Economics and politics - comment and analysis
25. September 2017 I Will Denayer I Countries and Regions, Economic Policy, Europe, General, General Politics

Time to raise wages

Initially, it was not my intention to comment on the German election, after all we have big (German) experts in the house. But let me put in my two cents.

Those who are surprised by this election result have not been paying attention. The far-right AfD has won seats in 13 of Germany’s 16 state legislatures, including a 24.3 percent share of the vote in the eastern region of Saxony Anhalt last year. It was inevitable that the extreme right-wing would end up in the Bundestag. The question was by how much. Thirteen per cent of German voters have voted for the AfD. Looking at the regional differences, it is even much worse. The AfD wins 21.5% of the vote in the former East (including East Berlin) (the final figures might be a bit different, but not by much). The AfD wins as many votes in the East as the SPD wins nationally. True, Die Linke gets 16.5% of the vote in the East, but much less in the West and it ends up with a disappointing 10 %. Sad, because the party deserved much better.

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Figure 1: prognosis by ZDF and comparison with 2013 (Source: ZDF). 

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Figure 2: projected make-up of the new Bundestag (Source: Bloomberg). 

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Figure 3: prognoses highlighting the difference between the West and the East (Source: Bundestagwahl2017). 

The SPD is not the only big loser. These are the worst results for the main parties since 1949. This is an historic low for the CDU, a historical low for the SPD, a historic combined low for the CDU and the SPD together and a post-war historic high for the far right. To give an example, the two main blocs, the CDU/CSU and the SPD take together 53% of the vote between them. In 1976, they took 91.2%.

What will happen now is that, whatever the make-up of the next government, it will have to reckon with 88 (or 92 – this is not yet clear at the moment of writing) far-right MPs in the Bundestag. The far-right is gaining politically everywhere – just wait till next year when there are elections in Sweden: it will be worse! – but Germany is different. This is not a country of ten million people. In Germany, there is a deep ethos of Nie wieder Faschismus. Is the AfD neo-Nazi? It is fair to assume that some of this party are fascist and neo-Nazi. There is no doubt about it.

Many reasons can be found to explain this result, but let’s not confuse analyse with understanding or empathy. Yes, living conditions for some have been deteriorating and are now really bad, inhumanely bad. Yes, the political mainstream has not listened to them. People have been standing with their backs against the wall, without political representation (or, at least, that is their perception). The mainstream has implemented policies that have greatly increased income and wealth inequality in Germany. Hartz IV is not social welfare, it is a scandal for any civilized country, more punitive social cleansing than inclusion and support. Of course, the mainstream is responsible for the growth of poverty in Germany. These are the results of German wage moderation, also called German mercantilism. While some have greatly profited from it, the population has been paying the price for over a decade. None has paid a bigger price than the poor, the elderly and the sick. It is all true. But there is also personal responsibility and there are other ways to fight all this misery than to vote for a party which, if it would have an influence on policy, would make everything WORSE, while for the rest they have nothing else to say than despicable, rotten, nonsense about refugees, immigrants, Muslims and the poor, including, of course, the German poor.

“We obviously didn’t manage to hold and expand our traditional voter base, even though we had many social achievements in the last four years” said Martin Schulz.

Which social achievements is Schulz referring to? Was it the raise of the minimum wage with 34 cents earlier this year? That is the problem in a nutshell. Do not try to solve any problem, but put a plaster on the wound here and there while you let the infection fester. Don’t you understand that people are getting tired of you? When will the social democrats ever understand this? There is, in the whole of Europe, currently, only one social democratic party which actually manages to gain members and voters and that is the Labour party in the UK. Things are far from well there either, but the point is that Labour is winning on the basis of their most leftist manifesto since 1980. All other social democratic parties are not merely losing, they are being bitterly humiliated and utterly defeated. When will you ever understand this?

What will happen next is anyone guess, but in my opinion nothing much of anything will happen. There will, in all likelihood, be long negotiations before a new government is being formed. According to Henrik Enderlein, professor at the Hertie School of Governance, a new coalition is not to be suspected before the 15th of October – the day of the regional election in Lower Saxony. There are only two options, or perhaps three – there is the theoretical option of a minority government that will be tolerated by the SPD in the opposition, but Germany has no experience with minority governments, which only cause problems anyway. The only real options are a continuation of the Grand Coalition – CDU/CSU and SPD – or a coalition of CDU/CSU with the liberal conservative FDP and the Greens. Manuela Schwesig, SPD prime minister of the northern state of Mecklenburg-Western Pomerania, told ZDF that the party leadership is united in its determination to go into opposition. Other SPD politicians have not been so outspoken.

One thing is for sure: the negotiations to form a coalition will not be easy. The Greens promised during the campaign that they would not enter any government that does not back the prohibition of combustion engines in cars by 2030. Merkel vehemently opposes this. But nothing is really clear. The Greens want to shun anti-European populism, fight climate change and work towards a fair society. All very nice words. Merkel is one of the biggest defenders of the Paris Agreement, so perhaps there is room for compromise.

Real changes in policy will likely be minimal. Some say that Merkel’s mandate to enter negotiations about deeper euro integration has been weakened. It might be true, just as the reverse might also be true. The reaction can very well be: better to get on with it before the brown wave gains even more power.

As for the AfD, Bershidsky from Bloomberg made an important point.  The far-right elements do not fall out of the sky and neither did they suddenly all spontaneously originate because of the refugee crisis, although the refugee crisis was certainly the catalyst. These far-right elements existed already long before that, but they used to be in the CDU and in the CSU. These people did not change much. The last two years, they merely formed a separate entity that now opposes Merkel’s leadership openly, rather than behind the scenes.

With this, we have come to it: refugee crisis, immigrants, Muslims. What is really going on? A week or so ago, Flassbeck explained it perfectly well in his latest interview with the Real News Network (see here). Merkel promoted her ‘welcome culture’ said Flassbeck, but she actually did nothing else. She could have – and should have, because it would have been good for the country overall (as well as for Europe) – raised wages and she could have invested in accommodation and other services for the refugees and other immigrants. This would have created employment and hence incomes and hence demand. It is not as if the German government has no money to do this. But Merkel did nothing of the sort.

You will now, night and day, hear about how the refugee crisis and immigration in general contributed to the rise of the AfD. It is true: these factors did contribute. The immigrants will be scapegoated for the policies of the government. Most commentators will shy away from the hot potato, the real determinant, the thing not to be mentioned: wages. About one quarter of the German workforce now receives a “low income wage,’ it is to say a wage less than two-thirds of the median. This is a higher proportion than in all other European countries, except Lithuania! The number of temporary workers in Germany has almost trebled over the past ten years (to about 822.000).

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Figure 4: Not real immigration but fear and prejudice, low wages and precariousness drive the AfD (Source: Financial Times). 

It is clear, as Flassbeck also said in the interview with the Real News Network, that the increased rate of employment has been achieved at the expense of the real incomes of those in work (see here). German workers have been forced to accept very low wage increases, while German capitalists have reaped big profits. Real wages are now below the level of 1999, although German real GDP per capita has risen by nearly 30 per cent. That is the dysfunction, the injustice and the madness in a nutshell.

That there will be a fiscal capacity or not will be anyone’s guess. Many expect the CDU to shift even further to the right. It is not unlikely that the SPD will move further to the right. Beware my friends, the difference between you and the AfD is now a surreal 7 per cent. For the rest, and for what it is worth, ZDF’s exit poll reveals that the populist AfD was backed by 16% of men across Germany but only 9% of women. In the former East Germany, the AfD was the best-supported party among men, with 27% to the CDU’s 24%. The turnout is up to 77% from 71.5% four years ago. According to a pollster, the AfD managed to get 1.2 million previous non-voters to go to the polls. I wonder how many disenfranchised voters the SPD would get to vote if only they would mean anything positive to them.