Monday, January 18, 2016

Merkel, looming German economic crisis and her refugee problems

I just quoted Wolfgang Münchau's weekly German-language column in my previous post. But his weekly English-language column, Gloom gathers over the challenges that Germany faces Financial Times 01/17/2016, covers some of the same ground. Which I'll get to further down.

But what jumps out at me here is that her coalition partners, the ostensibly center-left Social Democrats (SPD), are attacking Angela Merkel's immigration policy from the xenophobic side:

Gerhard Schröder, her Social Democratic predecessor, last week came out against the policy with exactly the same arguments as the right-wingers in Ms Merkel’s own party: Germany cannot absorb such a large number. More than 1m refugees arrived in the country in 2015. It could be twice as many this year and the same again next — more if you include family members who will eventually follow.

It is tempting to think of refugees and migrants as a new source of labour. But in this case this just is not true, at least not for now. The majority of those who arrive in Germany lack the skills needed in the local labour market. They will enter the low wage sector of the economy, and drive down wages, producing another deflationary shock. This is the last thing Germany and the eurozone need right now.

I expect that this policy will change at some point this year. What I do not see, however, is a successful political coup against Ms Merkel from inside her own party. What protects her is the grand coalition with the Christian Social Union and the SPD. There is no majority to the right of her, or to the left for that matter. [my emphasis]
I'm not familiar enough with the demographics of the current immigration to Germany to have a good sense of what if any downward pressure it could put on wages. Based on American experience, I tend to be dubious. But I want to learn more of the details.

But the disgusting thing about the SPD is that while the party embraces Merkel's stone-conservative Herbert Hoover/Heinrich Brüning economic policies. But they attack her from the right on immigration. This is just pitiful.

And it's not just Schröder. Sigmar "Sigi Pop" Gabriel, current German Vice Chancellor and current SPD Party Chair, is joining in, as well. (Reaktion auf Kölner Silvesternacht: Vizekanzler Gabriel fordert schnellere Abschiebungen Spiegel Online 08.01.2016; Karl Doemens, Gabriel greift die Kanzlerin an Frankfurter Rundschau 18.01.2016; Aert van Riel, Eine aussichtslose Mission Neues Deutschland 19.01.2016 )

Merkel has been reckless in her policy on the refugees. But pandering to xenophobia only makes it worse. And Merkel's euro policy has contributed mightily to the current toxic nationalism that is surrounding her refugee policy, in Germany and elsewhere. Which brings us back to Münchau's FT column:

Finally, 2016 promises to be the year of backlash against German dominance of the eurozone. That did not happen during the crisis. The leaders of the countries in the eurozone periphery kept their heads down. Under German pressure, they signed up to treaties and legislation, such as the fiscal compact and the new resolution mechanism for banks, that were clearly not in their long-term interest. ... Even if 2016 does not see another eurozone crisis, it could easily be a year of mutual alienation, which is more dangerous in the long run.

While most of the threats appear to be external, they are caused by domestic policy choices. Germany does not have to rely on a single industry to such an extreme degree. And no country finds itself with an 8 per cent current account surplus by accident. Nor did Ms Merkel need to open up further a border that was already open by making so public a pronouncement. She made a choice. [my emphasis]
You're doing a heckuva job, Angie, a heckuva job!

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