« The country's gross domestic product increased by more than 1.5 percent in the second quarter of this year. Production in the manufacturing industry increased by 5 percent over the previous quarter. The government assessment also shows that exports grew by more than 9 percent in May. If the trend continues, say the experts, the German economy will grow by well over 2 percent this year, or almost twice as much as in most neighboring countries...Economists are proclaiming a second economic wunder. »
This New York Times article from last week explains, "Germany’s unexpectedly strong economy is generally considered good news for the rest of Europe, which depends on German demand its goods. So is the drop in joblessness, which should help increase consumer confidence and encourage Germans to take vacations in Spain and Greece and otherwise channel euros to places that need them."
Perhaps even more remarkable than the general economic recovery is the recent job growth. The NYT article notes:
« At 7.6 percent, down from 9.1 percent in January, the country’s unemployment rate has fallen almost to precrisis levels. Companies, including the electronics and engineering giant Siemens, the truck maker MAN or the carmaker Daimler, are ramping up worker hours. BMW said it was seeking 1,000 people in Germany to work in research and development as well as purchasing and sales.
Germany’s newfound status as a jobs machine stands in stark contrast to its image of only five years ago, when unemployment was above 13 percent, more than five million people were jobless, and the country was a symbol of labor market inflexibility. »
Total unemployment is expected to drop below the 2.8 million mark this fall, the lowest level since 1991.
How has Germany orchestrated this recovery?
- Keynes certainly provided much of the inspiration: as the financial crisis became a global contagion, the German government established the €480 billion Sonderfonds Finanzmarktstabilisierung (Fund for Financial Market Stabilization), which comprises guarantees and capitalization assistance for troubled banks. The next month, the government began to implement part of its €80 billion stimulus package, and in January 2009, Berlin unveiled an €115 billion Wirtschaftsfonds Deutschland, which extended loans to companies suffering from the financial crisis.
- According to the Spiegel, "the second large-scale program that the government devised to assist companies, [the Kurzarbeit] short-time working program, also helped bridge the economic slump. The legal framework for the program has existed in German social legislation for decades. When companies experience sharp declines in sales, they are permitted to reduce their employees' working hours, and the government offsets a portion of the costs. The goal is to avoid layoffs and retain employees until the recession is over. In the most recent crisis, Berlin repeatedly enhanced the rule...While the jobless count grew by seven million in the United States, Germany experienced only a slight increase. In return, however, the number of short-time workers rose sharply, until it reached a record 1.5 million last May...Now that the economy is picking up steam once again, Germany industry already has a large reserve of well-trained employees at its disposal to handle the growth in orders, and at minimal cost." Klaus Zimmermann, president of the German Institute for Economic Research, called short work “the most important stimulus program.” “You couldn’t generate exports; you couldn’t make the U.S. buy German products,” Mr. Zimmermann said. “You could support the work force.”
The stimulus programs, while being praised for their evident effectiveness, are simultaneously being criticized for their shortcomings. For instance, the €5 billion automobile scrapping premium—a program similar to "Cash for Clunkers" in the U.S.—has primarily benefited foreign small car manufacturers, such as Dacia, Fiat, Suzuki and Kia, excluding German luxury carmakers Audi, BMW, Mercedes-Benz and Porsche got nothing. "We are the only country," Daimler CEO Dieter Zetsche scoffed, "that has created a program worth billions to subsidize foreign industry."
The Spiegel criticizes other questionable applications of stimulus funds, ranging from the €7.5 million renovation of a government-owned Arabian horse-breeding farm in the southwestern town of Marbach and a €15 million interactive museum for old hunting weapons in the northern state of Lower Saxony to €7.5 Arctic Sea habitat at the Hamburg Zoo that will house polar bears and common murres. The article continues, "The government kept moribund banks alive and rescued companies that didn't need rescuing. It spent money to allow companies to scale back production and paid consumers premiums to destroy assets with intrinsic value. Streets were repaved only to be torn up again soon afterwards, and schools were renovated and later shut down."
Additionally, despite the current economic growth, there is still uncertainty about the future, albeit much more confidence than in Germany's neighbors. The NYT comments, "Amid all the celebrating in German boardrooms, there is also nervousness about how long demand in Asia can continue to compensate for slower growth in Europe." Complicating Berlin's view of Asia as an important export market is competition with Asian manufacturers. Notably, a sharp decline in German exports caused Germany to lose the title of global export leader to China last year (Germany's powerhouse economy had led the world in exports since 2003, when it surpassed the United States.)
Nonetheless, it appears that the German government's timely decisions have helped prevent the global recession from taking a greater toll on the German economy, which will doubtlessly be key for future pan-European recovery.