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Democrat September-October 2013 (Number 137)

Collapse of the left in Germany
in capitalist economic crisis

Part I of a paper by Horst Teubert at
Desmond Greaves Summer School, Dublin - 15 September

From a critical German point of view, the euro crisis has a lot to do with the weakness of the left, especially the German left. German governments over two decades have imposed a severe austerity policy, at first on Germany then with far reaching consequences for the whole EU. Before looking at those consequences, it's important to ascertain why German governments imposed austerity which was well thought out.

For the German establishment, austerity policy is of strategic importance. Low wages and poor social benefits are always in the interest of entrepreneurs and ruling elites in any country. They increase profits of big business and reduce social obligations of the state, making the ruling elites richer and giving them bigger political levers.

The European Central Bank HQ is in Frankfurt

For the German establishment it is more than that as revenue and wealth come mainly from exports. In the second half of the 1980s and again from 2003-2008, Germany was the world champion in exports, only losing this position in 2009 - to China. From the point of view of the German establishment, China, whose exports continue to rise rapidly, has become one of the main economic rivals in the fight for shares in the world market. If you want to compete with China, one thing is sure: the lower wages paid, the better the chances to win. So, for Germany an austerity policy is a very important means to compete with China and to maintain the traditional German path to wealth.

Moreover, there is an aspect which derives directly from the special situation of Germany after the Second World War. After 1945, Germany had lost its former military power. It was allowed to rebuild an army, the Bundeswehr, in 1955, but the Bundeswehr was not strong enough to compete with the French and British armies, not to mention US Forces.The Allies of the Second World War would clearly not have allowed Germany to adhere further to its traditional military power policy. For this reason, the German elites had to find other ways to realise their wish to become more powerful in the world, and very soon, they took up an idea they had stuck to after losing the First World War: to wield power by means of a strong economy. For this reason, strengthening the German economy has been, for the establishment, not just a matter of wealth; it has also been a matter of power, far more than any other big western state.

The austerity policy imposed on Germany with the aim to compete on the world market has had, at first, severe consequences for Germany itself. Real wages were cut, social welfare was reduced drastically, especially during the chancellorship of the social democrat Gerhard Schröder. According to a study published by the OECD, between 2000-2005, poverty in Germany rose faster than in any other western country. When the Schröder government was voted out of office in 2005, poverty in Germany lay for the first time above the OECD average. But beyond this Germany's austerity policy has also had severe consequences for the EU, especially the eurozone. Due to shrinking wages and social cuts, German companies were able to produce cheaper goods and sell more of them not only on the world market generally but, especially, to other European countries like, for example, France, Italy, Spain and Greece. This was possible because, in the years before the euro crisis, these countries did not follow the German austerity model for reasons given in part II of this article.

Take, for example, France. In April 2010, when the euro crisis escalated, Jacques-Pierre Gougeon, an expert with the Paris based "Institut de relations internationales et stratégiques", stated in the influential newspaper Le Monde that in France, the cost of labour had risen from 2000-2009 by about 17 percent. Obviously, not only French companies but also French workers took profit from economic growth. Gougeon compared this with Germany and stated that, during the same decade, the cost of labour in Germany had shrunk by 1.3 percent. Obviously, German workers were denied a proper share of the economic growth of the rise in profits. As he realised further, France had had an export surplus of 39 billion euro in 1999. Ten years later, things had changed decisively. Now, the country bought much more than it sold and had an export deficit of 43 billion euro. One main reason was that Germany, pushed by its austerity, had increased its exports not only generally on the world market - to the damage of competing French exporters - but also its exports to France. The latter meant France was paying more to buy German products and fell deeper into debt. This has continued until today. In 2012, German exports to France rose to 104.5 billion euro, whereas French exports to Germany only reached 64.8 billion euro. France had to pay about 40 billion euro net to Germany in 2012 alone.

Economies of different countries develop differently. Generally, states have the means to react if another national economy becomes too strong, they devalue their currency. Since the euro was introduced, the eurozone countries no longer had this power. They can't protect themselves against an ever stronger German economy and thus run deeper into debt. This is why the euro crisis is not only linked with the introduction of the euro, but also with the weakness of the German left.

The left has been unable to prevent German governments from imposing a severe austerity policy on the country, increasing the state of imbalance between the national economies of the eurozone countries and driving other eurozone countries heavily into debt. Of course, the German elites tell the world that the opposite is true, that their austerity policy is the best line of action that must be followed in all eurozone countries, and then all will be well. This is exactly how the eurozone countries have been steered under German domination in the last three years. This is a path leading to poverty all over Europe.

It is clear that instead there must be a change away from the current course based on austerity.

Click here for part II