As a foretaste of next year's UK general election, we have Germany's, Europe's biggest economy. Germany could be nearing the bottom of its sharp economic downturn, Chancellor Angela Merkel suggested in a bullish speech at the Hanover trade fair. This is not just political hubris, but is in German politics the equivalent of saluting the flag, of expressing modern German'ness, of what German means in the world, it means exports!Everyone knows Germany's growth has for three decades been far too exposed to exports, to being export-led, while the domestic economy has languished in high unemployment for lack of domestic fiscal stimuli, but the german politicians won't stand up and say that. Arguably, it was China, Japan and Germany's joint failure to do little to secure domestic-led growth despite their generous external account surpluses that is as responsible as anything else for the global crisis, such that the US and UK and other major deficit countries were 'forced' to rely overmuch on credit-boom growth. Export supluses are seen as virtuous and responsible, conservative and prudential, and in the case of the world's three biggest non-oil trade-surplus countries net exports is their brand, their sinature tunes, their self-identity that they are extremely reluctant to abandon or dilute. German industry representatives also predict that the worst could be over by the middle of the year viz. collapse in demand for German exports.
One thinks of the "it'll all be over by Christmas" propaganda thinking, and maybe that is only to be expected in election politicking. But is a global crisis a fit subject for domestic politics? I this not being globally irresponsible and one-eyed about the the comprehensive picture.
In a general employers and conservative poltiicians touching of 'bottoms', the VDMA federation of equipment manufacturers (the mainstay of german exports dependent on foreign countries' upping investment in industrial capital, which seems a vain hope) backed the optimistic assessment, saying the steep drop in orders for German industrial products could be over by mid-2009. Hannes Hesse, MD of the VDMA, said the sharp reduction in inventories and government fiscal stimuli being implemented around the world (but much less so in Germany itself?) would have a positive impact on orders in the second half. This is a great example of lauding fiscal stimuli anywhere else but at home?
The fond notion that Germany’s steepest economic downturn since the terrifying '30s could soon too be history is not widely shared, either at home or abroad. Economists think industrial inventories are too high for the German economy to turn around in the near term, despite continued drops in machinery and vehicle production. Hans-Peter Keitel, president of the BDI industry federation, said even a rebound in orders in the second half would not prevent Europe’s largest economy from shrinking by 4-5 per cent this year, which is twice the shrinkage expected in the UK and USA.
Forty top business representatives, bankers, economists and trade unionists are today airing their much more negative opinions about the state of the German economy at a meeting hosted by Ms Merkel in Berlin, but probably doing so mostly in private, any chance to try and turn the Merkel telescope around and to take a proper look below decks and recognise that domestic fiscal stimulus (Interne Wachstumsimpuls, bitte, und mach schon, schnell damit!).
One of Merkel's top table guests, Frank Bsirske, head of the services trade union Verdi, is urging Berlin to spend €300bn ($387bn, £266bn) over the next three years to prevent a full-blown depression. This amount seem parsimoniously weak. Yet, that is several times the €80bn pledged by Berlin so far to kickstart the economy, and puts the union at odds with the CDU party and closer to its rival SPD. Merkel's CDU rejected a third stimulus package. The SPD and unions agree that he federal government policy led by the CDU systematically underestimates the magnitude of this crisis and its measures to combat it are too small. Verdi’s proposals, he said, would create or protect 2m jobs. In my view the government should be aiming to double this impact. But, if politicians have a weakness it is the belief that new facts should not change or alter whatever they have said from one year or decade to the next as a matter of firm principle even when only on the matter of not if or when but merely 'how much?' Such crises demand that governments should fear far more doing too little than doing too much;the latter is easier to deal with in hindsight than the former.
Verdi's union wants the government to spend €75bn annually until 2011 on public infrastructure and services, such as schools, hospitals, transport and broadband networks, plus €25bn each year for labour market measures; extension of unemployment benefits, more support for short-time working and introduction of a minimum wage. Berlin could fund the measures through new taxes but also by the measures own self-financing effects.
To those of us schooled in 3-dimensional economics, the codespeak means 'Keynesian multipliers' and they have been political anathema, banned, gulag'ed,under house-arrest, considered deeply un-German, missing-in-action from German politics for four decades! It remains to be seen whether the SPD has the wit and ofrtitude to run that flag up the glagpole and see how many will salute it at the polls?
