Germany’s Eerie Confidence

It seemed to me that part of the subtext of Germany’s election was a population that was underestimating the extent of the economic problems it’s facing. I think these new numbers showing consumer confidence rising underscore that point.


The thing about Germany is that even though the country experienced growth last quarter, it’s growth from a terrible baseā€”the collapse in output was one of the largest in the world. The central bank thinks it’ll take five years for per capita GDP to retake its pre-crisis highs. There’s no real reason for consumers to feel confident. But unemployment hasn’t spiked, and people see the crisis as something that happened “in America” and is sparing Germany. Nevertheless, the only reason unemployment hasn’t spiked is because of the government-sponsored kurtzarbeit scheme in which the government basically gives firms a large enough subsidy to make it worth their while to hoard labor during the downturn. Thus instead of laying off half your workforce, everyone just works part time on nearly full salary with the government paying some of the tab.

That, however, isn’t something the German government can afford to keep doing. It was a useful tool to get Angela Merkel through the election, but it’ll have to stop soon and unemployment will probably skyrocket. What’s more, the longer it lasts the more Germany is delaying any real restructuring in its economy. Pre-crisis Germany was very oriented toward exports to the United States and Eastern Europe, but neither of those places can afford to import as much as we used to. If Germany stays export-oriented it will need to export to someplace else and that probably means exporting somewhat different stuff.