Germany Does Not Have a “Financial” Crisis

Angela Merkel

Since early Fall of 2008, I have reported a lot about the financial crisis and its effects on many nations around the world. As I stated then, the problems seem to be allowing for the formation of the German-led European Union to take over the premier leadership in the world economy from the USA and its Anglo-allies– who have had it for about a century or so.

While there are some economic concerns in Germany, Germany appears to be highly determined to be in a solid position to take on the economic leadership role. Unlike the USA and UK which seem to wish to increase debt as quickly as possible, Germany appears confident that its more limited, more patient, economic approach is best at this time.

Although all is not perfect in Germany, notice that what I have been saying is basically confirmed in following news article:

Germany at odds with U.S. over crisis

International Herald Tribune – March 9, 2009

Germany may be at the heart of any European response to a weakening world economy, but Germany’s heart is not in it.

As world leaders gear up for a London summit meeting on April 2 where they are supposed to settle upon a coordinated response to the global economic crisis, conflict is brewing between Europeans who see tighter regulation of a skewed financial system as the main task ahead and Americans who are focused on the more immediate challenge of countering the acute dropoff in economic activity across the globe.

The differences between Europe and the United States are most evident in Germany, where years of growth fueled by a mighty manufacturing base and a deep-seated suspicion of financial capitalism has spurred a powerful resistance to the Keynesian-style deficit-spending favored in Washington.

As the United States pushes to ensure that governments around the world are spending enough to replace the demand that has evaporated as U.S. consumers lead a global retrenchment, Germany is sticking to the relatively modest stimulus it has already approved.

“The German approach is going to be ‘let’s wait on what we have already done,”‘ said Peter Bofinger, a professor of economics at the University of Würzburg and a critic of the government’s reluctance to spend more…

British-German entente has emerged as a new twist in international economic policy.

When Germany tried to put hedge fund regulation on the agenda two years ago, Britain sided with the administration of George W. Bush in opposing the idea. But two weeks ago at a meeting in Berlin, Brown lined up alongside Merkel and Sarkozy in demanding close regulation of the financial sector.

“These reforms, which I have been calling for some time and before the global meltdown, are crucial,” Merkel said. “It is about introducing transparency into the system.”

Merkel’s government pushed through a €50 billion, or $63 billion, stimulus package in early January, but that still fell short of the demands from both outside the country and inside among a number of prominent economists to do more.

Germany is not the only country in the world leery about cranking up spending. Japan is also watching its export machine falter, but a dysfunctional political system and already very high public debt levels limit the response there.

In Germany, the lack of palpable effects of the economic crisis for ordinary Germans, along with a deep-seated mistrust of running up debt appears to be reinforcing the government’s opposition to doing more, analysts said. And Germany is only now beginning to debate whether its export-heavy economic model might need to change in favor of greater demand at home.

Political developments have also left Merkel with little room to maneuver. With elections due in September she is loath to go on a massive spending spree; the opposition Free Democrats, which she hopes to lure into a conservative coalition after the election, will accuse her of trying to buy votes.

Then there is the pressure from inside her own party, which is uneasy with bailouts and heavy spending. Some of the regional politicians broke silence over the past few days by criticizing Merkel’s lack of clear leadership.

There is broad support for thrift in Germany because of its history. Savings were wiped out by policies that created hyperinflation in the 1920s and left it with another worthless currency after World War II. Since then, German economic policy, across party lines, has been about assuring stability – even if that means accepting slower growth or higher unemployment.

Merkel’s main argument is that if Germany, the biggest economy in Europe, were pushed to spend more to stimulate the economy, it might drag down the Continent over the long term by miring it in heavy debts that would require even higher taxes. That, German officials said, is something that the United States seldom appreciates.

At the same time, Germans warn, it would encourage more profligate countries – Greece, Italy and Spain are often mentioned in this context – from making the hard choices that brought the German budget nearly into balance before the crisis.

“We did our homework,” said Kurt Lauk, chairman of the economic council in Merkel’s center-right Christian Democrats party. “That creates a bad mood of sorts within Europe.”

On its face, Germany looks hard hit by the crisis, and the government expects the economy to contract by 2.25 percent in 2009, its worst showing in the post-war period.

Dig a little deeper, though, and the situation, to Germans anyway, looks less dire. German unemployment, reflecting fat orders to manufacturers and recent changes that made labor laws a bit more supple, has barely risen so far. In February it ticked up slightly to 7.9 percent.

Still, with energy costs off their peaks of the summer, and food prices – a source of much complaint in Germany – also down, the mood among German consumers has remained surprisingly upbeat. That stands in sharp contrast to their U.S. and British counterparts.

“The Germans have an economic crisis,” said Wolfgang Twardawa, a consumer analyst at the research firm GfK, “but they don’t have a financial crisis, and they certainly don’t have a property crisis.”

Twardawa said he believed the German government would end up passing another stimulus plan, but only after national elections in September.

The idea that Germans need to spend more is also sensitive in Germany because it casts doubt on the viability of the country’s economic model. After German unification in 1990, manufacturers in the country rapidly lost competitiveness as labor costs spiraled out of control and their products lost once-sterling reputations. They responded in the late 1990s with aggressive cost-cutting that included stringent limitations on wage increase, and a new generation of world-class products.

The mixture made Germany the world’s largest merchandise exporter – “export world champion,” in the German press. But workers’ wages stagnated and retailers in Germany suffered from weak demand.

“For the Germans to turn around and say there is no point in stimulating domestic consumption because our economy is export-oriented makes no sense from their own perspective or a broader international one,” said Simon Tilford, chief economist at the Center for European Reform in London. “The crisis has graphically exposed the limits of the German economy model.” http://www.iht.com/articles/2009/03/09/business/stimulus.php

Never (in my lifetime at least) have we seen a situation quite like this. The USA and UK massively increasing debt, while Germany is cautiously trying to show itself and the world that it has the economic policies that make the most sense.

The debt that the USA and UK are accumulating is not sustainable for either to be the premier economic engines for the world for much longer. While this more massive debt accumulation is not a change I can endorse as wise, it was long ago prophesied (Habakkuk 2:3,6-8) as was the rise of Europe to become the lead economic power of the world (Revelation 18). Both the Anglo-American nations and those of Europe are taking policies to fulfill those prophesies.

We who believe the Bible need to have the faith that God will finish His plan, His will WILL be done, and the 6000 years He has given humanity to rule itself on its own is almost over. Soon (probably by the end of the next decade) Jesus will return and establish the Kingdom of God on this earth. A time of peace, prosperity, and safety. That is part of why Jesus instructed His followers to pray, “Thy kingdom come” (Matthew 6:10, KJV).

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