sábado, 15 de novembro de 2014

The Astonishing Trajectory of Germany and its Supremacy in Europe

“And once the storm is over, you won’t remember how you made it through, how you managed to survive. You won’t even be sure, whether the storm is really over. But one thing is certain. When you come out of the storm, you won’t be the same person who walked in. That’s what this storm’s all about.”
Haruki Murakami

“Difficulties strengthen the mind, as labor does the body.”

Looking backwards, from the second world war period until now, it is almost impossible to avoid the question about one case in Europe: how it’s possible to such country like Germany, fallen into ruins in 1945 and be the main cause of the biggest disaster in human history, has surpassed big economies in a few decades, and even more, achieves the 4th biggest world economy nowadays? What is actually called “the German miracle”, nothing supernatural happened, and all the progress made by this country can be measured by analyzing its complex methods applied in monetary and fiscal policies, correlated with a specific ideological movement from the population at the time.  
But all those changes didn’t come up easily, and after the Second World War around 20% of all housing were completely destroyed, food production in 1947 went to 51% of its level in 1938, the post-war industrial output was less than one third based on pre-war levels, and a large percentage of Germany’s working-age men were dead. In 1948, German people had lived under price control for 12 years and rationing for 9 years. The Nazi Regime had imposed price controls to the people in 1936 so that the government could buy war materials at artificially low prices.
 During the totalitarian period, some economists opposed drastically to the ideas of the government, and exposed them with great risk in attempt to change the dramatic destiny of this Nation. Walter Eucken, the leader of school of economic thought called Soziale Marktwirtschaft, or “social free market” based at Germany’s University of Freiburg (similar with Chicago School) believed in free markets but their efforts to change the polices almost had no effects. To make things worse, Cartels had been explicitly legal before the war. 
After check all those variables together, it is impossible to deny the astonishing trajectory of Germany which, from high inflation and most of capital stock destroyed in ‘40s, made progress until achieving the largest net exports in the world on 2010. Even more, from a totalitarian nation to the most soft power country (term used by Joseph Nye to describe the ability to attract and cooperate rather than coerce). But even totally destroyed, Germany still had good tools, and by analyzing them thoroughly, this miracle was mostly based on a high level of determination to make changes, and also a favorable environment to put the plans in order. 
For instance, even after 8 million German causalities, they still had skilled workforce and high technological level in 1946. Another important event was the currency reform in 1948, which replaced the Reich mark to Deutsche Mark, that gave a new economic structure to the country like the elimination of price controls and a decrease on inflation. Good policies were also made, like decrease the income tax from 95% to 18%, giving the people more purchase power, pushing the economy to better structural levels. 
Paradoxically, a few variables from the war times also contributed to a fast recovery in Germany, such as very high capital investments rate, thanks to low consumption and very small need for replacement of the capital investments, due to small capital stock. The results afterwards were a steadily growth of purchasing power, and wages increasing by 73% from 1950 to 1960. As real income roses, the government could raise more funds, from tax income and borrowing, to speed up the investment and spending in projects with high production rates. 
Global circumstances also opened the doors to German markets such as the Korean War in 1950, with shortage of goods that helped to overcome the resistance to the purchase of German products. But the most important variable that gave basis for all those changes, were the astonishing physical resilience, hard work, and incredible level of collectiveness of the German people in time of adversity, that lead the population to work at full capacity putting the unemployment at low record levels of 0.7% in 1961-1966, and 0.8% in 1970-1971. That only increased with the emergence of oil supply shocks. 
After the structural recovery reach healthy conditions, the social-economic situation in Germany rose steadily among the years until get to the top levels we see nowadays. An important analysis is that all those political and social changes in Germany were also followed by a period of global turbulence, the reconstruction process in Europe, and the establishment of a bipolar order leading to the cold war. Europe faced very unstable phases until getting what we know now as European Union. Germany had an important role on the monetary union as we can see easily that after 1971, time where the new European monetary system start to work. A phase really influenced by an International monetary crisis resulted by the collapse of the Bretton-woods system, but, simultaneously, the statement of autonomously monetary tendencies that would lead the creation by France and Germany the new European monetary system. 
Actually the crisis created conditions for more autonomy in Europe, and the German commitment on the project of unified monetary system meant actually a new level of consciousness based on an extension of the Deutsche Mark rules on Europe in a way to get rid of the extreme dependence from the American dollar. In the following years, Europe and the rest of the world definitely realized the emerging of a new big power with strong conditions to make changes in the global economy. 
In ‘90s, Europe faced a good economic environment that made possible for the countries to reduce in a reasonable sustainable way the budget deficits and the public debt close to the limits set, to also ensure the convergence to low inflation and interest rates. In May of 1998, at the European council in Brussels, the decision would be taken about the first countries to integrate the Euro zone in 1 of January of 1999. They were: Germany, Austria, Denmark, Spain, France, Netherlands, Ireland, Italy, Luxembourg and Portugal. The definition of the criteria of nominal convergence and the requirement of a tight compliance, leaded to an almost hegemonic influence of Germany on the entire Euro Zone. 
It is unquestionable the recent power of Germany, possessing a great ability to influence its neighbors destinies. The biggest economy on Europe, Germany agreed to give the largest financial rescue on the recent Eurozone crisis, and so was able to determine the methods of managing the crisis. It also imposed the agenda of reform and austerity across the Eurozone. But Germany’s position as chief does not mean political supremacy, and as the euro crises has escalated and Germany seemed to lost the biggest political ally, with France’s new president François Hollade, has advocated the pro-growth agenda that clashes with German Chancellor Angela Merkel’s preferences for austerity, many doubts started to rise about the common area and thoughts about disintegrate the group start to appear. For instance, if Germany would introduce a new currency with the collapse of the Eurozone, its value would be much above to its neighbors, destroying the country’s export competitiveness. 
As we can see, Germany will find increasingly difficult to influence other European countries according to its own norms. Historically, every single empire, country, or group of people had moments of prosperity, and periods of crisis, even collapse. It’s not easy to know the future of Germany and Europe, but by looking backwards, in time of adversity, individual steps only make things worse, and Germany should lead policies with other European countries in a more collective way, as much as the German people worked together in time of crises. This challenge basically started with a high level of monetary integration, but really poor economic identity on Europe. 
This multicultural continent, will always require a greater effort to make unified and effective macroeconomic decisions, and many sacrifices people will have to make in order to overcome the crisis as much as past generations did many years ago. The economic life-cycle found in Institutions all over the world doesn’t differ fundamentally from the life of the individuals, with ups and downs, deaths and births. 

Igor Saulo Pampolha Ferreira

• "A integração monetária na Europa: da União Europeia de pagamentos ao euro". António Mendonça - Professor Associado do Instituto Superior de Economia e Gestão da Universidade Técnica de Lisboa. Presidente do CEDIN - Centro de Estudos de Economia Europeia e Internacional.

[Artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3° ano do curso de Economia (1° ciclo) da EEG/UMinho]

Sem comentários: