Germany has recovered from the recession faster than any other country. Here is why. The days when Tony Blair was lecturing various EU countries on the importance of adopting the Anglo-Saxon model of beefed-up finance are now long gone.
When the biggest global recession in decades kicked in, Germany was able to weather the storm and recover much quicker and better than Britain, the US, or any other major Western economy.
Some of the reasons may be too complex for the scope of a blog post. Yet it's interesting that, while successive UK governments spent the last three decades actively pursuing overreliance on bullshit economy, Germany did not fall for short-termist solutions.
For one thing, not giving up on its manufacturing is certainly reaping the harvest now - look at how its booming export sales are proving the country's biggest asset as the Germans are getting out of recession faster than anyone else.
And so a number of legitimate questions arise. Why is it that after registering a slump of -4.7% last year, Germany is now forecast to end 2010 with a GDP growth of 3.6%, its fastest pace since reunification, while Britain is still finding its feet?
And why is it that while unemployment is still rising or stagnating in the US, Britain or other EU countries, the figures are going down fast and steady in Germany?
When the biggest global recession in decades kicked in, Germany was able to weather the storm and recover much quicker and better than Britain, the US, or any other major Western economy.
Some of the reasons may be too complex for the scope of a blog post. Yet it's interesting that, while successive UK governments spent the last three decades actively pursuing overreliance on bullshit economy, Germany did not fall for short-termist solutions.
For one thing, not giving up on its manufacturing is certainly reaping the harvest now - look at how its booming export sales are proving the country's biggest asset as the Germans are getting out of recession faster than anyone else.
And so a number of legitimate questions arise. Why is it that after registering a slump of -4.7% last year, Germany is now forecast to end 2010 with a GDP growth of 3.6%, its fastest pace since reunification, while Britain is still finding its feet?
And why is it that while unemployment is still rising or stagnating in the US, Britain or other EU countries, the figures are going down fast and steady in Germany?
During the bubble years, Blair and Brown could at least boast that the UK's jobless figures were regularly lower than the rest of Europe. And it was true. Between 2000 and 2007, unemployment in Britain was never any higher than 5.5% (see this) while, in the same period, the German figures were regularly double that rate - between 8 and 10 per cent (see this).
Now look at the last two years. UK unemployment has overtaken Germany's at a hair-raising pace. While the jobless rate in Britain is now tickling 8 per cent, in Germany it decreased to 7.3 per cent at the start of 2010 and then further lowered to 6.7% in October (see this) - again, its best figures since reunification.
So what are the Germans doing that we're not, to the extent that many analysts are now openly talking of a "German Miracle"?
The answer lies in a policy that the German government adopted at the start of the crisis. It's called kurzarbeit and it literally means "short work". While other countries spent unprecedented sums on bailing out banks or dubious stimulus programmes, Chancellor Angela Merkel’s government (at the time a coalition of centre-right CDU and centre-left SDP) took a unique gamble by spending huge sums bailing out its work force.
And that's because, under kurzarbeit, employers hit by the downturn are encouraged to keep their workers part-time rather than make them redundant. The Federal Employment Agency (Bundesagentur für Arbeit) will cover up to 67% of lost wages and will also take care of national insurance and other contribution. The idea is that:
a) mass redundancies often mean a permanent loss of skilled work and specialised trade, especially in the industrial sector. By keeping workers active through a combination of part-time and training, the economy benefits the moment trade picks up - which is exactly what happened as Germany boomed in 2010;
b) the focus on employment and wages spared the country a vicious circle of mass unemployment leading to a drop in both tax revenue and consumer confidence - in turn leading to vast numbers of people defaulting on their mortgages and loans. In other words, as the money reaches consumers directly, it flows back into the market straightaway.
This may look expensive at first (£5.1bn a year), but it saved Germany a fortune in both welfare costs and bailing out banks.
Now look at the last two years. UK unemployment has overtaken Germany's at a hair-raising pace. While the jobless rate in Britain is now tickling 8 per cent, in Germany it decreased to 7.3 per cent at the start of 2010 and then further lowered to 6.7% in October (see this) - again, its best figures since reunification.
So what are the Germans doing that we're not, to the extent that many analysts are now openly talking of a "German Miracle"?
The answer lies in a policy that the German government adopted at the start of the crisis. It's called kurzarbeit and it literally means "short work". While other countries spent unprecedented sums on bailing out banks or dubious stimulus programmes, Chancellor Angela Merkel’s government (at the time a coalition of centre-right CDU and centre-left SDP) took a unique gamble by spending huge sums bailing out its work force.
And that's because, under kurzarbeit, employers hit by the downturn are encouraged to keep their workers part-time rather than make them redundant. The Federal Employment Agency (Bundesagentur für Arbeit) will cover up to 67% of lost wages and will also take care of national insurance and other contribution. The idea is that:
a) mass redundancies often mean a permanent loss of skilled work and specialised trade, especially in the industrial sector. By keeping workers active through a combination of part-time and training, the economy benefits the moment trade picks up - which is exactly what happened as Germany boomed in 2010;
b) the focus on employment and wages spared the country a vicious circle of mass unemployment leading to a drop in both tax revenue and consumer confidence - in turn leading to vast numbers of people defaulting on their mortgages and loans. In other words, as the money reaches consumers directly, it flows back into the market straightaway.
This may look expensive at first (£5.1bn a year), but it saved Germany a fortune in both welfare costs and bailing out banks.
Compare what Germany spent on their bail-out: 1.4% to 2.2% of gross domestic product (between €34bn and €52bn). In Britain it was a staggering 19.8%, almost a fifth of its GDP - and that's before the official cost was actually discovered to stand at an even higher £850bn.
Of course, the experiment is not without its critics. From the left, it's often said that Germany's recovery has taken place at the expense of the rising numbers of low-wage workers and unprecedented wage restraint. From the right, the objection that kurzabeit would simply lead to "a backlog of job cuts", to quote what the president of the German Bundesbank said last year.
And yet, time is showing that Germany's route to recovery is the correct one. According to the Organisation for Economic Co-operation and Development (OECD), the kurzabeit scheme saved nearly 500,000 jobs in 2009 alone and two months ago the German Upper House Bundesrat decided to extend it until March 2012.
More recents news report that Germany's industrial sector is currently in need of 34,000 engineers and 23,000 factory workers.
Indeed, a German success story.
Of course, the experiment is not without its critics. From the left, it's often said that Germany's recovery has taken place at the expense of the rising numbers of low-wage workers and unprecedented wage restraint. From the right, the objection that kurzabeit would simply lead to "a backlog of job cuts", to quote what the president of the German Bundesbank said last year.
And yet, time is showing that Germany's route to recovery is the correct one. According to the Organisation for Economic Co-operation and Development (OECD), the kurzabeit scheme saved nearly 500,000 jobs in 2009 alone and two months ago the German Upper House Bundesrat decided to extend it until March 2012.
More recents news report that Germany's industrial sector is currently in need of 34,000 engineers and 23,000 factory workers.
Indeed, a German success story.
