Magazine article The International Economy

Germany Fires Back

Magazine article The International Economy

Germany Fires Back

Article excerpt

"Instead of belittling German efforts ... show a little more gratitude."

Since last autumn, Germany has been accused by a number of Anglo-American economists, above all by the 2008 Nobel laureate Paul Krugman, of not doing enough to combat the world economic crisis and of free-riding on other countries' stimulus programs. Recently, the Financial Times asked where the German economists are who defend Germany's policies, voicing the presumption that they disagree with their government's policies but are too cowardly to say so publicly, thus conforming to the rituals of the German "consensus society." From a German point of view, this discussion is a ludicrous inversion of the truth.

Germany has implemented two economic stimulus programs, amounting to 80 billion [euro], or 3.2 percent of GDP, of which 1 percent of GDP will take effect in 2009. At first glance, this is indeed less than the American program, which totals 6.2 percent of GDP, of which 2 percent will be spent in 2009. But this impression is deceptive, since the German state, through the built-in flexibility of its extensive social-welfare system, already contributes to stabilizing the world economy.

Indeed, Germany's generous unemployment insurance policies ensure that people are able to maintain their consumption standards even if they lose their jobs. Germany even has short-time allowances that enable companies to reduce their employees' working hours, with the loss in earnings partly reimbursed by the state. Without this short-time allowance, the average number of unemployed in 2009 would be 300,000 higher than it is now.

At the same time, more than 40 percent of Germany's adult population (pensioners, social-welfare recipients, unemployed, accident victims, students) receives some form of state transfer income, especially those in eastern Germany, while the burden of taxes and social security contributions on those in employment is high. While this certainly impedes long-term economic growth and causes great structural problems, it also means that the state reacts extremely counter-cyclically and stabilizes the economy to a great extent, which benefits the entire world.

The German state recorded a budget deficit of just 0.1 percent of GDP in 2008, which, according to a recent OECD forecast, will soar to 4.5 percent of GDP in 2009. Thus, the economic stimulus provided by the German state budget will amount to 4.4 percent of GDP in 2009. In the United States, the budget deficit in 2008 stood at 5.8 percent of GDP, and, according to the same OECD forecast, will amount to 10.2 percent of GDP in 2009, which translates into exactly the same economic stimulus as in Germany, 4.4 percent of GDP.

In addition, Germany has much more inner stability than the United States, because it does not have the problem of heavily indebted households that are now restricted in their borrowing. …

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