German popularity today is probably at one of the lowest points in post-war Europe. Its stubborn persistence on fiscal austerity has made it the object of severe criticism from all corners of the world. That disenfranchised citizens, politicians ranging from patriotic nationalists to utopian communists, liberal minded intellectuals and the lot would condemn the evils of such a policy should come as no surprise to anyone.… Yet criticism has also come from the most unlikely corners. Incredibly, the IMF (!) actually issued a warning on 20 January about the dangers of the German dictated policy arguing that it puts excessive emphasis on fiscal consolidation at the expense of growth. When the ‘champion of austerity’ issues such a warning, then you know that things may have gone too far.
And indeed, after two years of a relentless austerity drive, the talk now surprisingly shifted towards boosting growth, creating jobs and providing more investment.
Surely then, it would be tempting to dismiss the German plan for Europe (incarnated in the infamous fiscal pact) as misguided dogmatism, whose short-coming have been plainly exposed and, make the case for a different course. This columnist however will argue that, despite the (sometimes disastrous) short-term consequences, things in the long-term may not be all that bad if we follow the German recipe.
You may wonder where I find this streak of optimism: after all, Europe is sliding back into recession and the effect of the austerity of some countries (notably Greece) is catastrophic.
Well, let’s start from how we got here: the current crisis was the outcome of the excesses of the Anglo-Saxon capitalist model as defined by the ‘Washington consensus’: that the path for growth and prosperity can only be achieved by scaling back the state, deregulating obstacles to trade and finance and letting the ‘invisible hand’ of the market take care of the rest. With the benefit of hindsight, we now all know the true face of this model. Yes, growth was delivered for a certain period. But, this went principally in the pockets of the few, while the majority’s standard of living barely improved. And when push came to shove and the bubble burst, the main culprits got a huge pile of cash from the losers of the system and are now bent on reverting to business as usual like nothing ever happened, trying to stave off any attempts at restricting their privileges.
If Europe does not wish to stroll the Anglo-Saxon path, what are the alternatives? This is the point where the German model in the long-term becomes attractive.
It is true that Germany has never fully agreed with the Anglo-Saxon approach. Yes, it is a market economy and one that heavily relies on a globalised market for its growth. Yet, in contrast to the United States, the backbone of the German economy remains its robust manufacturing sector not finance. Somehow tellingly, its response to rising competition from China was not to shut down all its factories and outsource production. Government, employers and unions struck a unique compromise that enabled Germany to keep its wages increases at a minimum in exchange for low prices for essential consumer goods.
And when it comes to finance, Germans have never really trusted the wonderful world of deregulated world money markets. In contrast to the USA, Germans have always viewed the financial world as somehow immoral, as a greedy machine that generates huge profits, yet contributes little to the real economy. And, unlike many European countries, it always considered excessive indebtedness as something rather irresponsible. Surely it can be no coincidence that Schulden, the German word for debt, is derived from Schuld, which also means guilt.
Moreover, it is governed by a much stronger sense of social justice than its Anglo-Saxon counterparts. It is one of the first official parties who pushed for the banks to take a hit on their loans by stating the obvious, that it is morally wrong for taxpayers to bear the entire brunt of the financial crisis, even though they were not responsible for it. And, irrespective of whether a financial transaction tax is the right manner of doing so, Germany is strongly behind proposals that allow some solidarity by taxing huge wealth for the benefit of those in need.
Unlike its Anglo-Saxon counterparts, it also is a country that rewards hard work and merit, yet at the same time believes in the need for strong re-distributive mechanisms that allow for the ‘softening’ of market inequalities. Judging by the Gini-coefficients, Germany is a much fairer place to live than its Anglo-Saxon counterparts. (http://en.wikipedia.org/wiki/File:GINIretouchedcolors.png)
Last but not least, Germans are very pragmatic. They know that the global money markets have become too powerful and need to be reined in. Yet, at the same time, they recognise that this cannot be done overnight and that the best way to gain control of the markets is not to need them anymore; thus, the need to balance the books, pay off the debt and regain economic sovereignty. And once this has been achieved by and large, you can tackle the issue of market regulation from a better position.
No doubt, the fiscal pact will require short-term sacrifice for long-term gratification. And, it will surely come under attack on many occasions from those looking for quick fixes and easy solutions. Unfortunately, there are none. So, we better stick to the current course.
A Germanic Europe may not be a paradise on earth. Nevertheless, at the current conjucture in history and time, I believe it offers one of the best chances for rediscovering morality and fairness in our societies.
As always, history will be the final arbiter of this new experiment and grand statements I am making.
Let’s pick this up again in 2020!
Author : Konstandinos Diamandouros