The German middle class between a failing European Union and the rise of a New Right A brief position paper
I got the idea to writing this position paper in the summer of 2018 after, on June 5 The German daily “Die Welt” published an article on future pensions in Germany, written by a highly competent economics and finance editor, Dr. Dorothea Siems. Dr. Siems argued at the time that there is no way that Germans can maintain their current level of pensions and that it is indispensable to raise the entry age to pensions to 69 years. Within hours of her certainly well argued article, a literal “shit storm” broke loose. “Die Welt” permits readers to comment online and 2 days after the article’s publication, 1748 comments had been uploaded. In comparison, the typical amount of comments in DIE WELT is significantly lower, especially when it comes to topics of economics and finance. The main direction of almost all comments were ….”fury“. Anger would not adequately describe the amplitude of expressed emotions.
Before I start turning stones to dig into the jungle of numbers an figures to understand what is going in German economics, I would like to lay out basic observations and formulate some hypotheses:
? Dr. Siems’ otherwise well documented and convincingly argued considerations, unfortunately remain within the German context only and do not include the international – European - political dimension. It there, however, where the devil hides.
? While I do not deny that European integration has significant and obvious benefits to the German economy and that it has additional unmeasurable political benefits to the “country in the middle”, it appears that the particular course that European integration has been taking in recent years is increasingly leading to imbalances between and within European countries, for the correction of which concerned state actors (governments, and/or EU institutions) do not seem to have either the instruments or the political will. I will explain what I mean further down.
? The ultimate cause of many commentators’ explicit anger is the modern German obsession with being “the good guys”, allowing other (European) nations to directly or indirectly benefit from the German “guilt complex”.
? The very German state (including decision-makers like civil servants/“Beamte”) as well as important industry captains and business influencers count among the winners of those processes, while German middle class carries almost the burden of a defunct European Union that appears to have lost its center. Therefore: German middle I being doubly abused, first - somewhat abstract - by neighboring countries, and second - very real - by the German state itself!
? The tipping point seems to be reached, and a major paradigmatic change is in the making, for which the New Right is symptom, rather than cause.
Taking a closer look at what causes Germans[1]to be so irate, I will follow this outline:
1) German pensions: a reason to cry
2) Savings: a disappearing category
3) Astonishingly low: Individual German wealth
4) Taxes and social security levies: Second only to Belgium
5) Target 2 balances: High risk on top of exploitation
6) The birth of a ‘Moral Superpower’
7) A storm is brewing ...
8) ... that may already be about to break lose
I develop the argument around some hypothetical questions posed by an imaginary skeptical observer. I have often met this (imaginary) observer, he may be a well-meaning Italian, and friendly French, a disbelieving Greek, anybody who knows something about Germany, who may have driven a Mercedes, a BMW or a VW at some point in their life, or who may call a Miele washing machine their own. Let's say this is a person who is convinced that the "E" in "Mercedes E-Class" stands for "economy-class". Obviously a man (or a woman) who has never lived in our beautiful country.
So, in a change conversation, this friendly imaginary neighbor might turn to me and ask me a seemingly rhetorical question:
“Michael, it appears that Germany is really a “rich” country. Why else would your country take in and provide on the tax payer’s purse for millions of migrants. Your government is certainly aware that the chances of those people to contribute to the Germany economy, labor market or are…. security system are modest, to say the least?”
A German who would make such a comment would likely either be a passionate believer of the Green Party program, or ...(more likely) cynical. Far away from the German borders, though, I have met many people who indeed conclude: Only a VERY RICH country does such things.
I shall try to outline that indeed Germany is rich but the picture is by no means balanced. At the center of my considerations is the German Middle Class.
Numbers shall do the talking.
(1) German pensions: a reason to cry
The German entry age to pensions currently stands at 66 years of age, rising to 67 years by 2024. Only the Irish and the Portuguese work longer years in Europe, while for instance the Italians start the third phase of their life with 62,5 years, pretty much like the Czechs, Hungarians, Slovenes, or Greeks. The French and Belgians retire from active life already a year earlier. When eventually retiring, the Germans reach a “substitution quota” (ERSATZQUOTE) of 58%.[2] We are not talking about state pensions, but that quota measures the percentage of real income after retirement benchmarked against the last (real) income before retirement. It thus provides an indication of how much the standard of living declines after retirement.
In comparison, the OECD average Ersatzquote stands at 69%.
Interestingly, it is Spaniards (with a substitution quota of 84%), Greeks (until recently 110%!) and our Southern neighbors in Italy (76%, and currently planning to lower their already low entrance age into retirement even further) – who obtain significantly higher benefits than the Germans.
What contributes to the low number of German retirement income is that Germans only reach the maximum of their state pension after contributing for 45 years, while an Italian hits the jack pot after 40 years, and a Spaniard or a Greek after 35 years.
Nowadays, Germans are increasingly aware of well-endowed public pension benefits among our country’s heavily indebted Southern neighbors in the European Union, and they observe with surprise that those countries' debt in turn is significantly financed (or guaranteed at least by Germany). Therefore, demands to raise the German retirement age - as logically solid the argument may be - are likely to raise many a German’s blood pressure.
“Agreed”, our hypothetical and - shall I say: naive - observer may argue: “Bad pensions, o.k. …. But those lucky Germans can easily compensate with their very comfortable incomes. Almost everybody in Germany is employed and has income, and we all know that Germans are world champions in savings."
And indeed - I sigh - the misery of the German middle class does not stop at bad pensions. So I takle a deep breath to explain to my conversation partner. Unfortunately, bad pensions are only the beginning of the German middle's misery.
(2) Savings: a disappearing category
Right, Germans are passionate savers, - but not on basis of impressive incomes (I come back to that notion), but rather as a national reflex and inclination towards risk avoidance. Savings reality, unfortunately is not encouraging. To start the consideration on the positive angle: Indeed, there are Germans that have that extra capital that they can save or, better: invest. Civil servants may, among others be among them: With an Ersatzquote for their pensions amounting to close to 70%, i.e. significantly above the ‘common German citizen’, they feature among the upper 20% of pensioners; therefore, civil servants can plan investments over a much longer time period than average Germans (i.e. well into retirement), whose disposable income drops sharply at the moment of retirement.
One possible playing field for capital-rich Germans currently is the real estate market, which is booming: …. ”whoever has (owns) will have more”. Owners of real estate can consider themselves lucky, as their property assets continue to grow. In fact, between 2016 and 2017, Germany has added 200 capital millionaires to their flock, the highest rate ever[3], thanks to those members of the “owning class”, who benefit from the heat in the real estate (and stock) market.[4]
The root cause of those huge amounts of capital flooding into real estate, however is the European Central Bank’s negative interest rate policy, which makes risk-free saving a losing battle – the policy was designed by the ECB’s Italian chairman Mario Draghi, intend to buy time and thus “help” high debt countries like Italy, Spain, Greece or Portugal[5] to reform their economies and to lower their debt burden. From today's perspective, we know that Draghi’s policy has failed, its purpose was not achieved, reforms did not take place in the countries concerned (see the advent of the new Italian government and its announcement some time ago for strange economic policies, including “Helicopter Money”). Instead, negative interest rates prevail and literally “eat up” the Germans’ savings. Today, the economic outlook for Europe is darkening and the prospect of a coming recession is real: In this environment, raising interests, as some hoped would occur in 2019 or 2020, is not on the table.
Among the ones who suffer from extended negative interest rates are particularly those risk-averse Germans who – foolishly – followed the German government’s assertions that they themselves need to do something to compensate for ever lesser public pensions. For years, the German government "preached" to its citizens: Privately save! The obedient and trusting Germans did, - and for the most part they invested into traditional pension plans. Private pension plans that today are literally collapsing (along with some of the insurers).
Draghi’s policy was based on a “European argument”, of course. It looked at Europe as a whole, and it did not care much about the immediate interest of the Germans. Imbalances between and within European countries are not accounted for. However, targeted at "Europe as a whole", at this wonderful "peace project", who would deny Mr. Draghi the "moral high ground"? Except, may be for those loosing-out Germans, our "fools".
Looking at the case of savings, it becomes evident that it is mostly Germans who are on the "loosing end" of Draghi's interest rate policy. In fact, the ECB’s policies are a significant factor to explain why ever more Germans are turning against the Euro and the European Union.
This is not about "populism", it is about economics.
(3) Astonishingly low: Individual German wealth
Lets’ move on….
“O.K. then, German pensions are low, and savings are shrinking away in what many Germans consider a process of silent expropriation, - but are we not talking of a relatively small segment of German society, the lower end of the middle class that could be helped with some policies of redistribution of income, i.e. a policy targeted towards “social justice”?”
The German Social Democratic Party, SPD seems to have something like that in mind, when already last year they geared their election campaign to that very topic of “social justice” – and fantastically failed. And now again with their new extremely expensive demands for "social justice". One of the reasons causing that party’s failure may very well be a significant misjudgment of the dimension and nature of the problem. While of the 335.000.000.000 (“Milliarden”) € in the German budget 42% (!) are already dedicated to “labor and social spending”[6], even this huge amount is not enough to level out a significant structural deficiency in the German economy: Wealth is off-balance in Germany. The above-quoted group of “non-owning Germans”, namely, are the bulk of the German middle class, they are the vast majority.
Some numbers[7]: The World Wealth Report of the Swiss bank Credit Suisse has calculated for 2016 that the statistical median wealth of a German adult – monetary plus non-monetary wealth, minus debt - stands at a level of around 43.000 USD. To make sure: the median wealth balances out vast income inequalities like in the United States and thus better reflects the living realty in a country than simple averages.
Is that much or little? In comparison, an adult Canadian owns 86.000 USD, an Australian 185.000 USD, a “Kiwi” (New Zealand) 183.00 USD, a Swiss 229.000 USD, and an American 55.000 USD. This first look reveals that Germans are not really the top of the heap when it comes to individual wealth. How does this picture paint in specifically European comparison? Austrians, Germans’ beloved-hated closest neighbors accumulate median personal wealth at the altitude of 53.500 USD, notably above the Germans. Belgians, alimented by well-endowed EU organizations make it up to 152.000 USD, the Danes are at 81.000 USD, the small population of Iceland (300.000+ Icelanders) call an impressive 344.000 USD their own, an Irish has a typical asset portfolio of 77.000 USD, a Luxemburger of 158.000 USD, and a Dutch puts 94.000 USD on his account. It seems that indeed, the Germans live on the wrong side of the street among the richest countries of Europe.[8]
“But at least”, the increasingly disenchanted observer may exclaim, “the Germans are much better off than the poverty-struck citizens in those debt-ridden countries around the Mediterranean!”
Well, I must disappoint our anxious observer. Quite to the contrary! The French, certainly the richest among those countries that afford what the Germans consider an inefficient economy, manage to accumulate a median wealth portfolio of 112.000 USD / adult, almost triple of their German neighbors. The Greeks – who would have thought? – call 55.000 USD their own, the Spaniards 60.000 USD, the Italians 114.600 USD (! - I remind: that is the country that owes 2.3 trillion Euros, or 130% of its annual GDP, the same country that now plans to move its retirement entry age to 60, while the Germans are being prepared to work until 69).
How is this possible? One aspect of individual wealth is real estate ownership, and under this aspect we have some interesting realities to look at. Some further data may help to explain the point: 51% of all Germans live in their own living space (2016). Is that much or little? Well, it is little. VERY little, in fact, if we compare with other European nations: 65% of all French own the property they live in, and 72% of all Italians. Add 75-78% of all Spaniards and Portuguese, or 90% of all Norwegians. Only in ONE country in Europe, in fact, fewer people own the place where they live: in Switzerland!
Germans are renters, not owners. What are the implications? While upper echelons in European society across all countries, therefore rather benefit from artificially accelerated capital/real estate markets, typical German middle class families, whose resources are already under serious strain resulting from shrinking state AND private pension plans, in addition suffer from skyrocketing rental costs. In Germany, that is half of the population! In Southern Europe, barely over 20% of the population are on the loosing end of a capital market turned wild. Put simply: In indebted Southern Europe, not only the state benefits from negative interest rates, but also a much higher percentage of the population can harvest benefits from a heated real estate market.
But there is hope for the Germans: Apart of the still struggling countries East of the former “iron curtain”, there is one Western European country whose citizens call less wealth their own than the Germans: beautiful Portugal, whose adult citizens own only 36.400 USD per nose.
In sum: For whatever reason Germany got into the wrong part of town. I would argue: bad politics have played a role here.
At this point, a sensible analyst might argue: "Well then, Germans, now you know you are doing something wrong. Change strategy, get onto the right side of the road and invest your income well." If only it were that easy....
(4) Taxes and social security levies: Second only to Belgium
Our observer-friend as well here takes a deep breath and throws up his hands:
“You must be fooling me. This cannot be true! Germany is the country where Mercedes, Audi, BMW and the best washing machines of the world are being produced[9]; those products are being sold at good margins around the world! Where does all the resulting revenue, where does all that wealth go?”
Apart of some beneficiaries in large companies, whose managerial salaries are: fantastic, to say the least – the smiling winner is: The German State! For years, the German government has been preaching with almost religious verve that Germans must make themselves fit for the future in an ever more competitive, globalized world: “Better that everybody has a job at a reasonable salary than taking into account the exportation (“outsourcing”) of production or even of whole industries which would result in huge job loss at home”, the government had argued. (After all, even small incomes can be taxed, while no income results in a burden for the state. But that aside.). We assume for a moment that government’s argument for salary restraint has indeed been motivated by the interest of the common German. In any case Germans, (still to the day) trained to be obedient, understood the argument. They rolled up their sleeves, showed their muscle and got to work; with moderate gross salaries, but enough to get by.
Now comes in Europe again, and the German government’s seemingly inexplicable obsession with ‘morality’. I will discuss this phenomenon a bit further down. For the time being: In order to finance its “benevolent” actions in favor of “those Germans left behind by globalization”; in favor of other European nations; and in favor of sizable population groups from even outside of the European Union (e.g. 2 million refugees, since 2015); and finally in order to secure that the necessary revenue arrives at the government’s coffins an ancient-old “trick” used by governments is being reactivated. With a voice as sweet that any rattle snake would pale in envy, the state whispered into the citizen’s ear: “Nobody in our society of solidarity should be left behind, we need to procure for the poor and for the less fortunate. That, my dear citizen - we are so sorry - costs a bit of money. But we know, you are good. It is with great sorrow, but we need to collect some (and ever more) taxes.”
Some (!) taxes…..! Well, what Germany collects from its working population is impressive, to say the least. In fact, according to OECD, there is only one country in this group of the world’s highest performing economies, where citizens are burdened even more, i.e. in EU-pampered rich Belgium. In the field of tax collection, Germany is champion. Once again! Germans love to be champion…
4.2 million employees in Germany pay the peak tax rate. Another number: the 10% highest earners contribute 48% of the entire state income through labor taxation. Is that a state that – supposedly firmly in the claws of soulless “neo-liberalism” as the left claims – cynically leaves behind its weak and less performing? I don’t really see evidence. Rather, high and medium earners are severely lead to bleed. Middle class carries the burden of the German state.
More in detail: The average income in Germany is 38.571€. An employee who earns 54.000 € (per year, that is), that is 140% of the average income, qualifies for the peak tax rate, reserved for the rich. In reality that amounts to deductions (income tax, plus social security whose benefit with respect to pensions we discussed at the beginning of this short paper) of approximately 51%. We should pause for a moment and allow for that number to sink in: an employee who earns 54.000 €/year, i.e. 4.500 €/month is considered “rich”. This “rich” person will receive a net disposable income of 2.205 € (approx. SAR 9700)/month.
Whoah!
For me, this is pre-Socialism.
(5) Target 2 balances: High risk on top of exploitation
A modifying note is indicated, concerning the wealth of the German state. The issue that I need to briefly discuss is TARGET 2 (Trans-European Automated Real-time Gross Settlement Express Transfer System).
Sounds like a monster, looks like a monster, smells like a monster: Is a monster!
What the rather unwieldy terminology refers to is a system originally designed to ease capital transfer between EURO countries. Target 2 refers to – roughly – a disposition credit line between EURO countries, without securities, without limit, and without interest. The assumption was that participating Central Banks would keep more or less a balance between money borrowed from other central banks. Well, this has not occurred. Lets’ look at some numbers:
European countries, here too are split between those whose central banks owe money and those that lend money. Among the ones most indebted are – I believe nobody will be surprised – Banca d’Italia in the first place with a debt load of 464 Milliarden €[10], followed by Spain with 377 Milliarden €, France with 132,6 Milliarden € and Portugal with 77 Milliarden €. Which Central Banks are the lenders then? Well, Finland with 66 Milliarden €, Netherlands with 135 Milliarden €, - and the leader of the pack is (once again, …"The Champion"): Germany with the fantastic amount of 956.000.000.000 €! Those numbers, and in particular the high level of German financial claims are the flip side of the German export surplus, as a negative balance tends to develop when one country consistently purchases or invests more in another country than vice versa.
The problem of this system is in the fact that the architects of Target2 did neither foresee any type of securities, nor did they foresee to balance out those discrepancies. One theoretical possibility to balance out would be to frequently exchange gold at the current market value. Gold was the standard in the old Bretton Woods system, but is in this form no longer practical. Nevertheless, gold provides a useful benchmark that clarifies the dimension of the imbalances that we look at, for Germany would need to receive a total of 27.000 tons of gold!!! Obviously, there is not so much gold around.
Change of perspective: Italy has the second largest gold reserves in Europe, at a value of 87 Milliarden €. Even that is roughly just about 1/5 of what Italy owes to Germany, in Target2 balances alone!
Instead of leveling out, the target balances have developed a life of their own and tend to further widen between European countries. The question to be asked is whether those imbalances are of any relevance in the “real world” of a European, here: German citizen or tax payer. The quick answer is: No! They are “phantom numbers” in the books of Central Banks that do not in any way affect the common citizen. However, nothing in the financial world comes free of charge and unfortunately, the quick answer is a bit too quick; for calm prevails only as long as owing countries remain within the Euro currency. Should such a country decide to leave the common currency and subsequently devalue, however, any negative Target2 balances need to be written off. Should that occur, we could say, in a very real sense, that Germany, proud (former) world champion of exports, - has actually paid for part of the country’s exports itself!
Which government is foolish or rather recklessness enough to expose itself, and ultimately its citizens to such a high level of risk?
Since the new Italian government has taken office, that risk is by now a very real possibility. While that government’s initial plan to leave the Euro has quickly disappeared from their coalition’s treaty, that danger remains an unspoken threat. Should Italy leave the Euro, Germany would be seriously affected. In the best case of such a scenario, the Bundesbank takes the developing huge deficits (in comparison: the amount that Italy owes in Target 2 alone is about 140% of the German annual budget) into their books and operates with red numbers – for years or decades to come. This would affect German revenue generation.
In the most likely case, the Bundesbank would roll over their burden ….to whom? You guessed right: To the German tax payer!, or alternatively, a forced mortgage for all land or property-owning Germans might be imposed. As always: Affected will be mostly … the middle class!
In sum, while the German state is rich, it is also exposed to significant political risk, - which in turn means high risk for the German middle class!
(8) The birth of a “Moral Superpower”
As I have discussed on the previous pages, the German middle class is heavily exploited and exposed to significant economic risk. A government that does this to their own people needs to position some sort of a legitimizing principle to bring concerned people on board, or to at least keep them in check. This might be the promise, for instance of a better (e.g. more stable, more prosperous, “happier” future) to immediately follow the suffering of the current day. And indeed, it appears that for the Merkel government “Europe” has all the trappings of that almost mythical future end state, where everything is better, where the universe is healed and where all promises will be fulfilled. The Bible knows such a place, to the common believer known as ‘paradise’, and on this side of eternity many attempts have been undertaken by politicians of all sorts and shapes to define and describe the shining “city on the hill”. “Europe”, in today’s political semantics of the Merkel government seems to almost have assumed that distant place; formerly, not too long ago this space was occupied by the defunct political model of “socialism”. Not few political commentators, therefore describe the direction that Germany is taking during the Merkel years as a path towards “Socialism 2.0”. Others speak of today’s Germany as “GDR 2.0”. The numbers introduced above, indicate that such characterizations are not entirely without merit.
Striving towards such distant and elevated heights, a responsible government would lay open its plans, ambitions and its vision and share promise and risk with the people under its patronage. The pathway that the Merkel government has taken, however, reminds more of a type of manipulation, as neither potential nor risks or costs are laid open to the German citizen. Instead, the leading legitimizing principle that the German government brings into play is a moral category, rather than a rational argument.
The “guilt and shame” complex that results from a history which barely a living German has been part of, still matters a lot to Germans who are keen to be seen (before themselves in the daily mirror, and in the eyes of the world) as sailing smoothly on the good side of history. For a long time, therefore, disciplined Germans have endured the above described situation. After all, in an etatist country like Germany, the state is considered an ethical force of good. Even after that dreaded history, such deep-sitting and historically grown prejudice survives. Consciously or sub-consciously and certainly nourished and supported by state-imposed education content throughout the 1970s until the current day, a nagging thought of guilt always loomed right in the back of many Germans’ minds.
“Europe”, this ancient promise of peaceful unification, defunct since the collapse of the Roman Empire, was thus put in position to offer much desired redemption. Yet unlike socialism, which was but an idea placed in the mythical darkness of a distant future and as such could never be tested or even proven wrong in the real world, “Europe” is not only an idea but a real place, which can be measured, understood, formed, criticized, etc. In this real Europe, things started falling apart after the financial crisis of 2008. Or, lets’ say, the constructional deficits of the European Union and of the Euro both grew and became more evident in the years since.
When in July 2012 Mario Draghi announced that the ECB would do ANYTHING to save the EURO, hardly anybody understood the earth quake that was unfolding before their very eyes. Many an observer were ignorant of what the future would hold in stock. A first wave of criticism occurred in the spring and early summer of 2015 when the “salvation” of Greece (i.e. German and French banks) was hotly debated. Things got worse since September 2015 when the German Chancellor ‘forgot’ to close Germany’s borders. Both events were perceived by many Germans as a form of betrayal, as a breach of the trust that so many Germans had extended towards their government. While willing to pay their dues for the construction of the European Union, and while prepared to “help” other nations on this benevolent path, “saving Greece”, as well “importing” literally millions of benefactors into an expensive social security system that Germans paid with their taxes and levies, overstretched the German patience.
At the same time, gradually the impact of the ECB’s monetary policy has as well been sinking into the German mind and many a German asked themselves, which moral obligation they might have to support with their taxes European neighbors, who seem to be better off than Germans themselves, who possibly work less hours, who may retire earlier, and who seem to have more property. The impression grew among many German citizens that their state cared for Europe, for the world as such, indeed, but not enough for Germans.
When since 2008 economic imbalances both grew ever more and at the same time awareness sank deeper into the German educated public’s collective mind; when furthermore the migration crisis with its absurd decisions broke in over Germany like a perfect storm and consequences of those decisions became clearly evident to any attentively observing citizen, - when all that happened, the above described legitimizing principle of “guilt and redemption” weakened and got under threat to brake. An overburdened government, supported by "journalistic high-priests" on their payroll, under this threat responded by sounding ever louder the supposed morality of their actions. At the same time, the “state-journalistic complex” undertook any measure at their disposal to “de-legitimize” opposition or criticism of their actions, of their motivation and of the righteousness of their political course. Any opposition – both on the far left (e.g. Sarah Wagenknecht, a socialist economist of DIE LINKE), and on a New Right (Alternative for Germany, AfD), were literally diabolized.
Indicative of this new positioning is a recently leaked strategy paper written for ARD, one of the German public news stations (financed through an obligatory fee system that no German can escape from). State-funded, therefore, ARD (along with the second public channel, ZDF) has long been suspected to rather serve government - or the wider political class - and less truthful reporting. In any case, the leaked paper recommends to ARD leadership a policy of "framing", i.e. of redefining the meaning of words, all to the effect to assume the moral high-ground and to delegitimize the opponent. The chosen language reminds strongly the propaganda that was practiced in Germany during the early 1940s!
To make a long story short: Germany thus in its own eyes became a “Moral Superpower”. Or so, the Germans were lead to believe! The more difficult it became to justify a political course, the German government in recent years ever more vociferously displayed their policies in moral terms.[11] This moral impetus was expressed towards their own, bleeding citizens as well as any audience abroad, be they Russian (sanctions!), American (disdain), Eastern Europe (illiberal!), Saudi Arabia (backwards), Britons (dumb enough to leave to EU), Italians (abusive), etc.
As we have seen above, morality is but an instrument which merely serves to conceal very real interests. Not all Germans are losing out, after all. The state, including a good range of civil servants who are endowed with very comfortable pensions, as well as a relatively small group of “industrialists” may be lucky winners of this cynical game. Again, ever more observers of German public debate feel reminded of the late GDR, - or worse!
However, the “bluff” has been called. The legitimizing principle is at current braking, and ....
(8) A storm is brewing
With the French President’s ideas to “deepen” the European Union and to strengthen the Euro (i.e. commit the – rich – German state even more), with the Italian government’s ideas to unburden that country from the (borrowing) sins of its past, and with the current German government’s nilly-willy willingness to play along, a storm is brewing inside Germany and among the German people whose strength is yet beyond measurement.
The European and later some State elections in Germany will tell more.
It was Karl Marx of all philosophers – certainly not my favorite bed time reading – who turned Hegel’s philosophy of the unfolding Weltgeist from the head on its feet and placed economics at the base of most complex developments. Bill Clinton, much later put it more simply: “It’s the economy, stupid”, he said. If we take into account the described parameters of economics in Germany, as they pertain to the life experience of the common middle class citizen, we have a model at hand that helps to explain the recent, seemingly unstoppable dynamics of an emerging New Right in that country.
The New Right, represented in Germany by the “Alternative for Germany”, AfD, publicly breaks one taboo after the other, and although almost all established political forces exclude that party even from dialogue, the AfD continues to grow in strength, currently standing at around 14-16% of the electorate, likely even higher. In one German state, Sachsonia, a new poll puts them at 24% (up from 9% in 2014) for next year’s state Parliamentary elections.
Much earlier, the growing economic imbalances (“injustices”) hinted at in this short essay should have been noticed and addressed by the Left. This did not happen, the Left proved unwilling to address those issues. Possibly too much taken aback by the perspective of ever deeper internationalism and ever closer European integration within the European Union, the Left fell victim of their ancient humanizing dream of a peaceful international community. Possibly, the Left was also unable to address the issue. Their “Robin Hood” instruments are mostly designed to redistribution of income to the lower end of society. Dealing with the deconstruction of the middle class in an international (European) environment, as described is not a field the Left seems to sign competent for. The Left consequently failed and moved away from its original genetic imprint: i.e. protection of the weak and of the ones left behind. Instead, the Left (including a particularly proud media intelligentsia) dressed in a pretty costume of self-perceived morality and allied themselves with the winners of change.
The real drama though is dismal performance of another political force that has first failed (2009-2013) and then temporarily even disappeared from German upstage politics: The (economic) liberal party FDP. It is this middle-of-the road party, supposedly committed to economic reason, liberty and individual responsibility – a rare and welcome contra-point, by the way to Germany’s love affair with collectivism - that should be the guardian of the middle class. Yet the Freie Demokratische Partei, FDP after their eventual re-appearance on the political high stage at last year’s federal elections seemed more concerned with celebrating an assumed “advance” of the human race by legalizing homosexual marriages (jumping on the “morality bandwagon”), rather than using economic argument and making themselves a spokes forum of the ever more exploited middle class by the very German state.
By now, it may be too late. Dynamics have changed; the sometimes not even fully understood unease among many middle class citizens in Germany about individual economics “that just do not seem right” gave birth to a different animal; one where emotions around exclusion, identity and possibly hostility play a role.
This short paper does not attempt to discuss the New Right. Only, we need to notice that this political phenomenon (often called ‘populist’) that sprang up powerfully in recent years in several Western countries, does not in the first place speak the language of economics but moves in a sphere that we might describe as “cultural” in the widest sense, thereby often arguing for roll-back of cultural developments that started in the late 1960s.
Many argue that the “New Right” will disappear once the migrant crisis will be resolved (if that ever happens. The most recent attempt by the CDU was little successful). Indeed, the immigration topic is predominant in New Right discourse. I do not believe this assertion to be true, though. While the New Right is at pains speaking the language of economics, its proponents[12] are well aware of the described economic imbalances and take them into account of their strategy. In other words: The cultural and collective emotional themes of the New Right are – in part! – fueled by the economics that affect the middle class.
The Left had their chance to address and correct the economics that lay “beneath” latter-day movements that occur on the political New Right – it failed.[13] The weak German Liberals, more concerned with tactics than with strategy, have ignored those developments, earlier this decade serving their particular clients, while currently chasing behind “the fashion of the day”.
(8) … which may already be about to break lose
In the end, it is – as always - the economics that need to be corrected, but for the time being a new paradigm emerges in which powerful collective emotions take hold. In Germany, and elsewhere. Nobody expresses more “purely” that new paradigm than another American President, who might put it this way (I put those words into Donald Trump’s mouth, of course): “It’s politics[14], i….t.” Politics, in the most basic of definitions is nothing but negotiation of power.
After the G-7 debacle[15] on 9 June, 2017 Merkel, Germany’s former “iron lady” offered something like a “Merkel Doctrine”, as the German media immediately called her ideas that she shared at a talk show. Accordingly, Europe will become the Western world’s “last best hope”. After “saving Greece”, “saving the refugees”, “saving Africa”, and “saving the world climate”, - who would have expected less? Compare my comments above. Looking at the dismal state of the European Union in general and the more than shaky state of the German government in particular, this “doctrine” may in fact be short-lived. A year further down the road, in fact Europe looks weaker than ever. Much rather, what seems more likely is that the next German government after Merkel’s final demise will be quite different from what we have seen in decades. Different by a landslide.
Scenarios for the future development of Germany are now wide open, yet there is little doubt that the storm that may very well break loose has every potential to level mountains. And that storm may hit us earlier than expected. In fact, we are already in the middle of it.
[1]At least the readers of this daily newspaper
[2]OECD: “Pensions at a glance”, 2013 (data from 2010)
[3]And the second highest in the world.
[4]The same applies, in analogy to the stock market.
[5]In Northern Europe, where higher fiscal discipline prevails, sometimes with a dose of sarcasm referred to as “Club Med”.
[6]In comparison, the second largest budget position is defense with 11% of the budget (by the way, that makes for 1,2% of Germany’s GDP, much below the 2% that Germany committed to within NATO), 7% go to debt payment and only 5 (!) to education.
[7]Based on Global Wealth Report, Credit Suisse Research Institute
[8]Interestingly, the Germans also seem to get into the wrong neighborhood with respect to another crucial aspect of their daily life experience: Peace! The Global Peace Index (GPI), compiled by an Australian-based NGO measures since 2007 the peacefulness of a country under external and internal conflict aspects, and societal components such as trust in institutions and individuals in charge. Based on the 2017 GPI, Iceland is the world’s most peaceful country, followed by New Zealand. In fact, 8 of the 10 most peaceful countries are European (Australia comes in as well), with place no. 2 occupied by Denmark, 3 by Austria, 4 by Portugal, followed by Slovenia, etc. Germany – after the 2015 immigration experience – features on place no. 16!
[9]Digitization in Germany mostly refers, in public debate at least, to laying cables….
[10]That is 27% of the Italian GDP. In sum, the amount of money that Banca d’Italia owes particularly the German Bundesbank would implicitly raise the Italian debt from 1335 of GDP to 160%. To remind: 60% debt load is the recommended limit
[11]Compare, pars pro totoGermany’s attitude towards the American President, or the former German foreign minister’s disdain for Saudi Arabia, or even Gabriel’s disdain for those German people, who expressed in a weekly March in Dresden their discontent and whom he called “Das Pack”(human garbage).
[12]Particularly Dr. Alice Weidel, an economist who co-leads the AfD’s Parliamentary group.
[13]On 10 June 2018, at the party congress of DIE LINKE, the far left in Germany, a virulent debate took place between leading protagonists of that party: Sarah Wagenknecht, a highly intelligent socialist economist at the helm of the party argued that social market economy and open borders do not make a healthy couple. She failed, while this party (the successor, by the way of the former East German SED that had violently and at the cost of human lives closed the inner-German border for decades) committed to their idea of “humanity”, i.e. open borders for anybody.
[14]i.e. power
[15]I actually counted 9 “big ones” on the official photo and never understood who had invited Tusk and Juncker to the party. None of them represents a state, after all.