compulsory reading, Economics, German Politics, Germany

Zeitenwende. End Of An Era.

It took some time and more of their money to make Germans understand.

It took more than ten years of subsidizing consumption and unemployment in a previously bankrupt former communist economy and virtual non-growth to make us see that it is not only necessary to think about the problematic long-term consequences of the current incentive structure in the German version of the continental model of the Welfare State but to actually change them.

It was no joke when, earlier this year, two people working in a zoo, who were fired for grilling the animals they should feed, successfully sued their former employer for a golden handshake. An extreme case, of course, but one indicating rather lucidly what’s keeping Germany from growing (possibly apart from too high interest rates, but that’s another story – albeit a connected one).

For ages, Germany’s consensus democracy was unable to get reforms going because, well, there was no consensus to speak of – whichever party was in opposition made a bet that it would pay off to block government reforms as far as possible because the electorate would not believe change was necessary. Sure, such a perception is partly a consequence of failed leadership. But only to a small part. Because they were right – the electorate did not want to see.

Then Schroeder won the 1998 election, largely because of the implicit promise that he would become the German Blair – that he could transform the German Social Democrats into some sort of NewLabour without the need for a Thatcher or a „Winter of Discontent“. But when he had just won his first power struggle and made the loony left’s star propagandist Oskar Lafontaine quit the finance ministry in March 1999, he realized that the internet bubble induced growth (weak, in Germany, but real economic growth nonetheless) would allow him to put off fundamental reforms and to mend relations with the loony left with even more rigid labour market reforms.

Unfortunately, after the bubble burst, it was too late for reforms that would have paid off for the government in last year’s election. A fiscal expansion was impossible and, moreover, unwise given strained public budgets. So Schroeder had to play the hand he was dealt – rectal rapprochement to the trade-unions, exploiting the flood-disaster in East-Germany, and betting on the public’s opposition to the American stance on Iraq.

Having narrowly won last year’s election, Schroeder knew that he would have to deliver on his 1998 promise, even thought the economic climate was far worse than it was back then. And even if though delivering would probably lead to the most serious conflict the SPD ever had with trade unions which, for no obvious reason given the steady decline in their membership, still claim to be speaking for „ordinary Germans“ when it comes to „social justice“. The readjustment of the social security system, as well as the „intellectual“ separation of the Social Democrats from the unions – developments that will undoubtedly be beneficial to both the SPD and Germany as a whole – will be a lot harder now than they would have been back in 1994, under Kohl, or in 1998.

The difference is that now, for the first time, a growing majority of Germans seems to be willing to give up something for a risky future benefit – or put differently, a lot more people are scared by what they think could happen to them, their children, and this country, if the social security system is not dealt with right now. Let’s hope it remains this way for sometime. The tough reforms are still out there in the think-tanks waiting to be pasted into bills.

Of course, the loony left is barking and whining about its loss of discourse hegemony on „social justice“. But don’t we all know that dogs that bark don’t bite?

If only because they have lost their teeth.

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