Income for German workers has been going down in the past few years! So the Economist is really celebrating that Germany is following the anglo-saxon precepts: pay people less, be "competitive", make profits. Exports and profits are doign well, but not the average Germans.
I personally think that this austerity cure was necessary because the German DM was overvalued when it entered the euro (but it would have been political suicide for any German leader to admit it) - thus they joined the currency with a handicap, which they have now more or less compensated for. The overvaluation came from the weigth of the reunification (which was also based on the political decision to overvalue the Ostmark to give extra purchasing power to Eastenr Germans - at the cost of the competitivity of their whole industry).
So Germany had to sweat off a few extra pounds of fat, and is now back in shape - but that will be the case only when wages start growing up again.
The most worrying trend in the above graphs is that of Italy. Italy is not doing well with the euro. They have not adapted yet to the discipline of a strong currency (remember that their modus operandi has always been to devalue the lira every now and then to regain cometitivity - as they have few external assets, and lots of domestic savings, that external rate was not such an important factor beyond trade). Italy is now uncompetitive, with no way out - the purge is going to be even nastier than in Germany.
But maybe the only point is that "good" news are put on the front page of the Economist and that can change some perceptions. But we at the Europena Tribune should be consistent and say that this is not necessarily the right things to be happy about. In the long run, we're all dead. John Maynard Keynes
Yeah, that's the crux of it - I wanted to write the same but you said it so much better! *Traitor*, n. A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.
...and jobs too; but with the presently planned reforms, it's either wage growth or jobs gorwth or neither that can be expected. *Traitor*, n. A benighted individual who perceives an illusory distinction between serving his nation and abetting the criminals who govern it.
I think what we all welcome is any sign that Germany might be recovering from the weight of reunification. The eurozone as a whole is a challenging project and if the motor of Germany is restarting it provides that much more ability to address difficuly issues.
For example, I fear your analysis points up exactly why there are murmurings in Italy about leaving the euro. This could be a terrible blow to the credibility of the project, but if Italy's pain needs ameliorating for political reasons it can only be done if other areas regain some of their prosperity.
Further, whilst wages have stagnated, if they have done so by negotiation (social partnership) then the fabric of society has been preserved far better than under anglo-saxon precepts. Of course, as you note, this is only proven if wages start to rise again.
That's the view of Thomas Geoghegan, who is a very labor-friendly and Europe-friendly American writer (in fact he is a former labor lawyer):
German unions have had to keep wages down of late. But that's at least in part because in the early 1990s they pushed them up too high, even by my left-of-center standards.
But your point is well-taken, as I tried to indicate in the diary: eventually the strategy of growth through increased worker insecurity and labor cost reductions is self-defeating, as it helps destroy the very consumer confidence that is needed for long-term recovery.
Also, the education and innovation initiatives should help build on the strengths of the German economy in the long-run.
