Angela’s little lies

Angela' s lies<p>Angela'' lies</p>

Supporters of the Germanization present Germany as the great success that ought to be emulated by all the countries of the European Union. They explain that the country went from being the “sick man of Europe” in the late nineties, to being the reference point for Europe (having reduced their unemployment rate from 5 million in 2005 to 3 million in 2008).

This change is believed to be the result of deregulating the labour market and reducing wages during Mr. Schröeder’s and Merkel’s governments. Their measures were aimed to increase the competitiveness of their economy. Germany attributes its success to its high competitiveness level and high productivity, which is the result of the wage restraint. That’s how supporters of the Germanization conclude that there is a need to lower wages so as to increase the productivity level and come out of the crisis.

On the other hand, there are many studies that demonstrate the lack of credibility of this position. Such studies are unknown in countries as Spain, where the Germanization dogma has reached it greatest intensity.

In the first place, the German governance system is completely different from the Spanish one, whereas the co-management system doesn’t exist in Spain. Furthermore, the German workforce is in a position of great influence within businesses, and it is key to understanding the low unemployment rate in Germany.

Such cooperation between businessmen and workers doesn’t exist in Spain (it is unthinkable). When they talk about the Germanization of the Spanish labour market, they only think about reducing wages, they don’t even consider the implementation of the co-management.

Wages in the exporting sector haven’t decreased –on the contrary, they’ve grown even though the unit labour costs have remained constant. Why? Let’s see the data. The collapse of the Soviet Union led to a great economic boom in Germany. Manufacturing relocated and decentralized, which contributed to the alleged “German miracle.” This relocation had a great impact on the subordinate industry, where the wage reduction was massive and affected all economic sectors, thus creating a sector with really low wages: the minijobs sector.

Minijobs sector comprises almost one third of the workforce, with really deteriorated working conditions. That’s why the German labour market is so polarized and the living and working conditions are so damaged.

Reducing wages is (wrongly) perceived in Spain as the key point for coming out of the crisis. However, it is bereft of significant value so as to revive the economy and does exactly the opposite: it worsens the economy and contributes to increasing the lack of demand (which is the real root of the problem).

The problem is not in the Spanish wages –after all, they are the lowest within the European Union. Besides, Spain’s exports are even better now (unlike those in Germany) than before, and prices depend on the distribution of income. In Spain, the real problem is that such distribution has systematically benefited the capital income while decreasing the labour income.

In this context, the euro acts as an obstacle to the economic recovery, because competitiveness by means of reducing prices can’t be reached by devaluating the common currency. This situation significantly benefits Germany, whose exporting success is based on the competitive advantage. The Europeizaton and Germanization of the European Union has led to a polarization in Europe, and has created a differential advantage centre- periphery nearly impossible to overcome.

Therefore, those who recommend following the German model are, in fact, contributing to improve the situation of the German economy at the expense of the economy of the rest of the European country. As clear and as elementary as that.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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