The German giant’s crisis and its refusal to adopt
the necessary reforms has negative repercussions throughout the
European Union.
The fear that reunified Germany with its 82 million inhabitants,
powerful production machine and predictable hegemony in east European
countries would become the Union’s leading power was widespread
till recent years: in other words the fear that the future held
a Europe marked by German predominance. Today the opposite fear
is making its way - that the Federal Republic weighed down by
six eastern territories that are unable to keep pace with the
West, by a social status that is too costly and by trade unions
that are both powerful and reluctant to accept reforms will be
transformed from engine into a millstone round the EU’s
neck. The fear is probably excessive, but it remains an incontrovertible
fact that the country’s rate of development has been the
lowest of all the twenty five nations during the past decade and
that unemployment, which has reached a rate of 5.25 million, is
today the highest since the 1930s’ depression, when it encouraged
Adolf Hitler’s advent to power. Horst Koehler, President
of the Republic and former head of the International Monetary
Fund, did not weigh his words: “Germany is undergoing a
stage of quick decline”; and Handelsblatt, the German Sole-24
Ore, glossed: “Not only is it declining, but it also lacks
the will to change things”.
The German disease began with the reunification: the great financial
effort required to merge communist Germany – one thousand
two hundred billion euros to date – first forced a rise
in the rates of interest and then an increase in taxes, which
checked the nation’s economy almost permanently, despite
a few shocks. The issue’s serious nature has been recently
recognised even in the European Union during the Stability Pact’s
revision. None of the governments, which succeeded each other
– Kohl’s liberal-conservative coalition till 1998
and Schroeder’s red-green one during the past six and a
half years - however had the strength to implement reform to the
“Rhine model” in a really forceful manner. New circumstances
make it hard to sustain this model. 
This
model, which has long been envied in the rest of the continent,
is founded on four pillars: planning, which, compared to rival
nations, has greatly reduced unrest through the years, but which
also involves a strong and not always constructive participation
of trade unions in company decisions, besides their strong interdiction
capacity over laws they believe go against their own interests;
a highly advanced workers’ statute with inflexible guarantees
for the employed, besides remarkably reduced working hours, compared
to the United States, Great Britain and Japan; a cost of labour
that is far too high for many types of production and unemployment
benefits, which, at least till the last reform, were so high as
to remove the incentive to find new employment; a welfare system
that was so generous and capillary, that it brought citizens peace
and wealth, but which the rapid ageing of the population is making
financially unsustainable; and, closely interwoven interests between
banks and industry, whose negative consequence is a certain fossilization
of the system.
Failing really decisive reforms, the crisis has undergone an acceleration,
which has also involved public accounts in recent years. Now for
three years Berlin has violated the stability pact, which it forced
on its partners on the birth of the euro as a guarantee against
the spendthrift policy of southern countries and which now it
considers a sort of straitjacket: its deficit constantly exceeds
the allowed 3% and it has so far resisted all attempts at limiting
it. Schroeder has forced its party to accept some reforms, numbering
a review of unemployment benefits designed to make the unemployed
seek new employment more actively instead of being maintained
by the State, and in his Agenda 2010 he proposed other reforms
targeted at releasing the country’s energies according to
the Lisbon European Directive 2010. Before Easter he even made
a move, which was quite humiliating for him, to seek the collaboration
of the Christian-Democrat opposition to speed up the approval
of a reduction on company taxes from 25 to 19 per cent, in line
with what is occurring in East Europe.
His task is made harder by his party’s left wing, which
obstinately defends the prosperous years’ conquests and
states that capital and not workers must pay for the crisis. His
green allies who, as occurred in Italy, are more left wing than
social democrats themselves, have more or less taken the same
stand. 
But
as generally witnessed in Italy, the greatest obstacle to a more
aggressive economic policy is the lack of resources: to compensate
for the envisaged reduction in income following the attenuation
of fiscal pressure on firms, the Chancellor had to resort to a
series of other measures that were not particularly popular, such
as stopping a series of facilitations to companies, increasing
tax on dividends and reducing grants for building works, which
induced his adversaries to accuse him of using the left hand to
remove what he was about to give with the right hand. Anyhow,
if the cut in the tax on company profits is approved by the Bundestag,
where the government’s coalition has a majority of few votes,
and by the Bundesrat, where it has long been a clear minority,
it would appear inappropriate to encourage investments that could
guarantee a reduction in unemployment, which now touches 12.5%
of the labour force, with peaks even of 25% in some depressed
eastern territories.
Schroeder finds it hardest to intervene in the labour market’s
liberalization. Trade unions’ resistance in this sector
is relentless. Just two years ago, when the decline was already
clear, they succeeded in compelling firms to cut down the number
of employees, which involved the full application of the workers’
statute. Even the introduction of temporary jobs, which Italy
found extremely useful to fight unemployment, has many opponents
in a trade union system that fears the steady erosion in the number
of members.
The combination of restrictions and high cost of labour have led
many firms to transfer their production facilities abroad, or
– as Volkswagen, Siemens and other giants have successfully
done – to peremptorily make their workers choose between
accepting less advantageous wages and labour conditions than the
ones forcefully obtained during the miracle years, and “delocalising”
some production facilities in Poland, Slovakia or in another neighbouring
country where much cheaper specialist labour can be found. Some
of these negotiations have been successfully conducted, while
others have failed, but a taboo has been violated, thus opening
the door to other fresh negotiations, which would have seemed
unthinkable till a few years ago. Anyhow, trade unions’
general inflexible attitude has not paid, because firms involved
have either fallen to pieces or they have ended up in the hands
of the Chinese in Taiwan, as in the case of a historical brand
like Grundig.
Another stronghold of the Rhine model was co-management, which
witnessed representatives of trade unions seated in administrative
councils influencing its operational directions. This system,
which was acceptable during the growth phase when it involved
managing the development and deciding the division of the cake
proved paralysing when the need arose to introduce economies,
production method rationalizations and ever increasing reductions
in personnel.
Service liberalization, which by now produces 70% of the Union’s
GDP, is another sector in which corporative resistance has prevailed
on development requirements. The Commission had presented the
Council a directive to extend common market criteria even to this
sector. According to calculations made by Brussels’ bureaucrats,
the common market would have yielded new opportunities and new
employment. The idea was to open national markets to all, enabling
firms and professionals to work freely in the framework of the
twenty-five applying regulations (and wages) enforced in their
country of origin. Heaven forbid! Germany and France put a veto,
not because they failed to recognise the measure as a logical
consequence to the creation of a common market for goods, but
because the competition would have unavoidably led to a reduction
in the lifestyle of their respective citizens to the advantage
of those with a lesser income and to the “exportation”
of job openings.
We must say that, despite these handicaps, in 2004 Germany was
still the country that held the highest exports rate in the world,
surpassing Japan, the United States and China. The German industry’s
advantage, compared to its European rivals, lies in the fact that
it offers avant-garde or highly prestigious products like luxury
cars, or products that are however considered the best in their
sector and which hence are able to resist Asian competition better
than “mature” products, which are a considerable part
of the Italian offer. Its features also enable it to better face
the consequences of the euro’s revaluation against the dollar,
which has put others out of the market. One other factor to its
advantage is that, crisis or not, it continues to invest a considerable
part of its proceeds on research, making its products always have
that additional something, compared to its rivals.
Though the foreign demand remains high, the internal one has instead
been dangerously stagnant for years and there is no way of getting
it going, partly due to the high rate of unemployment, poor trust
in the future, population ageing and a certain degree of market
saturation. Hence the development rates below 1 per cent in recent
years. Despite this, at least till a short while ago the Germans
did not seem particularly distressed by their country’s
decline, nor did they seem ready to sacrifice the golden years’
conquests for the sake of higher national interest. In spite of
so many black clouds, the quality of life in Germany remains very
high and, even after recent cuts, social shock absorbers prevent
many people from dropping below the poverty threshold at least
in industrialised nations. A widespread philosophy, typical of
a satiated society that has depleted its forward thrust, was summarised
in the sentence of a citizen of Hannover during a recent interview:
“Better six weeks holiday than be an international superpower”.
Many
were the political changes implemented during the centre-left
wing’s seven year rule. During Helmut Kohl’s long
reign, Germany was the United States’ most loyal ally in
Europe, notwithstanding who resided in the White House. A Washington-Berlin
axis was clearly mentioned, especially after the reunification
(which Bush sr. encouraged in every way while France led by Mitterrand
was at least perplexed). Harmonious relations began to deteriorate
when Bush jr. was first elected, reaching almost a break with
the Iraqi war. Schroeder, in fact, entirely sided with France
– even in the Security Council, which Germany belonged to
at the time – holding on to his refusal to send even one
soldier to Baghdad even under the NATO’s banner. He won
the last political elections only by a hair’s breath, shamelessly
exploiting anti-Americanism and most voters’ refusal of
the war; hence he found himself in considerable difficulty when
he had to draw close to the United States once again. The problem
is that damage is irreversible, to judge by surveys, because by
now most Germans believe that relations with Putin’s Russia
are better than those with Bush’s America.
Though Berlin is giving Washington the cold shoulder, it is still
focused on obtaining a permanent seat in the UN’s Security
Council to the detriment of Italy too. But Bush could retaliate
on this very occasion: he has in fact assured Berlusconi that
he will keep our interests in mind when the time comes to vote
and, while he has openly supported Japan’s similar ambitions,
he has kept silent about German ones.
Schroeder’s weakness is certified by the fact that he has
lost all regional elections except one since he won back the Chancellery
and in May he will run a serious risk in Rhineland-Westfalia too,
the federal republic’s former industrial heart, which has
always been ruled by socialist governments since the post-war
period. In March the press presented the loss of Schleswig-Holstein
- another red land under Mrs. Heide Simonis’ rule for ten
years - as the beginning of the end of the Chancellery. But though
recent surveys, which rate CDU/CSU at 44% vs. the social democrat’s
31%, seem to leave the red-green coalition little hope, the lack
of an opposition candidate accepted by all still leaves her some
hope. Right now we could say that the centre-right wing’s
candidate to the Chancellery will be Mrs. Angela Merkel, a woman
politician from east Germany who Kohl called “the girl”.
She found herself in some way accidentally leading the party when
it was involved in a series of scandals six years ago. But the
party’s base would rather give Stoiber, the governor of
Bavaria, another chance - Schroeder defeated him by a hair’s
breath in September 2002 – or even trust the new generation’s
leader Christian Wulff, the forty-five year old governor of Lower
Saxony, who has just been crowned “the most popular German
politician”.
As things stand today we see neither a political nor economic
outlet to the German giant’s crisis. Would-be physicians,
who crowd its bedside, perseveringly prescribe various medicines,
but the problem lies in getting the patient to gulp them down.
And none of the politicians currently on the scene seems to have
the calibre of the Great Reformer.
Livio Caputo
