September 21st, 2013
03:52 PM ET

Will Merkel practice what she preaches?

By Global Public Square staff

Imagine if we had national elections this week. There would be no shortage of big debates over: the deficit, taxes, Obamacare, the size of government... you name the big topic, and our two parties will have a big disagreement.

Contrast that with another major country which actually is at the polls Sunday. The hot topics there are: whether or not to have one day of the week set aside for vegetarianism ... whether or not mothers should pick subsidized childcare over keeping their kids at home ... or get this one: whether or not foreign motorists should pay tolls. Seriously? Where in the world is this wondrous country with no real problems?

Well, it's one of the world's largest economies, and Europe’s largest: Germany.

Part of the reason why Germans are debating mundane issues is because, unlike in the rest of Europe or indeed much of the world, the overall picture is quite rosy.

Unemployment is at a two-decade low. The main German stock market, the DAX, is trading at record highs. Economic sentiment is at a three-year high. Growth is coming back. Chancellor Angela Merkel is popular as the mother hen who is presiding over this house at peace with itself.

Germans also applaud her for dealing well with Europe: despite all kinds of dire predictions, the euro has survived. The Economist recently ran this cover about Merkel: "One woman to rule them all," referring to her influence in Europe. Forbes has called her "the most powerful woman in the world."

More from GPS: Election gets messier for Merkel

Merkel has taken important steps to help Europe's struggling economies, spending tens of billions of dollars directly and indirectly on them. She has also supported Mario Draghi, Europe’s central banker, in his aggressive, Bernanke-like policies. This was all the more remarkable because these moves were unpopular amongst Germans, for whom tight money and vigilance against inflation is a religion.

On the other hand, Merkel has imposed austerity on much of Europe, which has been excessive and counterproductive. Her argument is that it is the only way to get governments like Greece and Italy to become more competitive.

Now here's the irony: that's not how Germany reformed its own economy.

Exactly a decade ago, her predecessor, Gerhard Schroeder, passed a major package of reforms called "Agenda 2010." Taxes were cut, restrictions were placed on unemployment benefits, and companies were given more freedom to hire and fire workers. But this was not coupled with massive cuts in government spending. Maybe that’s why those reforms worked much faster in restoring growth than what Europe is attempting right now.

Another irony is that Merkel was at the time the leader of the opposition. And yet those very reforms that Schroder passed have given her government a huge advantage over other countries. But that will not last for long without the next generation of reforms.

You see, Germany is an ageing country. According to U.N. projections, by 2050, the percentage of Germans over the age of 65 will increase by half. Nearly one-third of Germans will be retirees. As a result, pensions and welfare spending will increase dramatically, while health care costs will soar. Meanwhile, productivity will decline. Germany's population is expected to shrink by about 10 million people by 2050. France's population, by contrast, will increase by nearly the same amount. All of these factors will likely result in France becoming a bigger economy than Germany – within a single generation.

Low fertility rates are, of course, part of the problem for Germany. But it also has very low rates of immigration – remember, Germany is one of the more difficult cultures to assimilate into.

Merkel can do more to forestall these problems. For all her skills though, she has long been a reluctant reformer. If she gets a third term (as is widely expected) she will need to become bolder and enact just the kind of reforms she wants the Italians, the Irish, and the Spaniards to do.

Is there a way to say "practice what you preach" in German?

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Topics: Elections • Germany • What in the World?

soundoff (13 Responses)
  1. Blame Republicans For Obamacare

    Well if the republicans had introduced a Single Payer System (the only system that will allow us, as an entire nation, to negotiate better health care prices), then we wouldn't have to worry about Obamacare today. But since the republicans introduced NOTHING (as usual) to address the health care crisis, we now have Obamacare. I blame the republicans for Obamacare. After all it was their idea and supported and implemented by Mitt Romney!!!!

    September 21, 2013 at 10:38 pm | Reply
  2. John

    Admire George W. Bush for 'Bushonomics to Win'. With George W. Bush politics, America would be one success, admired internationally, hope and job creator, again. Now, with democrats in the leadership, America is laughable weak, deserves no admiration, with high unemployment, and cannot successfully compete with economies in other developed countries. Forget about unjustified healthcare – Americans will not get 'Obamacare', will not get other unjustified benefits, no 'single payer system' – if they not start performing according to high-level success rates in the most developed countries.

    September 22, 2013 at 6:38 am | Reply
  3. Maria

    In “Will Merkel practice what she preaches?” I detect a bias on how you reported population growth – why is a below replacement level rate reported as a negative? In a world headed towards a population of 10 billion, declining fertility should be considered good news!

    Bias too in your reporting of immigration. Germany has the highest total number of foreigners (7.1 million, or 8.7 percent of the total population) and foreign born (9.8 million, or 12 percent of the total population) of any EU country.

    That hardly sounds like low immigration!

    http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-11-034/EN/KS-SF-11-034-EN.PDF

    But if you do believe that these are low rates of immigration, consider then that perhaps Germany is “quite rosy,” with unemployment at a two-decade low, the DAX at record highs and economic sentiment at a three-year high, because it MANAGES its immigration. What an idea! A country actually managing its policies to bring in labor it needs, unlike the U.S. which has flooded the market with labor, thereby lowering wages – all in a period of entrenched unemployment – and doesn’t even know who these estimated 11 to 30 million people are.

    Maria Fotopoulos
    Californians for Population Stabilization

    September 23, 2013 at 3:03 am | Reply
  4. j. von hettlingen

    Fareed, “Will Merkel practice what she preaches?” What does she preach? Not much! She is not a rhetorician. What she says, she means it. Perhaps demographics and immigration aren't really her cup of tea. She leaves these issues to lower administrations. She focuses on her legacy: a united Europe and a strong single currency.

    September 23, 2013 at 9:46 am | Reply

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