Tuesday, April 09, 2013

Germany and the eurozone: Germanizing Europe?

Ivan Krastev & Georgi Ganev write in Why Making Europe German Won’t Fix the Crisis Bloomberg View 04/07/2013

Most people see Europe’s economic crisis as a cautionary tale of good and bad policy making, in which fiscally prudent countries, such as Germany, remain stable, while reckless ones, such as Greece, unravel.

So ingrained is this idea that it's now common to hear analysts say Europe must become "German" to exit from the crisis, adopting Teutonic approaches to policy -- from fiscal tightening to labor- and product-market reforms. If only societies on Europe’s periphery can learn to do what the Germans do, the argument goes, the European Union and its single currency will have a stable future.
I'm not sure who they mean by "most people." Other business journalists they talk to? Vague impression that their acquaintances have? People who really don't know the basics of Germany's export economy and how it works in the eurozone?

But they do explain why such a notion is unrealistic, with the real-life experimental case of Bulgaria, which isn't part of the eurozone but tied itself to many of the eurozone's problems by pegging their currency to the euro:

Lest anyone think this Bulgaria-Germany connection is fanciful, Chancellor Angela Merkel has made it on several occasions, praising Bulgaria as a model for other European economies to follow.

Despite all this, Bulgaria’s Germanic calm was shattered in February, when street protests over rising electricity prices triggered the collapse of the government. Why? Because ordinary Bulgarians can't afford German policies, any more than they can afford a German BMW or a Mercedes.

Germany is one of the richest members of the EU and by far its most influential. Bulgaria is the poorest country in the EU, as well as being one of its newest and least influential members. Bulgarians are more than 2 1/2 times poorer than Germans and have a much lower rate of employment.

This isn’t about liking or disliking the EU. Both populations score highly in terms of trust in the bloc, though for different reasons: Germans because they trust their own government and its ability to influence the EU, and Bulgarians because they don’t. According to the EU’s Eurobarometer survey, 70 percent of Germans believe their voice counts in what their national institutions do, compared with 37 percent of Bulgarians.
But they put the emphasis in their article on the greater political stability in Germany, by which they mean in practice the consensus among the German political elite, including in the "left" Green and Social Democratic Parties, on Heinrich Brüning austerity economics.

I just came across a good summary of a basic element of the euro currency trap in Costass Lapavitsas et al, Crisis in the Euro Zone (2012):

The deeper weakness of the strategy of austerity, however, is neither the imposition of austerity on working people, nor the difficulty of securing rescue loans from the eurozone. It was, rather, that its prospects of dealing with the underlying causes of the crisis were minimal. As was shown above, the underlying structural problem of the eurozone is that German competitiveness has surged ahead during the last decade. Greece and other peripheral countries have not succeeded in raising productivity sufficiently to overcome the pressure that Germany has applied onto its workers. [my emphasis] (p. 62)
They refer there to measures that were first applied under the SPD/Green coalition governnment headed by Gerhard Schröder and Joschka Fischer that have resulted in large numbers of German workers having significantly lower incomes and considerably less job security than in the last decades of the last century.

But a key part of the current situation is that Germany is a heavily export-oriented economy. And being part of the eurozone means that the value of the currency is based on the combined economic strength of all the eurozone economies. Since Germany's is a strong one within the eurozone, it gets to trade in a currency that is weaker than a Germany mark would be. So it's exports industries benefits in a major way from being part of the euro. Not just within the eurozone but elsewhere, as well.

They continue, in a text they point out was written in 2010:

A policy of austerity would do very little to tackle the underlying problem of competitiveness. It might succeed in lowering nominal and real wages for a period, but it is apparent that this cannot be a long-term competitiveness strategy for countries that already have substantially lower wages than Germany. Given the flatness of German nominal remuneration, austerity would simply mean falling wages for years ahead. The answer would then have to be policies to raise productivity, and in this regard the ideas that typically accompany IMP-related packages are equally disastrous.

The standard prescription, still touted after years of persistent failure, is liberalisation. In the context of the eurozone, liberalisation would amount to the full unfolding, and even intensification, of the underlying ideas of the European Employment Strategy. Key elements might be: further weakening of labour protection, particularly through reducing trade union power; abolishing collective bargaining on wages; facilitating the entry of women into the labour force, especially in part-time and temporary jobs; removal of barriers into certain closed professions; reducing the tax burden on capital by introducing heavier indirect taxes; introducing privatisation into the education system; and significantly raising the pension age, while facilitating a funded system that promotes the activities of financial institutions. (pp. 62-3)
And they note, "Most of these have been indeed adopted by peripheral and other countries in 2010-11." And, "The strategy was first adopted by Ireland, but then also by Portugal and Spain, and with increasing alacrity by Greece in early 2010."

Stuart Jeffries in Is Germany too powerful for Europe? Guardian 03/31/2013 reports on Ulrich Beck's warnings that Germany's political stance in the EU has shifted radically under CDU Chancellor Angela "Frau Fritz" Merkel, creating a different kind of Germanization of Europe than what Krastev and Ganev discuss. Different, but not good:

Munich-based sociologist Ulrich Beck argues in his new book that the eurozone catastrophe has given birth to a political monster: a German Europe. When, on 1 July this year, Croatia becomes a member, the European Union will contain 500 million people and be the largest market and trading bloc in the world.

"The new German power in Europe is not based as in former times on force," writes Beck in German Europe. Which is a consolation. "It has no need of weapons to impose its will on other states," he says. "It has no need to invade, and yet is ubiquitous."

His homeland's latest iron chancellor Angela Merkel rules Europe, imposing German values on feebler client nations, bailing out southern Europeans with their oversized public sectors, rampant tax evasion and long lunches. "In the countries most harshly affected by the crisis, many people think they are losers because the austerity policy pursued jointly by Berlin and Brussels deprives them of their means of livelihood – and also of their human dignity," argues Beck. [my emphasis]
Beck makes an intriguing argument about how Frau Fritz was able to harness Germans' post-Second World War sense of European responsibility to an ugly neoliberal projects that is practice is having brutal effects economically and undermining democracy:

But what are the Germans getting out of teaching allegedly slacker Europeans how to run their economies? For Beck, Germany's European dominance has given the nation a new sense of identity after decades of Nazi guilt, and provides liberation from what he calls the "never again syndrome" – never again a Holocaust, never again fascism, never again militarism. After the second world war and the Holocaust, he argues, Germany was in ruins morally and economically. Now, in both senses, it is back.

The origins of German economic dominance predate our current crisis. More than 20 years ago, Germany made a sacrifice for Europe at Maastricht when it agreed to put the deutschmark to the sword so that another currency could be born. "The tragedy for the Germans is that they viewed the euro as their great, healing gift to the rest of Europe, an act of self-denial in which they cashed in their totemic deutschmark for the continent's greater good," says [Simon] Winder. Since the fall of Hitler, it has been Germany's self-imposed obligation to help build a Europe where the petty nationalisms that had ruined the continent in two world wars could be definitively overcome.
In the current context, that leads Frau Fritz and the supporters of her austerity policies to take a stance that's essentially, "Why do they hate us? We're so good!" She evidently got more from George W. Bush than the infamous neck massage.

"The Germans no longer wish to be thought of as racists and warmongers," Beck says. "They would prefer to become the schoolmasters and moral enlighteners of Europe." It's a moot question whether the rest of Europe wants to be on the receiving end of German enlightenment. "Germany's chorus of I-want-to-teach-the-world-to-sing doesn't play too well in Tring or Extramadura," says Winder.

But that's the Teutonic song: two decades ago, Germany after reunification was once as Greece is today, with a stagnating economy and five million unemployed. But, thanks to neoliberal austerity and taking on the Protestant notion that "suffering purifies", the Germans were able to realise a jobs miracle. Now, Beck argues, German reunification is being used as the template for German crisis management in Europe. As head of the continent's strongest economic power, Merkel is in a position to dictate the terms under which struggling eurozone nations can apply for further credit, eroding the democratic autonomy of the Greek, Italian and Spanish parliaments. Beck calls her Merkiavelli – after Machiavelli – to highlight the political nous with which she has run rings around other leaders. [my emphasis]
Beck is making an important point for understanding Frau Fritz' approach, "German reunification is being used as the template for German crisis management in Europe." Likely with some touch of how the Soviet Union ran the Warsaw Pact.

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