Germany: Austerity solidarity or grubby politics?

Patrick Young
Patrick L Young is CEO of niche crowdfunding platform HanzaTrade and an advisor to fund managers throughout the world. Born in Ireland, he is an active investor in the “New Europe” amongst other emerging markets and is an active Co Founder of grassroots startup group "Mission ToRun." Home Page: Twitter: @FrontierFinance
Germany: Austerity solidarity or grubby politics?
Germans find themselves in a tricky position: broadly loathed by the blame-storming Mediterranean zone while their domestic economy teeters on the cusp of recession with an impending election which has long been Mrs Merkel’s to lose...

Lest you don’t spend your waking hours studying industrial production statistics, you may have missed some rather worrying data. According to surveys which tend to pre-empt the overall state of the economy, China is now in a manufacturing recession. What’s worse, Europe’s uber-dynamo powerhouse Teutonic industrial heartland, Germany, has been looking sickly too... True, the latest data suggests a pick-up in the Eurozone. The Mediterranean patient looks to have awoken from their coma. However intensive economic palliative care will still be required before a return to growth. Germany too has just had its best manufacturing numbers for months but the statistics still presage contraction as opposed to growth...

Meanwhile, Mrs Merkel’s government has been making noises behind the scenes: perhaps it might be time for a little economic stimulus? In other words, austerity is the rule for the dissolute south with stimulus for the thrifty Teutonic north. Doubtless it will be dressed up as EU solidarity to conceal a subsidised electoral campaign export drive for German industry.

Of course we have been here before. During the last decade Germany flagrantly ignored Eurozone budget deficit rules when it suited Berlin. Subsequently Germany has been shocked when other nations such as Greece did the same thing, ultimately plunging the entire Eurozone into crisis.

However, a spirit of hypocrisy has never obstructed the political classes from self-perpetuation in most parts, and Germany is not immune in this regard. Having insisted that the Mediterranean has its feet held to the fire, Germany now appears to be relenting in a move fuelled by pure undiluted self-interest. While Finance Minister Schauble may be decrying tabloid tales of largesse, it is feasible that a nervous Mrs Merkel will launch economic stimulus ahead of the hustings as she doubles down to stay in office.

Eurozone unemployment now totals a staggering 19.2 million citizens (equivalent to the combined population of Austria and Belgium). Meanwhile in Frankfurt, anti-capitalists have been protesting outside the ECB. Given how West Germany fared compared with East Germany during the period 1945-1989, this rather beggars belief.

Nevertheless, the prospect of recession in Germany is acute: growth has been anaemic for some time. However, with unemployment unchanged for more than half a year at 6.9%, things still look rosy compared to the catastrophic 12.2% Eurozone average. Therefore Mrs Merkel may well rush to demonstrate her credentials as a provider of Euro-solidarity while appearing keen to avoid domestic recession when securing re-election is her core focus.

Of all the issues facing the EU right now, the abysmally designed Euro remains pivotal to the bloc’s economic woes. Vast exporter Germany is in a pact whereby it gets a currency held artificially lower than the Mark would have been, thanks to the fiscal inconsistencies of the Mediterranean. Meanwhile, Mrs Merkel has been politicking with France proposing a new post of President of the Euro Currency Group. Clearly what an ongoing currency / debt / unemployment crisis really needs is another tax-free salaried bureaucrat - particularly another President to add to the already burgeoning ranks of Presidents within the EU.

Germany remains under pressure to provide bounteous transfer payments to its poorer EU neighbours. However, the nation has been there once before in recent times and that raised the hackles of many voters even when the transfers were to fellow members of the Volk.

Despite all the massive transfer payments that subsidized the “Ossis” after the fall of the Berlin Wall, the eastern Land has remained stubbornly less productive. Post reunification, the adoption of parity between the Deutsch- and Ost-Mark ensured Eastern savings retained value albeit at the dreadful cost of making Eastern German industry wretchedly uncompetitive. Ironically, billions of Marks/Euros later and the border lands of Germany now find themselves enjoying an influx of investment... from Polish families. Polish thrift and tenacious entrepreneurial spirit has driven their property prices above those of German houses just west of the Oder. Poles have been working tenaciously towards prosperity helped only by relative paucity of transfer payments from the EU, compared to vast German Federal largesse to its east.

When German citizens baulk at providing another generation of subsidies to the Mediterranean Eurozone, it is easy to understand why. Transfer payments didn’t work within a unified Deutschland, why will it work across borders? Will exasperated voters rally to Mrs Merkel’s defence of the Euro or will she resort to that remarkably Mediterranean electoral technique of intervening to stimulate the economy and thus retain power?

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.