Wither Germany?

Peaceful Politics 127
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The Nordstream-2 episode represented a win for one particular German faction –the business class – which now appears to be reorientating to a pivot to Eurasia.

By Francis Lee via The Saker & Posted by Tyler Durden for ZeroHedge News
© 2021 ZeroHedge News – All Rights Reserved

Wither Germany?

Germany has been the keystone of the failing EU. Does it intend to remain so, or is it time to pursue its own interests?

Germany has been and still is the most important economy in Europe, the export-driven colossus and if not yet the most important imperial power; that designation belongs to France with its Force de Frappe (Nuclear Strike Force), and additionally the UK which is also a member of the nuclear club but has since left the EU remains as a loyal – and oh so loyal! – member of NATO. However, Germany is without question the most dominant country in Europe and still the main creditor and funder of euro states. Looking back to the rise of (West) Germany was a key presence in the formation of the European Coal and Steel Community (ECSC) in 1951. These various states pooled the coal and steel resources of six European countries: France, Germany, Italy, Belgium, the Netherlands, and Luxembourg which became known by the acronym – BENELUX. These states would be collectively known as “the Six”. It was argued that the pooling of coal and steel resources greatly reduced the threat of war between France and (West) Germany.

It was perhaps entirely predictable that Germany with its system of Bismarckian style guided capitalism would emerge to poll position in this imperial club. At the time France had other, imperial and pressing commitments in Algeria and Indo-China, the British had commitments more or less everywhere East of Suez, and even little Belgium had problems in the Congo (Zaire). Germany had no such incumbrances on its economic development and was thus free to power ahead with its version of guided, bank-funded capitalism, and avoid the pitfalls of Anglo-American financialised capitalism. Under Chancellor Konrad Adenauer and Economics Minister Ludwig Erhard Germany’s rebirth was dubbed the Wirtschaftswunder (economic miracle). A far-reaching contract between business and labour unions allowed the rapid rebuilding of industry and strong growth, creating the foundations of an economic powerhouse.

THE GERMAN MODEL

The centrality of Germany and German economic policy in this shifting economic montage requires attention to the gradual increasing dominance of what is the de facto European economic dynamo. It was perhaps inevitable that Germany would – in economic terms at least – become the regional hegemon in this continental configuration. After all,

‘’ … it had a globally competitive industrial base, pivoting on automobiles, chemicals and machine tools. Its exports enabled it to command vast surpluses on current account thus providing the wherewithal to lend globally.’

The peculiarities of the Anglo-American financialised system has not been replicated in Germany. To be sure Germany has a large and growing service sector similar to the financialised Atlanticist models this much is true; but Germany has also systematically defended its industrial sector, not least by manipulating the exchange rate to protect its exports of which many go to the other member states of the EU. The German manufacturing sector enjoys high levels of productivity, is export-based with relatively strong labour unions in wage negotiations compared to the rest of the private sector. But this did give rise to a two-tier labour market. The ‘good’ jobs were to be found in the export industries and the not so good jobs tended to be located in the internal domestic service sector.

‘’What happened from 2003 onwards to enable German capitalism to exploit its workers more intensely than before? In 2003-2005 the Social-Democratic Party (SPD) government implemented a number of wide-ranging labour-market reforms, the so-called Hartz Reforms, after one Herr Peter Hartz. The first three parts of the reform package, Hartz I-iii, were mainly concerned with, (i) mainly creating new types of employment opportunities (ii) introducing additional wage subsidies, (iii) instructing the Federal Employment Agency. The final parts of Hartz (iv) was implemented in 2005 and resulted in a significant cut in the unemployment benefits for the long-term unemployed. Between 2005 and 2008 the unemployment rate fell from almost 11% to 7.5%, barely increased during the Great Recession of 2008 and continued its downward trend reaching 5.5% at the end of 2012, although it is still higher than was the case during the global period of expansion in the 1960s.’’

GERMAN BANKING – FUNDS INDUSTRY AND DEVELOPMENT AT ALL LEVELS.

Perhaps what was more important has been the banking system in Germany and its relationship to German industry.

1.1 Savings banks (Sparkassen and Landesbanken)

German savings banks are usually owned by the cities and villages. Formerly, each city had its own savings bank. Over the past 20 years, many savings banks have merged due to the competitive situation. As opposed to the big private Banks – Deutsche Bank, Commerz Bank whose main interests are in housing and stock market investment – the small and medium banks operate with a local focus.

Although the savings banks have been losing customers for a number of years, they are still among the best-known. Often, the accounts are open, because the savings bank is “on the spot”. Later, when one has to deal with more finances, then there is often a change to another bank that is more cost-effective or offers better services. These banks provide funds to industry at good rates of interest, and this particularly applies to small start-up firms.

1.2 Volksbanken / Raiffeisen Banken (cooperative banks)

This is the next best-known bank organization in Germany. VR-banks – their abbreviation – are cooperative banks (Genossenschaftsbanken). They are organized similar to associations and are owned by their members. Members may only purchase very few shares of the bank so that no single person is enabled to have too much influence on the business of the bank.

Just like the savings banks, the Volksbanken have to deal with a loss of customers. Although they have many branch offices, they can often not keep up with the price and service of the modern direct banks. In Germany, there are several hundred different VR-banks. They belong to the cooperative banks. Another successful innovation and feature of German development was the technical education of the German labour force.

GERMAN TECHNICAL EDUCATION – SMEs AND THE MITTELSTAND

The success of the German economy is driven by its small and medium Enterprises ( SMEs), a group to which more than 99 per cent of all firms in Germany belong. These companies account for more than half of Germany’s economic output and almost 60 per cent of jobs. Approximately 82 per cent of apprentices in Germany do their vocational training in an SME.

These small and medium-sized companies (SMEs), also known as the ‘Mittelstand’, (4) are the country’s strongest driver of innovation and technology and are renowned across the world. Companies that want to keep their competitive edge must be at the forefront of new developments. A study on SMEs commissioned by the Federal Ministry for Economic Affairs and Energy shows that innovative SMEs will continue to drive the success behind the ‘Made in Germany’ trademark. Provided that they embrace new trends, particularly digitisation, and that they find ways of recruiting the skilled labour they need, even in times of a skills shortage, SMEs have every opportunity to remain successful in their chosen specialised niche markets.

The Federal Ministry for Economic Affairs and Energy wants Germany’s SMEs to embrace new challenges and remain vibrant, strong, and innovative. This is why the ministry is working on many levels to strengthen the Mittelstand’s competitiveness, its capacity to innovate, and its ability to create jobs.

SMALL, DIVERSE, DYNAMIC, PIONEERING

Germany’s small and medium-sized companies (SMEs) play a defining role in the country’s economy. Germany’s economic model derives its strength not from a small number of dominant players, industries, or industrial regions, but from the fact that Germany has a wide range of companies – small, medium-sized and large – that are based in locations all across Germany, specialise in all sorts of different sectors, and often form close networks with one another.

Germany’s Mittelstand, is extremely diverse. Family-owned companies that were established generations ago, trendy start-ups, traditional crafts firms, self-employed people and service providers, retailers and freelancers, pioneering high-tech companies, regional suppliers and global players. The size of these  SMEs ranges from one person to several hundred employed across the globe. The Mittelstand has many well-established brands, but also newcomers and lesser-known brands that still deliver the same standard of quality, precision and innovation. It is this high level of diversity that makes it so strong.

The Mittelstand also acts as a strong partner for large corporations, across the entire value chain. Mittelstand companies are often highly specialised and produce the type of up and downstream products that enable large corporations to create innovative and complex products, services and systems solutions

Moreover, the Mittelstand is global in its reach. Some 44 per cent of German companies export their capital goods or intermediate goods to other markets, thereby contributing to the success of the German economy. At least one in two German firms that turn over 2 million euros or more per year are exporting companies. Even small companies benefit from venturing on foreign markets. This is attested by the fact that even very small firms generate an average of over 20 per cent of their turnover from exports.

THE TWENTY FIRST CENTURY AND THE DOUBLE WHAMMY

The German Economic model which had performed so well compared to its competitors – during the period from the Wirtshaftwunder until the 21st century – outmatched both European and North American rivals. But of course this golden age was to stutter in the late 1990s – the dot com bubble – and collapse completely during the 2008 and the property price debacle. For all its efficiency the German economy was, like the rest of the world, engulfed in the double whammy of the EU/euro crisis and the 2008 blow-out. Figures for growth make interesting reading.

(These are World Bank figures for declining growth rates in both the developed and developing economies for the period of 1960s through 2009.

  • 1960s = 4.9%
  • 1970s = 3.93%
  • 1980s = 2.95%
  • 1990s =2.7%
  • 2000/09 = 2.58%

It should be by now common knowledge that the global economy has been on a downward path for decades as can be seen from the above figures. Moreover, with the possible exception of China and some other East Asian dynamos, these figures did not improve in the post-2008 era, quite the contrary.

Suffice it to say that the 2007/2008 explosion of the speculative bubble was avoided with massive injections (hmmm, sounds familiar) of ‘liquidity’ basically the extension of credit to the banking sector. Starting in 2008 the European Central Bank (ECB) lent the European banks money at an interest rate of 1%. (As did the Fed on the other side of the pond.) Predictably these same banks used that liquidity for speculation rather than lending to the productive sectors. In passing, we may say the Anglo-American financialised model – at least for Europe – didn’t work and given the objective situation shows no signs of working. In addition, the euro was stillborn with different rates of growth and trade between sometimes diverse member states. The euro was extended to other euro states, and particularly those in the southern bloc, which were far from enjoying the levels of productivity of the northern bloc. Europe’s weaker and less productive countries and thus of international competitiveness could not live with Germany’s productivity levels and low costs. The southern bloc could not devalue the euro – the centre-piece of the euro economy – and they ran up trade deficits with the German-dominated northern bloc which consistently ran up trade surpluses. Most commentators knew this apart from the brain-dead euro-elites who seemed impervious to the situation.

Given these fundamental geopolitical and economic changes Germany would be wise to now examine its options.

At the present time, another deeper and all-encompassing economic and financial crisis has occurred. The EU has, for better or worse, already had to swallow the departure of the UK from the EU; and it is not too difficult to imagine that this is only the beginning of a process of dissolution, particularly in light of the present and future possible political/economic developments. Moreover, the whole brouhaha which has already been instanced by the Nordstream-2 episode represented a win for one particular German faction – in this instance the business class – which now appears to be reorientating to a longer-term strategy of a pivot to Eurasia. It would appear to have won against the political class – including those lovely Greens who seem hot for a war against Russia. The German political and ideological class would appear to inhabit a different time-warp, circa 1989 and the fall of the Berlin Wall and moreover being hopelessly fixated with NATO, liberalism, globalism and everything American, including woke ideology.

The same German business elite, however, seeks parallel factions together with other similar groupings in other financially strong and reliable countries, who wish to seek the expansion of Germany toward China and Russia. There are obvious reasons for this move. Both these countries have immense reserves of raw materials. Secondly, the level of Chinese economic growth and the size of its market is way above those of the EU. Thirdly, Germany’s relative technological superiority is an ideal for the inter-trade appropriation of Chinese surplus value. Fourthly, if bilateral trading relations continue at the current pace, Beijing will become Germany’s main trading partner by early 2023 at the earliest. Fifthly, for China, Germany, is the optimal country for the best investment opportunities.

So this is the current situation with the Nordstream-2 instalment concentrating the minds of those who have read the runes of Germany’s future development with newer and dynamic trading partners east of the Oder-Neisse line. We shall wait and we shall see for such developments.

By Francis Lee via The Saker & Posted by Tyler Durden for ZeroHedge News
© 2021 ZeroHedge News – All Rights Reserved

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