Crunch hits Germany

Reposted from Morning Star GERMANY is facing a dire economic crisis. Following the collapse of Lehman Brothers in the United States last September, it became apparent that German banks also had large amounts of toxic real estate credits in their portfolios.

As a measure to shore up the banks and avoid redundancies, the national government provided 480 billion euros (£432 billion) in guarantees in October, with an additional 20 billion euros (£18 billion) put up for direct state investment in public and private banks.

Then, a week into the new year, the federal government bought a 25 per cent share of Germany’s second-largest bank Commerzbank.

Manufacturing companies such as BMW are now lining up to demand their slice of state capital too.

Such firms are feeling the pinch because the German economy is heavily dependent on foreign markets, with exports making up one-third of the country’s gross domestic product and manufacturing industries producing up to half of their goods for markets abroad.

As world sales have dropped dramatically, tens of thousands of workers have been put on short time in car manufacturing, steel production and other heavy industries. Many car plants and steel works halted production for several weeks from mid-December to early January.

The domestic market, on the other hand, has remained stable – until now.

Economists fear a sharp drop in domestic sales over the coming months, as workers on short-time pay and laid-off workers on unemployment benefits have less to spend.

Anticipating a deeper crisis, Germany’s parliament has already passed a two-year economic stimulus programme worth 50 billion euros (£45 billion).

A second programme of the same amount now awaits approval by Germany’s upper house.

These programmes, however, have been criticised heavily by trade unionists.

Germany’s trade union federation chief economist Dierk Hirschel says: ‘The first economic stimulus programme put forward by the federal government was merely supply-sided and will only have cosmetic effects on growth and employment.’

He is demanding higher public investment, lower interest rates and better wages to remedy the decline in consumer spending.

Indeed, the government’s first economic programme only lowered supply prices, while not increasing demand.

The second programme includes additional public investments worth 18 billion euros (£16.2 billion) and tax cuts for those on lower incomes. But the new economic stimulus programme has also been subject to harsh criticism.

Left party president Oskar Lafontaine branded it ‘too little, too late.’

The left party’s parliamentary group in Hamburg’s state parliament demanded that the state government spend an extra 2 billion euros (£1.9 billion) to ease the economic crisis.

Germany’s second-largest city has been hit hard by world recession, as the city is home of the country’s largest port.

However, the leader of the sheet metal workers’ union Berthold Huber has thwarted trade union demands for higher wages.

Huber came up with a proposal to delay pay increases at companies that are struggling to survive, although he added that his union was not willing to back postponed pay rises merely to safeguard profits.

Nevertheless, employers in the sheet metal industry are demanding a pay freeze for several months on a national level.

German trade union federation wage analyst Reinhard Bispinck said that Huber should have ‘thought twice before going public with his ideas.’

Germany’s unwillingness to spend substantial amounts to counter the crisis is partly caused by the ideological situation in the country.

Keynesian, not to mention Marxist, economic theories have practically been wiped out all across the nation. Only a handful of universities still teach these ideas.

As a result, media outlets, think tanks, lobbyists, bureaucrats, business leaders and politicians exclusively follow neoliberal policies.

But there is also another, more cynical explanation to why Germany is so cautious in facing the crisis.

In December, German chamber of commerce chief economist Volker Treier admitted quite frankly: ‘Germany, as the world’s leading export nation, will profit from economic stimulus programmes across the globe.’

In other words, Germany might adopt a risky wait-and-see policy to see the country through the crisis by taking advantage of taxpayers’ money abroad.