Monday, February 2, 2015

The Dirty Little Secret of Berlin’s Bankers

by Daniel Altman

Foreign Policy

February 2, 2015

Why did Germany try so hard to stop the European Central Bank from giving the eurozone a trillion-euro boost? Why did Germany decree fiscal austerity for Greece instead? And why, despite Greece’s travails and alleged duplicity, does Germany insist that Greece stay in the eurozone? These actions may have seemed irrational and contradictory, but the same people benefited in every case.

First, consider Germany’s recent economic history. In 1990, the reunification of the East and West added an enormous, low-wage population of Germans to the labor supply. Though integrating them into the West’s business environment took time, these millions of new laborers in the workforce instantly made German exports more competitive. Then, with the launch of the euro in 1999, Germany diluted its currency — among the strongest in the world — by mingling it with those of less stable economies from across the European Union. Again, the effect was a huge boost to German exports.

These dramatic shifts in Germany’s economic position might have been expected to benefit both German workers and owners of German capital. For workers in the poorer East, wages were sure to rise, and they did. Workers in the West may have suffered by comparison, but the boom in exports — which went from 23 percent of the economy in 1990 to 42 percent in 2010 — should have been big enough to boost their incomes as well.


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