Is Germany the next Japan?

[pnjsurferpoet]

This is a few articles regarding Germany's economy. If anyone wants to read them, I have a few questions I'd like to discuss. They're short and easy to read.

http://www.msnbc.com/news/CNBCgermany_Front.asp?0dm=C16JB

My questions for anyone who reads this:

If a country knows what's wrong with its economy, why can't it fix it. For instance, if jobs are going from Germany to countries that were in the Eastern Bloc due to lower labor costs, why can't a leader go to the workers, tell them what's happening, and then make trade-offs regarding a fair share of the profits they help produce and jobs?

If the world is going to lower the rating on Germany to a status like Canada has, AA, when it needs to borrow money, why wouldn't a country change its policies that are causing that rating to drop? One article mentioned how German Banks make riskier investments in companies.

[monocrat]

Originally posted by pnjsurferpoet
This is a few articles regarding Germany's economy. If anyone wants to read them, I have a few questions I'd like to discuss. They're short and easy to read.

http://www.msnbc.com/news/CNBCgermany_Front.asp?0dm=C16JB

My questions for anyone who reads this:

If a country knows what's wrong with its economy, why can't it fix it. For instance, if jobs are going from Germany to countries that were in the Eastern Bloc due to lower labor costs, why can't a leader go to the workers, tell them what's happening, and then make trade-offs regarding a fair share of the profits they help produce and jobs?

If the world is going to lower the rating on Germany to a status like Canada has, AA, when it needs to borrow money, why wouldn't a country change its policies that are causing that rating to drop? One article mentioned how German Banks make riskier investments in companies.


Part of Germany's problems is its unflexible labour market. It needs to liberalise this if wants have a buoyant economy again.

[pnjsurferpoet]

thanks for reading that. What did you think of the articles? Were they accurate Monocrat? Or did they have some bias I was unaware of.

Also, if the countries from the former Eastern Bloc join the EU, won't that put an end to the stealing jobs for cheaper labor?

In the US, companies get breaks from certain states or towns. Like say, they might not pay taxes for the first 10 years of operations. You know what happpens after 10 years? They move on to the next deal so the locals never really benefit from the commitment of jobs in exchange for tax breaks.

[monocrat]

The article essentially states that Germany's labour market is too rigid, which is what I said earlier. Even still I largely agree with it.

[pnjsurferpoet]

If the German economy did go the way of Japan, what affect would it have on the world. I know there's lot's of German companies in America who employ people.

[Darth Fred]

Originally posted by pnjsurferpoet

My questions for anyone who reads this:

If a country knows what's wrong with its economy, why can't it fix it. For instance, if jobs are going from Germany to countries that were in the Eastern Bloc due to lower labor costs, why can't a leader go to the workers, tell them what's happening, and then make trade-offs regarding a fair share of the profits they help produce and jobs?

There are a couple of crucial reasons. Firstly, in economics, nothing is ever cut and dried; there will always be at least two groups with different opinions about how to solve any issue, and they will usually take up diammetrically opposed positions. In a lot of cases it comes down to monetarists telling governments to let the free market handle everything, and Keynesians saying the free market doesn't work. How does the government know who to believe (given that both sides are composed of highly experienced and intelligent economics professors)? I've been studying the subject for years, and I'm still not sure who's right in some cases.

Secondly, it can be quite hard to convince workers to take pay cuts, especially if they have strong unions, which I'm pretty sure the Germans do. They may be willing to take the risk of unemployment to keep their wages up. You also have to understand that, until they actually do become unemployed, workers may well believe that it won't happen to them. It's a very human way of thinking.

[Toadborg]

Another part of the problem is that the govts fiscal policy is constrained by the stability and growth pact.

The spiralling unemployment puts a considerable strain on the govt budget anyway but they are limited to a 3% deficit so they can't really spend massivley to get out of it or they face penalties that would counter the good effects anyway.

I think there is a move to reform that pact which should allow some improvements....

[pnjsurferpoet]

Thanks, these were really good posts... a bit over my head in parts but that's o.k.

Now. How will it affect the world if Germany was to melt down like Japan...as suggested in the other articles in the series?

[Toadborg]

Yes it would very seriously effect the world.

germany is the 3rd largest economy in the world any kind of disaster (which i doubt will happen) will have major effects...

[JonBoi]

Although things are looking grim, there is an air of optimism still in Germany.

I work for a British economic development agency out here and we have quite a lot of dealings with major German corporations, including the banks.

Things are looking poor at the moment but general signs point towards an upturn and growth for 2004. Depending I suppose on the global situation.

The Banks realise that they have to reform and a lot of them are already making the necessary moves towards overhauling their back-office operations, restructuring, consolidation... it will take time and I believe one of the big players, perhaps commerzbank, may need to merge with another banking organisation to survive this period of time.

As for the manufacturing situation. The flow eastwards cannot be stopped but as in Britain, where manufacturing declines, traded services take their place (or they should in theory, but the North of England is still recovering from the decline of manufacturing as are other regions in the UK). The German Labour force simply cannot compete with the price of labour in Poland, Hungary, China etc. etc... and their labour laws and the social security system that accompanies it is cripling the country. It is in serious need of reform, but the trade unions, who yield an enormous amount of control and influence, won't allow most of these reforms to take place, as they arent as worker friendly.

So the reform of the labour and banking system are the two major issues facing Germany today. Personally I think they will manage it. It was the home to the Wirtschaftswunder in the 1950's and its products and services are highly regarded in most foreign markets....am sure they'll pull through.

They bloody better recover- otherwise they'll shut my office down and I'll have to move back in with my parents in Belfast!!:eek2:

[Darth Fred]

Originally posted by Toadborg
Another part of the problem is that the govts fiscal policy is constrained by the stability and growth pact.

The spiralling unemployment puts a considerable strain on the govt budget anyway but they are limited to a 3% deficit so they can't really spend massivley to get out of it or they face penalties that would counter the good effects anyway.


Not necessarily. As I understand it, in a severe enough recession (I forget the exact definition in the treaty) the stability and growth pact can be ignored by a government. If I recall correctly, a country may also lobby the Council of Ministers, and, with their approval, the pact may again be ignored.

The pact was specifically written so that countries in a recession would not be made to suffer further; it's main purpose was to prevent reckless government spending by EU members who were not considered to be fiscally responsible in the run up to monetary union.

[pnjsurferpoet]

this was interesting thanks.

[monocrat]

Originally posted by Toadborg
Another part of the problem is that the govts fiscal policy is constrained by the stability and growth pact.

The spiralling unemployment puts a considerable strain on the govt budget anyway but they are limited to a 3% deficit so they can't really spend massivley to get out of it or they face penalties that would counter the good effects anyway.



But how many industrialised nations are Keynesian in their economic policies? Not many.

[Darth Fred]

Originally posted by monocrat


But how many industrialised nations are Keynesian in their economic policies? Not many.

Given the nature of politics in an industrialised country, it is arguably impossible for a country to be deliberately Keynesian. To do so requires an absolute freedom to raise and lower taxes at any time the government deems necessary, and tax hikes tend to be difficult and slow to implement. Altering government expenditure is also difficult or impossible to do quickly, and tends to suffer from a "ratchet effect"; you can raise spending relatively easily (as long as you don't mind running a deficit), but when you try and cut it, the services who would lose money scream bloody murder.

In this specific case, however, it is about the so called automatic stabilisers inherent in all modern economies. As the economy goes in to a recession, unemployment rises. The government naturally takes in less in taxes (less wage earners to tax), and has to pay more in unemployment benefits. This is what causes the deficit to spiral in a recession, and it is a normal, and arguably healthy, feature of any economy, as long as you don't continue running deficits after the economy picks up again.

Every day, I sound more and more like an economist. :(

Kill me, kill me now.

[pnjsurferpoet]

The stock market in Japan hit a 20 year low today. What does that do to the average worker there?

[Toadborg]

Thanks for the info on the stability pact Fred....

Despite the gloom of the Japanese economy they still have one of the highest standards of living.

A low stock market will not necessarily directly harm the average worker.

The bad effects come if the low stock market is a result of bad performance which tends to lead to the cutting of the labour force or relocation to other nations.

The low stock market is also quite likely to effect pensions (though I ma not sure of the japanese system)

[pnjsurferpoet]

I think one of the down sides of a global world economy is that companies can play countries off each other to get the best deal, meaning breaks on taxes, worker's wages, agreements not to strike.

[Toadborg]

That is meant ot be the best thing about it, flexibilty and competition leads to efficiency and wealth...........

Supposedly......

[pnjsurferpoet]

I could see how it would lead to efficiency. But I'm surprised no one has said that by not regulating it's companies more within the US, the US let's these companies get more out of their workers without the workers sharing in the company profits in terms of days off etc. as much as in Europe. I think that's a valid criticism. In other words, if it takes years for most US workers to have 4 weeks vacation, doesn't that put pressure on Europe to give its workers less?

[Toadborg]

Indirectly, yes, as US companies can operate at a lower cost and are thus more competitve.

I would imagine that such issues are not big in the US at the moment. I also believ that the US trade unions are quite weak so any effective change would have to come from voting for someoe pledged to changing the labour laws.........

[pnjsurferpoet]

So in a way it's good for Germany that they are letting Bulgaria and Poland in to the EU so that they have to follow the EU's standards for worker's rights etc.

In manufacturing in the US, many jobs went to cheaper labor in Mexico. In one case, Mexico then lost out to the country that sent slaves to America. And in the shadow of the slave holding fort, is a place that processes orders for a big American insurance company. The people work for "slave wages." Quite the metaphore....

[Clandestine]

Bulgaria is a long way from achieving even the necessary economic pre conditions to be considered for application to join the EU, pnj. Poland is one of the 10 new countries pending full membership but not Bulgaria.

[pnjsurferpoet]

Well, the other issue too Clandestine is that I honestly don't think US troops belong where people don't want them...even if some in the government do. So that's why I think the US should put some troops in Bulgaria. Also, Turkey seems to be entering into a more conservative phase and may or maynot be a reliable allie.

[Clandestine]

A reliable ally is not a lap dog that does whatever its ally wants without adressing the issue if it is not deemed wise or appropriate. Or do you only pick friends who will never confront you and try to prevent you from making huge mistakes??

Perhaps you think YES men are trustworthy but history shows how foolish that thinking is.

I do fully agree however that we should pull our troops out, but send them home to their families where they belong.