal to 3.5% of GDP a year - unemployment is officially
almost 20%, productivity two-thirds of the level in the west, per capita
GDP 60% of western output. Personal disposable income is about 80% of
western levels.

This year, Hans Eichel, the finance minister, is forecasting 0.75%
overall growth. The country's six leading economic institutes said this
week that it should reach 0.9% (and 2.4% in 2003) - lower than the 1.3%
they predicted last autumn but equal to the recent IMF forecast.

Dealing a further blow to Gerhard Schröder's desire to see
unemployment falling rapidly before the September 22 general election,
the institutes said it would average 3.96m this year and 3.81m next.
Even that depended on a peaceful outcome to the current wage
negotiations.

On the streets, members of IG Metall, the union representing 3.6m
employees in the engineering sector, have been staging token strikes in
pursuit of an original 6.5% pay claim. After talks broke down, the day
after chemical workers accepted a 3.3/3.6% offer, the union set in train
a national strike ballot and demanded at least 4% as the price for a
settlement.

That upset government and independent assumptions that the unions,
responsible for a mere 1% rise in unit labour costs in the past two
years, would reaffirm "social peace". Underlining the country's fall
from macroeconomic grace, the European commission forecast that
Germany's budget deficit would hit 2.8% of GDP this year, just below the
3% ceiling set by the EU's stability and growth pact.

So the former paragon under the magisterial guidance of the Bundesbank
is likely to receive another "yellow card" from Brussels after the one
issued (and withdrawn) over the 2.7% deficit in 2001. The institutes
take a more optimistic view, foreseeing a deficit of 2.3% this year,
1.6% in 2003 and 0.5% in 2004.

In the eastern part of the country, where the mood is sullen
resignation, the construction boom unleashed by unification has turned
into a slump, dragging down manufacturing output - which nevertheless
showed some signs of recovery last year, especially in states such as
Saxony where car firms such as BMW and Porsche are building new plants.

Unemployment is so high that a new wave of emigration to the west has
begun after dwindling from 169,000 in 1991 to a trickle five years
later. In Schwerin, capital of Mecklenburg-Vorpommern, Gerd-Rüdiger
Reichel, head of economic and structural policy at the economics
ministry, says a net 5,000 left last year and 2,600 are likely to go in
2002.

In the state, where the economy shrank 0.8% last year, unemployment is
officially 19.4%. But Mr Reichel admits that job-creation schemes keep
50,000 - a further 5-6% - off the register, pushing the effective rate
to a quarter of the labour force.

There is widespread disagreement about the scale of the country's
sickness, and the required therapy and the willingness of the country's
83m citizens to take the treatment.

Klaus Zwickel, IG Metall's leader, insists that a substantial pay
increase is necessary to stimulate domestic demand in an economy where
growth is spurred by exports, in turn promoted by the US recovery and
the weak euro. Economists such as Mr Klemm agree that personal
disposable income in Germany has almost stagnated in recent years, with
the impact expected from the initial stage of tax cuts offset by the new
eco-tax on petrol, for instance.

There is surprising agreement from Hans Rath, chairman of the chamber
for small businesses in Münster, who sees a drop in people's
purchasing power as responsible for firms' woes. But there the agreement
ends as Mr Rath, in common with the heads of most small and medium-sized
businesses, wants root and branch reform of Germany's "encrusted" labour
market and social security/tax system.

Industry, big and small, is angry that the state takes 55% of GDP
(compared with 42% in Britain). It wants the tax system simplified, with
the top rate reduced to 35%, and the unemployed and those on social
security benefits forced to accept lower-paid jobs or see their payments
cut/cancelled after a strictly limited period. It wants the law
protecting employees against dismissal changed and the power of unions,
who have lost 4m members in 10 years, substantially reduced.

In short, it wants a form of Thatcherism or even Blairism that will make
Germans more flexible and mobile, willing to give up jobs for life, take
on more risks and more responsibility for their health and pensions.

But Germany is a risk averse country and the mood is one of insecurity,
prompting people, including the dramatically growing number of retail
shareholders hurt by the dot bomb collapse, to save for the future
rather than invest or spend. Working east Germans, a fifth of whom are
in part-time jobs or on short-term contracts, claim they cannot see any
benefits from the greater flexibility they have shown.

"I believe it will have to get worse here before it gets better," says
Mr Klemm. "But politicians underestimate the willingness of people to
accept substantial changes which, if carried out consequentially against
all protests, would go through." Bernd Fischbeck, managing director of
RCN, marketing consultants, is gloomier: "It'll take 10 to 20 years, an
entire generation."

Full article at:
http://www.guardian.co.uk/business/story/0,3604,690861,00.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx