Wednesday, September 29, 2004--Andis Kaulins [9/29/2004 04:09:00 PM] - Home - About - My Book
Germany, Law, Schroeder, the SPD and the Green Party
Germany, Law, Chancellor Gerhard Schroeder, the SPD, and the Green Party
The Law Pundit has just finished reading an analysis of "The German Tax Reform Acts 2004" from the law firm of Freshfields Bruckhaus Deringer, where it was concluded:
"The amendments are so inconsistent that without guidance from the German tax authorities, careful tax planning is almost impossible....
For an additional number of cases the rules seem to be technically
inapplicable and result in incomprehensible taxation consequences.
[Law Pundit: at this point the Freshfields' analysis quotes Donald Rumsfeld]
'As we know, there are known knowns; there are things we know we
know. We also know there are known unknowns; that is to say we know
there are some things we do not know. But there are also unknown
unknowns – the ones we don’t know we don’t know.'
− Mr Donald Rumsfeld's comments on intelligence gathering could
apply to the scope of the amended German thin capitalisation
rules."
Not only in law-giving but in other areas as well, Germany has substantial problems.
THE TROUBLED GERMAN ECONOMY
Let us ask a provocative question about Germany.
What is better in Germany ever since the Social Democratic Party (SPD, the alleged "Socialists" or "Reds") and Green Party (the alleged "Ecologists" or "Greens") came into power in the late 90's and ever since Gerhard Schroeder was sworn in as German Chancellor on October 27, 1998?
As we live here in Germany, we can answer that question clearly from our point of view and claim that the answer to the above question is -
NOTHING.
NOTHING is better in Germany since the Red-Green coalition took power and many things are worse, for example, the economy. As written at the Legal 500:
"Germany has suffered one of the worst periods in its economic history over the last few years."
Rather than creating new jobs as promised to get elected, the Schroeder administration not only has not created the promised new jobs but is now busy taking away paid-for unemployment compensation insurance from the unemployed, as if they were responsible for his miserable failure as Chancellor to get the economy moving. Worse, the forms and papers which the unemployed are now required to submit surely violate existing laws of privacy, requiring personal information about the personal circumstances and income of third persons.
In any case, there are more unemployed than ever before in Germany and the numbers of people on the streets are steadily increasing under an administration that has little economic savvy and whose image-conscious media Chancellor spends more time appearing on television than leading the nation forward in a sensible manner. Schroeder is a man without any vision for the future, and that is a declaration of bankruptcy for a leader of one of the world's - formerly - most prosperous nations.
Schroeder's failing economic policies are illustrated by the case of the Holtzmann Construction Company, which survived during WWII by using slave labor,
(see Jonathan Peterson, Los Angeles
Times, June 15, 2001, pp. A1-A10 as referenced here online) and which went bankrupt in 1999. However, it was bailed out through Chancellor Schroeder's strong-arm intervention. As written in the Wall Street Journal in 2003 by Brian Carney:
"In Germany, Gerhard Schroeder seems to have spent a lot of time this year trying to make sure no one in Germany went bankrupt. Fortunately for German corporate culture, the chancellor has failed more often than not in attempting to strong-arm local banks into propping up failing businesses. Philipp Holtzmann, the construction company Chancellor Schroeder arranged a bailout for in 1999, succumbed earlier this year [2003] after the banks told Mr. Schroeder, in essence, 'Fool me once, shame on you. Fool me twice, shame on me.'"
Recent news contains a similar situation, indicating that the German-based Karstadt Quelle AG, Europe's largest department store chain, will be closing down many of it stores soon because of the disastrous retail business in Germany in recent years. The move is expected to cost 8500 jobs in Germany. Schroeder has again been asked to intervene, but has declined, pointing out "management errors".
The Karstadt news came on the heels of reports that the German Post will be closing down many post office outlets soon as well, while the Red-Green coalition is considering the forced move of postal employees - in what is perhaps their misguided idea of democracy. That news is followed by reports that the German train fares were being hiked (again after April 2004) by the Deutsche Bundesbahn (German Rail). In the meantime, the construction industry is in severe recession, demographic problems are increasing and Germany's debt is reaching record highs.
Volkswagen (VW) plans to cut their employment costs by 30%. Recall - to show the underlying connections clearly - that it was the head of personnel at VW, Peter Hartz, whose Hartz Commission on the unemployed (no unemployed were represented in the commission) came up with the so-called unemployment reform called "Hartz IV" now being imposed in Germany upon the backs of the have-nots. As can be seen from the VW plans, the purpose of the unemployment reform by Hartz is not to sanitize the welfare system (which it clearly will not do) but is rather part of a clever plan to drive labor costs down and to destroy social reforms for which many have fought in the last 60 years (since the end of WWII). Part of the Hartz IV plan is that unemployed must go to work in fields other than their training - or starve. The Schroeder administration has even introduced the concept of "One Euro jobs" - a demeaning concept violating every precept of human rights and human dignity. According to this plan, "unemployed" are to be forced to work for a "token" 1 Euro per hour (maximally 2 Euros per hour) in community "jobs" or lose their unemployment compensation.
I think that used to be called slave labor.
This is what happens when a reform-oriented, primarily image-conscious Chancellor and a Cabinet of Ministers without a single business person represented, runs an economic superpower such as Germany. It is chaos . The result can not be good.
STEALING FROM THE UNEMPLOYED
While the economy is floundering due to the unsound fiscal and economic policies of the Schroeder administration, the Red-Green coalition government of Socialists and the Green Party have - as already mentioned above - announced an ignominious austerity program for 4 million unemployed persons receiving unemployment insurance payments, unnecessarily putting millions of people into helpless situations and creating a climate in Germany which we can at best describe as a climate of fear. People are afraid for the future - and this climate of fear is the Schroeder administration's legacy.
Contrary to the widespread idea that this unemployment reform has something to do with demolition of the "welfare state", the current labor reform affects unemployment recipients but not welfare recipients, whose numbers are growing steadily and who continue to receive benefits as before. To show the massive lack of employment in Germany, the average age of welfare recipients in Northrhine-Westphalia, the traditional German industrial center, is 28. Young people straight out of schools have just not been getting jobs in past years and have wound up on welfare. A quarter of a million of these welfare recipients are children and young people.
Persons receiving unemployment compensation have paid into the unemployment insurance pot as former employees - welfare recipients have not. Hartz IV only goes after people who "used" to be employed. One must recall that a substantial portion of everyone's income in Germany is mandatorily withheld - just like taxes - from ALL paychecks as unemployment compensation insurance - an insurance which is now being unilaterally reduced. People are obtaining unemployment compensation from monies they themselves have PAID in. These are not just "gifts" of the welfare state, as nearly all media would have us believe.
Unemployment benefits are being halved for people who have been out of work for a longer period of time.
This is a government policy which can only lead to disaster in the long term. Since the Schroeder administration has created few jobs - indeed, there are as good as no jobs to be had in Germany if you talk to serious job-seekers - the Schroeder unemployment compensation reform is a sentence of poverty to the people affected (there are over 4 million unemployed in Germany and 2.2 million of these are affected by Hartz IV). With the current Schroeder plans, an army of poor is being created, which Germany will one day regret.
LABOR AND TAX REFORMS WILL BE INNEFFECTIVE
These labor "reforms" are being made in spite of studies by economists on previous similar reforms showing that such reforms will not have the desired economic effect.
The same can be said for the income tax cuts which Schroeder is making, reducing the bottom rate from 16 to 15 percent and the top rate from 45 to 42 percent. Very little of this money will be spent in Germany to create new jobs. Rather, those who have - will have more, and those who do not have, will have less. Where Schroeder should be reducing the tax burden is in the corporate sector, where staggering taxes cut Germany's ability to compete on world markets.
WISHFUL THINKING BY SCHROEDER and the NEWS MEDIA
The world news media have been reporting that these labor reforms will reawaken the German economy. This is simply foolish and wishful thinking on the part of the Schroeder administration, which the news media is simply blindly parroting.
To reform the German economy, one will have to reform the CAUSES of unemployment, not just the SYMPTOMS. One will have to go after the structural inertia of mainstream business, not after the weakest persons in the economy. Anyone who thinks that the have-nots, who have next to nothing to say about how the economy is run, are at fault for the problems of the German economy, simply has not done his homework.
Like Schroeder, such critics do not have the fortitude to take on the big boys who ARE responsible for the state of the economy. Profits by the wealthiest German families (about 200 in number) far exceed payments being made to the unemployed. But where is this money going? What are banks doing with the considerable private savings that Germans have stashed away? Where are corporate profits - made in Germany - being invested? Not in Germany, that is for sure, but increasingly in Eastern Europe or countries such as China, etc. where labor works for pennies a day. Thus far the trade is not equitable - the East and China are getting Germany's CAPITAL and TECHNOLOGY and Germany is getting their subsistence level of labor wages.
SOCIAL UNREST IS INEVITABLE
Modern European social systems developed in part in order to counteract constant and historically evidenced social unrest in Europe and these systems have been quite successful, leading to an unprecedented period of social peace and to the highest standard of living ever achieved on this planet (this prosperity taking place in precisely those Northern European countries having such modern social welfare systems).
Now those systems are being dismantled helter-skelter by short-sighted reformers such as Schroeder, who do not seem to appreciate the clear - and likely soon forthcoming - long-term consequences. Social peace in Germany - and elsewhere in Europe - will be a thing of the past.
Warning is given to Schroeder and to his reforming cohorts by previous bad experiences with similar austerity measures enforced on the poorer sectors of the German economy. During the Great Depression, Hjalmar Schacht, Governor of the German Reichsbank, "played a crucial role in bringing the Hitler regime to power" as "citizens were expropriated, and their living standards brutally lowered", leading to a right-wing dictatorship. The same thing is happening now.
It is thus no accident that there has been a recent current and substantial rise in right-wing party sentiment in Germany. Chancellor Schroeder and his Hartz IV plan are DIRECTLY at fault for this and the drafters should not be as surprised as they claim to be at this development. They are the harbingers of the ugly head of fascism rising again - something which can be seen in the increasing number of "documentary" films on the Hitler era being aired on the German news media and found increasingly in books and magazines.
Whether a Hitler film is aired as a documentary or directly for purposes of propaganda, makes no difference, since the effect on the masses is the same. As Marshall McLuhan stated:
"the medium is the message" and "we become what we behold".
The extreme right wing faction is being greatly strengthened by the inadequacies and simple incompetence of the Red-Green coalition.
COSTS OF REUNIFICATION AND RECONSTRUCTION
Of course, not all of the problems in the German economy can be laid at the feet of Schroeder's administration. Many of Germany's problems have been inherited from the previous Kohl Administration - but they have not been corrected by the Schroeder administration, quite the contrary, they have been exacerbated.
Enormous sums of money have been poured by the taxpayers of the former West Germany into the bottomless pit of the regions of the former East Germany. After the reunification, East German Marks in East German savings accounts were exchanged 1 to 1 for good Western Marks even though the actual black market exchange rate was 1 to 10. In other words, most of this money was a "gift", which came straight out of the pockets of the average formerly prosperous "West German" taxpayer.
16 million people in East Germany - originally with nothing - suddenly were showered with gifts from their "rich relatives" in the former West Germany. Obviously, this put a substantial dent into the wealth of former West German citizens, essentially reducing their net worth by about 30% (by our calculation). To bring the standard of living of 16 million people up to Western standards inevitably leads to a decline in the standard of living of the benefactors. It is not industry or the rich who have paid this money. Quite the contrary, through an immediate market increase of 16 million people, business enterprises have often profited from the reunification. A good example here are pharmaceutical companies, their owners and investors, who have profited greatly through what was an instant creation of a new market for prescribed medications.
The people who have paid the bill for reunification and reconstruction are the middle classes of the average taxpayer in the former West Germany - at least, what used to be the middle classes. Through the influx of cheap labor from the former East Germany and from other Eastern European countries, many are now no longer middle class, but are headed for the poor house. Nor is there an end in sight, as shown by the solidarity tax:
"Another quirk of the German tax system is the so-called 'Solidaritaetszuschlag' (solidarity surcharge), which is levied on every citizen to help meet the enormous costs of rebuilding the former communist eastern part of the country. The surcharge is currently running at 5.5 percent of the amount of income or of company tax."
When Schroeder speaks of "tax cuts", it is a joke when one examines the phenomenal amounts of money that Germany is spending on the former East Germany, money which often disappears into dark channels never to be seen again. Legitimate objects seem to be ignored. The condition of roads in the former East Germany is still a disaster and one wonders where the solidarity money is going, if not at least to improve roads and other structural fundamentals.
COSTS OF THE EUROPEAN UNION
As if the burden of reunification and reconstruction on the German taxpayer were not enough, Germany carries the lion's share of the expenditures for the European Union. As written at Cato:
[I]t is the German taxpayer who bankrolls much of the EU spending.
A German acquaintance of mine was recently on a golf holiday in Ireland and marvelled at the new multi-million dollar clubhouse on the golf course, remarking:
"who is paying for this fabulous building":
His Irish friend answered:
"The bloody Germans."
It turns out that the golf clubhouse was in fact part of an EU "project" to strengthen the local economy for tourism.
Small wonder then that the economy of Ireland is booming, in part with German taxpayer's money.
GENERAL STRUCTURAL PROBLEMS
Germany has substantial structural problems in its economy.
As written by the U.S. Department of State in its analysis of Germany:
"[M]ost foreign and German experts consider domestic structural problems to be the main cause of recent sluggish performance. An inflexible labor market is the main cause of persistently high unemployment. [Law Pundit: we disagree strongly with that last statement. The problem is found further below.] Heavy bureaucratic regulations burden many businesses and the process of starting new businesses. German employers, even during periods of relatively fast growth, say they often prefer to invest overseas or install more machinery, rather than make job-creating investments at their domestic facilities.
... the process of convergence between east and west is taking longer than originally expected and, on some measures, has stagnated since the mid-1990s. Eastern economic growth rates have been lower than in the west in recent years, unemployment is twice as high, prompting many skilled easterners to seek work in the west, and productivity continues to lag. Eastern consumption levels are dependent on public net financial transfers from west to east totalling about $11.5 billion per year. In addition to social assistance payments, the government will extend funds to promote eastern economic development through 2019."
ECONOMIC BARRIERS TO ENTRY e.g. INCORPORATION COSTS
One example of economic barriers to entry can be found in the legal incorporation of a limited liability company in Germany (a GmbH). Such an incorporation requires a minimum paid up equity capital of €25000 (or about $30000) - a sum far above that often available to many - later very successful - startup companies in the United States. As stated in the Innovateur Editorial:
"Interesting report in the FT regarding German Entrepreneurs increasingly establishing their Companies in the UK (FT, “The Latest German Export”, p 9, 4th Nov, 2003). The article throws up interesting challenges and opportunities for German lawmakers.
Unfortunately in Germany there are currently high barriers to starting up a new company, the main one being the requirement for a GmbH to have a minimum paid up equity capital of € 25,000. In comparison, a UK Ltd company on the other hand has no minimum equity requirement and can trade throughout the EU, thanks to EU law. Furthermore, there is also less bureaucracy in company administration in the UK.
Germany, and other nations, need to be proactive in reducing the barriers to entrepreneurship – otherwise they risk the prospect of entrepreneurial assets flowing out of the country. Protection is not the answer and thankfully the EU has prevented some measures to limit German entrepreneurs from setting up companies in the UK to trade in Germany.
High company formation costs and excessive bureaucracy stifle ventures. Even the UK needs to be careful to not bureaucratize in areas that serve the interests of no one but the administrator.
The German regulatory environment needs to be made more attractive to entrepreneurs. Non-commercial barriers need to be removed.
Fortunately for German entrepreneurs in the immediate term, they can legitimately set their company in the UK and trade thanks to EU law. Over the medium term, the reality for German lawmakers of the choices now open to entrepreneurs is already encouraging an internal task force charged with the objective of reducing administrative and other barriers to entrepreneurship. If German legislators grasp the opportunity, German entrepreneurs will hopefully soon no longer have to come to the UK just to find a system that doesn’t effectively try to stop them before they have even started."
INDUSTRY USES CHEAP LABOR to MAKE GREATER PROFITS for FEWER POCKETS
A substantial existing problem is cheap labor which has come in from Turkey and Eastern Europe or is obtained by outsourcing, forcing German workers out of jobs. As found at Reuters, one hour of work in the new EU member states costs an employer €5 as compared to €33 in Germany.
German companies are thus increasingly looking to place plants in Eastern Europe. Any such company planning to move a plant to Eastern Europe, e.g. Kugelfischer, thus simply sacrifices thousands of German jobs (in this case ca. 1000 jobs) to obtain cheaper labor. Those 1000 people wind up on the streets, with no place to go.
Businesses are using cheap labor to amass even greater profits which are going into the pockets of already wealthy business executives and already wealthy stockholders who are putting their money into accounts in Switzerland, Luxembourg or elsewhere outside of Germany, where the banking business is booming, in part with German money.
The climate in Germany today can be described at best as "every man for himself." How else does one explain the incredible 11% (!) increase in top German executive salaries last year, at a time when everyone is saying that the German economy is failing. How is this discrepancy to be justified by any stretch of the imagination?
EXECUTIVE SALARIES SKYROCKET WHILE EMPLOYMENT SLUMPS
As written by Business Report on September 3, 2004 (From AFP and Reuters):
"Frankfurt - The salaries of the top executives of Germany's 30 biggest companies rose by about 11 percent to € 1.42 million ...on average last year, according to the results of a study released yesterday.
While an increasing number of companies are prescribing wage cuts and longer working hours for their workforces, the profits of the 30 companies on the German DAX blue chip stock index rose by an average 30 percent between 2002 and 2003, the DSW small shareholders association calculated.
The figures are likely to pour oil on the debate about fat cat corporate greed raging in Germany."
ANY ECONOMIC UPSWING SEEMS TO HAVE NO EFFECT ON THE LABOR MARKET
By contrast to the previous quote, as that same source writes:
"Frank-Juergen Weise, the head of the federal labour office, said job growth was lagging behind the economy.
"The economy continues to develop positively. But that's not yet able to have an effect on the labour market," he said.
However, economy minister Wolfgang Clement was more upbeat, saying he expected the domestic economy to pick up this month and next, and telling reporters: "I expect a reduction in the seasonally adjusted number of unemployed in September and October."
Analysts blame high unemployment in Germany for dampening consumer spending, which has fallen for the past two years. Consumer sentiment has been further unsettled by high oil prices and unpopular labour market and welfare reforms.
"We are definitely not seeing a turnaround in the labour market situation," said Commerzbank economist Ralph Solveen. "But I think we will get a stabilisation."
The BME/Reuters survey of purchasing managers in the manufacturing sector showed the first sign of growth in payrolls in over three years in August, but Global Insight economist Howard Archer said the August jobless rise showed firms were still hesitant to hire new staff.
"[The increase] highlights the fact that companies are still keeping their labour forces as tight as possible amid squeezed margins and uncertainty about the strength of the recovery going forward," Archer said.
A further worry for the economy was that job vacancies, which have decreased steadily since the end of 2000, declined in seasonally adjusted terms in August to 277 000, the lowest level in over 10 years, according to official data."
What that last statistic means is that there is ONE open job for about every TWENTY unemployed in Germany.
GAIN REPORT ON THE GERMAN ECONOMY
In a recent USDA Foreign Agricultural Service GAIN Report (Global Agriculture Information Network)of 8/2/2004, entitled "HRI Food Service Sector Report" (GAIN Report Number GM4028) by Christel E. Wagner, the German economy is assessed as follows:
"Germany, with its 82.5 million people, is the world’s 5th largest national economy and is the leading market for food and beverages in the European Union.
Since the mid 1990s, the German economy has slowed down to the point that it has become one of the slowest growing economies in the entire Euro zone.... [emphasis added]
In addition to stagnant growth, the German economy is also plagued by high unemployment and budget deficits. Unemployment in 2003 reached 10.7 percent, while the budget deficits rose to an estimated 3.7 percent of GDP in 2002 and 2003. As a result of these negative economic indicators and negative media reports, consumer confidence in Germany has plummeted. Demand for consumer products has declined in recent years and does not appear to be improving. In fact, consumer savings are estimated at 10.6 percent in 2003 up from 9.8 percent in 1999....
Total turnover of the German food service market amounted to 55.5 billion Euro in 2003 ($ 62.8 billion), 5.1% less that 2002. This decrease can be attributed primarily to the depressed economic climate. High unemployment and the uncertainty of the economic future induces consumers to increase savings and reduce expenditures, e.g. by eating out less...."
ECONOMIC INEQUALITY IS ONE OF THE PROBLEMS
In spite of the terrible economic situation created under the Schroeder administration, similar to that suffered by Lower Saxony during Schroeder's tenure as head of that German State, we find however, as noted at the GAIN report, that there are some "rich" developments:
"Total sales in the leisure sector in Germany amounted to 538.7 million Euros in 2003 ($ 660 million), which is 3.7 percent more than in 2002. The number of outlets increased by 8 percent to 663....
Wine consumption in Germany has been growing during recent years. In particular, the demand for red wine is strong. Good prospects exist for “new world” wines, including those from the United States. Germany is the world’s largest importer of wine, with imports accounting for about one-half of domestic consumption. [emphasis supplied]"
What this tells us is that while the poorer, working sector of Germany is suffering in part due to the influx of cheap labor not just now but in the last thirty years (there are now ca. 3 million Turks in Germany, who initially came here as "guest workers"), there is still a very large established sector which has money enough to spend increasingly on leisure activities and expensive foreign wines. Accordingly, it is the politico-economic system and the governments in charge which have allowed the poorer unemployed German sector to emerge at all and have permitted it to drop out of its previous "middle class security", which used to exist everywhere in Germany two decades ago. The middle class is being eliminated. A poor class is being created. For what reason?
We are not against wealth or wealth accumulation by any means - and we are staunch supporters of capitalism - but it is the job of the government in modern market economies to make sure that the distribution of wealth, goods and services is equitable - if only because the existing "system" makes that wealth possible. Wealth and the accumulation of wealth is a function of the system and obligated to it.
Indeed, this resource (see especially page 9 at that source) shows that equitable distribution of wealth as the only solution to poverty is possible - and in fact - easily done. Poverty can demonstrably be averted by sound social policies and judicious government financing. Otherwise, you create the foundations for social unrest - and this always leads to war in the long term, immensely harming capitalist businesses: It is a scenario which has afflicted Germany twice in the past century. Indeed, the last 500 years in Europe were marked by a state of constant conflagration and conflict due to economic inequities.
THE CURRENT ADMINISTRATION HAS COMPETENCY PROBLEMS
The Germans speak constantly about LEISTUNG (the German word for "performance"), but if Schroeder and his Cabinet were soccer coaches in Germany, the present administration would have been fired long ago for incompetence in office. Either you win or lose, and "Schroeder's Team" is losing.
The responsibility for the current disastrous state of the German economy rests squarely on the shoulders of the current Chancellor, his Cabinet of Ministers, the Social Democratic Party and the Greens, whose dogmatic members throughout Germany have not only been steadily reducing the maximum speed limit which can be travelled on many stretches of German autobahns (symbolic for the "braking" being done by the Red-Green coalition) but have been applying similar brakes to the German economy ever since the Socialists and the Green Party came into power. The economy is like an automobile in motion - you either brake it or accelerate it, and the Red-Green coalition is a conglomeration of "brakers".
Here is the current "Schroeder Team" (see here for their budgets)- there is not a single person whose trained expertise is in business, commerce or finance in the entire Cabinet - no wonder that their economic policies are ineffective and sometimes border on the irresponsible:
CHANCELLOR GERHARD SCHROEDER - Rags to Rags?
Chancellor Schroeder studied law and is a media personality who possesses nearly all of the talents necessary to be elected Chancellor, to serve as a TV host (he spends a lot of his vanity time on television polishing his image) or to model expensive men's suits for some model agency - but he seems to be lacking in the talents required to lead Germany successfully in the direction of national security and economic well-being.
Indeed, not only is Schroeder leading Germany increasingly toward unnecessary economic hard times, but his own political party, the Social Democratic Party (SPD) of Germany, is barely surviving his Chancellorship, with SPD voting in German elections hitting all time record lows this year. Given the fact that Schroeder appears to be set on bankrupting the classes of voters who generally vote for the SPD, this is understandable.
Schroeder sees himself as a reformer. We see him as a deformer.
Schroeder's anti-war contribution to weakening of the NATO alliance may be a product of his background and not one of actual political conviction. Schroeder grew up without a father, who was killed in WWII, and he may be subconsciously anti-war of any kind for this reason.
It is also probably for this reason that Schroeder has staffed his Cabinet with strong motherly women, because he was raised by such a woman.
Studies also show that people tend in adulthood to strive toward positions which they were familiar with in childhood, when Schroeder was a ragamuffin with whom other children did not play, according to his own statement. Perhaps he is now getting even?
In any case, if we want prosperity, we are better advised to get leaders who grew up in prosperity, because that is the world that they will try to create as politicians.
In 2001, Schroeder narrowly escaped a "vote of no-confidence" in Germany's Bundestag, the lower house of Parliament, getting 336 votes of the needed 334 to avoid the vote of no-confidence. Many in Germany are now regretting that he survived that vote.
THE SCHROEDER CABINET OF MINISTERS
Who is going to get Germany out of the economic mess they are in?
Schroeder and his Cabinet of Ministers?
That is VERY UNLIKELY.
Schroeder's Cabinet of Ministers consists of 6 people who studied law - almost all were left-wing activists in social causes, 4 of his Cabinet were teachers (who taught at the grade school and high school levels), 2 were journalists (one an editor), 1 worked in the computer section of a mail order company (a high school graduate) and 1 was a high school dropout.
We can empathize with and applaud the personal success stories found in the biographies of the current Cabinet of Ministers, but most Cabinet Members seem by their educational and professional records to be under-qualified for their positions, as we show later below. The Cabinet does not well represent the whole of Germany but is a special form of Schroeder's apparently regional nepotism which concentrates on his selection of friends and acquaintances from Lower Saxony, Hessen (i.e. Hannover, Göttingen, Kassel and Frankfurt) and Northrhine-Westphalia. Note again that there is not a single person in Schroeder's Cabinet from the world of BUSINESS, COMMERCE and FINANCE.
But this is of course just our opinion. Take a look at their records and decide for yourself.
Otto Schily
Minister of the Interior
Schily studied law and made his reputation as a lawyer by representing German terrorists in the 1970's. Now over 70, much more conservative and quite erudite, Schily is one of very few Cabinet members in Schroeder's administration who has expertise and experience in the field for which he is responsible. Schily has been instrumental in the passage of recent anti-terrorist legislation in Germany - in part against severe opposition in his own ranks - and is urging the EU to set up refugee camps in Africa (and not in Europe) for asylum seekers from African countries. Schily is known for his statement - surely correct - that 97% of asylum seekers in Germany are "economic refugees" who come to Germany for free welfare benefits. Having represented terrorists in his youth, Schily understands them - the same can not be said for the rest of Schroeder's administration.
Joseph Martin (Joschka) Fischer
Vice Chancellor and Minister of Foreign Affairs
Joschka Fischer is a high school dropout who in his younger days and by his own admission was a political and violent radical, having since rejected violence as a workable means in politics. In spite of - or because of - this, he is very popular in Germany. We would imagine that the capacity to obtain popularity is important in international foreign affairs and it is clear that Fischer is a strangely competent, if sometimes uncomfortable, partner in this administration. At times, a power-hungry Schroeder has preempted some of Fischer's foreign policy ministerial responsibilities.
Jürgen Trittin
Federal Minister for Environment, Nature Conservation and Nuclear Safety
Trittin is a journalist who studied "social economy" at the University of Göttingen. As Minister of the Environment, Trittin ushered in a chaotic recycling system for aluminium cans requiring proof of purchase to regain any deposit paid. This totally non-intuitive system reduced your average shopper to a collector of papers for cans to be recycled. A more ineffective recycling system has never been instituted anywhere and the result has been consumer avoidance of aluminium cans.
Renate Künast
Minister of Consumer Protection, Food, and Agriculture
Künast is a social worker who worked in a jailhouse for two years and subsequently studied law. She was an anti-nuclear-power activist. Her pet project is organic farms and foods. Another far-flung interest seems to be "sustainable food security" for developing nations. Click here for a typical interview.
There have been numerous food scandals in Germany during her tenure, and she has been pressured to resign because of them, but has not done so.
Heidemarie Wieczorek-Zeul
Minister of Economic Cooperation and Development
Wieczorek-Zeul studied English and history and worked ten years as a teacher before embarking on her political career. She is strong in her opinions, whatever their basis.
Hans Eichel
Minister of Finance
Eichel studied philosophy, German, political science, education and history. Professionally, he was a teacher. There are large differences of opinion in Germany over his financial policies.
Edelgard Bulmahn
Minister of Education and Research
Bulmahn studied political science, English and American Studies. Professionally, she was a grammar school teacher (Studienrätin).
Click here for her vision about the world of tomorrow.
The recent PISA Study showed education in Germany to be in terrible shape, although it is an opinion which the Law Pundit does not share. Education here is good, but needs to be modernized substantially.
Renate Schmidt
Minister of Family, Senior Citizens, Women, and Youth
Renate Schmidt has a high school education with some computer experience at a large German mail order house. This interview shows her to be a strong person, albeit with unusual visions. See A Fistful of Euros, for a military twist on her work.
Ulla Schmidt
Minister of Health and Social Affairs
Ulla Schmidt studied psychology and education and was a special education teacher. Her specialty seems to be the issue of equal rights for men and women.
Under her ministry the German health system has introduced a quaint system of token-payment whereby insured patients have to pay doctors a special "token" quarterly sum of €10 - in CASH - which the doctors have to collect and then forward to the proper authorities. This new token-payment system for medical care has turned the medical practices into mini-shops. In a day and age of smart cards and databases, one can merely shake one's head in unbelieving astonishment at this antiquated "cash register" development.
Wolfgang Clement
Minister of Economics and Labour
Clement studied law and worked professionally as a newspaper editor.
Under Clement's ministry, the economy has now really ground to a halt and Hartz IV has taken shape, an ill-designed reform of the unemployment compensation system.
Manfred Stolpe
Minister of Transport, Construction, and Eastern Reconstruction
Stolpe studied law and worked professionally representing the Evangelical Church.
Stolpe was an "inofficial worker" for the powers that be in the former East Germany working under the code name "Sekretär".
There is also a current scandal concerning the delay in implementing the LKW-Maut (truck toll) HGV (heavy goods vehicles) toll charge system in Germany (long distance road toll on trucks) which was expected to bring vast monies into the depleted German treasury. Apparently there were irregularities in the awarding of the toll contract. It is estimated that this new toll will increase haulage costs by nearly 15%, thereby of course driving up retail prices considerably.
Brigitte Zypries
Minister of Justice
Zypries studied law and worked professionally in various government legal positions. Instructive are her comments on the rule of law and terrorism in Germany.
Peter Struck
Minister of Defense
Struck studied law and worked professionally as a lawyer in various city government and university legal positions.
No Longer in the Cabinet
Franz Müntefering
was a former Minister of Transport and Construction under Schroeder who became the SPD Party General Secretary and is now the SPD Party Chairman.
Müntefering completed studies as an industrial clerk and then moved his way up the political ladder.
CONCLUSION
Given this constellation of persons in power in Germany, who surely are doing the best they can within their talents and who are surely acting with the best of motives for their country, it is hard to imagine that the requisite expertise is present in this Cabinet of Ministers to get Germany moving again economically. Indeed, we fully expect things to get much worse in Germany before they get better.
Only a shift of political power to an administration having competence in economic affairs can possibly hope to get Germany out of the hopeless quagmire that they are in under this Red-Green coalition.
Permalink : Andis Kaulins : 9/29/2004 04:09:00 PM
Germany, Law, Schroeder, the SPD and the Green Party
Germany, Law, Chancellor Gerhard Schroeder, the SPD, and the Green Party
The Law Pundit has just finished reading an analysis of "The German Tax Reform Acts 2004" from the law firm of Freshfields Bruckhaus Deringer, where it was concluded:
"The amendments are so inconsistent that without guidance from the German tax authorities, careful tax planning is almost impossible....
For an additional number of cases the rules seem to be technically
inapplicable and result in incomprehensible taxation consequences.
[Law Pundit: at this point the Freshfields' analysis quotes Donald Rumsfeld]
'As we know, there are known knowns; there are things we know we
know. We also know there are known unknowns; that is to say we know
there are some things we do not know. But there are also unknown
unknowns – the ones we don’t know we don’t know.'
− Mr Donald Rumsfeld's comments on intelligence gathering could
apply to the scope of the amended German thin capitalisation
rules."
Not only in law-giving but in other areas as well, Germany has substantial problems.
THE TROUBLED GERMAN ECONOMY
Let us ask a provocative question about Germany.
What is better in Germany ever since the Social Democratic Party (SPD, the alleged "Socialists" or "Reds") and Green Party (the alleged "Ecologists" or "Greens") came into power in the late 90's and ever since Gerhard Schroeder was sworn in as German Chancellor on October 27, 1998?
As we live here in Germany, we can answer that question clearly from our point of view and claim that the answer to the above question is -
NOTHING.
NOTHING is better in Germany since the Red-Green coalition took power and many things are worse, for example, the economy. As written at the Legal 500:
"Germany has suffered one of the worst periods in its economic history over the last few years."
Rather than creating new jobs as promised to get elected, the Schroeder administration not only has not created the promised new jobs but is now busy taking away paid-for unemployment compensation insurance from the unemployed, as if they were responsible for his miserable failure as Chancellor to get the economy moving. Worse, the forms and papers which the unemployed are now required to submit surely violate existing laws of privacy, requiring personal information about the personal circumstances and income of third persons.
In any case, there are more unemployed than ever before in Germany and the numbers of people on the streets are steadily increasing under an administration that has little economic savvy and whose image-conscious media Chancellor spends more time appearing on television than leading the nation forward in a sensible manner. Schroeder is a man without any vision for the future, and that is a declaration of bankruptcy for a leader of one of the world's - formerly - most prosperous nations.
Schroeder's failing economic policies are illustrated by the case of the Holtzmann Construction Company, which survived during WWII by using slave labor,
(see Jonathan Peterson, Los Angeles
Times, June 15, 2001, pp. A1-A10 as referenced here online) and which went bankrupt in 1999. However, it was bailed out through Chancellor Schroeder's strong-arm intervention. As written in the Wall Street Journal in 2003 by Brian Carney:
"In Germany, Gerhard Schroeder seems to have spent a lot of time this year trying to make sure no one in Germany went bankrupt. Fortunately for German corporate culture, the chancellor has failed more often than not in attempting to strong-arm local banks into propping up failing businesses. Philipp Holtzmann, the construction company Chancellor Schroeder arranged a bailout for in 1999, succumbed earlier this year [2003] after the banks told Mr. Schroeder, in essence, 'Fool me once, shame on you. Fool me twice, shame on me.'"
Recent news contains a similar situation, indicating that the German-based Karstadt Quelle AG, Europe's largest department store chain, will be closing down many of it stores soon because of the disastrous retail business in Germany in recent years. The move is expected to cost 8500 jobs in Germany. Schroeder has again been asked to intervene, but has declined, pointing out "management errors".
The Karstadt news came on the heels of reports that the German Post will be closing down many post office outlets soon as well, while the Red-Green coalition is considering the forced move of postal employees - in what is perhaps their misguided idea of democracy. That news is followed by reports that the German train fares were being hiked (again after April 2004) by the Deutsche Bundesbahn (German Rail). In the meantime, the construction industry is in severe recession, demographic problems are increasing and Germany's debt is reaching record highs.
Volkswagen (VW) plans to cut their employment costs by 30%. Recall - to show the underlying connections clearly - that it was the head of personnel at VW, Peter Hartz, whose Hartz Commission on the unemployed (no unemployed were represented in the commission) came up with the so-called unemployment reform called "Hartz IV" now being imposed in Germany upon the backs of the have-nots. As can be seen from the VW plans, the purpose of the unemployment reform by Hartz is not to sanitize the welfare system (which it clearly will not do) but is rather part of a clever plan to drive labor costs down and to destroy social reforms for which many have fought in the last 60 years (since the end of WWII). Part of the Hartz IV plan is that unemployed must go to work in fields other than their training - or starve. The Schroeder administration has even introduced the concept of "One Euro jobs" - a demeaning concept violating every precept of human rights and human dignity. According to this plan, "unemployed" are to be forced to work for a "token" 1 Euro per hour (maximally 2 Euros per hour) in community "jobs" or lose their unemployment compensation.
I think that used to be called slave labor.
This is what happens when a reform-oriented, primarily image-conscious Chancellor and a Cabinet of Ministers without a single business person represented, runs an economic superpower such as Germany. It is chaos . The result can not be good.
STEALING FROM THE UNEMPLOYED
While the economy is floundering due to the unsound fiscal and economic policies of the Schroeder administration, the Red-Green coalition government of Socialists and the Green Party have - as already mentioned above - announced an ignominious austerity program for 4 million unemployed persons receiving unemployment insurance payments, unnecessarily putting millions of people into helpless situations and creating a climate in Germany which we can at best describe as a climate of fear. People are afraid for the future - and this climate of fear is the Schroeder administration's legacy.
Contrary to the widespread idea that this unemployment reform has something to do with demolition of the "welfare state", the current labor reform affects unemployment recipients but not welfare recipients, whose numbers are growing steadily and who continue to receive benefits as before. To show the massive lack of employment in Germany, the average age of welfare recipients in Northrhine-Westphalia, the traditional German industrial center, is 28. Young people straight out of schools have just not been getting jobs in past years and have wound up on welfare. A quarter of a million of these welfare recipients are children and young people.
Persons receiving unemployment compensation have paid into the unemployment insurance pot as former employees - welfare recipients have not. Hartz IV only goes after people who "used" to be employed. One must recall that a substantial portion of everyone's income in Germany is mandatorily withheld - just like taxes - from ALL paychecks as unemployment compensation insurance - an insurance which is now being unilaterally reduced. People are obtaining unemployment compensation from monies they themselves have PAID in. These are not just "gifts" of the welfare state, as nearly all media would have us believe.
Unemployment benefits are being halved for people who have been out of work for a longer period of time.
This is a government policy which can only lead to disaster in the long term. Since the Schroeder administration has created few jobs - indeed, there are as good as no jobs to be had in Germany if you talk to serious job-seekers - the Schroeder unemployment compensation reform is a sentence of poverty to the people affected (there are over 4 million unemployed in Germany and 2.2 million of these are affected by Hartz IV). With the current Schroeder plans, an army of poor is being created, which Germany will one day regret.
LABOR AND TAX REFORMS WILL BE INNEFFECTIVE
These labor "reforms" are being made in spite of studies by economists on previous similar reforms showing that such reforms will not have the desired economic effect.
The same can be said for the income tax cuts which Schroeder is making, reducing the bottom rate from 16 to 15 percent and the top rate from 45 to 42 percent. Very little of this money will be spent in Germany to create new jobs. Rather, those who have - will have more, and those who do not have, will have less. Where Schroeder should be reducing the tax burden is in the corporate sector, where staggering taxes cut Germany's ability to compete on world markets.
WISHFUL THINKING BY SCHROEDER and the NEWS MEDIA
The world news media have been reporting that these labor reforms will reawaken the German economy. This is simply foolish and wishful thinking on the part of the Schroeder administration, which the news media is simply blindly parroting.
To reform the German economy, one will have to reform the CAUSES of unemployment, not just the SYMPTOMS. One will have to go after the structural inertia of mainstream business, not after the weakest persons in the economy. Anyone who thinks that the have-nots, who have next to nothing to say about how the economy is run, are at fault for the problems of the German economy, simply has not done his homework.
Like Schroeder, such critics do not have the fortitude to take on the big boys who ARE responsible for the state of the economy. Profits by the wealthiest German families (about 200 in number) far exceed payments being made to the unemployed. But where is this money going? What are banks doing with the considerable private savings that Germans have stashed away? Where are corporate profits - made in Germany - being invested? Not in Germany, that is for sure, but increasingly in Eastern Europe or countries such as China, etc. where labor works for pennies a day. Thus far the trade is not equitable - the East and China are getting Germany's CAPITAL and TECHNOLOGY and Germany is getting their subsistence level of labor wages.
SOCIAL UNREST IS INEVITABLE
Modern European social systems developed in part in order to counteract constant and historically evidenced social unrest in Europe and these systems have been quite successful, leading to an unprecedented period of social peace and to the highest standard of living ever achieved on this planet (this prosperity taking place in precisely those Northern European countries having such modern social welfare systems).
Now those systems are being dismantled helter-skelter by short-sighted reformers such as Schroeder, who do not seem to appreciate the clear - and likely soon forthcoming - long-term consequences. Social peace in Germany - and elsewhere in Europe - will be a thing of the past.
Warning is given to Schroeder and to his reforming cohorts by previous bad experiences with similar austerity measures enforced on the poorer sectors of the German economy. During the Great Depression, Hjalmar Schacht, Governor of the German Reichsbank, "played a crucial role in bringing the Hitler regime to power" as "citizens were expropriated, and their living standards brutally lowered", leading to a right-wing dictatorship. The same thing is happening now.
It is thus no accident that there has been a recent current and substantial rise in right-wing party sentiment in Germany. Chancellor Schroeder and his Hartz IV plan are DIRECTLY at fault for this and the drafters should not be as surprised as they claim to be at this development. They are the harbingers of the ugly head of fascism rising again - something which can be seen in the increasing number of "documentary" films on the Hitler era being aired on the German news media and found increasingly in books and magazines.
Whether a Hitler film is aired as a documentary or directly for purposes of propaganda, makes no difference, since the effect on the masses is the same. As Marshall McLuhan stated:
"the medium is the message" and "we become what we behold".
The extreme right wing faction is being greatly strengthened by the inadequacies and simple incompetence of the Red-Green coalition.
COSTS OF REUNIFICATION AND RECONSTRUCTION
Of course, not all of the problems in the German economy can be laid at the feet of Schroeder's administration. Many of Germany's problems have been inherited from the previous Kohl Administration - but they have not been corrected by the Schroeder administration, quite the contrary, they have been exacerbated.
Enormous sums of money have been poured by the taxpayers of the former West Germany into the bottomless pit of the regions of the former East Germany. After the reunification, East German Marks in East German savings accounts were exchanged 1 to 1 for good Western Marks even though the actual black market exchange rate was 1 to 10. In other words, most of this money was a "gift", which came straight out of the pockets of the average formerly prosperous "West German" taxpayer.
16 million people in East Germany - originally with nothing - suddenly were showered with gifts from their "rich relatives" in the former West Germany. Obviously, this put a substantial dent into the wealth of former West German citizens, essentially reducing their net worth by about 30% (by our calculation). To bring the standard of living of 16 million people up to Western standards inevitably leads to a decline in the standard of living of the benefactors. It is not industry or the rich who have paid this money. Quite the contrary, through an immediate market increase of 16 million people, business enterprises have often profited from the reunification. A good example here are pharmaceutical companies, their owners and investors, who have profited greatly through what was an instant creation of a new market for prescribed medications.
The people who have paid the bill for reunification and reconstruction are the middle classes of the average taxpayer in the former West Germany - at least, what used to be the middle classes. Through the influx of cheap labor from the former East Germany and from other Eastern European countries, many are now no longer middle class, but are headed for the poor house. Nor is there an end in sight, as shown by the solidarity tax:
"Another quirk of the German tax system is the so-called 'Solidaritaetszuschlag' (solidarity surcharge), which is levied on every citizen to help meet the enormous costs of rebuilding the former communist eastern part of the country. The surcharge is currently running at 5.5 percent of the amount of income or of company tax."
When Schroeder speaks of "tax cuts", it is a joke when one examines the phenomenal amounts of money that Germany is spending on the former East Germany, money which often disappears into dark channels never to be seen again. Legitimate objects seem to be ignored. The condition of roads in the former East Germany is still a disaster and one wonders where the solidarity money is going, if not at least to improve roads and other structural fundamentals.
COSTS OF THE EUROPEAN UNION
As if the burden of reunification and reconstruction on the German taxpayer were not enough, Germany carries the lion's share of the expenditures for the European Union. As written at Cato:
[I]t is the German taxpayer who bankrolls much of the EU spending.
A German acquaintance of mine was recently on a golf holiday in Ireland and marvelled at the new multi-million dollar clubhouse on the golf course, remarking:
"who is paying for this fabulous building":
His Irish friend answered:
"The bloody Germans."
It turns out that the golf clubhouse was in fact part of an EU "project" to strengthen the local economy for tourism.
Small wonder then that the economy of Ireland is booming, in part with German taxpayer's money.
GENERAL STRUCTURAL PROBLEMS
Germany has substantial structural problems in its economy.
As written by the U.S. Department of State in its analysis of Germany:
"[M]ost foreign and German experts consider domestic structural problems to be the main cause of recent sluggish performance. An inflexible labor market is the main cause of persistently high unemployment. [Law Pundit: we disagree strongly with that last statement. The problem is found further below.] Heavy bureaucratic regulations burden many businesses and the process of starting new businesses. German employers, even during periods of relatively fast growth, say they often prefer to invest overseas or install more machinery, rather than make job-creating investments at their domestic facilities.
... the process of convergence between east and west is taking longer than originally expected and, on some measures, has stagnated since the mid-1990s. Eastern economic growth rates have been lower than in the west in recent years, unemployment is twice as high, prompting many skilled easterners to seek work in the west, and productivity continues to lag. Eastern consumption levels are dependent on public net financial transfers from west to east totalling about $11.5 billion per year. In addition to social assistance payments, the government will extend funds to promote eastern economic development through 2019."
ECONOMIC BARRIERS TO ENTRY e.g. INCORPORATION COSTS
One example of economic barriers to entry can be found in the legal incorporation of a limited liability company in Germany (a GmbH). Such an incorporation requires a minimum paid up equity capital of €25000 (or about $30000) - a sum far above that often available to many - later very successful - startup companies in the United States. As stated in the Innovateur Editorial:
"Interesting report in the FT regarding German Entrepreneurs increasingly establishing their Companies in the UK (FT, “The Latest German Export”, p 9, 4th Nov, 2003). The article throws up interesting challenges and opportunities for German lawmakers.
Unfortunately in Germany there are currently high barriers to starting up a new company, the main one being the requirement for a GmbH to have a minimum paid up equity capital of € 25,000. In comparison, a UK Ltd company on the other hand has no minimum equity requirement and can trade throughout the EU, thanks to EU law. Furthermore, there is also less bureaucracy in company administration in the UK.
Germany, and other nations, need to be proactive in reducing the barriers to entrepreneurship – otherwise they risk the prospect of entrepreneurial assets flowing out of the country. Protection is not the answer and thankfully the EU has prevented some measures to limit German entrepreneurs from setting up companies in the UK to trade in Germany.
High company formation costs and excessive bureaucracy stifle ventures. Even the UK needs to be careful to not bureaucratize in areas that serve the interests of no one but the administrator.
The German regulatory environment needs to be made more attractive to entrepreneurs. Non-commercial barriers need to be removed.
Fortunately for German entrepreneurs in the immediate term, they can legitimately set their company in the UK and trade thanks to EU law. Over the medium term, the reality for German lawmakers of the choices now open to entrepreneurs is already encouraging an internal task force charged with the objective of reducing administrative and other barriers to entrepreneurship. If German legislators grasp the opportunity, German entrepreneurs will hopefully soon no longer have to come to the UK just to find a system that doesn’t effectively try to stop them before they have even started."
INDUSTRY USES CHEAP LABOR to MAKE GREATER PROFITS for FEWER POCKETS
A substantial existing problem is cheap labor which has come in from Turkey and Eastern Europe or is obtained by outsourcing, forcing German workers out of jobs. As found at Reuters, one hour of work in the new EU member states costs an employer €5 as compared to €33 in Germany.
German companies are thus increasingly looking to place plants in Eastern Europe. Any such company planning to move a plant to Eastern Europe, e.g. Kugelfischer, thus simply sacrifices thousands of German jobs (in this case ca. 1000 jobs) to obtain cheaper labor. Those 1000 people wind up on the streets, with no place to go.
Businesses are using cheap labor to amass even greater profits which are going into the pockets of already wealthy business executives and already wealthy stockholders who are putting their money into accounts in Switzerland, Luxembourg or elsewhere outside of Germany, where the banking business is booming, in part with German money.
The climate in Germany today can be described at best as "every man for himself." How else does one explain the incredible 11% (!) increase in top German executive salaries last year, at a time when everyone is saying that the German economy is failing. How is this discrepancy to be justified by any stretch of the imagination?
EXECUTIVE SALARIES SKYROCKET WHILE EMPLOYMENT SLUMPS
As written by Business Report on September 3, 2004 (From AFP and Reuters):
"Frankfurt - The salaries of the top executives of Germany's 30 biggest companies rose by about 11 percent to € 1.42 million ...on average last year, according to the results of a study released yesterday.
While an increasing number of companies are prescribing wage cuts and longer working hours for their workforces, the profits of the 30 companies on the German DAX blue chip stock index rose by an average 30 percent between 2002 and 2003, the DSW small shareholders association calculated.
The figures are likely to pour oil on the debate about fat cat corporate greed raging in Germany."
ANY ECONOMIC UPSWING SEEMS TO HAVE NO EFFECT ON THE LABOR MARKET
By contrast to the previous quote, as that same source writes:
"Frank-Juergen Weise, the head of the federal labour office, said job growth was lagging behind the economy.
"The economy continues to develop positively. But that's not yet able to have an effect on the labour market," he said.
However, economy minister Wolfgang Clement was more upbeat, saying he expected the domestic economy to pick up this month and next, and telling reporters: "I expect a reduction in the seasonally adjusted number of unemployed in September and October."
Analysts blame high unemployment in Germany for dampening consumer spending, which has fallen for the past two years. Consumer sentiment has been further unsettled by high oil prices and unpopular labour market and welfare reforms.
"We are definitely not seeing a turnaround in the labour market situation," said Commerzbank economist Ralph Solveen. "But I think we will get a stabilisation."
The BME/Reuters survey of purchasing managers in the manufacturing sector showed the first sign of growth in payrolls in over three years in August, but Global Insight economist Howard Archer said the August jobless rise showed firms were still hesitant to hire new staff.
"[The increase] highlights the fact that companies are still keeping their labour forces as tight as possible amid squeezed margins and uncertainty about the strength of the recovery going forward," Archer said.
A further worry for the economy was that job vacancies, which have decreased steadily since the end of 2000, declined in seasonally adjusted terms in August to 277 000, the lowest level in over 10 years, according to official data."
What that last statistic means is that there is ONE open job for about every TWENTY unemployed in Germany.
GAIN REPORT ON THE GERMAN ECONOMY
In a recent USDA Foreign Agricultural Service GAIN Report (Global Agriculture Information Network)of 8/2/2004, entitled "HRI Food Service Sector Report" (GAIN Report Number GM4028) by Christel E. Wagner, the German economy is assessed as follows:
"Germany, with its 82.5 million people, is the world’s 5th largest national economy and is the leading market for food and beverages in the European Union.
Since the mid 1990s, the German economy has slowed down to the point that it has become one of the slowest growing economies in the entire Euro zone.... [emphasis added]
In addition to stagnant growth, the German economy is also plagued by high unemployment and budget deficits. Unemployment in 2003 reached 10.7 percent, while the budget deficits rose to an estimated 3.7 percent of GDP in 2002 and 2003. As a result of these negative economic indicators and negative media reports, consumer confidence in Germany has plummeted. Demand for consumer products has declined in recent years and does not appear to be improving. In fact, consumer savings are estimated at 10.6 percent in 2003 up from 9.8 percent in 1999....
Total turnover of the German food service market amounted to 55.5 billion Euro in 2003 ($ 62.8 billion), 5.1% less that 2002. This decrease can be attributed primarily to the depressed economic climate. High unemployment and the uncertainty of the economic future induces consumers to increase savings and reduce expenditures, e.g. by eating out less...."
ECONOMIC INEQUALITY IS ONE OF THE PROBLEMS
In spite of the terrible economic situation created under the Schroeder administration, similar to that suffered by Lower Saxony during Schroeder's tenure as head of that German State, we find however, as noted at the GAIN report, that there are some "rich" developments:
"Total sales in the leisure sector in Germany amounted to 538.7 million Euros in 2003 ($ 660 million), which is 3.7 percent more than in 2002. The number of outlets increased by 8 percent to 663....
Wine consumption in Germany has been growing during recent years. In particular, the demand for red wine is strong. Good prospects exist for “new world” wines, including those from the United States. Germany is the world’s largest importer of wine, with imports accounting for about one-half of domestic consumption. [emphasis supplied]"
What this tells us is that while the poorer, working sector of Germany is suffering in part due to the influx of cheap labor not just now but in the last thirty years (there are now ca. 3 million Turks in Germany, who initially came here as "guest workers"), there is still a very large established sector which has money enough to spend increasingly on leisure activities and expensive foreign wines. Accordingly, it is the politico-economic system and the governments in charge which have allowed the poorer unemployed German sector to emerge at all and have permitted it to drop out of its previous "middle class security", which used to exist everywhere in Germany two decades ago. The middle class is being eliminated. A poor class is being created. For what reason?
We are not against wealth or wealth accumulation by any means - and we are staunch supporters of capitalism - but it is the job of the government in modern market economies to make sure that the distribution of wealth, goods and services is equitable - if only because the existing "system" makes that wealth possible. Wealth and the accumulation of wealth is a function of the system and obligated to it.
Indeed, this resource (see especially page 9 at that source) shows that equitable distribution of wealth as the only solution to poverty is possible - and in fact - easily done. Poverty can demonstrably be averted by sound social policies and judicious government financing. Otherwise, you create the foundations for social unrest - and this always leads to war in the long term, immensely harming capitalist businesses: It is a scenario which has afflicted Germany twice in the past century. Indeed, the last 500 years in Europe were marked by a state of constant conflagration and conflict due to economic inequities.
THE CURRENT ADMINISTRATION HAS COMPETENCY PROBLEMS
The Germans speak constantly about LEISTUNG (the German word for "performance"), but if Schroeder and his Cabinet were soccer coaches in Germany, the present administration would have been fired long ago for incompetence in office. Either you win or lose, and "Schroeder's Team" is losing.
The responsibility for the current disastrous state of the German economy rests squarely on the shoulders of the current Chancellor, his Cabinet of Ministers, the Social Democratic Party and the Greens, whose dogmatic members throughout Germany have not only been steadily reducing the maximum speed limit which can be travelled on many stretches of German autobahns (symbolic for the "braking" being done by the Red-Green coalition) but have been applying similar brakes to the German economy ever since the Socialists and the Green Party came into power. The economy is like an automobile in motion - you either brake it or accelerate it, and the Red-Green coalition is a conglomeration of "brakers".
Here is the current "Schroeder Team" (see here for their budgets)- there is not a single person whose trained expertise is in business, commerce or finance in the entire Cabinet - no wonder that their economic policies are ineffective and sometimes border on the irresponsible:
CHANCELLOR GERHARD SCHROEDER - Rags to Rags?
Chancellor Schroeder studied law and is a media personality who possesses nearly all of the talents necessary to be elected Chancellor, to serve as a TV host (he spends a lot of his vanity time on television polishing his image) or to model expensive men's suits for some model agency - but he seems to be lacking in the talents required to lead Germany successfully in the direction of national security and economic well-being.
Indeed, not only is Schroeder leading Germany increasingly toward unnecessary economic hard times, but his own political party, the Social Democratic Party (SPD) of Germany, is barely surviving his Chancellorship, with SPD voting in German elections hitting all time record lows this year. Given the fact that Schroeder appears to be set on bankrupting the classes of voters who generally vote for the SPD, this is understandable.
Schroeder sees himself as a reformer. We see him as a deformer.
Schroeder's anti-war contribution to weakening of the NATO alliance may be a product of his background and not one of actual political conviction. Schroeder grew up without a father, who was killed in WWII, and he may be subconsciously anti-war of any kind for this reason.
It is also probably for this reason that Schroeder has staffed his Cabinet with strong motherly women, because he was raised by such a woman.
Studies also show that people tend in adulthood to strive toward positions which they were familiar with in childhood, when Schroeder was a ragamuffin with whom other children did not play, according to his own statement. Perhaps he is now getting even?
In any case, if we want prosperity, we are better advised to get leaders who grew up in prosperity, because that is the world that they will try to create as politicians.
In 2001, Schroeder narrowly escaped a "vote of no-confidence" in Germany's Bundestag, the lower house of Parliament, getting 336 votes of the needed 334 to avoid the vote of no-confidence. Many in Germany are now regretting that he survived that vote.
THE SCHROEDER CABINET OF MINISTERS
Who is going to get Germany out of the economic mess they are in?
Schroeder and his Cabinet of Ministers?
That is VERY UNLIKELY.
Schroeder's Cabinet of Ministers consists of 6 people who studied law - almost all were left-wing activists in social causes, 4 of his Cabinet were teachers (who taught at the grade school and high school levels), 2 were journalists (one an editor), 1 worked in the computer section of a mail order company (a high school graduate) and 1 was a high school dropout.
We can empathize with and applaud the personal success stories found in the biographies of the current Cabinet of Ministers, but most Cabinet Members seem by their educational and professional records to be under-qualified for their positions, as we show later below. The Cabinet does not well represent the whole of Germany but is a special form of Schroeder's apparently regional nepotism which concentrates on his selection of friends and acquaintances from Lower Saxony, Hessen (i.e. Hannover, Göttingen, Kassel and Frankfurt) and Northrhine-Westphalia. Note again that there is not a single person in Schroeder's Cabinet from the world of BUSINESS, COMMERCE and FINANCE.
But this is of course just our opinion. Take a look at their records and decide for yourself.
Otto Schily
Minister of the Interior
Schily studied law and made his reputation as a lawyer by representing German terrorists in the 1970's. Now over 70, much more conservative and quite erudite, Schily is one of very few Cabinet members in Schroeder's administration who has expertise and experience in the field for which he is responsible. Schily has been instrumental in the passage of recent anti-terrorist legislation in Germany - in part against severe opposition in his own ranks - and is urging the EU to set up refugee camps in Africa (and not in Europe) for asylum seekers from African countries. Schily is known for his statement - surely correct - that 97% of asylum seekers in Germany are "economic refugees" who come to Germany for free welfare benefits. Having represented terrorists in his youth, Schily understands them - the same can not be said for the rest of Schroeder's administration.
Joseph Martin (Joschka) Fischer
Vice Chancellor and Minister of Foreign Affairs
Joschka Fischer is a high school dropout who in his younger days and by his own admission was a political and violent radical, having since rejected violence as a workable means in politics. In spite of - or because of - this, he is very popular in Germany. We would imagine that the capacity to obtain popularity is important in international foreign affairs and it is clear that Fischer is a strangely competent, if sometimes uncomfortable, partner in this administration. At times, a power-hungry Schroeder has preempted some of Fischer's foreign policy ministerial responsibilities.
Jürgen Trittin
Federal Minister for Environment, Nature Conservation and Nuclear Safety
Trittin is a journalist who studied "social economy" at the University of Göttingen. As Minister of the Environment, Trittin ushered in a chaotic recycling system for aluminium cans requiring proof of purchase to regain any deposit paid. This totally non-intuitive system reduced your average shopper to a collector of papers for cans to be recycled. A more ineffective recycling system has never been instituted anywhere and the result has been consumer avoidance of aluminium cans.
Renate Künast
Minister of Consumer Protection, Food, and Agriculture
Künast is a social worker who worked in a jailhouse for two years and subsequently studied law. She was an anti-nuclear-power activist. Her pet project is organic farms and foods. Another far-flung interest seems to be "sustainable food security" for developing nations. Click here for a typical interview.
There have been numerous food scandals in Germany during her tenure, and she has been pressured to resign because of them, but has not done so.
Heidemarie Wieczorek-Zeul
Minister of Economic Cooperation and Development
Wieczorek-Zeul studied English and history and worked ten years as a teacher before embarking on her political career. She is strong in her opinions, whatever their basis.
Hans Eichel
Minister of Finance
Eichel studied philosophy, German, political science, education and history. Professionally, he was a teacher. There are large differences of opinion in Germany over his financial policies.
Edelgard Bulmahn
Minister of Education and Research
Bulmahn studied political science, English and American Studies. Professionally, she was a grammar school teacher (Studienrätin).
Click here for her vision about the world of tomorrow.
The recent PISA Study showed education in Germany to be in terrible shape, although it is an opinion which the Law Pundit does not share. Education here is good, but needs to be modernized substantially.
Renate Schmidt
Minister of Family, Senior Citizens, Women, and Youth
Renate Schmidt has a high school education with some computer experience at a large German mail order house. This interview shows her to be a strong person, albeit with unusual visions. See A Fistful of Euros, for a military twist on her work.
Ulla Schmidt
Minister of Health and Social Affairs
Ulla Schmidt studied psychology and education and was a special education teacher. Her specialty seems to be the issue of equal rights for men and women.
Under her ministry the German health system has introduced a quaint system of token-payment whereby insured patients have to pay doctors a special "token" quarterly sum of €10 - in CASH - which the doctors have to collect and then forward to the proper authorities. This new token-payment system for medical care has turned the medical practices into mini-shops. In a day and age of smart cards and databases, one can merely shake one's head in unbelieving astonishment at this antiquated "cash register" development.
Wolfgang Clement
Minister of Economics and Labour
Clement studied law and worked professionally as a newspaper editor.
Under Clement's ministry, the economy has now really ground to a halt and Hartz IV has taken shape, an ill-designed reform of the unemployment compensation system.
Manfred Stolpe
Minister of Transport, Construction, and Eastern Reconstruction
Stolpe studied law and worked professionally representing the Evangelical Church.
Stolpe was an "inofficial worker" for the powers that be in the former East Germany working under the code name "Sekretär".
There is also a current scandal concerning the delay in implementing the LKW-Maut (truck toll) HGV (heavy goods vehicles) toll charge system in Germany (long distance road toll on trucks) which was expected to bring vast monies into the depleted German treasury. Apparently there were irregularities in the awarding of the toll contract. It is estimated that this new toll will increase haulage costs by nearly 15%, thereby of course driving up retail prices considerably.
Brigitte Zypries
Minister of Justice
Zypries studied law and worked professionally in various government legal positions. Instructive are her comments on the rule of law and terrorism in Germany.
Peter Struck
Minister of Defense
Struck studied law and worked professionally as a lawyer in various city government and university legal positions.
No Longer in the Cabinet
Franz Müntefering
was a former Minister of Transport and Construction under Schroeder who became the SPD Party General Secretary and is now the SPD Party Chairman.
Müntefering completed studies as an industrial clerk and then moved his way up the political ladder.
CONCLUSION
Given this constellation of persons in power in Germany, who surely are doing the best they can within their talents and who are surely acting with the best of motives for their country, it is hard to imagine that the requisite expertise is present in this Cabinet of Ministers to get Germany moving again economically. Indeed, we fully expect things to get much worse in Germany before they get better.
Only a shift of political power to an administration having competence in economic affairs can possibly hope to get Germany out of the hopeless quagmire that they are in under this Red-Green coalition.
Permalink : Andis Kaulins : 9/29/2004 04:09:00 PM
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