Hartz IV for Everyone

BERLIN/BRUSSELS/WASHINGTON (Own report) – New records in German foreign trade are provoking massive international criticism of Berlin’s concentration on exports. According to reports, the German economy has achieved a foreign trade surplus of 20.4 billion Euros in September – a new record. It is estimated that for 2013, German companies’ exports will exceed by around 200 billion Euros the amount imported. That is the world’s highest national import-export gap. Protests are growing because many of the customer countries for German products thereby are driven into debt, as was the case in the crisis countries of the southern Euro zone. Other than the EU Commission threatening Berlin with an official reprimand, the US Secretary of Finances is accusing the German government of threatening the stability of the global economy. The IMF is also emphatically insisting that Germany rein in its export offensive. It is based on the low-wage policy, initiated by the SPD-Green government coalition – and continued by the CDU-SPD grand coalition – which provides a decisive competitive advantage to German industry. During those administrations, Germany was the sole EU nation with decreasing real wages.

German Export Steamroller

The excessive German orientation on exports and the low-wage policy, on which it is based, have, over the years, repeatedly come under criticism from abroad. They have significantly contributed to the escalation of the Euro crisis. The policy of massive wage shrinkage during the SPD-Green coalition and the ensuing CDU-SPD grand coalition governments has allowed the German government to accumulate significant competitive advantages in relationship to other Euro zone countries. In fact, in the period from 2000 to 2008, real wages in Germany shrank by 0.8 percent – a record EU drop. During that same period, real wages rose in France by 9.6 percent and even by 26.1 percent in Great Britain. The wage restraint gave German industry the capacity to overcome its rivals and expand its exports, particularly to countries within the Euro zone, which has led – particularly in southern European countries – to comprehensive trade balance deficits and eventually plunged them into debt. At the beginning of the Euro crisis, the causes were frankly expressed in the German business press. It was analyzed in January 2010 that “because [Germany’s] army of employees are satisfied with restricted growth in wages, the export steamroller is barreling over its European competition.” Earlier the countries concerned would have been able to use devaluation to defend themselves, now there is “no defense against attacks with sinking unit labor costs and progress in productivity (…) within the common monetary realm.”[1]

Overwhelming Surpluses

The dramatic rise in German exports, accompanied by a simultaneous drop in demand for imports, can still be observed in relations with France. In 1999, France enjoyed a foreign trade surplus of 39 billion Euros. In 2010, it was suffering a deficit of 51 billion Euros, which has continued to rise. By 2010, more than half of France’s deficits (30 billion Euros) had been caused by Germany. In 2012, German exports to France had surpassed French exports to Germany by 40 billion Euros. The German export “steamroller” was continuing to crush the French economy; and because the German export offensive was not only having an effect on France, but also other EU countries, the EU Commission has now begun taking measures for their protection. With its growth in exports, since 2007, Germany has been overstepping the hardly tolerable reference level of six percent of the economic performance and will continue to do so at least for the next two years, complains Olli Rehn, EU Commissioner for Economic and Monetary Affairs. To not jeopardize the EU’s economic development, Berlin must take counter measures and at least appreciably raise its real wage level.[2]

Berlin Remains Stubborn

Last week, the International Monetary Fund (IMF) demanded that Berlin make a change of course. According to reports, during his visit in the German Ministry of Finances, the IMF’s Special Advisor to the Managing Director, David Lipton, demanded that Germany, at long last, reduce its foreign trade surpluses, in addition, he called on the German government to determine an upper limit, not to be surpassed.[4] Berlin strictly refused. It is out of the question to stimulate demand in Germany with an increase in wages. On the contrary, the countries suffering under the German export offensive should undertake “structural adjustments,” meaning cuts in wages and social services, along the lines of the notorious German “Hartz reforms.”[5] The disputes will escalate; the EU Commission may even officially reprimand Germany this week. It is not expected that Germany will give in. Low wages and excessive exports are flushing huge profits into the coffers of German companies, facilitating further expansion. Though this threatens to plunge numerous countries – and eventually even the global economy – into a severe crisis, it is, nevertheless, increasing German wealth and German power; a good reason for Berlin to continue on its current course.

Full article: Hartz IV for Everyone (German Foreign Policy)

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