Sunday, September 28, 2014

Germany's Economic Mirage

"Germany has stagnant wages, busted banks, inadequate investment, weak productivity gains, dismal demographics, and anemic output growth. Its “beggar-thy-neighbor” economic model – suppressing wages to subsidize exports – should not serve as an example for the rest of the eurozone to follow".


  1. Accurate & undeniable. A detail but he neglects to mention that in terms of "closed professions" Germany is the outstanding EU offender.

  2. That author obviously follows a political agenda hiding behind shallow economic arguments.

    No doubt that in German economy not everything is in best shape, but overall it is a tremendous performance based on hard work.


  3. I won't debate the author's economic arguments but I want to point out some of the positives about Germany (which is quite a challenge for an Austrian!) which I have experienced while living there (in Munich) from 1974-80 and from 2003-10.

    Germany's public service and public administration are simply excellent. There was hardly ever frustration when dealing with public entities (and as a bank manager I had to deal with them a lot).

    Even if the statistics say that Germany's infrastructure is crumbling, one doesn't notice it at all when one drives on German roads, when one uses public transportation, etc. I can't even think of any minor road which was not in good shape. Not to mention the East of Germany where everything seems brandnew. The public has access to a tremendous offer of services/facilities, be they libraries, recreational facilities, research places, etc.

    Let me add that I always enjoy driving on German Autobahn's free of charge! (any other country in Europe?). At least so far.

    The judicial system of Germany is one that one can have confidence in. There may be individual mishaps here or there but, overall, one does not get the impression that the judicial might not be objective and independent.

    The German media are very critical, possibly more critical of their own government than in any other country. In fact, leftist thought may play a greater role in public debate in Germany than in many other countries. To me, they are going a bit overboard there because only the slightest hint in a center-right direction can make someone brandmarked as a 'right-wing radical', if not to say a racist.

    German public TV does not seem to be influenced by politics.

    South of Scandinavia, I know of no other country where displayed nationalism is perceived as such an evil trait as in Germany. It only took President Köhler to say that "I love my country" to get clobbered. When the TV commentator of a national soccer game says passionately "we are now attacking from the left" instead of neutrally "the German team is now attacking from the left", he gets clobbered. He may get excited when Germany wins the World Cup but, by golly, he must keep his excitement under control.

    For a nation which once got carried away with (evil) emotions, it is amazing how unemotional Germans have become, even in private.

    For a business development oriented banker, it was a pure pleasure to drive around Bavaria and, particularly, Baden-Württemberg and to see operating companies just about around every corner. And when visiting such companies, it was a pure pleasure to watch the obsession with excellence.

    Germans may not be very fun-oriented elsewhere but certainly in Bavaria and in Munich, fun is an integral part of the lifestyle (and not only during Oktober-Fest season!).

    Particularly the younger generation seems very much family-oriented. No longer the obsesson with careers. I had two branch managers who requested paternal leave (which the law provides for), one even a longer sabbatical. Both were very high performers and certainly career-oriented but their family was more important to them. From what one reads, there is no way that men can get away with a macho-role in their households. It's a given that they have to share in household duties and, from what I could observe, they do that willingly and out of conviction.

    I could go on. Yes, if one compares Germany to Switzerland, there might be some room for improvement. But when comparing it to most other countries, Germany comes across as an extremely civilized country. When I talk bad about Germany, which I do every so often, I ask myself whether it is perhaps envy which causes me to do that.

    1. Dear Mr Kastner,

      since you are familiar with the situation in Greece, I wonder if you would care to comment on some questions:

      Couldn't the euro "soften" towards 1:1 with usd, to render eurozone more competitive and relieve debts? (e.g. Greece's)
      What are the benefits/disadvantages of a hard currency?
      Should Greek government increase spending (say public projects) to help face a 27% unemployment, or else how could unemployment be reduced without it?
      Is it advisable for Greece to change currency and devalue so as to become competitive?
      Couldn't perhaps Germany run a small deficit to assist partner countries?

      Would be very interested in your views (have no economics background).

      Thank you!

    2. @Anonymous 6:00 PM
      1) Of course, the USD/EUR could go to 1:1 without the world coming to a halt. If I recall, the lowest it has ever been was around 0,85:1. I am not sure that it would change all that much within the Eurozone because French products would be as expensive in Germany as they are now. In the external relations, one would have to assume that the Eurozone would benefit, at least short-term. Longer-term, devaluations tend to get outsmarted by domestic price increases. And remember: the export-oriented countries would benefit the most from a lower Euro. Which brings us back to Germany...
      2) On a personal level, the big advantage of living and having one's income in a hard currency country is that the rest of the world becomes cheaper. When I visit Switzerland, I always think how great they must feel being surrounded by very cheap countries... On an economic or macro-economic level, very learned people have discussed this issue without reaching consensus. I would say for a country like Germany, a hard currency is better than a soft currency because the hard currency challenges German innovation and productivity. And I once quoted Ralf Dahrendorf who warned, back in 1995, that for countries like France or Italy, a soft currency is better than a hard currency because it allows them to cover up weaknesses. Devaluations are like inflation: both cover up inefficiencies and the cost associated with them isn’t necessarily felt immediately by the ordinary citizen in his day-to-day life.
      3) Short-term, I don’t see how any market forces, may they come from the private or public sector, can dramatically reduce unemployment in Greece. The numbers are just too high. Back in 2011, McKinsey came out with a 10-year plan proposal which would have created 500.000 new jobs over 10 years. Mind you: 500.000 new jobs over 10 years! But Greece now has 1,3 million unemployed and many more near unemployment. No chance to turn that around in a hurry. The only thing which could/should be done short-term is to implement relief programs for those 2,5 million Greeks who are allegedly under the poverty line.
      4) As long as the Eurozone doesn’t blow up altogether (which I think it sooner or later will), I think Greece might as well try to stick it through now. If not, all that economic suffering and pain of the last 5 years would have been for nothing. But I do think that the last 5 years would have been less painful for Greece if it had immediately returned to the Drachma when the Euro-party came to a halt back in 2010. That, however, is the benefit of hindsight. At the time, I vehemently argued that Greece should hold on to the Euro. Then by intention, now by default.
      5) Obviously, if the large German economy were to spend much more money outside of it, someone would benefit. A lot of the beneficiaries would be outside the Eurozone. Within the Eurozone, I doubt that Greece would benefit very much from it because Greece doesn’t really have much on offer which a spending German economy would buy. But German tourists would probably multiply in numbers (to the great pleasure of Greeks...).

    3. About 2 there is a mistake. In UK there are the "Endies" in Switzerland i assume they are many also. Young professionals are giving half of their income only for rent. Some, very well paid, give again a huge part. When 6 bottles of water cost in Greece 1.6 € and in Switzerland 6-7 € there is an issue.The same in UK and in parts of Germany(?). All these are highly disruptive.
      About 4 you give the impression that all have short term interests, to gain, which prevail longer term gains -or only losses as claim some Germans-.This is an issue and for greek leaders for their luck to define or to answer in basic questions.The selection of D Tusk however is indicative of Germans perception for euro, an unmapped division.The one who is pressumed as a leader should have larger responsibility even against his highly important interests occasionally, otherwise his influence will wiped out at no time.
      Its an intentions game which turned to a time game?

    4. @Anonymous 6:00 PM
      I should add: if foreigners don't buy French cars because they are not state of the art technology and style, no devaluation will solve that problem. If they are state of the art and style but don't sell abroad because they are too expensive, a devaluation will work wonders.

    5. @Anonymous 10.51 AM
      I don't know what 'Endies' are but, yes, rents in the urban zones of Switzerland are VERY expensive. My point would be: if a sales person in a Zurich retail store earns 3.500-4.000 CHF per month (which he does), with very low taxes, he may not be able to live in the center of Zurich but certainly within 30 minutes of public transportation he will find something suitable. And it's a lot better to have income of 3.500-4.000 CHF per month when you have the option to live a bit more frugally than to earn 1.000 EUR per month. With 1.000 EUR per month, you don't have much of an option regardless where you live.

    6. About "endies"(Employed but with No Disposable Income or Savings)

    7. Dear Mr Kastner,

      thank you very much for your detailed comments.


    8. @Anonymous 1:54 PM
      "Endies" - that's exactly my point! The issue is not how expensive a country is but, rather, whether one has the option to save. If I am a retail sales person in Zurich earning 4.000 CHF per month, I won't be able to live in Zurich and lead a good life. But I have the option of living 30 public transportation minutes North of Zurich and get affordable housing. And once a week I can drive another 30 minutes North and do all my household shopping in cheap German supermarkets (ALDI/Lidl) and pay with my expensive CHF. I might be able to save 1.000 CHF per month.

      This summer, I met a young Austrian who had a summer job in a Lucerne restaurant. He told me that, in Austria, he would earn at most 800 EUR, provided he could even find a job. In Lucerne, he was earning 3.400 CHF, shared a small flat and lived rather frugally. To use his words: "I can save a ton of money".

      Again, if you earn 800 EUR per month, you don't have much of an option anywhere.

  4. Rumours have it that in the recent years sentiments have shifted in Germany, as people (rightly) realize that they are the only powerhouse in Europe these days and the pride to be German is gaining ground fast and showing up.

  5. I follow your argumentation and, frankly, it is not news to me. Still, I meant something else, even though I have trouble putting my finger on it.

    I think if a German were to pull up a national flag in front of his house over the weekend (done all over the USA; I also see that in Greece), his neighbors might call the police. At least they would classify him as 'crazy'. You have to remember that the Nazis had used the classic instruments of nation-building, of building up national enthusiasm very cleverly in their propaganda. Instruments which you see all over the USA, for example, every day. But since the Nazis had used them in an evil way, the instruments themselves have become viewed as evil. “America the beautiful” or “Rule Britannia” are arousind songs in these countries. Imagine a German public figure would start singing “Deutschland, Deutschland über alles”. His compatriots would clobber him much more than any foreigners. Regardless what Germans say about ‘having overcome the past’, you cannot get something like the Nazi-period out of a national consciousness. And, again: since the hallmark of the Nazis was a form of nationalism which was a national madness, a sick national madness, the slightest thing which smacks of nationalism is immediately objected to by today’s Germans.

    Regarding Greeks, yes, there are many Greeks who seem to enjoy doing damage to their country but I have yet to meet a Greek who doesn’t feel, deep down, that Greece is the most beautiful country in the world and that Greeks have the best way of life. As a foreigner in Greece, I often have the feeling that Greeks long very much to have affirmed by foreigners that their country is the most beautiful and that their way of life is the best in the world. Germany is a very beautiful country, in my opinion, but I have never met a German who made much of a point of it. I often got the feeling that, deep down, Germans have a bit of a problem with who they are and what they have.

  6. Mr. Kastner, i can understand that you come from a different cultural background and you are de facto being treated like a tourist while in Greece. I cal also understand why you get that feeling. But, while i do agree that Greeks like the beauty of the country, there is another thing of what Greeks say amongst them, for the way of life for instance. Now, if a tourist comes and says good things, of course you will like it. This doesn't mean that Greeks think they have the best way of life. If you could read greek, you 'd be astonished at the foul language greeks use against each other, even in comments in newspapers. I would say that what annoys Greeks most, is having an outsider trying to impose to them, THEIR way. A bit like Germany trying to "export" the german model. The Greek will never go in Germany and try to convince the german to smash plates or eat souvlaki, nor will the greek press attack the drinking beer habbits of the germans. The opposite may occur.
    Touristic destinations are common to have a high idea of their country's beaty. Do you know what's Italy's name is for Italians? The "bel paese". Meaning "the beautiful country". When an Italian says "il bel paese", he doesn't need to specify. It is intended that he means Italy. Or another phrase is "Italiani, brava gente", which means "Italians, good people!", which is a common proverb the Italians have made for themselves. Similarly, Spaniards love using the "sun" for their country and locations. El paìs del sol (the country of the sun), puerta del sol.
    The problem with northern Europeans, is that "anything that isn't familiar to us, is strange". It's like a de facto starting point. By comparing the south european and the german press during especially the crisis, the gap was bysmal. Seemed like the german press would be happy not just by the Greeks acquiring every german trait, but also changing their names to german. I sometime feel like Greece is something a like a summer resort, when north Europeans would like to spend their pension years and the only thing that impedes them to live their own version of paradise, is that... it's not their own country. So, apart the various economic or administrative reforms that should let them feel more at home, even better if Greece had Oktoberfest and Yannis was named Hans, speaking fluent german. Alas, there is no perfect paradise in this world...

    At any rate, you would have a better understanding of Greece, if you had lived in a south european country. You 'd find Greece "less unique".

  7. Mr. Kastner, what you describe with the flag in Germany, is understandable, given the specific historical moment. In Greece there is something of an analogy, but in different areas. For example, since the motto of the junta was "fatherland, religion, family", these words were banned from politics from whoever didn't want to be called "junta nostalgic" or nowdays a "goldendawnist". Especially the left, is allergic to any of the three, which also explains the attack on national interests. For example, you may see flags on national festivities in Greece, but outside them, specially nowdays, they will call you "goldendawinist" those of the left and Greece is the country where the burning of the greek flag is a common ritual in public protests, by left protesters. At the same way, for 40 years now, a common chant during protests, was, "cops, pigs, assassins". You were protesting for example against the US bombing of Baghdad? No matter. Part of the "schedule", was upon sight of the police, to say the chant. SYRIZA has gone to the point to say that they would dissolve the anti-riot police and make citizens' patrols. You are wasting your time, if you seek to make a picture of "the greek". There is no one "greek". Even during external wars, Greeks are always fighting against each other too. In the 2 extremes, there are those who love Greece and those who love to hate Greece. Those in the middle, end up caught in the crossfire.
    As for the Greeks thinking their country is the most beautiful or their way of life is, again, there is no "one" picture either. Greeks do like Greece as a natural beauty a lot, but this is common in all souther Europe touristic destinations. In Italy, Italians call "il Bel paese" (the beautiful country) their homeland and this expressions needs not clarification. When they say "Il bel paese", they mean Italy. Or they have a proverb "Italiani, brava gente" (Italians, good people!). Spains adores her sun. It is "el paìs del sol" (the country of the sun). The Greeks like their way of life, doesn't mean they like the way the country operates. They like that they can go have uzo and fish in the taverna, but they also say "we have no state" or "we are a brothel". The foul language one Greek uses against others, has no paragon in other country. It is a bit like with swearing. Many tourists, say "Greeks are religious". At the same time, i don't think there are many countries where the same "devoted" citizens have so many swearing expressions against god. What i personally found most interesting in the years of crisis, was the attitude of german press, where Greeks should become germans, even in their way of life. You 'd never see in Greek press how the germans should stop drinking beer or anything. But in german press, by virtue of their money, eating souvlaki, drinking ouzo under the sun, staying at the beach, were also scorned and outrageous, since "Greeks should work". No matter if in various international rakings the greeks appear to work more hours. So, maybe the poor ouzo isn't the problem, but what it is done in the work hours. But, it is typical of north european nature to have "uniformity". For example, Germans will follow a leader. Greeks will not. Half will, half will be against him. And at the end, the stereotypes, are born because of limited knowledge and experience. For example, for many years, you will not find a single greek that went to Germany for tourism and didn't return to say admiration about organization, the state of the autobahn, that "we are 50 years behind", etc. This though, doesn't mean that Yannis wants to change his name to Hans, speak german and start drinking beer instead of ouzo.


  8. Continues here:

    To you, knowing only Greece, it is everything odd. Because you don't know southern Europe. If you wish, for everything "strange" you see in Greece, i can provide you proof of the same in Italy for instance, that i know well enough, although not as well as Greece, because when you 're not born somewhere, you will never learn it like your home country.
    Another thing is, that in touristic countries, unless you learn the language fluently and stay there long enough to pass as a local, you will always be treated as tourist. Which is always different. For example, when you say something to a local, a compliment about Greece for example, he will laugh flattered. To you, this is him liking flattery. In part though, this is part of him being happy for you having a good time in the country. At the same way that you can extract a smile from an Austrian if you start talking about Mozart, Strauss, etc. Every country has its particulaties, but once you learn the local culture and history, at the end, you get to understand previously "odd" things and despite all odds, Greeks belong the Homo Sapiens Sapiens just like the rest of the humans. :) For example, you know the flag issue you described in Germany. A greek if first goes there and happens to a festivity and sees no german flag, will think "odd, how come there is no flag". Because he doesn't know, what you know. The opposite is also true.
    Or, to put it differently. Had Italy, with 142% debt currently, been a 10 mln country, would the german press (and politicians), be handling it the same way as now or would there be a wave of articles about the "pizza eating Italians that care about women and football"? But you can't find much "odd" things to a country of 60 mln, that if leaves the euro, euro is no more. So, it not odd to name your country "the beautiful country" or "Italians=good people). At the end, climate makes up for much of the temperament. The "cold" climates can't understand the "warm" ones. At the same way, that in Germany, you will hardly find a restaurant owner that will treat you with a 32 teeth spontaneous smile. You will be treated with politeness, which is a studied politeness, as a customer. You are a customer and you will get the same exemplary polite, not to expressive smile. In Greece, the restaurant owner may not smile at all if he is in a bad day, but if he smiles, you will get a 32 teeth-wide smile, which will be only for you or because you seemed likeable person to him. This comes with the climate.

  9. An experiment you may want to try, is to go to Rome, enter a cab. As you are being driven around, watching the various monuments, you can attempt to say "Italia, bellissima!" and observe whether the taxi driver will have a reaction. It may help you understand better the situation south of the Alps.

  10. Another experiment you may want to do, is propose to an Italian to eat together a germanic delicacy, that is, pasta with marmelade. Look carefully the reaction of the Italian to this alternative proposal to his way of life.

  11. The relations between south and nothern europeans, are best summarized in an italian saying: "We respect the Germans, but we don't love them. Germans love us, but don't respect us".