At the beginning of the 21st century, Germany was still considered the sick man of Europe. High unemployment figures and a less competitive economy could allegedly only be reversed by deregulation measures. With the Agenda 2010 Gerhard Schröder turned the labor market in Germany into a worse one, but contrary to what is often claimed, these reforms did not lead to such an improvement of Germany as a business location that led to today’s huge current account surplus.
Matt Klein explains that decisive measures began with an increase in government spending even before that and that the Agenda laws only led to German domestic demand lagging behind and Germany building Europe’s largest low-wage sector. While the market shares of exporting industries continued to develop in line, Klein argues, low domestic demand meant that other countries had to go into debt to buy German goods.
Till van Treeck, too, sees problematic developments and refers primarily to the tax reforms of the early 2000s, which favored predominantly the rich and business owners. With the current interpretation of inheritance tax, family entrepreneurs in particular would benefit from not investing their money but keeping it in their companies.
Take a look at our fourth New Economy Short Cut here in full length.
About the Authors
Trade Wars are Class Wars – the title of the recently published book by Matt Klein and Michael Pettis says it all. The two authors trace current account imbalances and globalization issues back to power imbalances and inequalities within and across economies. In this New Economy Short Cut Matt Klein will lay out the connection between rising inequality in Germany and its massive current account surplus. In order to prepare, check out the review of the chapter on Germany by Marc Adam here. You can also find a summary of a recently published article of Matt Klein at Makronom here.
Till van Treeck is Professor and Director of the Institue for Socioeconomics in Duisburg and a renowned expert when it comes to the composition of the German economy and the struggle of rebalancing the current account. Commissioned by the Forum New Economy he is currently working alongside Achim Truger and Jan Behringer on possible ways to diminish the hue current account surplus of Germany.