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The Ordnung, or poverty. As Germany was transformed from the "sick man of Europe" in her only Savior
Material posted: Publication date: 13-11-2013

Now it's hard to believe but just a decade ago, economists called Germany "the sick man of Europe". Internal reforms of the mid-2000s and the global economic crisis has made Germany the main pillar of the Eurozone and the whole idea of a United Europe as a whole. Germany both in economic and reputational sense, became so strong that it began to irritate her neighbours, and even the United States. "Ribbon.<url>" decided to find out what the critics don't like Germany, and why Germany will remain the leader of the EU.

In late October, the U.S. Treasury published its latest report on international economic and monetary Affairs. Usually in this kind of materials, the Treasury criticized China for the undervaluation of the yuan, but this time to the traditional condemnation of Beijing added another story: the Agency suddenly has sharply criticized the economic policies of Germany. It is particularly noteworthy that the United States was not concerned about difficulties in the German economy, but on the contrary, excessive, in their opinion, the prosperity of the country.

Criticism of strengthening the position of Germany in Europe and distributed in the European Union. So, in October, the French industry Minister Montebourg Henri said that the Euro has become too German, thereby hinting at the tough policy of the European Central Bank, allegedly acting solely in the interests of Germany. To understand what critics don't like Germany, you need to look at the underlying economic performance of Germany and to follow their changes in recent years.

A view from the outside

In order to quickly assess the state of any economy, it is convenient to use four key parameters — GDP growth, balance of payments and the levels of unemployment and inflation. In the first quarter of 2013 the German economy in annual terms decreased by 0.3 percent compared to the same period last year, however, in the second increased by 0.5 percent. In the third quarter, the economy is likely to slow down, and for the whole year GDP growth will not exceed 0.4-0.5 percent.

Relatively modest GDP growth should not be misleading. For example, in Italy the first half was marked by economic contraction (2.3 per cent in the first and two percent in the second quarter) and France quarterly GDP dynamics, though almost not inferior to their Eastern neighbor (in the first quarter, the economy declined by 0.5 per cent, but then rose by 0.3 per cent), but in annual terms, most likely, its GDP will remain at the 2012 level.

The differences between Germany and its neighbours would be even greater, if we compare the levels of trade surplus and unemployment. For the period from January to July of Germany through trade managed to obtain, according to the EU, period 114,1 billion euros (.pdf). It is 5.3 billion more than in the same period of 2012. For comparison, Italy reported a surplus of 18.3 billion euros, and France — and all about the deficit to 44.2 billion euros. Competitive advantage of Germany is low and the unemployment rate. If in France in the first six months it hovered around 10.5 percent, in Italy was slightly higher than 12 percent, in Germany it is less than 7 percent. The average inflation rate in Germany in 2013 amounted to 1.56 percent in annual terms. In France it was recorded at the level of 0.9 percent, and in Italy was around 1.2 percent.

Thus, the leading economy of the Eurozone on statistics can't compete with German, which is ahead of them on all key indicators except inflation. Unlikely in Berlin, however, seriously worried about the growth of the consumer price index: first, the index is not so different from other countries, and secondly, anyway is acceptable, which shows that Germany's economy is developing and not standing still.

An inside look

The global financial crisis caused by the burst bubble of prices in the American property market in 2008, of course, had a negative impact on Germany. If at the end of 2008, the GDP growth amounted to 1.3 percent next year the largest in the EU economy contracted by 4.7 percent. However, in 2010, the German economy again grew by 3.6 percent — the best result since the unification of the FRG with the GDR.

The success of Germany in overcoming the crisis was the result of several interrelated factors. A key role in the rapid recovery of the economy was played by the industrial sector, Germany — a huge high-tech factory, supplying their goods the whole world.

The day before shocks of 2008-2009, the share of German industry in the national GDP structure was occupied by a substantial 29 per cent (the proportion was almost unchanged in 2013). It is the export of industrial goods was and is still the basis of the entire foreign trade of Germany. Problem in 2009, when exports amounted to only 803,3 billion Euro, the share of industrial products had more than 690 billion euros. First of all, Germany sells overseas electrical goods, cars, medical equipment, drugs — experts believe based.pdf) that up to ten percent of world production is concentrated in Germany.

The active involvement of Germany in world trade is not only big business, but with a significant number of medium and small companies. In Germany this sector has been called Mittelstand. We are talking about high-tech industries, whose products enjoy high demand abroad. According to the German government.pdf) to the segment of small and medium-sized businesses accounted for 99 percent of private enterprises, which accounted for slightly more than 52 percent of GDP. Approximately one quarter of companies in the Mittelstand are employed in industry.

For the prosperity of trade must not only supply but demand. While the crisis of 2008-2009 has reduced the interest of consumers in the US and Europe to high-tech and expensive goods from Germany, the demand for products from Germany increased significantly in China. The Chinese were not only interested in consumer goods (although the export of cars in 2009 in China rose to 10.2 per cent of all foreign supplies) as technology and industrial innovations of medium and small companies. In the first five months of 2010, German exports to China increased by 55 percent. Entrenched during the crisis, the German-Chinese economic relations will keep its actuality for a long time — the Chinese market is too large for rapid saturation. Trading feature success of Germany is that the local tech sector could never achieve such performance without support from the government. Experts believe that the prosperity of Germany played a huge role in reform of the employment undertaken by the predecessor of Chancellor Angela Merkel, Gerhard Schroeder — in 2003-2005, competent as well as subsequent steps of the Merkel.

Exemplary interference

Social Democrat Schroeder in the early 2000s, was forced to deal with a stagnating economy. From 1995 to the beginning of the XXI century the growth of German GDP by one percent lagged behind other countries in the Eurozone, and the unemployment rate hovered around eleven percent. The experts believed that the key problem of the German economy was highly regulated employment market, which has led to high costs of labour (German worker received 50 percent more in comparison with colleagues in other G7 countries). Personnel costs prevented German companies to develop, which in turn led to a drop in production or its transfer to the States of South-East Asia and Eastern Europe.

Thus, at the turn of the century before the German government faced a challenge to reduce the social costs and guarantees, as well as to simplify procedures of hiring and firing. Paradoxically, measures that are usually associated with conservative / liberal governments in Germany, carried out by the social Democrats. They proposed a series of reforms, called Plan 2010 (Agenda 2010). Their key points in employment (the so-called Hartz reforms I-IV) was the reduction of expenses on social needs and building the policy so that it was more profitable to get a job than sit on the Dole. Liberalization of the employment market, as well as promoting a system of partial recruitment has reduced the unemployment rate from 11 percent in 2005 to 7.5 percent in 2008, and at the end of 2012 the unemployment rate was 5.5 percent.

Public opinion polls regularly reveal that changes in the framework of the Hartz are not popular in the German society. Partly because of reforms in the sphere of employment, the social Democrats are unable to obtain the necessary majority in the 2005 election and were forced to agree to a coalition with its historical rivals, the coalition of CDU/CSU. Conservatives did not abandon the reforms of the social Democrats, and after nearly eight years of the reform of the shredder have become an integral part of German law. Merkel's government met the crisis of 2008-2009 with a strong technology sector and flexible employment system. All that was required Berlin in 2008-2009, is to protect the country from turmoil in the global financial system.

The mechanism of state support the private sector in Germany did not differ from the steps taken by other developed countries including the US and UK. In 2008, the Bundesbank has agreed to allocate at least 20 billion euros for the bailout of mortgage Agency Hypo Real Estate, and in 2009 the second largest Bank — Commerzbank received more than € 14 billion after an unsuccessful takeover of Dresdner Bank. In early 2009, the major parties agreed on a package of measures to stimulate the economy by 50 billion euros. Approximately 18 billion euros was supposed to spend on infrastructure projects and education. In addition, Berlin has introduced amendments in the tax system, reducing fees as with private individuals and companies. Experts estimate that the stimulus measures amounted to 1.25 percent from a huge German GDP. After recovering from the initial shock after the financial crisis of 2008-2009, which came from overseas, Germany in 2010, was forced to deal with the crisis in the European Union. By the end of 2000-ies of the "sick man" recovered so that he was able to lead the rescue of the Eurozone and probably the whole EU. The expert community often criticizes Berlin for lack of enthusiasm and fresh policy initiatives to revive ideas of a United Europe, however, the indifference of Germany to the political component of the EU does not mean neglecting its financial basis. Since the beginning of the debt crisis, Germany has consistently advocated the observance of strict budget discipline in Germany called to save others, and showed by example what can be achieved competent and prudent economic policies.

In the practical field the rescue of Greece, Portugal, Ireland and Spain was accompanied by the demands of Brussels and the IMF, so these countries have reduced their social spending. In the public opinion of these countries established the idea that fiscal discipline is a kind of punishment for previous well-being, and therefore the true culprit of all the ills of the inhabitants of southern Europe became known as the most prosperous nation in the EU, i.e. Germany.

However, critics of Germany often forget that German taxpayers are the basis of European anti-crisis mechanism ESM. The contribution of Germany in the Fund is estimated at 22 billion euros, accounting for 27.15% of its overall size. Only Berlin guaranteed the ESM to 190 billion euros of aid.

Despite such safeguards, which were to convince the skeptics that Germany remains faithful to the single currency and Europe, the Merkel government in recent years, opposes the creation of a full banking Union and the so-called Eurobonds — the pan-European debt obligations. The hesitation of Germany due to fears about the fact that the weak EU economy, suffering from the lack of budgetary restraint, let the Eurobonds to cover its deficit and eventually Germany will be forced to pay for all. Such a position believes vulnerable financier George Soros. In the spring of 2013 he advised Germany to either lead the further financial integration of the EU, or even to abandon the Euro.

The idea of Eurobonds support in Paris and Rome — France and Italy believe that if we are to build a unified European economy, and the level of interest rates on the debt should be the same for all. Thus, Germany began to criticize not only the "problem" EU countries, but also the largest economy of the Union. However, French President Francois Hollande and Prime Minister of Italy Enrico Letta should be careful — Merkel is known that is able to seize the initiative from their opponents. Eurobonds, while Germany will agree, it may be not only the salvation of the debtors of the southern European States, but an instrument for further strengthening of German influence.

The United States concerns the German prosperity is due not only to the imbalances in the German economy, which is increasingly focused on exports, but also challenges across the EU. The success of German industry, to the Ministry of Finance of the United States, threatening less advanced industries in the South of Europe and even in France: it becomes difficult to find buyers for the goods, which quality can't compete with the German. Imbalances within the EU, as suggested in the Treasury of the United States, can threaten the very existence of the Union and have negative consequences for the entire world. It turns out that the United States criticized Germany under the pretext of the European Union and the whole world.

Washington's position is less distinguishable, subtle caveat — the lack of understanding and rejection of the German economic model, built on the coexistence of government, business and society. One of the reviewers Forbes noted that the English and American economists are often ill-prepared when to talk about the economy of Germany, and often simply're prejudiced against public-private partnerships and regulation, which are common in Germany. Additionally annoy Americans can the fact that the model of Germany in the era of attention to the financial sector tied to "dying" in developed countries industry, which is able to be the center of the economy even in the post-industrial world.

Anyway, the criticism of Germany from the US is unlikely to change the balance of power within the EU: neither France nor Italy can't compete with Germany on the "quality" of the economy and the impact on the entire Alliance, and the UK deliberately distanciruemsa from many European issues to be opinion leaders in the EU. In Germany has called the US position "incomprehensible" and reminded that an increase in demand for German high-tech goods, the world owes the recovery from the recession. It seems that Germany really is something to counter the emerging bipolar system of the global economy (China is responsible for manufacturing, USA for Finance, services and innovation development), which has recently been designated Europe.

Alexander Ratnikov


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