What’s Going On In Germany

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After a request by one of my readers, I have decided to write something about Germany, so that you, my readers from foreign countries, get to know more about the country of Bratwurst, Schnitzel, and Bier 😉

If you only look at some key stats, Germany is still one industrial power economy today, as it exports almost 50% of what it produces in one year, and industrial goods make up 30% of the GDP. Growth per capita was sluggish during the last twenty years (around 1.5% on average), but it doesn’t look like a massive crisis. Debt is controllable, both private (100% of GDP) and government. Average unemployment decreased after some timid labor market reforms from over 11% to 7%. The “cash for clunkers” scheme was very successful and very popular. It increased car sales by 30%, I think. Of course, it only postpones the slump for a year, so the manufacturers are already preparing for a hard landing in 2010. Further, the “Kurzarbeit” has postponed the inevitable increase in unemployment numbers to next year.

As good as all of this might sound, the economic reality looks quite different, and much more depressing. Real GDP would have decreased in the last 6 years, were it not for massive increases in exports. Consumption is decreasing since 1997. In 2003, we shortly dipped into deflation, before exports pulled us out and prevented a Japanese-style economy. Unemployment numbers have been tweaked by the government multiple times, but one has to admit that Germany’s numbers were always higher than the OECD numbers. There’s is almost no short-term unemployment. Once you lose a job, you could almost retire in an instant (if you had the money), because it’s very difficult to find a new job, especially if you don’t have a useful university degree.

That is why the “Hartz IV” reforms have been so unpopular, because they decreased the benefits for the long-term unemployed. It was sadistic to reduce benefits without reforming the labor market to get people back into work. Well, there has been a timid reform, but it has only opened the opportunity to hire people on so-called “mini-jobs” (€400 per month), where you don’t have to pay payroll taxes. As a result part-time work has skyrocketed to almost 35% of all jobs, whereas full-time employment is steadily decreasing since decades. This means that it becomes ever more difficult to find a real job. There are people with university degrees who are looking for a job for over a year, and finally give up and work as a taxi driver or something else well below their abilities. And then there is the “brain drain”. Switzerland and Great Britain are popular places to go. I’ve chosen the first one 😉

The political system is pathetic, because every of the five parties who are represented in the Bundestag are conformist, status-quo parties. We have two leftist social democratic parties: one is red, called the SPD, the other one is black (because it’s christian), called the CDU. Then there is the Greens (needless to say: lunatics), “The Left” (successor to the Eastern German communist party), and the slightly libertarian FDP. Some Germans are naive enough to vote vor the Christian Democrats hoping that they reform the country. But they reigned 1982-1998 without doing any reforms. Ironically, the only reforms that were ever done came from the leftist SPD-Greens coalition 1998-2005, which lowered taxes and introduced less regulated “mini-jobs”.

Two months ago, Germans elected the first “conservative” government (CDU and FDP) since 1998. Soon, media began talking about “social coldness” that will allegedly reign the country. They found this allegation on the fact that the new government thinks about halting any increases in payments to the sickness funds from the employers’ side. That’s all. No tax cuts, no spending cuts, no deregulation, liberalization, privatization whatsoever. It shows how afraid people are of reforms.

There are still other things to mention: The employment protection pretty much ruins the whole economy, though huge amounts of wealth going into the money-shredder called “pensions” and red tape everywhere certainly don’t help either.

As I wrote in one of my German posts recently, the German pension system is an utter mess. You pay 20% of your gross wage (10% each by the employer and employee) into it, and you get a promised return of 1% for the ones born before 1970, and probably zero or negative returns for all younger generations, though nobody can promise anything, because it’s a PAYGO system, i.e. Ponzi scheme.

The health care system was once relatively good, but it has turned into an unreformable pile of sh*t that is overregulated, without any competition, without market-based incentives, prices, or wages for the health care employees. Government tries to contain costs by reducing the income of doctors every year. German hospital doctors are now paid the same money as Greeks or Italians.

Universities are mostly public, overcrowded, underfunded, and rundown. Often there is only one professor for hundreds of students. Buildings are in decay. And the mean length of study for most master degrees is 7 years (5 years is regular), because students need several tries to pass exams. Those exams are really tough and students are badly prepared (I know it from personal experience). But hey, you only pay €150-500 per semester! You get what you pay for…

The politicians are all afraid of losing votes if they touch one of those serious issue, because they are considered sacred cows, i.e. allegedly social features that the majority of the society doesn’t want to have abolished. As a result, all political parties preach the same bullsh*t. They want to preserve all social features of the current system. They don’t even talk about some of the problems and how to solve them. If they dare to get into details, they’ll just say that the system needs more money. You won’t find a single person in the news talking about the real causes of our current problems, not even economists. It is hopeless. The entitlement thinking has spread like incurable cancer.

Regarding the TÜV (technical inspection association that validates the safety of many products; for instance, you have to have your car checked by them every 1 or 2 years), I can’t say much, because I know too little about them. But I doubt that the TÜV was involved in some kind of trade barriers against foreign car makers. Generally, it is much easier to import an American car into Germany than the other way round. The major factors that protected German car manufacturers from foreign competition were the import quota “agreements” with Japan in the 80s and 90s, and the government subsidies for Diesel fuel, which give Diesel powered cars a market share of 50% today (and the Japanese didn’t build Diesel cars until a couple of years ago, because there was/is no market for Diesel cars in the US or Japan).

Our gasoline is famously expensive, because we pay probably 80% taxes on it. First, there is the gas tax and then, absurdly, we pay sales tax on the sum of the original price and the gas tax. So we tax the tax, which was paid by taxed income, so we tax the tax the tax, which is really a hobby for the civil servants in this country. Have I mentioned that our civil servants cannot be fired?

Two thirds of Germans buy their cars as company vehicles because they are tax-deductible, and because buying a new car privately is increasingly unaffordable, as wages stagnate and car prices rise constantly. Our Autobahns are increasingly congested and speed limited, which is really annoying (on most Autobahns, you could comfortably drive at 120 mph, while most of the traffic does 90 mph). Repair works on Autobahns cannot be done during the night (causes: labor regulations, high wages for night work), so we get to enjoy massive traffic jams, which get longer every year. Building a couple of miles new Autobahn takes decades (no kidding). I don’t know how those repair works are done in the US, but here they close one direction and change the formerly three lines for one direction to two lines for each direction. Thereby, lines get as narrow as 2 meters, often not wide enough to safely guide a 1.8m wide car between the concrete wall on one side and the other cars in the lane next to you. That is really nerve-wracking.

So, what do Germans think of the USA? There are Germans who think of Americans as fat dumbasses who don’t even know where Europe is on a map. But there are also Germans who think of Americans as semi-fascists who are constantly at war and defend a coldhearted version of capitalism that exploits the common man. If this negative attitude towards Americans surprises you, remember that Germans sided with the French in 2002. This survey shows how many Germans don’t like the USA (it’s from 2007, so it might have gotten better because of Obama, with whom 80% of Germans fell totally in love):

A minority of us think that the USA is actually a rich country that should be a role model, at least in some points, for Germany (those guys and gals mainly vote for the FDP). However, we are constantly accused of wanting to emulate “American conditions” (kind of hard to translate, Deutsch: Amerikanische Verhältnisse). The idea behind this term is that the USA is a country without any kind of welfare system. According to what Germans get to see in TV news, the US government must spend all money on military and NASA. American capitalism is thought to be a coldhearted system with many booms and busts, constantly impoverishing large parts of society and causing high crime rates. If you show Germans the American GDP numbers, which are 30% higher than Germany’s, they will say that this is because the US has a hugely uneven income distribution and that the poorer Americans live an impoverished life, probably comparable to Eastern European countries.

So this is Germany. Still one of the twenty richest countries in the world, but who knows how deep this ship will sink. I certainly cannot recommend to move to Germany now, though I also cannot recommend to move to any other European country, with the exception of Switzerland and Luxembourg. Of course, it depends on where you come from. If you are not from a OECD country, chances are good that your home country will need at least 20 years to catch Germany, so you may come to Germany without hesitating.

Whew, that was a lot of text. If somebody got a question that was not answered by this text, please post a comment and I will try to answer it.