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The New World Ordoliberalism Part 3: About That Raise You Wanted...

Along with last week’s news of Ger­many’s record trade sur­plus [1], the open­ing of an EU inves­ti­ga­tion into Ger­many’s grow­ing sur­plus­es [2], and Europe’s oth­er recent remark­able socio [3]eco­nom­ic [4] achieve­ments, Angela Merkel made an announce­ment on Fri­day regard­ing her par­ty’s plans for Ger­many’s eco­nom­ic poli­cies that might actu­al­ly be good news for Ger­many and the rest of Europe: She’s urg­ing her fel­low CDU mem­ber to com­pro­mise on an across-the-board 8.50 euro Ger­man min­i­mum wage over the CDU’s long-stand­ing posi­tion of no min­i­mum wages and instead agree­ments nego­ti­a­tions by eco­nom­ic sec­tors and region [5] (wage agree­ments that often aren’t adhered to [6]). A big change to Ger­many’s min­i­mum wage laws could be com­ing as the price of an SPD coali­tion with Merkel’s CDU. Bet­ter late than nev­er [7]:

Merkel ready to cede on min­i­mum wage to secure coali­tion

BERLIN Sat Nov 16, 2013 9:43am EST

(Reuters) — Ger­man Chan­cel­lor Angela Merkel has sig­naled her readi­ness to accept the Social Democ­rats’ (SPD) demand for a legal min­i­mum wage in order to secure their agree­ment to form a gov­ern­ing coali­tion, as nego­ti­a­tions enter the final stretch.

Merkel began prepar­ing her con­ser­v­a­tives for a com­pro­mise by telling a Chris­t­ian Democ­rats (CDU) youth ral­ly late on Fri­day that the 8.50 euros per hour pay floor which the SPD demands “will play a role” in future.

“It won’t be our vision of a min­i­mum wage,” she added, con­ced­ing her par­ty was unlike­ly to get its own way over the SPD on the issue.


Merkel wants to form a gov­ern­ment by Christ­mas and talks on pol­i­cy com­pro­mis­es should cul­mi­nate in the next 10 days.

The SPD has giv­en up its cam­paign promise to hike tax­es on the rich but will not budge on the min­i­mum wage. Near­ly half a mil­lion SPD mem­bers will vote on the coali­tion deal by ear­ly Decem­ber, inject­ing more uncer­tain­ty into the whole process.

The con­ser­v­a­tives are in favor of set­ting min­i­mum wages — but on a sec­tor-by-sec­tor basis, at lev­els agreed by employ­ers and work­ers rather than decid­ed cen­tral­ly in Berlin. For the SPD, it is 8.50 euros across the board — or no coali­tion.

“Now you have to deliv­er, dear con­ser­v­a­tives,” SPD Chair­man Sig­mar Gabriel told a par­ty con­gress in Leipzig on Sat­ur­day.

Merkel’s par­lia­men­tary leader Volk­er Kaud­er also pre­pared for a com­pro­mise by telling the mass-cir­cu­la­tion Bild am Son­ntag paper, in com­ments released before pub­li­ca­tion, that “growth and employ­ment must not suf­fer” from its intro­duc­tion. Some busi­ness lead­ers are wor­ried that it will under­mine com­pet­i­tive­ness.

Kaud­er said it might be wise to intro­duce the min­i­mum wage more grad­u­al­ly in the for­mer East Ger­many — where pay is low­er and unem­ploy­ment high­er — to avoid putting jobs at risk. But trade unions who back the SPD might find that hard to accept.


No tax hikes on the rich but an across the board min­i­mum wage: The joys of com­pro­mise! It also remains to be seen how per­ma­nent these changes will be if they’re imple­ment­ed. As Merkel puts it, the min­i­mum wage “floor” is not in the CDU’s “vision”. Is this going to be a tem­po­rary min­i­mum wage “floor” that only lasts through the dura­tion of the coali­tion? We’ll have to wait and see. But it’s good to see the SPD make an across the board min­i­mum wage a basic demand for to join­ing the CDU in a coali­tion (East Ger­man work­ers should prob­a­bly [8]breath an extra sigh [9] of relief [10]). 8.50 euros/hour is high­er than in many EU coun­tries and actu­al­ly 45% high­er than the min­i­mum wage in the US (that’s not as impres­sive as it sounds [11]). And if the views of Ger­many’s busi­ness lead­ers and chief econ­o­mists [12] are any indi­ca­tion of what we can expect from Ger­many’s eco­nom­ic estab­lish­ment going for­ward, a nation­al min­i­mum wage is going be treat­ed like nation­al can­cer [13]:

Reuters The Great Debate

Will a min­i­mum wage destroy Ger­man jobs?
By Peter Gum­bel
Novem­ber 7, 2013

Ger­many has once again become the world’s favorite whip­ping boy, round­ly crit­i­cized over the past few days by the U.S. Trea­sury [14], a top Inter­na­tion­al Mon­e­tary Fund [15] offi­cial and the Euro­pean Com­mis­sion [16] pres­i­dent, among oth­ers, for run­ning record trade and cur­rent account sur­plus­es that are sup­pos­ed­ly detri­men­tal to the Euro­pean and glob­al econ­o­my.

The argu­ments con­tin­ue, with the Ger­mans them­selves say­ing [17] that the sur­plus­es are sim­ply the hap­py result of the nation’s indus­tri­al com­pet­i­tive­ness and don’t hurt any­one else. Lost in the debate, how­ev­er, is what’s hap­pen­ing in Berlin right now. As Chan­cel­lor Angela Merkel seeks to form a new coali­tion gov­ern­ment, she appears to be on the verge of throw­ing out some of the very poli­cies that under­pin the export boom of the past decade.

Most con­tro­ver­sial­ly, the new gov­ern­ment to be formed is like­ly to intro­duce a min­i­mum wage, a nov­el­ty for Ger­many, and a move that both sym­bol­i­cal­ly and in real­i­ty would her­ald the end of the tough wage restraint that has char­ac­ter­ized the past decade. A range of social pol­i­cy changes, includ­ing a pos­si­ble reduc­tion in the retire­ment age, are also being dis­cussed, as is high­er gov­ern­ment spend­ing.

It’s not clear whether such shifts would pro­vide the boost to domes­tic spend­ing that the U.S. and Germany’s oth­er crit­ics are demand­ing. But their very prospect is send­ing chills down the spines of Ger­man busi­ness lead­ers. Ulrich Gril­lo, pres­i­dent of the Fed­er­a­tion of Ger­man Indus­tries [18], warns that “Ger­many can’t afford a grand coali­tion of elec­tion gifts,” and says that the politi­cians are act­ing as though Germany’s con­tin­u­ing pros­per­i­ty is a giv­en, rather than some­thing that needs to be worked at.

Deutsche Bank says flat­ly in a research report [19] that the pro­posed min­i­mum wage is “the wrong pol­i­cy choice.”

The shifts in eco­nom­ic pol­i­cy are com­ing about as a result of polit­i­cal neces­si­ty. Merkel scored [20] strong­ly in the Sep­tem­ber 22 par­lia­men­tary elec­tions, but her Chris­t­ian Demo­c­ra­t­ic Union par­ty didn’t win enough votes to gov­ern alone. The party’s top offi­cials have spent the past few weeks locked in nego­ti­a­tions with the oppo­si­tion Social Democ­rats over the shape of a coali­tion gov­ern­ment, and they have already giv­en way on a num­ber of points, includ­ing the intro­duc­tion of a min­i­mum wage of 8.5 euros per hour (about $11.50 at cur­rent exchange rates).

Ger­many is unusu­al in that it doesn’t cur­rent­ly have a nation­al min­i­mum wage; pay scales for dif­fer­ent indus­tries are tra­di­tion­al­ly fixed by man­age­ment and union orga­ni­za­tions, in reg­u­lar rounds of nego­ti­a­tions. Two ele­ments of the planned min­i­mum wage are notable. The first is the lev­el being pro­posed, which is 45 per­cent above the U.S. min­i­mum wage — con­sid­er­ably high­er than that in some oth­er Euro­pean coun­tries such as Spain, although below France and the Nether­lands. The Hans Böck­ler Stiftung’s Insti­tute of Eco­nom­ic and Social Research has a handy guide to min­i­mum wage rates around the world here [21].

The sec­ond notable ele­ment is its expect­ed broad appli­ca­tion, across the whole of Ger­many, East and West, and includ­ing new entrants to the job mar­ket. This amounts to a roll­back of the strin­gent poli­cies put in place by Merkel’s pre­de­ces­sor Ger­hard Schröder, start­ing in 2002, at a time when the Ger­man econ­o­my was strug­gling to digest the impact of reuni­fi­ca­tion after the fall of the Berlin Wall.

Schröder, a Social Demo­c­rat, worked togeth­er with the for­mer head of human resources at Volk­swa­gen, Peter Hartz, to devise poli­cies that cre­at­ed jobs, in part through the intro­duc­tion of low-paid “mini jobs” that were exempt from social secu­ri­ty charges. These were designed to get hard-to-employ peo­ple back into the work­force. The result has been spec­tac­u­lar: Germany’s cur­rent unem­ploy­ment rate, of just over 5 per­cent, is half what it was a decade ago, and far below the 12.2 per­cent aver­age job­less rate in the euro zone. And Ger­man pro­duc­tiv­i­ty gains since then have far out­stripped the mod­est rise in unit labor costs, pro­pelling the cur­rent export boom.

Cur­rent­ly, about 12 per­cent of work­ers in West­ern Ger­many earn below 8.5 euros per hour, while in the east­ern part, the fig­ure is about one in four, accord­ing to research by the IWH insti­tute in Halle.

Deutsche Bank is now pre­dict­ing that the planned min­i­mum wage would reverse some of the ben­e­fi­cial effect of the Hartz reforms and would like­ly increase labor costs gen­er­al­ly, because the 8.5 euro lev­el would be close to the medi­an wage. The bank esti­mates that between 450,000 and one mil­lion jobs will be lost as a result.

In the­o­ry, the min­i­mum wage would boost over­all pur­chas­ing pow­er, going some way to address the inter­na­tion­al crit­i­cism. But Hans-Wern­er Sinn, head of the IFO Insti­tute for Eco­nom­ic Research in Munich, argues that it would mere­ly push up the price of Ger­man goods and make them less com­pet­i­tive, with­out lead­ing to a sig­nif­i­cant increase in con­sump­tion of imports. “There will be a bit­ter sober­ing up,” he warns.

For their part, advo­cates of the min­i­mum wage argue that sim­i­lar­ly dire gloom-and-doom sce­nario pre­dict­ed in Britain back in 1998, when the gov­ern­ment of Tony Blair intro­duced one, have failed to mate­ri­al­ize. The British min­i­mum wage is the equiv­a­lent of $10 per hour, below the planned Ger­man lev­el. How­ev­er, the British one is scaled so that appren­tices and those under 21 receive sub­stan­tial­ly low­er amounts.


With 12% of work­ers in the west and 25% of work­ers in the East cur­rent­ly mak­ing less than 8.50 euro/hour it’s going to be very inter­est­ing to see what impact this could have on local economies. Espe­cial­ly those in the east filled with low-wage “mini-jobs”. This could be a pret­ty excit­ing exper­i­ment to watch!

Com­mon wis­dom can be depress­ing
Still, it’s hard to see how this will be a per­ma­nent change. At least not with­out some sort of EU man­date. As Hans-Wern­er Sinn reminds us, Ger­many’s estab­lish­ment tends to fol­low [22] a dis­tinct Ordolib­er­al mar­ket-wor­ship­ping form of utopi­anism [23]. The inabil­i­ty to set real­ly low wages is an unac­cept­able dis­tor­tion of the mar­ket accord­ing to com­mon wis­dom [24]:

‘Five Wise Men’ warn Ger­many not to relax

AFP | 13 Nov 2013, 10:47
Ger­many must not ease up or back track on eco­nom­ic reforms, the gov­ern­men­t’s pan­el of eco­nom­ic advi­sors said on Wednes­day as the Euro­pean Com­mis­sion placed the coun­try under scruti­ny for its large trade sur­plus.

In their annu­al report pre­sent­ed to Chan­cel­lor Angela Merkel, the Ger­man Coun­cil of Eco­nom­ic Experts, or so-called “Five Wise Men”, warned that Europe’s biggest econ­o­my must not rest on its lau­rels.

Their report comes against a back­ground of some crit­i­cism from abroad that Ger­many is too suc­cess­ful in build­ing up a huge trade sur­plus and should do more to stim­u­late con­sump­tion at home and so draw in imports, notably from the rest of Europe.

“The present eco­nom­ic sit­u­a­tion and Ger­many’s healthy posi­tion com­pared to the euro area’s cri­sis coun­tries seem to have obstruct­ed many politi­cians’ view of the major future chal­lenges,” the report said.

Fol­low­ing the gen­er­al elec­tion on Sep­tem­ber 22nd, Merkel’s con­ser­v­a­tive CDU and CSU par­ties have been hold­ing talks on a pos­si­ble “grand coali­tion” with the Social Demo­c­rat SPD.

Among a range of dif­fer­ent mea­sures under dis­cus­sion are pos­si­ble exemp­tions to the new retire­ment age of 67, min­i­mum wages and tax increas­es.

“Future chal­lenges will be far more dif­fi­cult to over­come if the Agen­da 2010 reforms become dilut­ed or reversed in some cas­es,” the experts warned.

“The same holds for mea­sures which hurt growth and job cre­ation, such as min­i­mum wages and tax increas­es.”

In the euro­zone’s long and debil­i­tat­ing cri­sis, Ger­many has fared much bet­ter than its Euro­pean neigh­bours thanks to deep and painful struc­tur­al mea­sures, known as Agen­da 2010, ini­ti­at­ed by the pre­vi­ous SPD admin­is­tra­tion.

Merkel has con­sis­tent­ly argued that oth­er coun­tries should fol­low Ger­many’s exam­ple and get their economies in order.

But the pan­el believed that Ger­many is still fac­ing con­sid­er­able chal­lenges of its own.

“The Ger­man gov­ern­ment should not give the impres­sion that it expects – or even demands — painful adjust­ment process­es from oth­er coun­tries, but shies away from unpop­u­lar mea­sures for Ger­many,” the report said.


Notice that, accord­ing to the high­ly influ­en­tial [25] Five “Wise [26]” Men, the “major future chal­lenges” for Ger­many all seem to only be sur­mount­able with ongo­ing aus­ter­i­ty and a refusal to let up on the “painful adjust­ments” and “deep and painful struc­tur­al mea­sures” of Ger­many’s “Agen­da 2010” aus­ter­i­ty poli­cies. It’s a reminder that the advo­cates of aus­ter­i­ty poli­cies might hint of them being just tem­po­rary mea­sures but they aren’t actu­al­ly meant to be tem­po­rary [27]. Lit­tle known fact: The race to the bot­tom has no fin­ish line.



The Euro­pean Com­mis­sion on Wednes­day also placed Ger­many under scruti­ny for its inter­na­tion­al trade sur­plus, seen as an obsta­cle to recov­ery across the rest Europe.

“The issue is whether Ger­many ... could do more to help rebal­ance the Euro­pean econ­o­my,” Com­mis­sion Pres­i­dent Jose Manuel Bar­roso said after plac­ing 15 oth­er coun­tries under scruti­ny for fail­ing to meet EU eco­nom­ic tar­gets.

Bar­roso was speak­ing as the Com­mis­sion also ordered “deci­sive pol­i­cy action” from deficit-strug­gler France, Italy and Hun­gary.

Between now and May, the Com­mis­sion using new pow­ers is to scru­ti­nize the eco­nom­ic pro­grammes of the 16 coun­tries to ensure that they are in line with over­all coher­ent eco­nom­ic man­age­ment of the euro­zone and Euro­pean Union economies.

The head of the EU exec­u­tive said the focus also had to include coun­tries with sur­plus­es con­sid­ered exces­sive, after years of con­cen­trat­ed efforts to orga­nize bailouts and dri­ve down pub­lic deficits.

“This is not about the EU run­ning economies in place of nation­al gov­ern­ments,” Bar­roso said. It is about “ensur­ing that what is good for indi­vid­ual states is good also for the EU,” he stressed, open­ing a new phase of what he called “bold­er” cross-bor­der eco­nom­ic pol­i­cy-mak­ing.


“Lib­er­al­is­ing” Ger­many the ser­vice sec­tor: the obvi­ous solu­tion?
As the above arti­cle points out at the end, the deci­sion of the “Five Wise Men” to oppose a Ger­man min­i­mum wage as part of the CDU’s coali­tion-build­ing com­pro­mise is tak­ing place right when Ger­many has come under inves­ti­ga­tion by the Euro­pean Com­mis­sion over whether or not Ger­many’s extreme­ly high cur­rent account sur­plus (its high sav­ings/­ex­port-dri­ven econ­o­my) is harm­ing the Euro­pean econ­o­my by fos­ter­ing endem­ic desta­bi­liz­ing trade imbal­ances [28] that force defla­tion and aus­ter­i­ty as the only remain­ing option for rebal­anced euro­zone mem­bers [29].

The basic solu­tions are either for the ail­ing South­ern Euro­pean economies to export more to Ger­many or for them to con­tin­ue down the path of “inter­nal deval­u­a­tion”. The first option is the desir­able choice if one wants to avoid a “lost gen­er­a­tion”. The sec­ond option is the one to pur­sue when when one believes that a gen­er­a­tion must be lost in order to make up for past sins [30]. So what does Euro­pean Com­mis­sion­er Jose Manuel Bar­roso have in mind to stim­u­late Ger­many domes­tic demand of their neigh­bor’s ser­vices? More the for­mer or some­thing clos­er to the lat­ter? Con­sid­er­ing Mr. Bar­roso’s recent his­to­ry with aus­ter­i­ty poli­cies [31] one might fear he’s lean­ing towards the lat­ter. Espe­cial­ly since his plans for Ger­many’s rebal­anc­ing with the rest of Europe appear to cen­ter around “lib­er­al­iz­ing” Ger­many’s ser­vice sec­tor [32]:

Finan­cial Times
Last updat­ed: Novem­ber 13, 2013 1:08 pm
Brus­sels launch­es inquiry into Germany’s cur­rent account sur­plus
By Peter Spiegel in Brus­sels and Ste­fan Wagstyl in Berlin

José Manuel Bar­roso has launched an inquiry into whether Germany’s large cur­rent account sur­plus is harm­ing the Euro­pean econ­o­my, draw­ing Brus­sels into a heat­ed debate over Berlin’s role in glob­al eco­nom­ic health.

The Euro­pean Com­mis­sion pres­i­dent took pains to empha­sise on Wednes­day that the commission’s “in-depth review”, was part of its annu­al exam­i­na­tion of euro­zone economies and was not intend­ed to crit­i­cise the com­pet­i­tive­ness of Ger­man indus­try or its broad­er econ­o­my.

But he said there were parts of the Ger­man econ­o­my, par­tic­u­lar­ly the ser­vice sec­tor, that should be lib­er­alised, and oth­er EU offi­cials called on Berlin to increase infra­struc­ture invest­ment to stim­u­late demand.

“We would like to have more Ger­manys in Europe,” Mr Bar­roso said. “Our prob­lem could nev­er be Ger­man com­pet­i­tive­ness but whether Ger­many, the EU’s eco­nom­ic pow­er­house, could do more to help the rebal­anc­ing of the EU econ­o­my.”

In Berlin, there was cross-par­ty rejec­tion of Brus­sels’ con­cerns. Her­mann Gröhe, sec­re­tary-gen­er­al of Chan­cel­lor Angela Merkel’s Chris­t­ian Democ­rats, said exports were “a cor­ner­stone of our pros­per­i­ty”. Alexan­der Dobrindt, head of the CDU’s Bavar­i­an sis­ter par­ty, said: “You can­not strength­en Europe by weak­en­ing Ger­many.”

Social Demo­c­ra­t­ic and Green par­ty lead­ers were sim­i­lar­ly crit­i­cal and Jens Wei­d­mann [33], pres­i­dent of the Bun­des­bank, said cri­sis-hit euro­zone coun­tries would not prof­it much from more expan­sive fis­cal pol­i­cy in Ger­many.

“The pos­i­tive knock-on effects would be lim­it­ed,” Mr Wei­d­mann said, adding that the answer to Germany’s sur­plus could not be to low­er the com­pet­i­tive­ness of Ger­man com­pa­nies.


When the term “lib­er­alise” is used by euro­crats like Mr. Bar­roso [32], it almost always trans­lates into “low­er pay, few­er reg­u­la­tions, and few­er work­er pro­tec­tions”. Is there any rea­son to assume that isn’t part of the planned reform pack­age? Sure, sup­press­ing Ger­man wages would­n’t actu­al­ly help stim­u­late the euro­zone or increase Ger­man domes­tic spend­ing, but what pro­pos­als put for­ward to date real­ly have been help­ful? Mario Draghi’s occa­sion­al emer­gency dec­la­ra­tions from the ECB? What else?

More impor­tant­ly in the long-run, is this focus on “liberis­ing” Ger­many’s ser­vice sec­tor a sign that the Euro­pean Com­mis­sion and Berlin are going to use the need for changes to the Ger­man econ­o­my as an excuse to being impos­ing more “struc­tur­al reforms” (wage sup­pres­sion and union-bust­ing) in Ger­many now too? The min­i­mum wage might be ris­ing, at least tem­porar­i­ly, but they could fall for bet­ter paid work­ers. Is Ger­many’s own “inter­nal deval­u­a­tion” going to be solu­tion to the prob­lem? Because what’s going to hap­pen when Ger­many lib­er­al­izes its ser­vice sec­tor and the ben­e­fits to the rest of the EU don’t mate­ri­al­ize? Or it’s help­ful, but to the coun­tries that need it most. What then? Well, they can always “lib­er­alise” the Ger­man ser­vice sec­tor even more. That’s how the EU works, right? Just keep apply­ing liberi­sa­tion and/or aus­ter­i­ty poli­cies until some yet-to-be deter­mined state of in har­mo­nized mar­ket nir­vana is reach, right [34]? Or maybe a whole bunch of EU coun­tries could all lib­er­alise their ser­vice sec­tors at the same time to cre­ate some sort of new har­mo­nized mar­ket syn­er­gy that will boost exports from the P.I.I.G.S.?

These are the kinds of ques­tions that raise a larg­er ques­tion regard­ing the future of the EU’s peo­ple: How long can the cur­rent “rich country/notably poor­er coun­try” par­a­digm con­tin­ue in the EU while mar­ket inte­gra­tion — like ser­vice sec­tor lib­er­al­i­sa­tion and inte­gra­tion — is just a built in assump­tion going for­ward? Isn’t all the “inter­nal deval­u­a­tion” of the P.I.I.G.S.‘s economies going to start bleed­ing right back into the wealth­i­er EU mem­bers now that these economies are in an unstop­pable march towards a sin­gle mar­ket? The EU right-wing has dreamed [35] of turn­ing Europe in to one giant per­ma­nent­ly “com­pet­i­tive” zone [22] for years [36] so some sort of Ger­man “inter­nal deval­u­a­tion” as part of the EU’s rebal­anc­ing act should­n’t be con­sid­ered an impos­si­bil­i­ty. Espe­cial­ly in the medi­um-term. As the “Five Wise Men” warned us above, Ger­many’s suc­cess in over­com­ing its long-term chal­lenges hinges on its abil­i­ty to main­tain its self-impose aus­ter­i­ty poli­cies. When that’s the long-term prog­nos­ti­ca­tion and some­where between 1/8 and 1/4 of work­ers are already earn­ing less than the pro­posed new min­i­mum wage of 8.50 euro/hour [13] aus­ter­i­ty is a per­ma­nent pol­i­cy. Poli­cies that but­tress and fur­ther the exist­ing wage sup­pres­sion and gen­er­al “lib­er­al­i­sa­tion” of the econ­o­my are just a mat­ter of time [37]:

Low wages, the flip-side to Germany’s eco­nom­ic mir­a­cle

Agence France-Presse
2:12 pm | Sun­day, Sep­tem­ber 15th, 2013

BERLIN – Chan­cel­lor Angela Merkel often boasts dur­ing the cam­paign for Sep­tem­ber 22 elec­tions that Ger­many has one of Europe’s low­est job­less rates – at around 6.8 per­cent. But it comes at a price.

As many as three mil­lion peo­ple in Europe’s top econ­o­my earn less than six euros ($7.90) per hour, mean­ing Ger­many has one of the biggest shares of low wages in Europe, a fact that Merkel’s crit­ics have jumped on in the cam­paign.

“We’ve become a coun­try of low wages,” sighs char­i­ty work­er Renate Stark, who every­day con­fronts the strug­gle of work­ers paid too lit­tle to make ends meet, despite Germany’s boom­ing econ­o­my.

From piz­za deliv­er­ers earn­ing an hourly six euros, to young jour­nal­ists on less than 750 euros a month, the 55-year old social assis­tant for the Catholic Car­i­tas orga­ni­za­tion in Berlin can reel off many such exam­ples.


Like hun­dreds of oth­ers, Stark said, he most­ly scrapes by thanks to cer­tain wel­fare ben­e­fits, but when that’s not enough, “when the wash­ing machine breaks down or an elec­tric­i­ty bill arrives unex­pect­ed­ly,” he turns to char­i­ties.

“I expe­ri­ence it here dai­ly,” she told AFP. “I began this job 21 years ago and it wasn’t like that. The sit­u­a­tion has become real­ly seri­ous in the past five or six years. It’s very clear.”

To be sure, many of those employed by Germany’s mighty indus­tri­al giants, for exam­ple in the auto­mo­bile sec­tor, enjoy envi­able con­di­tions. But unlike most of its Euro­pean part­ners, Ger­many has no nation­al min­i­mum wage.

Accord­ing to fig­ures com­piled by the IAQ Insti­tute for Work, Skills and Train­ing, more than one in five employ­ees, or near­ly sev­en mil­lion peo­ple, earned less than 8.50 euros per hour in 2011.

By com­par­i­son, the min­i­mum wage in France is just under 9.50 euros per hour.

Fur­ther­more, the boom in low-wage jobs has been accom­pa­nied by a cor­re­spond­ing rise in “pre­car­i­ous” work, such as part-time or tem­po­rary work.

There are also so-called “mini-jobs” where employ­ees are paid a max­i­mum of 450 euros a month and are exempt from pay­ing social or wel­fare con­tri­bu­tions.

Near­ly eight mil­lion peo­ple were in such low-pay or mini-job forms of employ­ment in 2012, almost twice as many as 20 years ago, accord­ing to data by the fed­er­al sta­tis­tics office Desta­tis.

“Ger­many is the EU coun­try where the pro­por­tion of low-wage jobs is high­est behind Hun­gary and the Unit­ed King­dom,” said the OECD’s Ger­man expert, Andreas Kap­pel­er, point­ing to a 2010 study.

“Between 1985 and 2008, the wage gap between high and low pay has widened in Ger­many much faster than in the oth­er OECD coun­tries,” he said.

Women and all Ger­mans in the much poor­er have been the most affect­ed by ris­ing impov­er­ish­ment since sweep­ing reforms were pushed through under the for­mer Social Demo­c­rat (SPD) chan­cel­lor, Ger­hard Schroed­er, between 2003 and 2005.


Stein­brueck has promised to intro­duce a gen­er­al min­i­mum wage of 8.50 euros as one of his first moves if he is elect­ed chan­cel­lor.

For her part, Merkel has said she wants to com­pel unions and employ­ers to agree min­i­mum wage deals by sec­tor and region.

The process has already begun. Giant ser­vice sec­tor union Ver­di, for exam­ple, recent­ly nego­ti­at­ed a min­i­mum wage of 8.50 euros for hair­dressers by 2015, the thir­teenth such sec­tor-wide agree­ment.

While Merkel occa­sion­al­ly denounces some “unac­cept­able” salaries, she has reject­ed a nation­wide min­i­mum wage which, she sees as the root of Europe’s high lev­els of unem­ploy­ment.

Keep in mind that if Angela Merkel tru­ly views nation­wide min­i­mum wage laws as the root of Europe’s high lev­els of unem­ploy­ment (and there’s no rea­son to assume she does­n’t) then real­ly real­ly low wages for lots of Euro­peans is the plan. The exis­tence of a min­i­mum wage that helps to drag peo­ple out of pover­ty would­n’t be a big deal if lead­ers weren’t plan­ning on hav­ing a large num­ber of peo­ple make very lit­tle mon­ey. And if large num­ber of Euro­peans work­ing at or near the min­i­mum wage is part of the plan the Berlin and Frank­furt have in mind, that means Europe as a whole is going to turn wage defla­tion into one of its long-term glob­al exports. It was a fear of “a defla­tion­ary bias for the euro area, as well as for the world econ­o­my” [29] that prompt­ed the US Trea­sury and IMF to crit­i­cize Ger­many’s pol­i­cy-mak­ers. Those fears expressed by the US Trea­sury and the IMF are fright­en­ing­ly appro­pri­ate if ideas like lib­er­al­is­ing the ser­vice-sec­tor are the kinds of stim­u­la­tive poli­cies we can expect from the EU’s lead­ers going for­ward.

Say hel­low to EU-wide defla­tion: “Europe should copy, not crit­i­cize sur­plus”
Still, the fact that Angela Merkel is open­ly telling the CDU that its going to have to accept a nation-wide min­i­mum wage is a poten­tial­ly great turn of events. Not only is it poten­tial­ly great news in the short-run as a means of stok­ing real Ger­man domes­tic demand and imports but also in the long-run. As for­mer Bun­des­bank chief Alex Weber recent­ly argued, the best way for Ger­many to help lift its neigh­bors out of the euro­zone cri­sis isn’t for Ger­many to make changes that increase domes­tic imports of their euro­zone neigh­bor’s prod­ucts. No, the best pol­i­cy is for those neigh­bors to adopt Ger­many’s policies...plus more defla­tion in ‘periph­ery’ [38]:

Ger­man busi­ness: Europe should copy, not crit­i­cize sur­plus
Pub­lished: Tues­day, 12 Nov 2013 | 12:47 AM ET
By: Report­ed by Car­olin Roth, writ­ten by Cather­ine Boyle

Axel Weber, chair­man of Swiss bank UBS and for­mer head of Ger­many’s cen­tral bank, has told CNBC that Ger­many’s sur­plus is not a pol­i­cy prob­lem and any inter­na­tion­al crit­i­cism of the coun­try’s eco­nom­ic pol­i­cy was unwar­rant­ed.

Weber joined the Ger­man voic­es defend­ing the coun­try’s eco­nom­ic pol­i­cy in the face of inter­na­tion­al crit­i­cism. The Euro­pean Com­mis­sion, the 28-coun­try Euro­pean Union’s exec­u­tive arm, is set to scru­ti­nize the coun­try’s cur­rent account sur­plus and whether it is neg­a­tive­ly affect­ing the rest of the region.

“Study­ing why Ger­many is so suc­cess­ful inter­na­tion­al­ly is always war­rant­ed,” Weber said. “There are a lot of lessons that many coun­tries in Europe, par­tic­u­lar­ly in the periph­ery, can learn from that.”

“To look at is a pol­i­cy prob­lem is in my view unwarranted...There is very lit­tle that Ger­many does to manip­u­late any of that suc­cess,” Weber added.

Ger­many has faced crit­i­cism from else­where in Europe and even the U.S. Trea­sury over its depen­dence on exports. Last week, it emerged that its for­eign trade bal­ance — the amount by which exports out­strip imports — hit a record high in Sep­tem­ber.

Crit­ics argue that this means that Ger­many should be encour­ag­ing its peo­ple to spend more on for­eign imports and help stim­u­late growth in the rest of Europe.

“A rise in domes­tic demand in Ger­many should help to reduce upward pres­sure on the euro exchange rate, eas­ing access to glob­al mar­kets for exporters in the periph­ery,” Olli Rehn, EU eco­nom­ic and mon­e­tary affairs com­mis­sion­er, argued in a blog post Mon­day.

Joaquin Almu­nia, the EU com­pe­ti­tion com­mis­sion­er, told CNBC on Tues­day that at its week­ly com­pe­ti­tion review meet­ing on Wednes­day, the com­mis­sion would be look­ing at Ger­many’s trade sur­plus.

“We need to take stock, we need to analyse the rea­sons why this sur­plus is above the thresh­old and what are the con­se­quences, and what are the reme­dies if the con­se­quences are neg­a­tive. Tomor­row, we’ll just take stock [of the sit­u­a­tion] we won’t issue rec­om­men­da­tions,” he said.

“I’m not talk­ing about pun­ish­ment, I’m talk­ing about ana­lyz­ing a sit­u­a­tion — the size of a cur­rent accounts sur­plus and what this means –that the sav­ings rate is much high­er than the invest­ment rate in a coun­try and this deserves a care­ful analy­sis.”

How­ev­er, the very fact that the Euro­pean Com­mis­sion was inves­ti­gat­ing Ger­many’s econ­o­my drew crit­i­cism and dis­be­lief from the coun­try’s CEOs.

“It’s like you get pun­ished if you get good grades,” Kas­par Rorsted, chief exec­u­tive of con­sumer goods com­pa­ny Henkel, told CNBC.

“Europe’s biggest com­peti­tor is not with­in Europe, it’s out­side.”

“The Ger­man econ­o­my def­i­nite­ly still depends on strong exports,” Frank Appel, chief exec­u­tive of Deutsche Post DHL, told CNBC.


“Europe has been in reces­sion for six quar­ters. Com­ing out of a reces­sion hap­pens in a very dif­fer­ent way (for core and periph­ery). It’s dif­fi­cult to come up with a sin­gle mon­e­tary pol­i­cy,” Weber said.

“Prices and wages have to come down in the periph­ery.”

Turn­ing to the recov­ery from the five-year glob­al finan­cial cri­sis, Weber added that the “nor­mal­iza­tion” of the glob­al econ­o­my is con­tin­u­ing but risks remained. “We are in a phase of nor­mal­iza­tion. The road ahead is long, there is pos­i­tive momen­tum but there are risks,” Weber told CNBC Tues­day.


Yes, the atti­tude amongst Ger­man busi­ness elites is appar­ent­ly that “the road ahead is long”, and that road appears to involve prices and wages com­ing down in the periph­ery. Com­ing down more than they already have. It’s all part of the process of “nor­mal­iza­tion”. The EU’s road to New Nor­mal­cy is a long, crap­py road. Espe­cial­ly when every­body’s econ­o­my has to simul­ta­ne­ous­ly be based on high exports and low domes­tic con­sump­tion [39]:

Irish Exam­in­er
Future bleak for those on euro­zone periph­ery

Sat­ur­day, Novem­ber 16, 2013

The euro­zone is at an inflec­tion point. The cri­sis may have abat­ed com­pared with the dai­ly whirl­wind that con­vulsed both mar­kets and gov­ern­ments up to the mid­dle of last year.

COMMENT: John Walsh

A calm­ness of sorts was restored in July 2012 when ECB chief Mario Draghi pledged to do “what­ev­er it takes to save the euro”.

Right now the only thing keep­ing the euro­zone togeth­er is the ECB. But the resolve shown by Mr Draghi is not going down well in Berlin. A nar­ra­tive has tak­en hold in the eurozone’s largest econ­o­my that divides the region into the vir­tu­ous and the sin­ners.

In the vir­tu­ous cor­ner are the Ger­mans and a few north­ern Euro­pean states. From this per­spec­tive, the cause of the cri­sis is a lack of com­pet­i­tive­ness in south­ern Euro­pean coun­tries. These coun­tries must restore com­pet­i­tive­ness through inter­nal deval­u­a­tion. And only when these coun­tries become more like Ger­many, can the euro­zone grow and pros­per.

There are a num­ber of prob­lems with this nar­ra­tive, not least is that inter­nal deval­u­a­tion means slash­ing and burn­ing wages, which fur­ther depress­es con­sump­tion and caus­es a nose­dive in liv­ing con­di­tions and gen­er­al social cohe­sion.

A less Berlin­cen­tric view of the cri­sis would show that the caus­es are much more com­plex and the cul­pa­bil­i­ty is more wide­spread.

The euro­zone is a mon­e­tary union. The Ger­man eco­nom­ic mod­el is based on exports and low domes­tic con­sump­tion. Dur­ing the first decade of the sin­gle cur­ren­cy, recy­cled Ger­man sav­ings made their way to the periph­ery which fuelled a mas­sive cred­it bub­ble. This bub­ble burst with dis­as­trous con­se­quences in 2008.

The Ger­man econ­o­my is run­ning a cur­rent account sur­plus of 6%. Yet the main polit­i­cal par­ty, the CDU, and most promi­nent Ger­man econ­o­mists, are hos­tile to the idea that this has any dam­ag­ing con­se­quences for oth­er euro­zone mem­bers.

Fur­ther­more, the coun­try has done very lit­tle to lib­er­alise its ser­vices sec­tor — a move that would great­ly boost growth across the region. There has also been a chron­ic short­age of pub­lic and pri­vate invest­ment in Germany’s infra­struc­ture, which, if addressed, would do won­ders for the euro­zone. But instead, appar­ent­ly, every­body should fol­low the Ger­man lead.

But if all euro­zone states are busy sav­ing and all wealth cre­ation is set to come from exports, where exact­ly are the mar­kets that will soak up euro­zone exports? Sure­ly, such a ‘beg­gar my neigh­bour’ pol­i­cy would prompt a trade war.

Ms Merkel’s pop­u­lar­i­ty at home is based on unyield­ing com­mit­ment to pro­tect Ger­man tax­pay­ers at all costs. Under no cir­cum­stances will there be any trans­fer union or a bank­ing union that enabled the recap­i­tal­i­sa­tion of banks using pub­lic funds, even though any eco­nom­ic text­book will say it is impos­si­ble to have a mon­e­tary union with­out some sort of fis­cal union.


Unless there is a pauline con­ver­sion by the new gov­ern­ment in Berlin when it takes office next month, it will pro­ceed with the Ger­man­i­fi­ca­tion of the euro­zone. It is like­ly just enough will be done to keep the sin­gle cur­ren­cy togeth­er. But for those on the periph­ery, the future will be bleak with a pos­si­ble debt defla­tion­ary spi­ral loom­ing large.

The pre­ced­ing essay rais­es a lot of the crit­i­cal ques­tions that need to be asked right now in EU pol­i­cy-mak­ing cir­cles. And it’s entire­ly under­stand­able that the author is call­ing for Ger­many to lib­er­alise its ser­vices sec­tor and allow the rest of the EU to com­pete in those mar­kets. If Ger­many isn’t inter­est­ed in buy­ing the goods of its EU neigh­bors the ser­vices are going to be the only thing left to trade. There is the remain­ing ques­tion, though: How can Ger­many avoid falling into its own defla­tion­ary spi­ral when all those ser­vice jobs open up to com­pe­ti­tion with the nations that just saw their wages gut­ted by aus­ter­i­ty? There’s a big dif­fer­ence between Ger­many stim­u­lat­ing imports from the EU by spend­ing some of its record high sav­ings on domes­tic invest­ments and new infrac­ture vs Ger­many stok­ing EU imports by open­ing up its ser­vice sec­tor to EU com­pe­ti­tion. Both of these sce­nar­ios will poten­tial­ly help out Ger­many’s EU neigh­bors and add some much need­ed EU infla­tion­ary pres­sures. But only one of those sce­nar­ios has the poten­tial to unleash more defla­tion Ger­many.

Adding to all of this is the fact that a grow­ing “lost gen­er­a­tion” of Euro­pean youth are mov­ing from their bro­ken economies to Ger­many in search of jobs [40]. It’s a pre­dictable con­se­quence of the EU’s aus­ter­i­ty poli­cies that are pred­i­cat­ed on destroy­ing economies to achieve “inter­nal deval­u­a­tion” and become more “export-friend­ly” like Ger­many. Thus far the pri­ma­ry growth in exports has been in defla­tion and unem­ployed youth and Ger­many’s low-wage econ­o­my has been the des­ti­na­tion for many of those youth exports. And there’s no indi­ca­tion [41] this dynam­ic is going to change any time soon. Because all indi­ca­tions are that the “inter­nal deval­u­a­tion” of the P.I.I.G.S. is a delib­er­ate, con­scious pol­i­cy. So more “inter­nal deval­u­a­tion” is what’s on the agen­da and that trans­lates into more export­ed youths trav­el­ing to Ger­many and rest of the remain­ing non-ail­ing euro­zone. It’s great when a young per­son leaves home to expe­ri­ence life in a new coun­try but it’s a lot less great when they’re forced to do so due to appalling­ly high youth unem­ploy­ment rates.

And then say hel­lo to glob­al defla­tion.
As long the mod­el of high trade sur­plus­es and max­i­mal eco­nom­ic “com­pet­i­tive­ness” is the dom­i­nant pol­i­cy frame­work for the EU, the threat of defla­tion and sup­pressed domes­tic demand is prob­a­bly here [42] to stay [43] in the EU. And the longer the EU, and espe­cial­ly the euro­zone, finds itself export­ing defla­tion, the more that defla­tion becomes a glob­al prob­lem [44]:

First Post
Is euro­zone try­ing to become a big­ger Ger­many?
by Vivek Kaul Nov 15, 2013

The US Depart­ment of Trea­sury pub­lish­es a semi-annu­al cur­ren­cy report. The lat­est report [14] released on 30 Octo­ber, 2013, makes a scathing attack on Ger­many. “Ger­many has main­tained a large cur­rent account sur­plus through­out the euro area finan­cial cri­sis, and in 2012, Germany’s nom­i­nal cur­rent account sur­plus was larg­er than that of Chi­na. Germany’s ane­mic pace of domes­tic demand growth and depen­dence on exports have ham­pered rebal­anc­ing at a time when many oth­er euro-area coun­tries have been under severe pres­sure to curb demand and com­press imports in order to pro­mote adjust­ment. The net result has been a defla­tion­ary bias for the euro area, as well as for the world econ­o­my,” the report points out.

So what does this mean in sim­ple Eng­lish? Ger­many has been the export pow­er­house of the world. It exports con­sid­er­ably more than it imports. This is the for­mu­la it has been try­ing to force onto oth­er coun­tries of the Euro­zone as well. Euro­zone is a term used for 17 coun­tries which have adopt­ed euro as their cur­ren­cy.


As Albert Edwards of Soci­ete Gen­erale writes in a report titled Pre­pare for the next phase of glob­al cur­ren­cy war – should we blame Ger­many? dat­ed 14 Novem­ber, 2013, “In the run-up to the cri­sis they all pro­mot­ed an inap­pro­pri­ate­ly loose mon­e­tary pol­i­cy that caused a cred­it and hous­ing bub­ble, run­away domes­tic demand growth, osten­si­bly sound gov­ern­ment finances and bur­geon­ing cur­rent account deficits, all financed by a sur­plus nation…predominately Ger­many.”

Coun­tries like Por­tu­gal, Spain, Italy, Greece, Ire­land etc went on a bor­row­ing spree, which ulti­mate­ly led to a hous­ing bub­ble. When the bub­ble burst the bank­ing sys­tem in these coun­tries was in a mess. They had to be bailed out by the Euro­pean Cen­tral Bank(ECB). At the same time coun­tries were forced to fol­low aus­ter­i­ty mea­sures to con­trol gov­ern­ment expen­di­ture. These mea­sures have led to an extreme­ly high lev­el of unem­ploy­ment in these coun­tries. As Ambrose Evans-Pritchard of The Dai­ly Tele­graph [45] point­ed out in a recent col­umn “unem­ploy­ment is 27.8% in Greece, 26.3% in Spain, 17.3% in Cyprus, and 16.5% in Por­tu­gal.. it would be far worse had it not been for a mass exo­dus of EMU refugees….Greek youth unem­ploy­ment is 62.9%.”


This has led to a sit­u­a­tion where inter­nal demand in these coun­tries fell dra­mat­i­cal­ly. A fall in inter­nal demand has meant low­er imports. And this in turn has led to exports being greater than imports, and hence a trade sur­plus( a sit­u­a­tion where exports of a coun­try are greater than its imports). The euro­zone trade sur­plus [46] in August 2013 was at $9.5 bil­lion.

Inter­est­ing­ly, the col­lapse of demand with­in these coun­tries has also led to a sit­u­a­tion where Ger­man exports with­in the Euro­zone have fall­en. “It is that actu­al­ly Germany’s trade sur­plus with­in the Euro­zone has col­lapsed to almost zero as the GIIPS (Greece, Italy, Ire­land, Por­tu­gal and Spain)have plunged into depres­sion,” writes Edwards.

This basi­cal­ly means that Ger­many is import­ing as much from oth­er coun­tries in the Euro­zone as it is export­ing to them, lead­ing to a trade sur­plus of almost zero. But it has more than made up for this by run­ning a high­er trade sur­plus with oth­er parts of the world, pri­mar­i­ly Unit­ed States and large parts of Asia.

Hence, it isn’t sur­pris­ing that the Unit­ed States has a prob­lem with Ger­many. While Ger­many is export­ing goods and ser­vices to the Unit­ed States, it isn’t import­ing the same amount back from the Unit­ed States or oth­er parts of the world, for that mat­ter. This means that busi­ness­es in the Unit­ed States and oth­er parts of the world are not export­ing enough, which in turn has an impact on eco­nom­ic growth.

This for­mu­la of run­ning a trade sur­plus by export­ing more and lim­it­ing imports has worked very well for Ger­many. But the ques­tion is will it work for the Euro Zone as a whole? Mar­tin Wolf of The Finan­cial Times feels [47] that the strat­e­gy may not work for two rea­sons. “First, the euro­zone is far too big to achieve export-led growth, as Ger­many has done; and, sec­ond, the cur­ren­cy is like­ly to appre­ci­ate still fur­ther, there­by squeez­ing the less com­pet­i­tive economies all over again.”

The euro is like­ly to appre­ci­ate in the days to come giv­en that both Japan and Unit­ed States are print­ing mon­ey big time in the hope of devalu­ing their cur­ren­cies. Also, this for­mu­la will have polit­i­cal com­pli­ca­tions as well, giv­en that, exports can only hap­pen if some­one else is import­ing. Every coun­try can­not be an exporter at the same time. Some­one has to import as well.

And who will that importer be? San­jeev Sanyal of Deutsche Bank Mar­kets Research writes in a report titled Bret­ton Woods III and the Glob­al Sav­ings Glut dat­ed Octo­ber 8, 2013 “Rein­ter­pret­ed to present con­di­tions, the next round of glob­al eco­nom­ic expan­sion may require the US to revert to its role as the ulti­mate sink of glob­al demand.”


“Rein­ter­pret­ed to present con­di­tions, the next round of glob­al eco­nom­ic expan­sion may require the US to revert to its role as the ulti­mate sink of glob­al demand.” At least accord­ing to Deutsche Bank ana­lysts. And they’re prob­a­bly cor­rect. There is sim­ply no way for the entire euro­zone and the larg­er EU to per­sis­tent­ly run net trade sur­plus­es with­out the entire world run­ning per­sis­tent rec­i­p­ro­cal deficits with the EU. Some forms of eco­nom­ic reci­procity can’t be avoid­ed [48]. The EU’s lead­ers, and the lead­er­ship in Berlin espe­cial­ly, have made it very clear in recent pro­nounce­ment that wage sup­pres­sion is a cen­tral com­po­nent of their long-term vision for the euro­zone and “inter­nal deval­u­a­tion” is set to be the default long-term strat­e­gy for EU nations. When one EU mem­ber falls on hard times they should not expect help in the form of increased trade sur­plus­es from the rest of their mem­ber nations. Inter­nal deval­u­a­tion and defla­tion is the pre­de­ter­mined response.

So we should prob­a­bly applaud the SPD for their insis­tence on a nation-wide min­i­mum wage. This real­ly is good news! If noth­ing else, a nation­al min­i­mum wage could help avoid the exploita­tion of the grow­ing num­ber of low-wage young EU migrant work­ers and put a break on the EU’s over­all defla­tion­ary forces. It also might pro­vide some real pro­tec­tions for the most vul­ner­a­ble Ger­man work­ers once the ser­vice sec­tor opens up to com­pe­ti­tion with Ger­many’s aus­ter­i­ty-rav­aged neigh­bors.

But it’s very unclear if this is a per­ma­nent change or a tem­po­rary con­ces­sion. What is becom­ing increas­ing­ly clear is that the high-export/high-sav­ings mod­el that Ger­many has been fol­low­ing since the 1950’s is the plan for the entire euro­zone going for­ward and even­tu­al­ly the entire EU. And that means a wage floor in Ger­many may not do much to pre­vent wages across the rest of the Ger­many econ­o­my from suc­cumb­ing to the defla­tion­ary pres­sures sweep­ing the con­ti­nent. Hav­ing Europe adopt the Ger­many mod­el is a pol­i­cy that can only result in trade con­flicts and greater glob­al imbal­ances in the long run because there aren’t very many options for avoid­ing long-term glob­al wage defla­tion when wage defla­tion is cen­tral to the long term growth strate­gies of one of the wealth­i­est con­ti­nents on the plan­et. There are ways to avoid such a glob­al sce­nario, but they most­ly involve find­ing alien civ­i­liza­tions to trade with. Sure, such aliens [49] might be out there [50], but after watch­ing us mind­less­ly induce self-rein­forc­ing defla­tion­ary socioe­co­nom­ic death spi­rals the aliens might not want to play our [51] sil­ly games [52]. Solu­tions that might actu­al­ly solve the prob­lem of glob­al wage defla­tion [53] are required.