Earlier this year, in announcing her candidacy for reelection as chancellor, Angela Merkel gave this self-endorsement in a speech: "Den Menschen in Deutschland ging es noch nie so gut wie im Augenblick. Auch das muss einmal festgehalten werden." ( "People in Germany have never had it so good as they do at this moment. That needs to be said.") And it is true, Germany is no longer seen as "the sick man of Europe" - now everyone sees Germany as the engine of economic growth for the continent.
But things may not be quite as rosy as the chancell0r and most observers believe. Marcel Fratzscher, president of the German Institute for Economic Research (DIW Berlin) and professor of macroeconomics and finance at Humboldt University of Berlin, writes in the Washington Post about some of structural problems that face Germany and inhibit growth. First of all, the robust employment numbers hide some inconsistancies:
"Two main challenges for Germany are underemployment and falling real wages for a substantial share of its workers. Many highly skilled workers have experienced a sharp increase in their wages, and the labor force participation among women has increased. But the dark side of Germany’s labor market is that more than one out of five workers — that’s twice the number in France — is in atypical employment. That means they earn little more than minimum wage, working part-time or on temporary work contracts.Equally worrisome, the bottom third of workers, those with the lowest wages, are worse off and have lower real wages today than in 2000. And poverty has been rising, putting one out of five children below the poverty line."
Another issue Fratzscher points to is the low level of accumulated wealth among Germans:
"Moreover, the average household in Germany has one of the lowest levels of private net wealth and thus one of the highest levels of wealth inequality among European countries. This is puzzling, as Germans not only have a relatively high per-capita income, but they save 10 percent of their disposable income, which is more than in most countries. But they save very poorly and unequally. Few Germans own their homes and most keep their savings in a bank account, which makes it hard to accumulate wealth, particularly when interest rates are at zero."
This last problem is largely self-inflicted. Only 14% of Germany invest in stocks, compared to about half of all Americans. This is disturbing since the DAX index has increased by 17% so far in 2017, while bank accounts in Germany return nothing, or even negative interest. Germans complain that foreign investors - especially Anglo-American institutions - own large shares of German companies, but their own hyper risk-averse behavior is to blame for this.
Fratzscher's remedy for economic growth in Germany could easily also apply to the United States:
Just like its European neighbors, Germany urgently needs economic and social reforms. It is running an increasing risk of missing a huge opportunity to make the country and Europe fit for the future. The next German government needs to give high priority to investing in education, innovation and infrastructure — including digital infrastructure — rather than increases in pensions and tax cuts.
Hopefully Germany will not follow Trumpist economics and implement a huge tax cut for large corporations and the wealthy at the expense of the middle class and future generations.