General News, Only Germany saved sustainably: National debt, social issues and the Euro crisis, 17.10.2014

Only Germany saved sustainably: National debt, social issues and the Euro crisis


For the sake of "Euro rescue", Germany will have to open its pockets even further. This is what Anglo-Saxon investment bankers, French Socialists, Spanish conservatives, German Greens, Trade Union economists and financial investors, á la George Soros agree on. They blame "the German austerity dictate" for the Euro area’s crisis: with its desire to limit the public debt, they suggest that Germany drives the economies of southern Europe into recession and their populations into misery(1). And undeniably so, austerity measures in times of mass unemployment hit Greeks and Portuguese hard. They defend themselves against these cuts, if not now in the streets, then later at the ballot box. Governments need to take this sentiment into consideration in order to maintain their democratic legitimacy. It is therefore quite understandable that the southern European governments, led by France and Italy, abandon "austerity" and want to get deeper into debt. Meanwhile, these mountains of debt keep piling higher and higher. In the euro area the government debt in 2012 amounted to 92% of gross domestic product (GDP), at the start of monetary union it was only at about 63%, which was already higher than what the "Maastricht Treaty "actually allowed, which was 60%(2). The statistical average conceals the deep divide between the countries, while the debt in Finland remains still below 50% of GDP, it amounts to more than 150% in Greece - without the huge “haircut” in 2011, it would be even greater(3).

Since the introduction of the Euro, the well-known North-South divide regarding public debt has grown dramatically. While the debt in Finland grew by about 10%, in the Netherlands and Germany by about 30%, it rose by more than 50% in Greece and by more than 150% in Portugal. The most dramatic development is in Ireland, where debt has more than tripled (from 35% to 117%)(4). The Engine of this debt explosion was the "rescue" of the bankrupt banks whose managers offloaded the consequences of their mismanagement and unscrupulously criminally onto the taxpayers. Misguided speculations within the financial and real estate sectors are generally a major cause of increasing debt in the Euro area, driven by low interest rates after the introduction of the Euro. Another key cause is increasing social spending, which was also stimulated by low interest rates. Significantly, the pension expenditure in the "rescue countries" of Ireland, Greece and Portugal, had increased between 2000 and 2010 by leaps and bounds, while in Germany it had decreased, despite continuing aging.(5)

It took painful reforms to make this consolidation of pension expenditure ??possible in Germany, for example, retirement at the age of 67. Meanwhile, Greeks, Italians, Portuguese and French allowed themselves generous early retirement benefits. Just recently, the French president entitled some occupational groups to a retirement age of 60, although the pension expenditure had already been running out of control(6). In general, the French social system is the most expensive in the Euro zone. While social spending for 2012 in Germany was around 26%, in Austria 28% and in Finland 29% of GDP, it claimed almost a third of Gross Domestic Product in France. Compared to 2005, social spending has risen significantly almost everywhere within the Euro zone, apart from Germany, where it lowered slightly(7). This is the consequence of social reforms that contributed to the competitiveness of the German economy and enabled its recent export successes on world markets(8). Meanwhile, French and Italian companies that were once successful have lost market share due to rising personnel costs making their products significantly more expensive. This problem was known in pre-Euro times, however, devaluations of national currencies defused it again and again. In the Euro zone this way is blocked - competitiveness can be only achieved by lowering wages and benefits(9). Now, if "austerity" fails, there will be a transfer union. On the one hand this bears unimaginable costs for Germany and on the other hand, more and more parts of Europe will become a "Mezzogiorno" - dependent on a continuous monetary transfusion. Those seeking a better future must look for alternatives to the unified Euro.(10)


(1) Example from Catherin Hoffmann “Klotzen wie Keynes”, Süddeutsche Zeitung, 05.25.2013 http://www.sueddeutsche.de/wirtschaft/alternativen -to-saving policy-slog-as-keynes-1.1365413debt
(2) Regarding debt: “Eurostat: Government debt in the euro area rose to 92.2% of GDP”, Press Release 114/2013, 22 July 2013. Regarding the situation around the year 2000: Eurostat: Government gross debt (Table available at http://epp.eurostat.ec.europa.eu)
(3) See: Wachsende Staatsverschuldung im Euro-Regime (figure below)
(4) Ibid        
(5) See: Wachsende Rentenaufwendungen in der Eurozone – Konsolidierung in Deutschland (figure) http://www.i-daf.org/aktuelles/aktuelles-einzelansicht/archiv/2013/02/06/artikel/euro-und-rente-transferunion-hat-mit-solidaritaet-nichts-zu-tun.html
(6) Refer to: http://www.i-daf.org/aktuelles/aktuelles-einzelansicht/archiv/2012/06/17/artikel/finanzpolitischer-missbrauch-wie-man-mit-hilfe-des-euro-soziales-unrecht-schafft.html.
(7) See: “Social spending. Growth in France and Southern Europe - Consolidation in Germany” (Figure below)
(8) A key role is played by the unit labor costs. See:” Wage restraint and competitiveness” (figure) http://www.i-daf.org/aktuelles/aktuelles-einzelansicht/archiv/2012/06/17/artikel/finanzpolitischer-missbrauch-wie-man-mit-hilfe-des-euro-soziales-unrecht-schafft.html
(9) See: Martin Hoeppner “The diversity of European wage regime and their contribution to the euro crisis. Why the Euro does not match the heterogeneous substructure of the euro zone”, MPIfG Discussion, Paper 13/5, available at http://www.mpifg.de/pu/mpifg_dp/dp13-5.pdf
(10) Substantiated suggestions on possible ways out exist. In concise form, see: Ulrich van Suntum. “Parallel currencies as a way out of the euro crisis?” http://wirtschaftlichefreiheit.de/wordpress/?p=12892.