The results of 1H 2011 revealed in mid August became like cold shower for all the optimists and first of all for the German government. If in the first quarter a steady growth of GDP was stated (by 5% in comparison with the same period of previous year), the on- the- quarter growth in the second quarter was almost flat – only 0.1%, the lowest figure since the beginning of 2009, when the global financial economic crisis was at its peak.
Alan Greenspan: “Euro is facing the risk of collapse”
In late June, the economic prospects of Germany, the recognized “engine” of the European Union, looked bright. Experts from the Institute of Macroeconomics and Market Studies (IMK) published a forecast, under which Germany’s economic growth in 2011 was to amount to 4%, which is the highest figure since the reunification of Germany. Experts assumed that favorable market situation thanks to the growing demand from Asia will result in smaller number of bankruptcies.
At first, the course of events seemed to confirm the forecasts. Indeed, in January-June 2011, less than 15,000 companies went bankrupt, which is 11% less than in the same period of 2010. It was expected that by the end of the year this figure won’t exceed 31,000 and than there will be grounds to say that the national economy is back to its pre-crisis level.
The results of 1H 2011 revealed in mid August became like cold shower for all the optimists and first of all for the German government. If in the first quarter a steady growth of GDP was stated (by 5% in comparison with the same period of previous year), the on- the- quarter growth in the second quarter was almost flat – only 0.1%, the lowest figure since the beginning of 2009, when the global financial economic crisis was at its peak.
Germany’s results in the second quarter look less impressive than the results of most of the euro-zone states. However those countries have nothing to be proud of either. The “record” growth belonged to tiny Estonia (1.8%) which is followed by Finland (1.2%) and Austria (1%). According to analysts’ estimations, such a weak growth in general may only worsen the situation with the debts of the euro-zone countries.
Some experts sound even more categorical. For example, speaking at an economic symposium in Washington Alan Greenspan, the former head of the US’ Federal Reserve System, said: “Euro is facing the risk of collapse”. This will lead to large-scale problems in the European banking system. If Europe faces a serious slowdown in the economic growth, the US companies should get ready for loss of revenues and stock price depreciation.
The market responded immediately, Germany’s “Handelsblatt” notes. Euro went down below $1.44 mark and many experts attributed it to the statement made by the former FRS chief. Anyway, such a response reflects the current nervousness on the market, analysts note.
German analysts made a fool of themselves. They did not take into account that Germany’s export-oriented economy is very sensitive to the economic situation in other developed countries. The US’ policy of quantitative monetary easing got stuck failing to unblock the consumer demand, while France’s economy stopped growing in the second quarter of the year. Meanwhile BRIC (Brazil, China, India, Russia) countries are now unable to fill the gap in the global demand. As the result, Germany’s imports exceeded exports which affected the economic situation in general.
As the result, the forecast for Germany’s economic development in 2012 is being revised downwards. The institute of German economy in Cologne (IW) lowered forecast from 3.5% to 2.25%. The experts from Commerzbank (one of the leading German banks) and from the German institute of economic studies (DIW) expect the economic growth in 2011 by 3% instead of 3.4%
In order to limit the intellectual fermentation, the Finance Minister Wolfgang Schäuble is talking about record amounts of tax payments. Indeed, in July the federation and the provinces received taxes worth 39.6 billion euro, which is 9.9% up on the month. The total amount of tax payments in January-June was 296.6 billion euro, which is 9.4% more than in the same period last year.
“It seems that the crisis has not hit Germany. Unfortunately, it is no so. The statistics on tax payments says nothing about the real state of things in the national economy. It is quiet likely that the economy is going through recession while the budget receives large sums from tax payers”, “Süddeutsche Zeitung” read.
What can we expect in the near future? “The bankruptcy of Greece, Ireland or Portugal will become a triple burden for Germany’s state budget, because the state guarantees earlier provided by the government will cost a packet to Berlin as some banks will try to use them to avoid bankruptcy. Besides that a meltdown of the global economy is not ruled out. And if Spain and especially Italy declare their bankruptcy the consequences will be catastrophic”, “Süddeutsche Zeitung” read.
Employment without earnings
Besides that such thing as inflation has come to surface. For example, in April, consumer prices increased 2.4%, first time since October 2008. That is why even the lowest level of unemployment since the re-unification of Germany failed to stop the fall of consumer demand.
However, the relatively low level of unemployment (7% in July) requires a special consideration. The problem is that employment does not guarantee high earnings. Yes, the companies’ revenues and the amount of big fortunes have increased but to most of the workers did not profit from a slight growth of economic indicators. On the contrary, according to DIW’s researcher Marcus Grabka the salaries (first of all of low-paid workers) have seriously decreased.
Considering the inflation the salaries of all hired workers in Germany reduced from 2000 till 2010 by 2.5% and they are continuing to fall this year. At the same time in the low-paid segment of the labor market salary cuts reached 22%. First of all, the workers whose net salary was between 700 and 1300 euros felt it.
Wilhelm Adami from the Association of German Trade Unions (DGB) considers the salary cuts in the segments where the salaries never were too high, as a “fatal trend”. “This trend arouses serious concern especially if we look at it in international context, – the trade union activist says. – no other industrial country has seen such a strong division of the society in terms of income as Germany”.
The main cause of low salaries lies in the reform of the social security system in the mid of 2000-s when the authorities began to employ unemployed people at any cost which led to a considerable growth of the low-paid sector. The data published by the Federal Statistics agency on July 19 confirm this trend: in the period from 2008 till 2010, working places in Germany emerged mainly in the low-paid sector, which implied temporary work provided through the mediation of recruiting agencies. In the result in 2010, low-paid sector of labor market exceeded the record figure of 7 million people. Every seventh worker in Germany belongs to this segment.
“Hidden unemployment” especially among young people makes the situation even more complicated. It is common knowledge, that in Spain the unemployment among young people aged from 18 to 24 has reached 46%. InGermanythisfiguredoesnotexceed9%. But it is not taken into account that in Germany 18-year olds unlike their Spanish contemporaries are still studying in schools and vocational schools creating an additional financial burden for their parents.
Early elections possible?
The German government does not want to notice the emerging economic problems and difficult social situation. “I don’t see any signs of possible recession in Germany”, – Germany’s Chancellor Angela Merkel said in an interview with ZDF TV channel on August 21. In particular, it is the situation on the employment market, which gives her optimism, DW-world radio reports. But, as we see, the situation on the labor market is not as good as the chancellor thinks about it.
On the other hand, Angela Merkel, remembering about the sentiments of the voters who have to tighten their belts following both domestic and international economic problems, reiterated her negative attitude to the issue of euro-bonds. “The way out of the crisis (in the euro-zone) with the help of euro-bonds is impossible today”. The issue of single European bonds is the wrong way now, Merkel stressed.
The matter is that Germany pays lower interest for the issue of bonds than its partners in the Euro-bloc and it is profitable for Germany. But its negative attitude to the issue of single European bonds has put it in the opposition to many countries, including Greece, Portugal, Belgium and Italy. The European Commission does not agree with Germany and said it is studying an option of single European bonds issue and may present a draft to that effect.
But the refusal from Euro-bond cannot change the sentiments of the voters, which are conformed by the results of the poll conducted by ZDF in August. Only 48% of the participants said that federal government’s work was rather good than bad, while 47% said that the government’s work was definitely poor. At the same time the absolute majority of the participants was unhappy with the government’s activities in the healthcare sector and more than half (57%) called the activities of the Cabinet on fighting financial problems unsatisfactory. Only 30% of the participants believe that the situation in the German economy will be improving (in July the percentage of such people was 47%). In August, 53% thought that the single European currency is more disadvantageous than advantageous for Germany (in July 43% of the questioned German citizens had such sentiments).
ZDF’s traditional question – how would the votes be distributed if the elections to the Bundestag are held today – was answered as follows: CDU/CSU bloc would receive 34%, SDPG – 29%, “greens” – 20% and “left” – 7%. The Liberal Democratic Party would win not more than 4%, which is one percent less than in June. The opinion poll conducted by the order of Stern magazine and RTL TV company produced similar results. Thus, if the elections are held today the red-green coalition will come to power with large majority of votes.
Estimating the situation, “The Russia Germany” newspaper does not rule out early elections in Germany in the near future, because discontent with the policy of the ruling government is growing even in among Christian-Democrats themselves and their coalition partners – liberals from the Liberal Democratic Party. Many politicians not without reason doubt the authority of the German chancellor (it is enough only to remember her hesitation in such issues as nuclear power plants and providing aid to Greece)”.
Germany is on the threshold of new changes again. No doubt, these changes will have serious affect on the economic health of the euro-zone and the EU in general. Either social-democrats together with the “greens” will manage to repair the “engine” or we will have to remember the prophecy of Alan Greenspan.
