After the forecasting embarrassments of recent years, the spring report of Germany’s economic research institutes already reverts to an ambiguous assessment in its title: “Recovery Continues: Risks Remain High.” The economic success story relates primarily to the labor market, where, in contrast to the U.S. and other EU countries, a major slump has so far failed to materialize. This is due to subsidized short-term work, an expansion of part-time and temporary employment, a further decline in wage levels and an increase in precarious self-employment among the skilled middle class. Employment has fallen, as have working hours; no new hiring is expected. All in all, the price paid for temporarily averting a labor market catastrophe is lower incomes, which do not point to a recovery of the domestic economy.
This is by design, though, as the report cites rising foreign demand as the sole factor in the recovery. But not only is it far below pre-crisis levels, it is also expected to weaken again later this year as government stimulus programs for trading partners come to an end. This already shows that the positive assessment is being made without taking globalization and the government subsidization of demand into account. It is the “risks” themselves that are driving this modest “recovery” as the problem of deficit spending has shifted from financial bubbles to government credit. According to the expert report, the federal government alone must reduce its deficit by about 10 billion euros per year by 2016. The chain reaction of drastic savings in all public sectors (the report cites “personnel costs” and “health care” as potential areas for savings) will set in motion, through the back door so to speak, the rise in mass unemployment that has been avoided so far. The alternative would be an inflationary policy with unpredictable consequences.
The institutes themselves say that the upcoming austerity policy could stifle a weak economic spring. But this does not only apply to the FRG. If, as before, foreign demand is supposed to save the day, the problem within this zone will merely be externalized. The FRG’s trade surpluses continued to grow even in the crisis year of 2009, not least thanks to its home-grown low-wage policy vis-à-vis its most important neighbors. The Pacific deficit cycle between Asia and the U.S. has its counterpart within the EU between the FRG and the countries of Western and Southern Europe. This cycle is now only financed by precisely the increased government deficits which, in the case of Greece, have already led to the brink of bankruptcy. How is it possible for these countries to strangle their domestic economies with even greater austerity and at the same time absorb the export surpluses of the FRG? Such a squaring of the circle cannot succeed. The foreseeable limits of the government programs and the threat of a second wave of global crisis will tear the eurozone apart. The spring report prefers to remain silent about this.
Originally published in the weekly newspaper Freitag on 04/22/2010
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