Social Europe

politics, economy and employment & labour

  • Themes
    • A ‘manifesto’ for 2024
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

Germany’s Hour

Robert Skidelsky 22nd September 2017

Robert Skidelsky

Robert Skidelsky

Who runs the European Union? On the eve of Germany’s general election, that is a very timely question.

One standard reply is, “The EU’s member states” – all 28 of them. Another is, “The European Commission.” But Paul Lever, a former British ambassador to Germany, offers a more pointed answer: Berlin Rules is the title of his new book, in which he writes, “Modern Germany has shown that politics can achieve what used to require war.”

Germany is the EU’s most populous state and its economic powerhouse, accounting for over 20% of the bloc’s GDP. Determining why Germany has been so economically successful appears to be elusive. But three unique features of its so-called Rhineland model stand out.

First, Germany has preserved its manufacturing capacity much better than other advanced economies have. Manufacturing still accounts for 23% of the German economy, compared to 12% in the United States and 10% in the United Kingdom. And manufacturing employs 19% of the German workforce, as opposed to 10% in the US and 9% in the UK.

Germany’s success in retaining its industrial base contradicts rich countries’ standard practice of outsourcing manufacturing to locations with lower labor costs. But Germany has never accepted the static theory of comparative advantage on which this practice is based. True to the legacy of Friedrich List, the father of German economics, who wrote in 1841, “the power of producing wealth is therefore infinitely more important than wealth itself,” Germany has retained its manufacturing edge through a relentless commitment to process innovation, backed by a network of research institutes. Its export-led growth has given it the benefit of increasing returns to scale.

The second feature of the German model is its “social market economy,” best reflected in its unique system of industrial “co-determination.” Alone among the major advanced economies, Germany practices “stakeholder capitalism.” All companies are required by law to have works councils. Indeed, large companies are run by two boards: a management board and a supervisory board, divided equally between shareholders and employee representatives, which take strategic decisions. The resistance to offshoring is therefore much stronger than elsewhere, as is a willingness to restrain wage costs.

Finally, there is Germany’s firm commitment to price stability. Germany needed no lessons from Milton Friedman on the evils of inflation. They were already hard-wired into its most famous post-war institution, the Bundesbank.

Lever suggests that it was as much the memory of the currency collapse of 1945-1948 as of the hyperinflation of the 1920s that drove home this lesson. Likewise, an aversion to public deficits mirrors the population’s resistance to private indebtedness.

Institutionally, the EU has become Germany writ large. The Commission, the European Parliament, European Council, and the European Court of Justice mirror the decentralized structure of Germany itself. The EU’s gospel of “subsidiarity” reflects the division of powers between Germany’s federal government and states (Länder). Germany ensures that Germans fill the leading positions in EU bodies. The EU rules through its institutions, but the German government rules those institutions.

Yet talk of “hegemony,” or even “leadership,” is taboo in Germany – a reticence that stems from Germans’ determination not to remind people of their country’s dark past. But denying leadership while exercising it means that no discussion of Germany’s responsibilities is possible. And this inflicts costs – especially economic costs – on other EU member states.

Germany has created a system of rules that entrenches its competitive advantage. The single currency rules out devaluation within the eurozone. It also ensures that the euro is worth less than a purely German currency would be.


Become a Social Europe Member


Support independent publishing and progressive ideas by becoming a Social Europe member for less than 5 Euro per month. Your support makes all the difference!


Click here to become a member

The EU’s recent Treaty on Fiscal Union – the successor to the Growth and Stability Pact – prescribes binding legal commitments to balanced budgets and modest national debt, backed by supervision and sanctions. This precludes deficit finance to boost growth. And Germany’s insistence that non-wage costs be equivalent throughout the EU is less a device for enhancing Germany’s competitiveness than for reducing others’.

The EU, especially the 19-member eurozone, thus functions as a vast home base for Germany, from which it can launch its assault on foreign markets. And that base is strong. Germany exports to the EU 30% more than it imports from it, and runs one of the world’s largest current-account surpluses.

This is a benign rather than a brutal hegemony. But at its heart lies a massive contradiction. National accounts must balance. A surplus in one part of Europe means a deficit in another. The eurozone was established without a fiscal transfer mechanism to succor members of the family who get into trouble; the European Central Bank is prohibited from acting as lender of last resort to the banking system; and the Commission’s proposal for Eurobonds – collectively guaranteed national bond issues – has foundered on Germany’s objection that it would bear most of the liability.

Germany has been willing to provide emergency finance to debt-strapped eurozone members like Greece on the condition that they “put their houses in order” – cut social spending, sell off state assets, and take other steps to make themselves more competitive. The Germans see no reason to take measures to reduce their own super-competitiveness.

What can be done to achieve a more symmetric adjustment between Europe’s creditors and debtors? Barring a fiscal transfer mechanism, John Maynard Keynes’s 1941 plan for an International Clearing Union might be adapted for the eurozone. Member countries’ central banks would hold their residual euro balances in accounts with a European Clearing Bank. Pressure would be simultaneously placed on creditor and debtor countries to balance their accounts, by charging rising interest rates on persistent imbalances.

An EU clearing union would be a less visible intrusion on German national interests than a fiscal transfer union would be. The essential point, though, is that for the eurozone to work, the strong must be prepared to show solidarity with the weak. Without some mechanism to realize that, the EU will limp from crisis to crisis – probably shedding members along the way.

Republication forbidden. Copyright: Project Syndicate 2017 Germany’s Hour

Robert Skidelsky

Robert Skidelsky, professor emeritus of political economy at Warwick University and a fellow of the British Academy in history and economics, is the author of a three-volume biography of John Maynard Keynes and a member of the British House of Lords.

You are here: Home / Politics / Germany’s Hour

Most Popular Posts

new world order,state,citizen A new world order: from warring states to citizensPaul Mason
Tesla,IF Metall,electric car,union US electric-car maker faces Swedish union shockGerman Bender
Israel,Hamas Israel and Hamas: the debasement of discourseRobert Misik
Israel-Palestine,refugee,refugees Israel-Palestine: a comparative perspectiveBo Rothstein
Germany,sick,economic Germany’s true economic diseasePeter Bofinger

Most Recent Posts

Europe,constitutional reform,EU,governance European constitutional reform hangs in the balanceGuido Montani
treaty changes,EU,European Parliament Treaty changes for an EU that works for citizensGabriele Bischoff
human security,Europe,investment,military Investing in human security in EuropeChiara Bonaiuti
citizenship education,European Union,democratic European citizenship education—antidote to hateRéka Heszterényi
healthcare,hospitals,social dialogue,pandemic Healthcare depends on the health of social dialogueJorge Cabrita and Victoria Cojocariu

Other Social Europe Publications

Global cities cover pdf Global cities
strategic autonomy Strategic autonomy
Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans

Eurofound advertisement

How will Europe’s green transition impact employment?

Climate-change objectives and decarbonisation measures are vital for the future of Europe. But how will these objectives affect employment and the labour market?

In the latest episode of the Eurofound Talks podcast series, Mary McCaughey speaks with the Eurofound senior research manager John Hurley about new research which shows a marginal increase in net employment from EU decarbonisation measures—but also potentially broad shifts in the labour market which could have a profound impact in several areas.


LISTEN HERE

Foundation for European Progressive Studies Advertisement

New Progressive Post magazine available!

In this new edition of the Progressive Post, the Special Coverage looks at EU fiscal rules, particularly at the long-awaited proposal to reform EU fiscal governance which was presented by the European Commission in April. The plan aimed to address the shortcomings of the current framework, promote growth and sustainability and reduce high public debt ratios but it lacks ambition. It falls short of enabling the green and social transition, and lacks instruments to improve the democratic legitimacy and transparency of the decision-making process.

The Focus is dedicated to Turkey, a heavyweight of the European neighbourhood, an EU candidate country—but one with which the EU has a progressively deteriorating relationship. One Dossier looks at Latin America, whose nations are increasingly breaking free from the traditional alignment of their foreign policy with more powerful allies in the northern hemisphere. The other Dossier on progressive cities in Europe offers a range of examples from European cities where a transformation towards sustainability is currently taking place concretely and on the ground, thanks to the vision and ambition of progressive administrations.

Discover the Progressive Post website and stay tuned!


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

Response measures to the energy crisis: a missed opportunity to feed the socio-ecological contract

With winter coming and Europe ready to get through it without energy shortages, power cuts and recession, new research conducted by the ETUI in seven EU member states (AT-FR-DE-GR-IT-PL-ES) highlights that, with some 80 per cent of spending being directed to broad-based measures, short-term national government support during the recent energy crisis was poorly targeted. As a result, both social- and climate-policy goals were rather sidelined, with the biggest beneficiaries of public fossil-fuel subsidies being higher income groups and the wealthiest people.


AVAILABLE HERE

Friedrich Ebert Stiftung advertisement

It‘s all about jobs: investing in Europe’s workers and qualifications for a competitive clean economy

An ecological miracle on the labour market? Or rather job losses? The impact on employment and job profiles in Europe of ecological modernisation is a question driving politics and society.

We have taken a close look at studies and forecasts on the development of the European labour market. One thing is clear: without qualified and motivated workers, the economy will not flourish and the modernisation process will come to a standstill. Europe must deliver on a massive scale in the coming years to remain at the forefront.

We spoke to trade unionists and experts: what trends do we need to shape, what risks do we need to avoid, what course do we need to set now? Key findings in this study from FES Just Climate.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on LinkedIn

Follow us on YouTube

Social Europe ISSN 2628-7641