05-01-2005 01:34									#1
	Germany's economy continues to sink; will politicians reform? Browse Apolyton AD-FREE

Officially, the German government says that 2004 ended three years of economic stagnation, however, the slight growth didn't stop the jobless rate from reaching the highest level since 1990. With 10.8% of the German working population out of work the economy is now it the worst shape it has been since reunification. To their credit the politicians have tried to reduce the German national deficit by cutting spending, however, their plans for reducing welfare and unemployment benefits have sparked wide scale demonstrations and disapproval in the papers.

Many analyses are saying that Germany will continue to stagnate at home and its export earnings will be curbed by both the slide in the dollar and by China's attempts to keep its currency artificially low. Magazines like The Economist have repeatedly claimed that Germany needs to reduce red tape and lower costs if they want to see their economy pick up. What are especially needed are reforms which make it easier for employers to hire and fire workers because right now no company wants to hire new workers unless it is absolutely unavoidable. The reason is it is almost impossible to fire workers so why hire workers you will not be able to get rid of when demand decreases?

So what do you folks think? Will Germany's government finally bite the bullet and deliver on meaningful reform or will they keep their high cost, high regulation, high unemployment, no growth economic model?

	05-01-2005 01:34									#2
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BTW http://news.bbc.co.uk/2/hi/business/4146535.stm

	05-01-2005 01:46									#3
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While I agree that Germany's economy has been doing poorly for quite a while, the unemployment figure doesn't necessarily prove this -- there is often a considerable lag time after an economy starts growing before employment begins to grow. You might say that the economy is doing poorly for those who are unemployed. On the other hand, the number of people who are employed dwarfs the number of people who are unemployed -- the implications of unemployment in relation to the overall economy are sometimes overstated.

	05-01-2005 02:07									#4
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Remember that Germany's unemployment rate is calculated differently from the US's - one of the main differences being that anyone working less than 20 hours a week is classed as unemployed.

Also remember that Germany's growth figures are understated, relative to the US, because of measurement differences (indeed a study I did comparing reported growth rates and PPPs indicated that the understatement was 0.8% a year during 1990-2002)

That said Germany's economy has consistantly performed below the EU average in terms of unemployment, employment growth and output growth (although not in productivity growth where it is actually performing better than the EU average) since the end of the unification boom 12 years ago.

	05-01-2005 03:17									#5
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quote: Remember that Germany's unemployment rate is calculated differently from the US's - one of the main differences being that anyone working less than 20 hours a week is classed as unemployed.

I doubt that really

	05-01-2005 03:17									#6
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The BBC article is far better than Oerdin's one-sided opening post.

	05-01-2005 03:36									#7
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quote: Originally posted by Atahualpa I doubt that really

Well I am afraid it's true

not that it adds too much to Germany's unemployment rate - using the internationally recognized ILO definition of unemployment (has actively sought a job within the last 4 weeks) Germany's unemployment rate is still over 9%.

	05-01-2005 04:00									#8
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quote: Originally posted by Sandman The BBC article is far better than Oerdin's one-sided opening post.

But still better then your one line response.

	05-01-2005 04:49									#9
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I actually believe that the reforms won't help. When the demography really hits us (in about 15-20 years) we will probably face deep recessions and not only stagnation. We'll probably have slow economic growth (0-2 %) in the meantime and no significant decrease of unemployment.

Besides, the leftist Schröder government did more reforms than Kohl in his 16 years.

	05-01-2005 06:17									#10
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quote: Originally posted by DanS the implications of unemployment in relation to the overall economy are sometimes overstated.

Employment is the overall economy.

	05-01-2005 16:50									#11
	Re: Germany's economy continues to sink; will politicians reform? Support Apolyton, pre-order Civilization IV

quote: Originally posted by Oerdin So what do you folks think? Will Germany's government finally bite the bullet and deliver on meaningful reform or will they keep their high cost, high regulation, high unemployment, no growth economic model?

The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people. The trouble is, as you say, it's not the best model for economic growth. Can't see it improving in 2005 though, except the global economic upturn will see Germany doing better, but they won't change policy.

	05-01-2005 18:21									#12
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Do you think the people are stupid? Do you sincerely believe that the working majority would ever concede to lifting restrictions on firing employees, during an economic recession? You don't need to be an economics major to know what your own boss would do if he were free to fire and hire people at will. Most bosses would just take advantage and do layoffs. The incentive for hiring that may come from easier firing can only be considered in times of economic growth, when new jobs are being created, not lost.

It's the same as productivity increases. Employees will have no incentive to increase their productivity more than their wages increase and definitely not since a stagnant work volume means productivity increase = unneeded staff = layoffs. Thus, while a higher productivity is desperately needed in times of recession, the only time to push for them is in time of economic boom.

	05-01-2005 18:37									#13
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quote: Originally posted by Drogue The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people. The trouble is, as you say, it's not the best model for economic growth. Can't see it improving in 2005 though, except the global economic upturn will see Germany doing better, but they won't change policy.

Well, the social system is already changing with the beginning of this year, and these are quite unpopular measures. Still the "wide scale demonstrations and disapproval" Oerdin mentioned in his first post took place mainly during the last summer and it seems now completely gone. The coalition of SPD and Greens, which came up with these measures has even won back support that was lost during those times (although some of this is also related to the poor performance of the CDU opposition).

But I guess overall you're right that 2005 will only be moderately better for Germany.

	05-01-2005 18:49									#14
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quote: Originally posted by Drogue The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people.

I'm afraid it's false. Did you hear of Hartz IV? It's the new law regarding unemployment benefits. The old benefits (proportional to former wages) disappear entirely, and are replaced by a measly 340€ / month allowance. On top of that, the unemployed may now be forced to do community work for a whooping 1€ per hour.

This law has been passed by the Social-Democrats The only reason the right criticized Hartz IV is because it "doesn't go far enough". The liberals have expressed their willingness to expand the slave jobs to the private sector. The CDU hasn't stated it clearly yet, because it might be too much of a pill for their voters.

	05-01-2005 19:44									#15
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Despite El Freako's claims about unemployment, this isn't really relevant. Unemployment is just an after-product of mismanagement. The German economy was grossly mismanaged after the reunification, and unemployment is hardly a problem. It has to do with huge benefits given out to unemployed. Spiffor said it himself... the old benefits were proportional to former wages. So why should people work? These hand-outs are bringing the German economy to a halt, and it is good that they decided to cut them. Spiffor is the type that wants a country to implode its economy. Giving out benefits the same as wages is utterly ridiculous. Just tell me how the **** you are going to pay for it, then maybe I'll listen.

The German economy is declining (and may tank) because of socialist/left wing mismanagement. They should of took a conservative approach to economic policy, instead of being foolish idiots embracing the values of the left wing.

Well, they paid the price for listening to and embracing idiotic policies.

	05-01-2005 19:51									#16
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quote: Do you think the people are stupid?

*Thinks to self*

Yes!

	05-01-2005 19:59									#17
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quote: Originally posted by Giancarlo The German economy is declining (and may tank) because of socialist/left wing mismanagement. They should of took a conservative approach to economic policy, instead of being foolish idiots embracing the values of the left wing.

Despite the fact that the Conservatives (who were long enough in charge) didn't change anything.

A left wing government was needed to even start the reforms you want.

	05-01-2005 20:06									#18
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quote: the old benefits were proportional to former wages. So why should people work? These hand-outs are bringing the German economy to a halt, and it is good that they decided to cut them

The fact that unemployment benefits were proportional to wages was a good feature of the system. We have such a system in the US and it helps people cover their large home mortgages, etc. The US has very generous unemployment payments compared to most other developed countries.

However, the thing that was killing them was that unemployment benefits didn't expire. So you could have those proportional payments for a long, long time (forever?). As you say, there is no incentive to work. In the US, the congress usually extends unemployment benefits if there is a recession on, even though unemployment payments are only made for 3 months during OK economic times. So if we had a recession as long as Germany's, we might have been in a similar situation...

In addition, in the US, people tend to hide out in the disability system to make it through tough economic times. Because of such country-specific quarks, I would be hesitant in making such precise comparisons across countries. However, I do think it's clear that Germany has a much worse unemployment picture than a lot of other places, including the US.

	05-01-2005 20:13									#19
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As far as I'm concerned, West Germany was doing great before reunification as it was ruled by conservatives and had conservative policies pushed.

quote: Originally posted by kronic A left wing government was needed to even start the reforms you want.

Nope. The left wing government in power now has done next to nothing right. Just like Zapatero in Spain who is collapsing the economy single handedly there.

	05-01-2005 20:17									#20
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quote: As far as I'm concerned, West Germany was doing great before reunification as it was ruled by conservatives and had conservative policies pushed.

Those "conservative" policies weren't really what you should think of as conservative. Even the liberals (in the European sense) seem to me to be socialists.

	05-01-2005 20:24									#21
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quote: Originally posted by DanS Even the liberals (in the European sense) seem to me to be socialists.

They pay lip service to the idea of a social safety net, but most are convinced the safety nets must be destroyed. The liberals were the spawning pool, in Europe, of the idea that it's the unemployed's fault for not finding a job, that the safety nets are killing our economies, and that we ought to have a low-wage low-qualification sector. Most liberals have long been outspoken supporters of the privatization of utilities (which is now very advanced in the EU), and they are today outspoken supporters of the privatization of welfare systems.

I don't see how people who actively encourage minimal State could be Socialists. True, they often support the idea of some public aid for the most destitute, but that's a very far cry from "Socialism" as you call it.

	05-01-2005 20:45									#22
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quote: Originally posted by DanS Those "conservative" policies weren't really what you should think of as conservative. Even the liberals (in the European sense) seem to me to be socialists.

That they (edit: I mean the conservatives ) are for some sort of social security does not make them socialists, after all the first steps in this direction were taken under Bismarck. I'm not really sure they want to destroy the social safety net completely, as Spiff writes, but simply because they are aware that in Europe the idea of social safety has a long tradition that can't be given up easily, and also it has positive effects on social stability. However, time will tell how much social safety will remain if we are under economic pressure for even more years....

	05-01-2005 20:48									#23
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Spiff: I was talking about Germany specifically, not Europe as a whole. AFAIK, the liberals as a voting bloc form a coalition with CSU/CDU. This is similar to the US, where they are part of the Republican Party. But US politics are much to the right of German politics. I wonder about their liberal bona fides if they are OK with CSU/CDU socialist policies.

	05-01-2005 21:08									#24
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quote: Originally posted by Spiffor ...and they are today outspoken supporters of the privatization of welfare systems.

Which liberal party are you referring to? That's certainly not the case in Belgium at least. As a matter of fact, I can't really recall any political party advocating such privatisation. Not wholesale.

	05-01-2005 21:09									#25
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quote: Originally posted by DanS I wonder about their liberal bona fides if they are OK with CSU/CDU socialist policies.

I suppose the patient-minded liberals tolerate it, as they know the pull goes in their direction (albeit slowly). And in general, the FDP has always been a party that got power only from coalitions. When you're the small one in a coalition, you bite your lip quite a few times, no matter how you dislike the policies of the big one (I know the feeling to well )

	05-01-2005 21:17									#26
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quote: Originally posted by Colon Which liberal party are you referring to? That's certainly not the case in Belgium at least. As a matter of fact, I can't really recall any political party advocating such privatisation. Not wholesale.

It is true they don't advocate wholesale privatization of the welfare systems, but partial ones. They were the spearhead of the idea of opening retirement systems to capitalization (an idea now followed by most parties in Europe), they want to see a competition between public and private organisms in healthcare and oldcare. The French liberals, at least, do, and I expect them to be among the most mellow in Europe (along with Belgium's and Greece's).

	05-01-2005 21:22									#27
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Isn't that just the sensible thing to advocate?

	05-01-2005 21:24									#28
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quote: Originally posted by axi Do you think the people are stupid? Do you sincerely believe that the working majority would ever concede to lifting restrictions on firing employees, during an economic recession? You don't need to be an economics major to know what your own boss would do if he were free to fire and hire people at will. Most bosses would just take advantage and do layoffs. The incentive for hiring that may come from easier firing can only be considered in times of economic growth, when new jobs are being created, not lost.

But as an economics major, you can see that if layoffs aren't made in an economic downturn, more companies will go out of business, causing job losses. Forcing companies to keep paying employees that are no longer profitable leads to fewer companies and fewer jobs. So yes, during an economic downturn it would make workers jobs less secure, but would also mean there are more jobs in the economy, meaning more people are actually in work.

	05-01-2005 21:24									#29
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quote: Originally posted by Colon Isn't that just the sensible thing to advocate?

Edit: what has become of the agressive, evil "tongue" smiley?

	05-01-2005 21:27									#30
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quote: Originally posted by axi Do you think the people are stupid? Do you sincerely believe that the working majority would ever concede to lifting restrictions on firing employees, during an economic recession? You don't need to be an economics major to know what your own boss would do if he were free to fire and hire people at will. Most bosses would just take advantage and do layoffs. The incentive for hiring that may come from easier firing can only be considered in times of economic growth, when new jobs are being created, not lost.

an economic downturn doesnt mean no new jobs are being created, at least over here. There are always some sectors, and firms, that are growing even during a downturn.