Germany's economy continues to sink; will politicians reform?

[Dinner]

Officially, the German government says that 2004 ended three years of economic stagnation, however, the slight growth didn't stop the jobless rate from reaching the highest level since 1990. With 10.8% of the German working population out of work the economy is now it the worst shape it has been since reunification. To their credit the politicians have tried to reduce the German national deficit by cutting spending, however, their plans for reducing welfare and unemployment benefits have sparked wide scale demonstrations and disapproval in the papers.

Many analyses are saying that Germany will continue to stagnate at home and its export earnings will be curbed by both the slide in the dollar and by China's attempts to keep its currency artificially low. Magazines like The Economist have repeatedly claimed that Germany needs to reduce red tape and lower costs if they want to see their economy pick up. What are especially needed are reforms which make it easier for employers to hire and fire workers because right now no company wants to hire new workers unless it is absolutely unavoidable. The reason is it is almost impossible to fire workers so why hire workers you will not be able to get rid of when demand decreases?

So what do you folks think? Will Germany's government finally bite the bullet and deliver on meaningful reform or will they keep their high cost, high regulation, high unemployment, no growth economic model?

[Dinner]

BTW http://news.bbc.co.uk/2/hi/business/4146535.stm

[DanS]

While I agree that Germany's economy has been doing poorly for quite a while, the unemployment figure doesn't necessarily prove this -- there is often a considerable lag time after an economy starts growing before employment begins to grow. You might say that the economy is doing poorly for those who are unemployed. On the other hand, the number of people who are employed dwarfs the number of people who are unemployed -- the implications of unemployment in relation to the overall economy are sometimes overstated.

[el freako]

Remember that Germany's unemployment rate is calculated differently from the US's - one of the main differences being that anyone working less than 20 hours a week is classed as unemployed.

Also remember that Germany's growth figures are understated, relative to the US, because of measurement differences (indeed a study I did comparing reported growth rates and PPPs indicated that the understatement was 0.8% a year during 1990-2002)

That said Germany's economy has consistantly performed below the EU average in terms of unemployment, employment growth and output growth (although not in productivity growth where it is actually performing better than the EU average) since the end of the unification boom 12 years ago.

[Atahualpa]

Remember that Germany's unemployment rate is calculated differently from the US's - one of the main differences being that anyone working less than 20 hours a week is classed as unemployed.

I doubt that really

[Sandman]

The BBC article is far better than Oerdin's one-sided opening post.

[el freako]

Originally posted by Atahualpa
I doubt that really

Well I am afraid it's true

not that it adds too much to Germany's unemployment rate - using the internationally recognized ILO definition of unemployment (has actively sought a job within the last 4 weeks) Germany's unemployment rate is still over 9%.

[Dinner]

Originally posted by Sandman
The BBC article is far better than Oerdin's one-sided opening post.

But still better then your one line response.

[kronic]

I actually believe that the reforms won't help. When the demography really hits us (in about 15-20 years) we will probably face deep recessions and not only stagnation. We'll probably have slow economic growth (0-2 %) in the meantime and no significant decrease of unemployment.

Besides, the leftist Schröder government did more reforms than Kohl in his 16 years.

[Kidlicious]

Originally posted by DanS
the implications of unemployment in relation to the overall economy are sometimes overstated.

Employment is the overall economy.

[Drogue]

Re: Germany's economy continues to sink; will politicians reform?

Originally posted by Oerdin
So what do you folks think? Will Germany's government finally bite the bullet and deliver on meaningful reform or will they keep their high cost, high regulation, high unemployment, no growth economic model?

The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people. The trouble is, as you say, it's not the best model for economic growth. Can't see it improving in 2005 though, except the global economic upturn will see Germany doing better, but they won't change policy.

[axi]

Do you think the people are stupid? Do you sincerely believe that the working majority would ever concede to lifting restrictions on firing employees, during an economic recession? You don't need to be an economics major to know what your own boss would do if he were free to fire and hire people at will. Most bosses would just take advantage and do layoffs. The incentive for hiring that may come from easier firing can only be considered in times of economic growth, when new jobs are being created, not lost.

It's the same as productivity increases. Employees will have no incentive to increase their productivity more than their wages increase and definitely not since a stagnant work volume means productivity increase = unneeded staff = layoffs. Thus, while a higher productivity is desperately needed in times of recession, the only time to push for them is in time of economic boom.

[BeBMan]

Re: Re: Germany's economy continues to sink; will politicians reform?

Originally posted by Drogue

The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people. The trouble is, as you say, it's not the best model for economic growth. Can't see it improving in 2005 though, except the global economic upturn will see Germany doing better, but they won't change policy.

Well, the social system is already changing with the beginning of this year, and these are quite unpopular measures. Still the "wide scale demonstrations and disapproval" Oerdin mentioned in his first post took place mainly during the last summer and it seems now completely gone. The coalition of SPD and Greens, which came up with these measures has even won back support that was lost during those times (although some of this is also related to the poor performance of the CDU opposition).

But I guess overall you're right that 2005 will only be moderately better for Germany.

[Spiffor]

Re: Re: Germany's economy continues to sink; will politicians reform?

Originally posted by Drogue
The public won't vote for a change in unemployment law, since they're on the workers side, and the workers want it to be hard to fire people. Likewise with unemployment benefit. It's the culture they live in, a high tax state where the government provides a good safety net for the people.

I'm afraid it's false. Did you hear of Hartz IV? It's the new law regarding unemployment benefits. The old benefits (proportional to former wages) disappear entirely, and are replaced by a measly 340€ / month allowance. On top of that, the unemployed may now be forced to do community work for a whooping 1€ per hour.

This law has been passed by the Social-Democrats The only reason the right criticized Hartz IV is because it "doesn't go far enough". The liberals have expressed their willingness to expand the slave jobs to the private sector. The CDU hasn't stated it clearly yet, because it might be too much of a pill for their voters.

[Giancarlo]

Despite El Freako's claims about unemployment, this isn't really relevant. Unemployment is just an after-product of mismanagement. The German economy was grossly mismanaged after the reunification, and unemployment is hardly a problem. It has to do with huge benefits given out to unemployed. Spiffor said it himself... the old benefits were proportional to former wages. So why should people work? These hand-outs are bringing the German economy to a halt, and it is good that they decided to cut them. Spiffor is the type that wants a country to implode its economy. Giving out benefits the same as wages is utterly ridiculous. Just tell me how the **** you are going to pay for it, then maybe I'll listen.

The German economy is declining (and may tank) because of socialist/left wing mismanagement. They should of took a conservative approach to economic policy, instead of being foolish idiots embracing the values of the left wing.

Well, they paid the price for listening to and embracing idiotic policies.