Verkehrtes Staatsvertrauen


[Het Parool, The Netherlands]



Financial Times Deutschland, Germany

Don't Lecture Germans About Dependence on the State!


"It's hard to believe. In both the U.K. and U.S., a higher percentage of the population is employed by the state than in Germany. Meanwhile, George W. Bush contributed to this with his reform of health insurance for seniors."


By Thomas Fricke


Translated By Stephanie Martin


January 29, 2010


Germany - Financial Times Deutschland - Original Article (German)

Global figures and forecast for gross domestic product, 2009-2011.


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What haven't we had to listen to from our friends on the other side of the channel and great pond about how we in Germany adhere to the terrible belief that the government might be able to help? What haven't we heard about how we should watch Americans and British shine with much lower public sector shares of gross domestic product (GDP), as well as much lower debt?


That's all in the past now. Since the mega-financial crisis broke out, more than a few doubts about the healing powers of the market have been circulating among our friends. Upon closer inspection, the entire stereotype of Americans and British being less dependent on government and calling out for it less often than we do is gradually showing need of revision. Perhaps they just have a different way of calling out? The question then is who hollers best? At any rate, some of our government spending to GDP ratios are now lower, not higher, than some of theirs.


The call to ban commercial banks from conducting certain transactions comes from the president of the United States - and a former U.S. Federal Reserve chairman [Paul Volker]. The power of the American state has become involved with banks, placed quasi-public mortgage lenders [Fannie Mae and Freddie Mac] under government conservatorship, become the majority stakeholder of AIG, the world's largest insurer, and summoned auto-manufacturing CEO's to tell them what to do. It has also distributed more money to the unemployed and launched economic stimulus packages that make Angela Merkel look like a Swabian housewife.


Now, one could say that this was self-defense - a crisis of the century. But that doesn't change the end result. And it may just mean that it's been a long time since the U.S. had that much reason to cry for help. That can change. When the U.K. was on the verge of disaster in 1992, the government intervened, and the structural budget deficit was increased to almost seven percent of GDP. That's never happened in Germany - even after reunification. Similarly, after every recession, there have been similar situations.



Added to this is a deep-seated tendency to return to the state - and this isn't only to do with the occasional military adventure. While there are fewer government employees in Germany today than there were in West Germany alone before the Wall fell, the number has grown by the millions among the once greatly undersupplied British. Meanwhile, public sector employees on the island on average earn more than those in the private sector. It's hard to believe. In both the U.K. and the U.S., a higher percentage of the population is employed by the state than in Germany. Meanwhile, George W. Bush contributed to this, with his reform of health insurance for seniors, so that now, this item alone takes up more than 1.5 percent U.S. GDP than in 2000.


This trend has been dramatically accelerated by the crisis. Since the U.S. unemployment rate has doubled, government transfer payments have soared - from less than 10 percent in 2000 to what is now nearly 15 percent of GDP. That's a third higher than during the days when Ronald Reagan launched the battle against the allegedly rampant growth of the state. In Britain, an unbelievable 53 percent of economic output is derived from state institutions - as opposed to 48 percent in Germany. In the U.S. at the moment, the ratio of public spending to GDP remains lower. Ten years ago, the gap between our two countries [the U.S. and Germany] was still almost 15 percentage points. Now it's only half that. According to estimates by the Organisation for Economic Cooperation and Development, American state institutions require more money than all 16 European nations combined.



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Some relationships are now reversing. Budget deficits in the U.K. and U.S. are now twice as high as ours. It's a historic turning point: Following the U.S., the UK has now surpassed Germany in total national debt. The U.S. confronts much bigger problems than we do, according to Klaus Deutsch, a U.S. expert with Deutsche Bank Research. According to the Brussels Commission, public finances in Britain are much more unsustainable than in any other E.U. country. To close the gap, the British government will have to come up with 12 percent of GDP - three times as much as Germany.


Faith in government, my eye! Just before the Bundestag elections, German politicians are hunting for votes with promises to cut public debt, urging that the brakes be put on government spending [the Bundestag is Germany's national legislature]. In the U.S., according to OECD findings, there has so far been a complete lack of specific, deficit reduction targets - although there's a question about whether this is due to a realization that forcibly-mandated debt ceilings have been empirically shown to be of limited use. In Germany, the ratio of public debt to GDP could begin to fall again within a few years; for the U.S., official estimates see them rising until 2019. And while we're on the subject: in the U.S., criticism of an overly naive belief in the market is alive and well. In Germany, meanwhile, supposed economic experts would rather get excited about everything the state is doing wrong than about a historic market crisis.



Let's do away with this stereotype. The question is what works better in the end - and that's not at all clear. For years, Denmark and Sweden have shown us that it's possible to be successful with high government spending, if the money is spent properly. It's quite possible that the U.S. used the state to create growth - but only after the crisis, and with the intention of dismantling the government apparatus again later. Until then however, you have our permission to ask our friends to slow down next time they start complaining about our terrible state tendencies.


*Thomas Fricke is Chief Economics Editor at the Financial Times Deutschland



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[Posted by WORLDMEETS.US February 3, 9:35pm]



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