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November 22, 2010

 A rather innovative scheme called “kurzarbeit”, or “short work”, prevented major layoffs by allowing firms to keep on redundant labor at partial salary, with the state paying the difference. The government avoided swelling the ranks of the full-fledged unemployed and companies retained trained workers that could be “reactivated” when needed. More importantly however, the average person was able to hold onto a sense of security and stability during the worst of the international crisis. In 2009 the German government also pioneered the much praised “car exchange program” that allowed people to trade in carbon heavy vehicles for credit toward a new, environmentally sensitive automobile. Many other industrial nations followed suit since widely reported success in Germany. While other nations bet on heavy deficit spending initially to stave off what many feared could become a depression, many in the German government supported fiscal discipline and resisted what they saw as the very cause of the crisis to begin with. By summer 2010, it has become rather obvious which approach was more practical and, in the end, reaped the greatest benefits. At the end of the second quarter of 2010 German growth estimates are triple what they were last fall. Germany is now on pace to lead Europe and North America out of 2009’s trough and will reach pre-crisis output levels sooner than any other. Unemployment, which never increased as dramatically as in other nations, is continuing to fall and labor shortages and double digit output increases are being widely reported. While most European nations (and most internationally) are struggling under massive budget deficits, Germany’s is shockingly low and the government plans to proceed with over 80 billion euros in spending reductions over the next several years to bring the federal deficit to zero as planned by 2016. While optimism is certainly abound in the Federal Republic, it cannot be forgotten that forces far from Europe are driving this small economic miracle. Germany is becoming increasingly reliant on exports to the large emerging economies and consumer spending, the engine of most 1st world growth, is dismally sluggish. Unfortunately, it appears that for the moment most in Germany are completely closed to the idea of allowing wages in Germany to rise, much to the loss of the German consumer and the nations European partners. While it does seem that Germany has skirted most of the pains of the “Great Recession”, it should avoid becoming too heavily reliant on one avenue of growth, and more importantly intertwining its economic future with that of boisterous and emerging economies in Asia. The end of 2010 and early 2011 will either solidify these trends and further vindicate Germany’s ruling coalition or will dash hopes of a genuine recovery, to the detriment of both Germany and the rest of the world.