A German and a EU flag fly at half mast in front of the Bellevue presidential palace in Berlin

Economics

La hora de Alemania

Sep 18, 2017 Robert Skidelsky

LONDRES – ¿Quién dirige la Unión Europea? En vísperas de la elección general en Alemania, es una pregunta muy oportuna.

Una respuesta típica es “los estados miembros de la UE” (los 28, todos ellos). Otra es: “la Comisión Europea”. Pero Paul Lever, exembajador británico en Alemania, ofrece una respuesta más pertinente: acaba de publicar un libro titulado Berlin Rules[Berlín manda], donde escribe: “La Alemania moderna demostró que es posible conseguir con política lo que antes demandaba guerra”.

Alemania es el estado más poblado de la UE, y su mayor potencia económica, responsable de más del 20% del PIB del bloque. Las causas del éxito económico alemán no se dejan determinar fácilmente. Pero lo que ha dado en llamarse el “modelo del Rin” tiene tres características únicas que se destacan.

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Robert Skidelsky

Writing for PS since 2003
208 Commentaries

Robert Skidelsky, a member of the British House of Lords and Professor Emeritus of Political Economy at Warwick University, was a non-executive director of the private Russian oil company PJSC Russneft from 2016 to 2021. The author of a three-volume biography of John Maynard Keynes, he began his political career in the Labour party, became the Conservative Party’s spokesman for Treasury affairs in the House of Lords, and was eventually forced out of the Conservative Party for his opposition to NATO’s intervention in Kosovo in 1999.

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0 Comments on this paragraph, 18 Comments on this article

Jane O'Sullivan Sep 25, 2017

The obvious point - why is this so ardently overlooked? Since monetary union was muted, I've said that monetary union without fiscal union is a recipe for polarisation of wealth, ultimately bankrupting the weaker members. Without ability to devalue their currency, they have no hope of trade balance. At the other end of the spectrum (which happens to be Germany), a prudently won advantage grows to become an increasingly unfair advantage. An EU clearing union might be a partial solution, but as long as the EU resists actual union as a federal nation (and I believe it should), monetary union remains a deeply self-destructive instrument.
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Paris Miserlis Sep 24, 2017

Professor Skidelsky's message and argument is exactly at the core of the discussion and solution that Europe needs. Without an agreed "formula" of how the strong and weak will interact in Europe or without a contract between the creditors and debtors there will never be a sustainable and longstanding solution for Europe to thrive on the coming centuries. Such an agreement will need to form the basis for further European unification. If further unification happens without a pre-agreed solution, it will just collapse down the road and lead to further crisis.
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Hergen Heinemann Sep 24, 2017

Solidarity is OK and neccessary in any community, but to imagine it to be a one way construction is a bit outlandish. It should work in both directions, i.e. in this case in exchange for financial solidarity it should be balanced by the effective endeavour to finance its own living and not to rely on continuous financing fron other parties.
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Hergen Heinemann Sep 24, 2017

The clearing bank exists already in the ECB, which shows the clearing results in its TARGET accounts, being debit and credit accounts, with the unheard of feature of bearing no interest and never becoming due. The German "credit" of this type is presently at about 800 bilion Euros. What else could be imagined?
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Kurt Bayer Sep 24, 2017

Two things to clarify: a) in 2006, Germany was "the sick man of Europe", having grotwth and unemployment problems on a large scale. Why this turnaround? It can not be the "undervalued for Germany" Euro, because that had been in operation since 1999.
b) Of course there are transfers: Germany is the largest net contributor to the EU budget. One may argue that given the puny size of the EU budget, this is not enough transfer, but one should not pretend that there are no net transfers to weaker countries - in practice all the ones below average EU GDP.
And then, in this discussion, one would have to clarify whether a transfer mechanism should be a "structural" one, like the differentiation of EU budget contributions, or/and a cyclical one, designed to even out differences in the cyclical situation of member states, e.g. a joint unemployment insurance system.
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Bruce Wilds Sep 19, 2017

Not everyone is that happy with what has been happening. Over the last several years the "stop globalization" movement has gained support in developed countries across the world. The subject of globalization is made up of many threads interwoven in a complex way, the discussion can include several issues such as, but not limited to, immigration and free trade.

Other social concerns also feed into the mix and complicate this issue. Things like global warming, nationalism, inequality, even exploding population growth all influence our view of the world. The article below explores this complex issue and questions whether it is justified.

http://brucewilds.blogspot.com/2016/07/is-stop-globalization-movement-justified.html
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Bernhard Kopp Sep 19, 2017

The 'weak' are knowingly and willingly as they are. We must be very careful how we interpret solidarity. If and as long the Italian Parliament pays its ushers up to € 130,000.- per year, and 70% thereof as state pension at age 60, or, the Region of Sicily employs more people in forestry than all of Canada, there is little appetite for solidarity.
- Henk Crop Sep 20, 2017
  
  If it seems to be neccesary to transfer money in the Eurozone, it will be a question how much. Perhaps it is good to look at the integration of East with West Germany. They had no language problem and at the time East Germany was the most developed economy of the East Bloc.
  Over a 20 year period the costs added up to 1,3 trillion Euro's.
  With all these plans by mr. Juncker to expand to the East and apply solidarity in the entire EU, I doubt if the standard of living in the competitive EU countries can be maintained.
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Steve Hurst Sep 18, 2017

As the EZ expanded to include more diverse, ie less productive economies, it increased the internal stresses. The destination is obvious despite exhortation from Brussels. There is no solidarity with the weak, only feeding on them or handouts to quell the newbie members. Incidentally you have to question why this EU expansion occurred because it appears to be geopolitical not economic in a supposedly economic structure. However - Unless you believe in perpetual motion there has to be transition which means current beneficiaries have a reduced situation which they will oppose. There are as such, no residual balances in a common currency, there are no differences in interest rates - if they are it is not a common currency. Schauble fully understood this, was opposed to interest rate deviation and offered exit for delinquency. Incidentally as an aside the UK lost its manufacturing base due to N Sea Oil as clearly identified in the McCrone report of 1974; nothing to do with stakeholder policy. Meanwhile - The sight of fiscal flagallists wandering around Southern EU countries is very 14th century but solves nothing and is just a distraction device whilst the burglaring by the burghers continues. This is driven by bank liabilities, principally German and French, nothing to do with International Clearing Unions. Raising local interest rates by yet another irregularity correction mechanism means nothing in the situation of a very heavily subsidised local currency and simply is another message there is not a common currency. Nor does an International Clearing Union solve French problems with a 20% problem vis a vis Germany which Marcon is going thru the charade of attempting to resolve.
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Henk Crop Sep 18, 2017

Good that the author signals the economic imbalance. Parallel to this exists the political imbalance. The EU was founded by six members with the intention to cooperate in order to prevent a future war in Europe. Both the number of members have increased and also the ambtion, to strive for an ever closer Union. The question is if the existing structure of EU institutions are able to meet the challenges of the future. How can competitiveness and economic growth be developed ?
How can the EU remain a democratic organization, by the people and for the people ?
How can sovereignty of the members states be protected and respected, including those of the smaller members ? Who is paying for the EU project ?
I am raising these questions because we are not only faced with an imbalance caused by the strenght of Germany, but also caused by the Brexit, by distance being taken from the the US, by France who is too eager to lead the EU and the autocratic European Commission who wants to take over the EU presidency.
If nothing gets done the EU will be managed by Germany and France ( 31 % of the people ) and 69 % of the people left out. Big countries have a tendency to go their own way and neglect the smaller ones.
I have one suggestion for a more balanced decision making.
The EU presidency should be expanded to a small management team.
This should consist of Germany and France, plus 3 representatives from smaller EU members.
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stephan Edwards Sep 18, 2017

Except Germany isn't going to accept an EU clearing union anymore then they would accept a transfer union. And their people are entrenched enough in the EU bureaucracy
that the question won't seriously come up. They like the current setup just fine than you very much.
- ALAN MANAS Sep 18, 2017
  
  Dear Reader..
  The German worker's councils have been effective in controlling the offshoring problem that both the U.S. and Japan have not been able to deal with effectively.
  But, the vast majority of German competitive strength is its ties to the Euro. If Germany had its own currency the new Mark would be at least 50% higher than the Euro to the USD given the existing trade balance.
  In fact, the Euro is overpriced relative to the economies of Greece, Portugal and Italy. German success is at the expense of their neighbors. That is the fact. If the populations of these countries want to exist as holiday destinations with the low paid jobs that come with that I guess that is ok. I guess the smart ones can learn English and emigrate.
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- Henk Crop Sep 18, 2017
  
  Stephan. It can be good to support weaker economies for a period of time or in specific situations. But eventually they have to take care of themselves. A Transfer Union is unhealthy for the recipient and will not be accepted by the donor.
  - Matthew McCarthy Sep 19, 2017
    
    In the US our solution to permanent transfers is to declare any donor who objects "racist" and declare the known unhealthy effects for the recipient "racism" - that way you have demonized anyone who objects and determined how you will ignore the problems being generated all in one move. Very efficient.
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  - Steve Hurst Sep 18, 2017
    
    Henk, then wave goodbye to the euro, because no common currency area can exist without transfers. Examples > USA and a much smaller area, the UK. With the euro going also goes German currency subsidy
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Jose araujo Sep 18, 2017

Robert, great post

I just want to add something that has been forgotten, and I don't know why.

I had the chance of going to economic school at the time Portugal was entering the Eu, so we had a course named economic integration.

Now, what I recall from economic integration, is that you integrate to generate scale and agglomeration economies, among other positive externalites.

With the end of the people and capital barriers it was thought natural for resources to flow to central locations.

That's why cohesion was so fundamental and on the genes of the EU, because asymmetries were the intended result, and the way to make it work was for the intended benefactors of the agglomeration and scale economies to share them with the countries losing the production.

Off course this economic view goes against the eugenic and Darwinist arguments, and are way less powerful has a political speech...

How can country that is a part of a union, or a community use the no solidarity argument and see that argument validated and accepted by all, is still a big mistery to me.
- Matthew McCarthy Sep 19, 2017
  
  I see your argument, and maybe that was how the Portuguese wanted to present it, but it is not how the Eurozone was implemented, and I don't really think it can make sense if you look at it in detail. At the time of implementing the common currency who were the "intended benefactors"? Who was assumed to be "losing production"? Can you really find a Portuguese politician at the time who was saying "this will destroy our industry, but Germany will subsidize us"? If so it was pretty irresponsible not to get that in writing in the agreement.
  
  At any rate, ignoring the past, it is still not straightforward to apply the argument to the present either. It is pretty obvious to say that some portion of Germany's success is due to a wildly undervalued currency, but how would you say how much? At the same time, it makes no sense to simply ask the Germany to subsidize Greece when Greek workers retire so much earlier than German workers. In the same way as it is difficult to determine what portion of German success is coming from the effects of the common currency, it is difficult to determine what portion of Greece's failure is coming from the common currency.
  
  It sounds reasonable, but I don't see a way to flesh it out into a an argument to apply to the real situation. Do you have any ideas to flesh it out?
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