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The World’s Biggest Shock Absorber

MUNICH – Since last autumn, Germany has been accused by a number of Anglo-American economists, above all by the 2008 Nobel laureate Paul Krugman, of not doing enough to combat the world economic crisis and of free-riding on other countries’ stimulus programs. Recently, The Financial Times asked where the German economists are who defend Germany’s policies, voicing the presumption that they disagree with their government’s policies but are too cowardly to say so publicly, thus conforming to the rituals of the German “consensus society.” From a German point of view, this discussion is a ludicrous inversion of the truth.

Germany has implemented two economic stimulus programs, amounting to €80 billion, or 3.2% of GDP, of which 1% of GDP will take effect in 2009. At first glance, this is indeed less than the American program, which totals 6.2% of GDP, of which 2% will be spent in 2009. But this impression is deceptive, since the German state, through the built-in flexibility of its extensive social-welfare system, already contributes to stabilizing the world economy.

Indeed, Germany’s generous unemployment insurance policies ensure that people are able to maintain their consumption standards even if they lose their jobs. Germany even has short-time allowances that enable companies to reduce their employees’ working hours, with the loss in earnings partly reimbursed by the state. Without this short-time allowance, the average number of unemployed in 2009 would be 300,000 higher than it is now.

At the same time, more than 40% of Germany’s adult population (pensioners, social-welfare recipients, unemployed, accident victims, students) receives some form of state transfer income, especially those in eastern Germany, while the burden of taxes and social security contributions on those in employment is high. While this certainly impedes long-term economic growth and causes great structural problems, it also means that the state reacts extremely counter-cyclically and stabilizes the economy to a great extent, which benefits the entire world.