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."
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?