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"Beggar Thy Neighbor" A Lesson on How Germany Plays Dirty
For the full transcript:
http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=13275
Heiner Flassbeck says Germany has played a devastating role in the European Monetary Union and the "Greece guilty and Germany innocent" narrative is completely false - February 22, 2015
Two snips:
FLASSBECK: Yeah, that's a wonderful example, because 20 percent is exactly something--what is needed, depending on your productivity. But let me take the example of France. You'll see France is much more important than Greece. Everybody is focusing on Greece, but the real problem is France. France did everything right. France had a productivity increase of 1.5 percent. French wages increase increased by 3.5 percent. So the difference was exactly the 2 percent inflation target. And so France was perfect. But France is in the same difficulties as Greece--in principle not has acute, but in principle they have a huge gap with Germany in terms of competitiveness. Why? Well, because German productivity was also 1.5 percent, but German nominal wages only increased by 1.5 percent and not by 3.5 percent like in France. So they did nothing, they did everything right, but they're in trouble anyway. And this is where the unfairness comes in and where it is absolutely clear that if you do not tackle this root problem of the currency union, it was not tackled in the first ten years. But if you don't tackle it now, then you will never find a solution for the Eurozone. Forget about Greece. If France and Italy have to do the same thing as Greece did, it goes through a Great Depression. Could you imagine what it means politically? It will be a disaster. It will not be a radical left-wing government that comes to power in France, but a right-wing, and in Italy also.
JAY: Now, you talk about the difference in the wage levels. But how did Germany keep wages down? Is not like it's a state-run economy. I mean, why couldn't the German workers fight for higher wages?
FLASSBECK: Well, this is easily explained. It was, first of all, in agreement. In Germany we have a long tradition of having tripartite negotiations or agreements between the government, the employers, and the unions on wages. So that was the first step, that it was an agreement where everybody agreed that now we have to, so to say, keep our wages low to reduce unemployment, and nobody thought about the currency union. It was only by chance that the currency union started exactly at that moment of time.
And then the second step was that indeed the right-wing government passed a lot of legislation that weakened the unions dramatically. And this package of legislations are not one measure, but ten, 20 measures that all weakened the negotiating power of the unions, all in the attempt to reduce unemployment in Germany. But what nobody thought about: that this is the classical begger thy neighbor policy for the rest of the European Union and for the rest of the world. Don't forget the United States. The United States have a permanent, huge deficit with Germany, because Germany is hidden, so to say, is protected by the low value of the euro. So if there would not be euro, then clearly the D mark would appreciate against the dollar. But with the low euro, the euro is, so to say, the average of weaker countries and stronger countries. Germany has a wonderful, wonderful goal to increase its surplus with United States and begger the neighbors, because it's absolutely clear that the country that is increasing its current account surplus all the time--and it did so for the last ten, 15 years--this country has huge absolute advantage from international trade, where all its trading partners have negative effect. It's not trade as something that helps everyone; if there is absolute advantages through rising current account surpluses in one country, the other countries have negative contribution from trade. And then the whole idea of free trade is useless and the whole negotiations about TTIP, this agreement between Europe and Germany, is absolutely useless. And I saw it was now discussed in the United States and Congress, and rightly so, if there is no clear idea about the exchange rates.
JAY: So, I mean, does this mean the Eurozone really doesn't make any sense, that as long as you've got these different nation-states and at heart they really are competitive--how can they exist within the same monetary union?
FLASSBECK: It could have made sense. You see, if everybody would have obeyed to this rule that I mentioned, wages in line with national productivity, plus commonly agreed inflation target, well, it would have been a nice idea. But if one country goes for a totally mercantilist approach, then there is no chance to make sense of it. Then there is no way to bring it back, or it's very difficult to bring it back, because the other countries would need absolute cuts in wages. But absolute cuts in wages lead to deflation. So if Germany is not moving, nothing will happen. And that is why the book Against the Troika, the German title of it is Only Germany Can Save the Euro--nobody else.
JAY: And doesn't seem like they're--at least when it comes to Greece--are so intended. In fact, they have this counsel of what they call wise men, these group of economists who issued a statement--I think it was today--apparently saying, let Greece go, we'll be better off, the better defense of the Eurozone is actually to let Greece go.
JAY: Now, you talk about the difference in the wage levels. But how did Germany keep wages down? Is not like it's a state-run economy. I mean, why couldn't the German workers fight for higher wages?
FLASSBECK: Well, this is easily explained. It was, first of all, in agreement. In Germany we have a long tradition of having tripartite negotiations or agreements between the government, the employers, and the unions on wages. So that was the first step, that it was an agreement where everybody agreed that now we have to, so to say, keep our wages low to reduce unemployment, and nobody thought about the currency union. It was only by chance that the currency union started exactly at that moment of time.
And then the second step was that indeed the right-wing government passed a lot of legislation that weakened the unions dramatically. And this package of legislations are not one measure, but ten, 20 measures that all weakened the negotiating power of the unions, all in the attempt to reduce unemployment in Germany. But what nobody thought about: that this is the classical begger thy neighbor policy for the rest of the European Union and for the rest of the world. Don't forget the United States. The United States have a permanent, huge deficit with Germany, because Germany is hidden, so to say, is protected by the low value of the euro. So if there would not be euro, then clearly the D mark would appreciate against the dollar. But with the low euro, the euro is, so to say, the average of weaker countries and stronger countries. Germany has a wonderful, wonderful goal to increase its surplus with United States and begger the neighbors, because it's absolutely clear that the country that is increasing its current account surplus all the time--and it did so for the last ten, 15 years--this country has huge absolute advantage from international trade, where all its trading partners have negative effect. It's not trade as something that helps everyone; if there is absolute advantages through rising current account surpluses in one country, the other countries have negative contribution from trade. And then the whole idea of free trade is useless and the whole negotiations about TTIP, this agreement between Europe and Germany, is absolutely useless. And I saw it was now discussed in the United States and Congress, and rightly so, if there is no clear idea about the exchange rates.
JAY: So, I mean, does this mean the Eurozone really doesn't make any sense, that as long as you've got these different nation-states and at heart they really are competitive--how can they exist within the same monetary union?
FLASSBECK: It could have made sense. You see, if everybody would have obeyed to this rule that I mentioned, wages in line with national productivity, plus commonly agreed inflation target, well, it would have been a nice idea. But if one country goes for a totally mercantilist approach, then there is no chance to make sense of it. Then there is no way to bring it back, or it's very difficult to bring it back, because the other countries would need absolute cuts in wages. But absolute cuts in wages lead to deflation. So if Germany is not moving, nothing will happen. And that is why the book Against the Troika, the German title of it is Only Germany Can Save the Euro--nobody else.
JAY: And doesn't seem like they're--at least when it comes to Greece--are so intended. In fact, they have this counsel of what they call wise men, these group of economists who issued a statement--I think it was today--apparently saying, let Greece go, we'll be better off, the better defense of the Eurozone is actually to let Greece go.
FLASSBECK: Yeah. Well, these people are stupid. You know, I do not not even think about them. This is a club of extremely radical conservative economists with no clue about the world and all the important relationships in this world. So don't even--ignore it.
But what is really dramatic is the collective denial of Germany's position in the currency union from the very beginning. In Germany we have--in the mass media and the important media, everybody's trying to defend the German position along the lines--all the others are wrong, only Germany got it right from the very beginning. And this is a disaster. You know, if a society that is now living in a--has a democracy for more than 50 years and understands itself as an open society, as an open society where everybody can discuss freely everything, and then you see that you have such a collective denial of a very simple fact, then really it's getting critical, and then many people are really frustrated about this.
But what is really dramatic is the collective denial of Germany's position in the currency union from the very beginning. In Germany we have--in the mass media and the important media, everybody's trying to defend the German position along the lines--all the others are wrong, only Germany got it right from the very beginning. And this is a disaster. You know, if a society that is now living in a--has a democracy for more than 50 years and understands itself as an open society, as an open society where everybody can discuss freely everything, and then you see that you have such a collective denial of a very simple fact, then really it's getting critical, and then many people are really frustrated about this.
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An astute comment after the above at TRNN link. I don't usually copy comments, but this one sums it up so well...
This highlights why unfettered capitalism is so destructive. Germany are only being 'good' capitalists, they are working for their own advantage and 'externalizing' all ill effects, "beggar thy neighbor" is the essence of capitalism, and that is why in the long run we go through these cycles of collapse and rebuild. Capitalism is a short term gain philosophy. That is why much of the events in the world make no sense on the surface, it is because we are trying to understand them from the perspective that leaders are working towards at least 'national' interest, but they are not, they are working towards the self interest of small groups of interested parties.
This is the source of the Austerity policy throughout Europe, Germany played dirty with wages, it has triggered a race to the bottom for the rest of Europe just to compete. It would be interesting to know the source of this strategy (because Austerity is a strategy) is it internal to Germany or external, all of the European leaders seem to go and bend their knee at the White House.
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