May 14th, 2012

German elections: the North Rhine-Westphalians…

just say no to the Christian Democrats.

Merkel’s party lost a lot of ground in that section of Germany yesterday, and the Social Democrats (the SPD, described as “centre-left”) picked up what the CDU lost. This follows the pattern in the recent election in France, although Merkel is still ahead nationwide:

The blow comes only two days before France’s new president, Socialist Francois Hollande, is due to visit Berlin and press Merkel for a shift away from austerity and more emphasis on growth-oriented measures in Europe.

Other big countries like Italy also want Merkel to take a more balanced approach to the debt crisis and an election in Greece last week showed massive public resistance to tough austerity.

Strangely enough, although I consider myself a fiscal conservative (especially by European standards), I’m not an advocate of austerity-only solutions. And I don’t think that most conservatives would disagree; there’s nothing wrong with growing an economy. The disagreement with the left, of course, is how to do this, and especially on what the role of a central government ought to be.

I’ve tried to discover exactly what it is that the left in Germany is suggesting as an economic growth program. But in a relatively brief search, although I found a bunch of MSM articles alluding to the German election, none of them discussed the proposals in any detail. This far-left Socialist periodical has an interesting perspective, which is that both Merkel’s party and the SDP are advocating austerity and balanced budgets, it’s just a question of the left sounding a bit better (to Socialist ears, that is):

The SPD and Greens hope that following an election win in NRW, they will be back in charge of the federal government by autumn 2013 at the latest. While they fully support the austerity measures and social cuts of the Merkel government, they are trying to create the illusion that this can be combined with investments in economic programmes, education, research, culture, etc. On closer inspection, however, the “Growth Pact” they are demanding is revealed as a further deregulation of the labour markets.

Here’s another article in the leftist press that tries to explain the situation (it’s not that I favor the left’s perspective, it’s just that they seem to be the only ones going into any detail on this. If you can list some links from the right, I’d be curious to read them.) In it, Frank-Walter Steinmeier, the leader of the SPD parliamentary group in the German Bundestag, points out that Europe is in bad trouble economically—as anyone who didn’t just drop down from planet Xenon knows. Specifically, it compares unfavorably in economic growth to even the growth-challenged US:

While countries around the world are making up ground, the European economy will shrink by 0.5% this year – the United States (up 1.8%) and China (up 8.2%) will grow.

And Steinmayer’s description of the problem seems pretty on-target to me:

Unless there is a breakthrough in the current recessionary spiral, no one will be able to guarantee repayment of these loans [made after the 2008 crisis to save the economies of European nations in trouble]. Europe, and especially creditor nations like Germany, are banking on a trend shift that they hope will provide new economic verve. The EU and IMF rescue packages assume that the countries receiving emergency loans today will soon be able to generate primary budget surpluses. If that fails to happen, they will keep needing new loans to prop them up. This will put the eurozone countries to a test of fiscal strength and, above all, political endurance. Ultimately, it could lead to the collapse of the monetary union.

Well, if by “the monetary union” he means the EU—and I believe he does—many would say “good riddance,” and I’d be among them. That is what tied the economies of member countries together so tightly, and put nations such as Germany in nearly the same boat as Greece.

But Europe doesn’t seem to be about to abandon that dream, and in any case it does seem that more growth is necessary for Europe, with or without the EU. But does “growth” mean stimulus spending a la Keynes? Does it mean increasing government regulation of the economy or decreasing it, or just changing its emphasis? And is the big problem something more basic, some decrease in personal initiative that has occurred in Europe in the last few decades?

Steinmeyer discusses the SDP’s proposed solutions, which don’t sound like pure Keynes to me [emphasis mine]:

The debt sustainability called for by the adjustment programmes will only be achieved when Europe regains its capacity for economic growth. That will not happen by itself. Europe will need a growth programme if the consolidation of government finances is to succeed. However, this must not lead to a new round of government debt for the sake of short-lived economic stimulus measures. Instead, Europe needs a comprehensive investment and development programme that overcomes the financial crisis, sets a course that focuses on the real economy, modernises structures, improves competitiveness, increases value added, and strengthens European unity [this last idea seems counterproductive, IMHO; it's "European unity" that magnified the problems in the first place].

The financial crisis exposed the source of European imbalances. If we do not work to fix them, they will lead to a deeper, more serious split. Europe has lost its equilibrium. While countries like Germany and Poland manoeuvred through the crises relatively safely, the economies of countries in the southern eurozone are nose-diving. There is no end in sight to their downward spiral. No wonder growth forecasts diverge so widely between countries in Europe. Poland and Lithuania are expected to grow by 2.5% and 2.3% respectively, while Greece and Portugal are set to shrink by 3% and 3.2% respectively.

Weak growth almost always goes hand in hand with a weak status of real value added. The manufacturing sector has lost its significance in nearly every European country. During the last decade, industry’s share of GDP fell on average from 23% to 16%. However, it is clear that countries which held on to their industrial sector are now doing significantly better than countries that pursued de-industrialisation. Poland is an impressive example…Preserving a broad value chain secures jobs and creates an environment that spurs on new growth.

In addition to retaining a solid industrial basis, boldly implementing structural reforms has also paid off. Germany, for example, has spent the last decade reforming its labour market, which has strengthened its competitiveness for the long term. And following a painful slump during the crisis of 2008-2009, Lithuania introduced structural reforms that have enabled it to set out on a new path to growth.

Boy, it must hurt when Western Europe has to look to Eastern Europe for economic models and guidance.

Steinmeyer goes on to describe how different the countries in Europe are from each other, but he doesn’t draw the conclusion that the EU was a bad idea that’s got to go. And although it’s true that, as Steinmeyer writes, the economies of the European countries are dependent on each other because unless there are markets there’s no way to sell the products or services made, why not let this interdependency happen in natural fashion, rather than yoking them together in an artificially-created union that has the effect of dragging them all down if a few go under, and fails to allow them to tailor individual solutions to fit their individual differences?

Finally, Steinmeyer gets to the specific proposals of his party, the SDP. The first suggestion is a financial transactions tax to raise revenue. Again, I don’t understand the fine points, but my first thought was, “wouldn’t that impede economic growth rather than help it?” And I’m certainly not alonge; there’s some support for that conclusion. The tax would probably be limited, however, to the secondary financial markets (derivatives and their like), the area that supposedly engendered the 2008 problems in the first place, although that would hardly seem to change the fact that the tax would be likely to inhibit growth.

The rest of the SDP plan seems to involve ideas to strengthen what Steinmeyer refers to as “industrial renewal.” Again, nothing wrong with that. The main question on which left and right differ is the government’s role in achieving such a goal. The SDP seems to think that the EU must be involved in a trans-European project to do it, which is about what you’d expect from the left but seems both unnecessary and potentially counterproductive to me.

The devil tends to be in the details, and in the amount of time available to me to write this post I couldn’t become expert enough on the economic policies and proposals of the different political parties in Europe to be able to critique them as effectively as I’d like. I rely on you, my trusty readers, to take up the discussion—especially a few of you who live in Germany and could probably shed a lot more light on the subject than I.

17 Responses to “German elections: the North Rhine-Westphalians…”

  1. George Pal Says:

    There is nothing other than austerity for the moment. Before economic growth comes a settling of accounts. Absent the consequences of gargantuan debt – default or repayment, businesses/banks will not gamble; unless of course Eu Central Banks back the gamble (with the promise of future taxes/tax revenues or severe austerity, aka vicious circle). It will be a long time before this is played out – it wouldn’t be nearly so long if the Eurocrats weren’t so damned sure they’d successfully repealed the laws of economics and altered the nature of humans.

  2. rickl Says:

    All austerity really means (in the real world, at least) is living within one’s means.

    With the modern welfare state, neither governments nor individuals are used to that.

  3. George Pal Says:

    Here is Niall Ferguson’s take, proving once and for all Panzer divisions are passe.

  4. stan Says:

    With all the talk about austerity, very little is actually being tried.

    http://www.coyoteblog.com/coyote_blog/2012/05/omg-austerity.html

    In politics, austerity is used like ‘spending cuts’. Just means that all the giveaways were reduced from ridiculous increases to generous increases.

  5. expat Says:

    Here is the WSJ take on the election. I agree.

    http://online.wsj.com/article/SB10001424052702304192704577402052723856514.html

    The CDU candidate was terrible, and local issues like childcare were important. Germans are, as usual, schizophrenic. They certainly don’t want to spend anymore on Greece, but they also still believe in the terrible energy policy pushed by the Greens, which will cause higher prices and possibly even insufficient electricity.

    I’ll see what else I can come up with and try to give a synopsis later.

  6. expat Says:

    Here is another very informed take on the mood in Germany.

    http://online.wsj.com/article/SB10001424052702304203604577393821952841442.html?KEYWORDS=josef+joffe

    It should be noted that Gerhard Schröder has endorsed Peer Steinbrück as SPD candidate to oppose Angie. He is a common sense, financially sensible possibility, far better than Steinmeier. Merkel has some do-gooder types in her government that can blur the distictions between SPD and CDU. I just hope the Greens lose votes.

  7. Parker Says:

    “All austerity really means (in the real world, at least) is living within one’s means.”

    We are entering the Catch-22 stage of the global economy. I don’t see how a huge contraction in the global economy can be avoided, and the last 4 years have only made the eventual contraction all the more dangerous.

    “It will be a long time before this is played out – it wouldn’t be nearly so long if the Eurocrats weren’t so damned sure they’d successfully repealed the laws of economics and altered the nature of humans.”

    The same is true of the bureaucrats, politicians, and voters here at home.

  8. Gringo Says:

    Neo:

    Well, if by “the monetary union” he means the EU—and I believe he does—many would say “good riddance,” and I’d be among them.That is what tied the economies of member countries together so tightly, and put nations such as Germany in nearly the same boat as Greece.

    While Greece gamed the system, borrowing and borrowing, the system also benefited Germany. When the Euro replaced low-value currencies such as the Greek drachma, Germany was able to export more goods than before.

    I don’t see any solution but for Greece and other countries to leave the Euro. When the Germans and the French learn to accept that reality, they may come up with some realistic solutions. Will the Euro completely collapse? Don’t know.

  9. GoneWithTheWind Says:

    This is the problem that a democracy will always have. The people don’t want austerity, they want their dreams to come true. The voters paid no attention for the 20-30-40 years that the politicians taxed, taxed, taxed and spent, spent, spent. The politicians stole our prosperity and gave us austerity. Now we get to vote and most will vote to continue the dream, continue to borrow, to tax the other guy. You promise to lower retirements, cut working hours, increase pay and tax the rich to pay for it and the suckers will vote for you. Those who are ignorant of history are forced to repeat it. It won’t be nearly as pretty this time though. The great depression lasted 11 years while FDR did little or nothing meaningful to stop it. If WW II hadn’t happened we would probably still be in the great depression. But there were less people then and they lived on the land or close to it. If you live in the big city, look around. Where will you get food after the collapse?

  10. texexec Says:

    The European public just can’t stop believing in the tooth fairy. It will take a major financial collapse to change that.

    FWIW, the Euro is rolling over and heading towards long time lows. The markets didn’t like the results of that election. Nor the French one.

  11. expat Says:

    Gringo,
    Your point about Germmany profiting from the exports is a prime example of the schizophrenia I mentioned. There is probably no German who is not proud of the Export Weltmeister title. Yet few realize that exports to other EU lands, including Greece, figure in the exports counted. And aside from the ridiculous Spanish building bubble, there were also the enormous investment in solar energy there, which cost jobs. Of course the Greens (and no one else) talks about this. It wasn’t that many years ago that I saw young people on TV saying that they were Europeans first, Bavarians (or whichever state they were from) second, and Germans third. I’m not sure that holds up any more because I haven’t seem any demos supporting brotherhood with the Greeks.

    The Greenie movement stiil holds many in its grip, and now there is the Pirate Party to contend with. This is a bunch of internet types who want more transparency and citizen participation in government (via internet, of course), but they don’t seem to know enough about any issues to state other positions. They are a big enough force that they will somehow have to be accomodated in the next campaign.

    It’s looking like Merkel is still holding firm with Hollande, and he has been attacking her. But she cannot ignore the smaller parties, which will continue to push for their incoherent dreams. The media is still in the tank for the apocolyptic utopians. Just yesterday they gave a nice little hunk of time to a WWF report about the world using up all its resources. With this going on, no one can say what policies will develop. Don’t expect coherence, though.

  12. expat Says:

    Gone With The WInd,

    To answer your last question: at the nearest organic food market, of course.

  13. Doom Says:

    To be honest, regardless of what is put into print as possible solutions (by any political party, regardless of it’s real ends, goals), you can better see by what they have done. You can look at the American “left” and see exactly what is proposed by the European left. Exact policy? Maybe not, there are many roads to the Kremlin.

    If you want to know what they are going for, you need look no further than the more extreme Democrats here in America. Taxes will increase, on everybody. Control of the economy (and other areas) will be, as much as possible, assumed by the state (and that power handed out to unelected “officials”). Laws will be created to keep the rich from dealing with competition, which makes it easier to steal from them (or simply eliminate them and make what is private “public”). It’s not tricky. It isn’t even calculus, let alone brain surgery or rocket “science”. Nail meet hammer. Hammer, do your job. Done.

  14. LAG Says:

    Does “Christian Democrats” strike anyone else as vaguely oxymoronic?

  15. Parker Says:

    expat says, “The media is still in the tank for the apocolyptic utopians.”

    Yep. Its the I must be able to buy whatever I want because I still have checks in my checkbook mentality.

    I get so weary of discussions about what happens if Greece defaults. Greece has already defaulted and we can all plainly see what happens. I will gladly pay you Tuesday for a hamburger today has morphed into I will gladly pay you Tuesday for a hamburger today if you will loan me the money to repay you on Tuesday. Wimpy, the new avatar of the leftists, rules until he doesn’t.

  16. IGotBupkis, Legally Defined Cyberbully in All 57 States Says:

    I have sad news for you.

    It’s not going to be hard for Europe to abandon “austerity”, mainly because they’ve never touched it.

    Warren, over at Coyoteblog, has a summary piece derived from Cake Hayek.

    The graph alone spells it out.

    For the Euros, as much as with Congress — “austerity” means “not increasing our spending this year.”

    Actually cutting anything?

    BWAAAAAAAAahhahahahahahahahahahaaaaa!!!

  17. Daniel Says:

    Growing an economy isn’t easy, but it’s an easy formula:

    Remove barriers to private enterprise (deregulate)
    Keep your labor force competitive (reform)
    Maintain liquidity in the banking systems (plenty of that right now)
    Reward productivity and make poverty hurt

    In our particular situation there is an added problem that everyone else has already cited, and that is that our own capital is tied up in other things – debt. Demand suffers because of our own consumer level debt. Injecting transactions into the economic stream does very little because the extra money is just used to reduce debt, not build investment.

    Currently, we are doing none of these things other than keeping the banking system liquid. As corporations pile up mountains of cash, they’re not going to use it until demand strengthens and/or tax laws are revamped to allow them to repatriate the funds back to the US. Any attempt to mask this massive deleveraging, though, is just an expensive bandaid.

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Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.
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