The German Ministry of Finance has proudly announced on March 11th that the country will have essentially balanced its budget as of 2014. Structural budget deficits will belong to the past.
Germany would thus be the first of the 25 EU countries to live up to the conditions of the “Fiscal Pact” which goes back to its initiative in 2010.
From the perspective of a national finance minister this may be a reason to celebrate the “success” of an austerity policy which has allowed keeping unemployment below 7 per cent and the economy from realising very modest growth rates.
However important balanced budgets might be for Europe in view of its rising social charges, in particular the huge burden resulting from ageing, Germany does not deserve praise for having precipitated the balancing of its budget.
From an EU perspective, with several countries suffering from unsustainable high unemployment Germany should have continued to run budget deficits of say 2-3 per cent for a few more years and play a modest role of locomotive for neighbours.
Fortunately, the German social partners have done better than their government by agreeing on “aggressive” wage deals, which on average led to wage increases of three per cent in 2012. As a consequence, German unit labour costs have soared by 2.8 per cent in 2011 and 2.6 per cent in 2012. As Spanish, Greek and Portuguese labour costs have declined in parallel, the German current account surplus with the peripheral member countries has fallen, which is to be applauded as an overdue development for a more balanced Euro zone.
“European semesters” will generate a better understanding among policy makers for the need to think beyond national borders when it comes to fiscal and wage policies. That will make the Euro zone much more sustainable, even if this will take a few years.
Brussels 12.03 2003 Eberhard Rhein
Author : Eberhard Rhein