Monday, August 11, 2008


The 1930s All Over Again

Germany’s economic policy is strengthening its place at the heart of Europe—and irritating the German people. This has happened before. By Andrew Miiller

The German people are not happy with their country’s financial system. Almost three quarters of them think it is unfair, according to a Bertelsmann Foundation survey.

The grounds for their complaint? The fact that even though Germany is the largest goods exporting nation in the world—even ahead of China—its people feel their wages are too low and unemployment is too high.

In 2007, Germany produced its greatest trade surplus ever: Its exports exceeded its imports by an astounding $288.5 billion. At the same time, the unemployment rate as of May stands at 7.9 percent. German export surpluses reputedly pay for deficits in Ireland, Italy, Spain and even France, while the German people scrimp and save to make ends meet. According to a study released in March by the Institute for Economic Research, just over a quarter of all Germans are now classified as poor. The federal employment agency says 1.2 million workers are paid so little that they qualify for welfare.

Shouldn’t the nation functioning as the economic engine of the European Union do better at providing jobs and good wages for its own people? Well, it is all a matter of priorities—and it is not the first time such conditions have existed in Germany.

How Hitler Came to Power

“When in 1930 Heinrich Brüning became chancellor of Germany he told his friends in the unions that his chief aim was to liberate Germany from paying war reparations and foreign debt,” Sara Moore wrote in the May issue of European Journal. “He felt that if he diverted all Germany’s efforts into exports it would weaken the ability of America and the Allies to force Germany to pay her ious if she chose not to. The German unions therefore agreed to Brüning reducing wages, raising taxes and diverting all industrial activity into exports so as to bring pressure on the Western powers, not realizing to what extent this would mean misery, unemployment and a diminution of power for the workers. Brüning’s initiative was successful. Millions of people abroad were fooled into believing that Germany herself was really poor, not just her hapless citizens, even though Germany was the greatest exporter in the world, with a mountain of cash in the bank.”

Brüning put everything Germany had into producing exports for the Fatherland, even if that meant taking more money from the people. By doing this, he strengthened Germany’s power and international position to the point where Germany was more powerful just 10 years after World War i than it was even at the beginning of the war.

Yet this economic system had another effect. The people became bitter and elected Adolf Hitler to lead them.

Here We Go Again?

Now consider the economic reforms Germany has implemented since it adopted the euro as its currency in 1999. Moore’s article continued: “Foreigners’ faith in the euro rests primarily with Germany. Other euroland countries’ economies are not so strong. Indeed, Germany’s European neighbors have suddenly discovered that Germany effectively imposed a ‘wage freeze’ on its workers after the adoption of the euro in 1999, clawing back 40 percent in labor competitiveness against Italy, 30 percent against Spain and 20 percent against France by 2007. …

“Katinka Barysch [of the Center for European Reform] declared that what distinguished Germany—‘from most of its peers’—was the weakness of domestic demand. Indeed, after the arrival of the euro, German workers suffered years of stagnant or declining wages. Then the German government, in an admittedly pale comparison with 1930, decided to cut corporation tax and give other advantages to industry, and to raise vat [value added tax], bringing pain to the workers, in order to pay for it.”

These wage freezes and tax reforms are keeping Germany’s money in the hands of corporate industrialists instead of in the hands of private citizens. This is one way Germany can afford to develop countries in Eastern Europe and bail its Western European neighbors out of deficit problems—even as its own people are complaining about poor wages.

These same reforms are also strengthening Germany’s position within the European Union at the expense of the smaller members. Moore continued: “We live in changing times with the rise of India, China, Japan and the Far East and the relative decline of the world’s greatest superpower, America. Germany has been a pillar of the international community since the war. With the help of the European Union and its most powerful provider of funds, Germany, the countries of the former Soviet Union in Eastern Europe are becoming richer, democratic and self-confident. Germany has a right to have an important say in the ecb [European Central Bank] to ensure that her money is well spent. Yet we live in a global economy. Power must be used with care. We must not underestimate Germany’s strength because of her citizens’ poverty or unemployment. Her deflation, and push for the ecb to adopt a high interest rate policy, besides affecting Britain and America, will slow growth for the whole of the European Union and create problems for the weakest states, whilst strengthening her relative position. How Germany will use this position is of fundamental interest and the parallels up to the present time with the 1930s experience raises cause for concern.”

As in the 1930s, Germany has put all its economic might into producing exports that will enhance its power and cement it as the economic engine that drives Europe. Might these policies and the resulting economic frustrations lead the people to look for a political savior as they did in the 1930s? It is completely possible. Even Moore wrote, “One worries that if things do not go [Germany’s] way, she could revert to her old idea of a Germanic empire.”

Indeed, Germany’s current economic policy is strengthening it as the heart of Europe. Meanwhile, the discontent it is creating could be the catalyst that leads to the ascension of a second Adolf Hitler—a new Charlemagne.

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