The German Model Is Breaking Down

The modest figure for German growth in the first quarter of 2013 – a mere 0.1% - only confirms the trend: the crisis is catching up on the euro zone’s strongest economic power itself. Since mid-2012, all the driving sectors of its economy have been ticking over. In last year’s fourth quarter the country even went right through an air pocket, with its gross domestic product down by 0.7%, so the Destatis Federal Statistics Bureau declared yesterday, against the 0.5% initially announced in January 2013. The news only increased the feeling that the country had been within a hair’s breadth of a regular recession – properly defined as two consecutive quarters of negative growth. For if within a few weeks, German statisticians were once more to put the figure right in the same proportion, Germany would eventually join the club of European countries in recession - with France and the whole of the euro zone.

The main reason for the slump is due to a fall in exports. Contrary to what happened in 2010 and 2011, when Germany flaunted high growth rates, foreign trade, Destatis points out, “has had next to no impact on growth.” The fall in sales of German products was largest in the euro zone -3.9%, against a mere 0.2% fall in non-European countries. The austerity policies so warmly recommended by Berlin to its euro zone partners have hit Germany back. Crippled by lack of money, Germany’s European partners, who represent no less than 60% of German exporting firms’ clients have been buying less. In France, Germany’s first trading partner, German imports show the same trend.
The “wage moderation” policies and the massive increase in precarious jobs that followed from the latest decade’s structural reforms (the very reforms that are being presented on this side of the Rhine as the incontrovertible means to restoring growth) have kept consumption down, when a rise in consumption could have boosted growth. Worse still, the deep malaise across German society, precisely as a consequence of the latest decade’s reforms, together with the fear of a further deepening of the euro crisis, have resulted in a noticeable fall in investments.

In actual fact, the German model, which had become a sort of incontrovertible reference for the euro zone, is now revealing its real poisonous effect for Europe as for Germany itself. Europe’s future can only be on the side of those that challenge the validity of monetarist dictates. Like those German workers in the metallurgical industry and their IG Metall union who after a series of warning strikes got a 5.6% wage hike for the twenty months from July 1rst, 2013.