Merkel has earned the top spot on the FORBES list of Most
Powerful Women In The World for seven of the past 10 years
Angela Merkel Explains Why Germany is Not Poorer Than Spain
Or Greece
You will recall that back last week the European Central
Bank released a report that said that German households were the poorest ones
in the Eurozone. Despite having higher wages and living in a richer country,
they were poorer than households in Cyprus,
Greece and Spain. This was
a result of such gargling nonsense that of course a politician decided to use
it as the basis of a plan. This was that any future bailouts should be paid for
by those richer Mediterranean households rather than Germans.
Angela Merkel, the German Chancellor, has pointed out why
the result is so amazingly odd:
“
Merkel is confident that Germans are better off than the ECB
report suggests. In Southern Europe, the
general public is more likely to invest in property as a pension plan, she
pointed out. “Germany
has robust statutory social security and occupational pension schemes, but
Germans’ high pension entitlements are not factored into the survey, and
neither are overseas properties or assets.” she said. “This makes their average
assets look more modest than they actually are.”
This is exceedingly similar to the point I made about the
report two days earlier:
“
We’re therefore excluding from our calculation of German
household wealth the largest asset that almost all of those households will
have. The current value of their future pensions. Agreed, we are also excluding
this from the Spanish and Cypriot etc numbers, but pensions benefits in those
countries will be very much lower than they are in Germany.
Which is how we manage to show that German families are
poorer than Cypriot families. We just don’t bother to count the major part of
German families’ wealth. It really wouldn’t surprise me if the actuarial value
of a German houshold’s pensions would be in the €400,000 to €500,000 range long
before retirement age. Two people with both state and occupational pensions?
Which makes something of a mockery of this report into wealth really, doesn’t
it?
I would love to thus be able to point out that this blog is
read in the halls of power, influences matters national and European. Sadly I
don’t think that I can claim that: it was just too obvious a point to be made
about the report itself, even if this blog was the first one to make it.
Angela Merkel
At a Glance
Chancellor,
Germany
Age: 58
Country of Citizenship: Germany
Education: Master of Science, Leipzig
University; Doctorate, Leipzig University
Marital Status: Married
http://www.forbes.com/profile/angela-merkel/
Profile
The world's most powerful woman is the backbone of the
27-member European Union and carries the fate of the euro on her shoulders.
Merkel's hard-line austerity prescription for easing the European debt crisis
has been challenged by both hard-hit southern countries and the more affluent
north, most particularly French President Francois Hollande. Merkel has served
as chancellor since 2005, the first woman in the position, but her biggest
challenge may still lie ahead: she is running for a third term this fall's
general elections. 2013 SPOTLIGHT: Merkel has earned the top spot on the FORBES
list of Most Powerful Women In The World for seven of the past 10 years.
Why Obama Cannot Match Germany's Jobs Miracle
http://www.forbes.com/sites/paulroderickgregory/2013/05/05/why-obama-cannot-match-germanys-jobs-miracle/
In 2002, Chancellor Gerhard Schroder appointed a jobs
council headed by Volkswagen’s Peter Hartz to solve Germany’s high unemployment. In
2011, President Barack Obama similarly appointed a jobs commission headed by
General Electric GE +0.85%’s Jeffrey Immelt to achieve the same goal. (At the time, Schroeder headed the SPD, the
equivalent of America’s
Democratic Party.)
Germany’s
labor market turned around in a dramatic fashion after Schroeder implemented
the Hartz Commission’s sweeping reforms between 2002 and 2005. In contrast,
Obama’s Immelt Council quietly disbanded without making substantive proposals,
and America’s
worst jobs recovery of the postwar period continued.
Obama cannot duplicate the German reforms. They reject his
Keynesian belief that jobs are created by government stimulus. Instead, the Hartz reforms rest on the common
sense notion that people take jobs when work, rather than welfare, pays. Such
an approach violates Obama’s core belief that government must make the lives of
the unemployed as comfortable as possible. No, the Germans say. If the state
gives too much, the unemployed will have no incentive to take jobs, even when
they are available.
Just as Germany
alone pushed back against the anti-austerity complaints of Southern
Europe, so it rejects the Keynesian blame of deficient demand for
unemployment. Instead of stimulus, the
Germans raise incentives for unemployed workers to take jobs. They believe that welfare programs must be
calibrated to “make work pay.” Otherwise able-bodied persons will be tempted to
take the easy way out of pay without work.
The Germans would characterize President Obama’s “jobs
program” of fiscal stimulus and generous and extended unemployment benefits as
well-intentioned medicine that kills rather than cures the patient. They would
laugh off the Obama team’s odd notion that higher unemployment benefits create
jobs by putting money in the pockets of the unemployed. Surely, Obama can’t be
serious.
Germany’s labor market reforms have made Germany’s
economy a rare bright spot in a troubled
world: While German newspapers
headline: “Germany on the Way to New
Full Employment,” the rest of Europe
records a 12 percent unemployment rate,
and the United States settles for a “new normal” of high unemployment. Posters in German subways are full of job
offers, while Spanish, Italian, and Greek workers take to the streets to protest
the lack of jobs. A German political cartoon shows a well-groomed executive
sweeping the factory grounds for lack of employees.
The origins of Germany’s labor-market turnaround
dates back to the mid-1990s, when its ruling class decided that things could
not continue to go on this way. A
humiliated Germany, of
“Wirtschaftswunder” fame, had joined the rest of Europe
in recording double digit unemployment rates, peaking at 13 percent in early
2005. The fabled German engineering
machine was sputtering and needed new life.
Chancellor Gerhard Schroeder called for labor market reforms
in his 1995 “Agenda 2010.” He appointed
a reform commission, headed by Peter Hartz, the head of personnel at
Volkswagen. Hartz and his fellow commissioners were ordered to devise a plan
for reducing unemployment and restoring German competitiveness.
Unlike the United
States where grand bargains are talked about
and then forgotten, the Hartz reforms were actually implemented first by
Schroeder and then by his successor Angela Merkel of the rival Christian
Democrat Party.
The fourth and final phase of the Hartz reforms went into
effect in 2005 under Merkel. Within less than a decade, Germany halved
its unemployment rate, while the rest of the Euro Zone remained stuck with
double-digit unemployment.
Prior to “Hartz IV” – as the Germans call it — Germany was
noted for its generosity to those without jobs. Unemployment benefits preserved
as much of former earnings as possible. Unemployed workers could turn down jobs
that did not correspond to their specific qualifications without losing
benefits. (Taxi drivers could refuse jobs as truck drivers). The unemployed
could refuse jobs that required a change of location. Unemployed workers
received unemployment checks alongside generous welfare benefits. The
unemployed even received money for their vacations.
“Hartz IV” turned Germany from one of the most
generous welfare and unemployment systems into one of the stingiest.
Workers who lose their jobs receive unemployment benefits
based on their previous earnings and time on the job for six months to two
years. Once unemployed workers exhaust their regular unemployment benefits,
they enter the Hartz IV program. (Germans use “Hartz IV” to describe the
long-term unemployed who are in the program, often derisively, as well as the
program itself.) If you have never been
employed, such as a graduating student, you go immediately into the Hartz IV
program.
Hartz IV recipients receive about $400 per month for living
expenses. Their rent and health insurance are paid directly by the state,
subject to limitations on square meters of living space. If a “Hartz IV” turns
down job offers, he or she stand to lose part or all their benefits. In
addition to the $220 per month of “children’s money” that all families receive,
a “Hartz IV” receives a monthly supplement of about $130 per child. With these benefits, a single unemployed
woman with one child has less than $750 per month for expenses, after the state
directly pays her rent and health insurance.
Unlike other unemployment insurance programs, the Labor
Office (renamed the “Jobs
Center”) considers the
Hartz IV recipient’s “need community” (Bedarfsgemeinschaft in bureaucratic
German). A spouse or a partner with
earnings reduces benefits according to a published formula. A recipient sharing
a common refrigerator also can experience reduced benefits because basic needs
are being met by others. Hartz IV recipients must go through a complicated
bureaucratic procedure to replace essential household items such as a
refrigerator or television set. The Labor Office conducts unannounced
inspections to check for the presence of other adults or other signs of
unreported earnings.
The Germans devised the Hartz IV system to limit benefits to
a subsistence level of living. The only way to rise above subsistence is to
work. Once the chronic unemployed reach retirement age, they switch from Hartz
IV to a state pension. In effect, Hartz IV recipients put their lives in
receivership to the omnipresent Jobs
Center. Hartz IV
recipients are allowed to keep a maximum of $13,000 in savings. Any savings
over that amount must go to pay their expenses before they can receive Hartz IV
money.
The Hartz IV program increases jobs and “makes work pay” for
the low-skilled by taking advantage of Germany’s lack of a minimum wage.
Hartz IV recipients who take “Ein Euro jobs” that pay one Euro per hour keep
their entire earnings without losing benefits. They can also take so-called
mini jobs earning $530 per month or more with a graduated loss of benefits.
Of course, the Hartz IV reforms are not universally popular.
The labor unions hate them as does the “Party of the Left.” A female Jobs Center
employee became a folk hero, when she refused to reduce the benefits of a Hartz
IV recipient who had broken its “barbaric” rules.
The most remarkable feature of the Hartz reforms is that the
German political class had the courage to make hard choices. Gerhard
Schroeder’s support for labor market reform was the equivalent of Nixon going
to China.
Only a Social Democrat could push through such a reform. It cost his party two
elections as his angry left wing (including Germany’s Teddy Kennedy, Oskar
Lafontaine) split from the Social Democrats to join splinter parties.
The American political class should look to Germany for two
reasons:
First, Germany
provides a natural experiment of Keynesian versus Non-Keynesian labor market
policy. I would challenge those continuing to push stimulus in the United States as an answer to unemployment
(versus raising incentives to take jobs) to explain the halving of Germany’s
unemployment rate in such a short time.
Second Germany
is a lesson in political courage – to do the right thing regardless of the
political consequences. Such courage is sorely lacking on both sides of the
aisle in the United States.
Few if any American politicians have the courage to risk the demagoguery that
would accompany their support for lower welfare or unemployment checks.
For Obama to support such a program would be selling his
soul to the devil.