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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]:

Opin­ion
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.

Con­tin­u­ing...

...

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
CNBC
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.