Germany needs a new economic model to survive after…


It’s never easy to wake up to the news that your country’s economic model is broken.

It’s hard to recognize the obvious: that your political leaders either deceived you or lied to you when they assured you for decades that your hard-earned standard of living was secure.

May your immediate future now rest on the kindness of strangers bent on crushing you.

That the European Union, in which you placed your trust, had engaged in a permanent exercise in dissimulation.

May your partners in the EU, to whom you are now appealing for help, see you as a villain whose reward is long overdue.

May the economic elites in your country and elsewhere seek new ways to ensure that your country remains locked down.

That you have to endure massive and painful changes to make sure nothing changes.

The Greeks know this feeling. We experimented in our bones at the beginning of 2010. Today, it is the Germans who focused towards a wall of condescension, antipathy and even mockery.

As ironic as it may seem, no European is better placed than the Greeks to understand that the Germans deserve better; that their current situation is the result of our collective European failure; and that no one – let alone the Greeks, the Southern Italians, the Spaniards and the Portuguese (the PIGSas we used to be called) – benefits from schadenfreude.

The roles turned against Germany because its economic model was based on repressed wages, cheap russian gas and excellence in mid-tech mechanical Engineering – in particular the manufacture of cars with internal combustion engines.

This resulted in massive trade surpluses during four distinct phases after World War II: under the US-led Bretton Woods system, which provided for fixed exchange rates and access to markets in Europe, Asia and the Americas; then, after the collapse of Bretton Woods, when the single European market proved very lucrative for German exports; again after the introduction of the euro, when seller financing opened the floodgates for both goods and capital flowing from Germany to the periphery of Europe; and, finally, when China’s appetite for intermediate and final manufactured goods took over after the euro crisis dampened demand for German goods in Southern Europe.

Germans are now slowly coming to terms with the demise of their economic model and are beginning to see through the big, multifaceted lie that their elites have been repeating for three decades: fiscal surpluses were not prudence in action, but rather a monumental failure – during the long years of ultra-low interest rates – to invest in clean energy, critical infrastructure and the two crucial technologies of the future: batteries and artificial intelligence.

Germany’s dependence on Russian gas and Chinese demand has never been sustainable in the long term – and these are not mere bugs that can be ironed out.

The claim that the German model was compatible with European monetary union is also proven to be false.

In the absence of fiscal and political union, the EU was always going to burden governments, banks and Club Med companies with unpayable debts, which would ultimately force the European Central Bank (ECB) to choose between letting the euro and embark on permanent bankruptcy. concealment project.

Germans are realizing this today as they watch a crippled ECB that is doomed if it raises interest rates dramatically (causing Italy and others to implode) and doomed if it doesn’t. does not (allowing runaway inflation).

While the ECB’s job should never have been to save the euro from its flawed foundations, the Germans can see that their politicians lied to them by saying that their economic model could survive the 2008 crisis as long as the others eurozone countries were practicing enough austerity.

They also come to understand that their leaders’ phobia of revival has led to the permanent socialism of Southern European oligarchs, Franco-German bankers and various zombified corporations.

Once upon a time, those of us who were critical of the idea that every eurozone country should become like Germany objected that the German model only worked because no one else had adopted it.

Today, with the end of cheap gas and the new cold war between America and China, the German model is damn – even for Germany.

yes, german exports will bounce back, aided by the low value of the euro. Volkswagen will sell many more electric cars once supply chains are restored. BASF will rebound once energy supplies are secured. What will not come back is the German model: a large part of Volkswagen’s income will go to China, hence the battery technologies come, and mountains of value will flow from the chemical industry to AI-related sectors.

Some German friends are pinning their hopes on the fall of the euro to restore health to the German model. This will not be the case. Countries with low savings with a structural trade deficit, such as Greece or Ghana, benefit from the devaluation. High-savings countries with a structural trade surplus don’t – all that happens is that poorer domestic consumers subsidize richer exporters, which is precisely the opposite of what the economy does. German social needs.

My message to German friends is simple: Stop the mourning. Break through denial, anger, bargaining and depression, and start designing a new business model. Unlike the Greeks, you still have enough sovereignty to do this without creditors’ permission.

But first, you must resolve a critical political dilemma: do you want Germany to retain political and fiscal sovereignty? If this is the case, your new model will never work in this euro zone which is ours. If you don’t want to go back to the Deutsche Mark, you need a model rooted in a fully-fledged democratic European federation.

Everything else will continue the Big Lie you are now painfully coming to terms with. DM/BM

Copyright: Project Syndicate, 2022.


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