Germany and the Eurocrisis: Limits to an Expansionist Project

While worries in the Eurozone about state bankruptcies grow, Germany is reporting favourable economic data. Chancellor Merkel even goes so far as to say that for Germany, "things are better than they have been for a long time". Even the otherwise rather restrained specialist journal Internationale Politik sounds triumphant:

"The months of the 2010 European rescue have shown that Angela Merkel has become something like the European Chancellor. [...] Every participant in the summit meetings in the Euro crisis knows that no EU country can be rescued unless Germany, with its economic and financial potential and its good name on the finance markets, gives its OK." (1)

How can this situation be explained? Can the German upturn bear the load, or even act as a bridgehead for a new German project of expansion?

Export Model

In comparison with countries like Great Britain, France and Italy, Germany’s key advantage lies in its successful maintenance of an industrial infrastructure, even in the face of the demands of the world market for continual modernisation. In Great Britain the ruling class took on the workers in the coal and steel industries relatively late and violently, in order to introduce a restructuring process in favour of the service and finance sectors.

Today we can see what the results were. In Germany, industrial restructuring was completed not only in a different manner, but also essentially earlier. For example, when the EEC was baptised in 1957 with the Treaty of Rome, 607,000 miners were working in the Federal Republic of Germany (FRG). With the tail wind of the post-war boom this number was reduced insidiously, but nevertheless rapidly, without the risks of a political confrontation with the industrial core sectors of the working class à la Margaret Thatcher. Through early retirement schemes, retraining, social plans and ample subsidies, the number working in the mines was almost halved between 1957 and 1966. In 2006 there were only eight colleries in Germany (in 1957 there were 153) with a total of 35,000 employees. Structural change in the steel and textile industries was conducted in a similar fashion. It is true that this industrial conversion and the introduction of new technology led to increased unemployment, which exceeded the threshold of two million at the start of the '80s, but there was still enough elbow-room to deal with this problem politically and economically. In particular, the union campaigns for the 35-hour week were skilfully taken up by capital and used both to intensify work and to make conditions of employment more flexible.

With reunification, Germany was able to extend its political impact on both the European and international levels. But the so-called "reunification boom" lasted only a short while. In 1992 the Bundesbank put up interest rates, in order to check inflationary tendencies against growing wages and stronger internal demand. This however had serious consequences for the European Exchange Rate Mechanism. As a result of the currency speculation which was already rampant even then, the British pound, the lira and the Spanish peseta had to devalue. By contrast, the deutschmark strengthened massively. Despite the favourable economic data for the USA, the strong deutschmark led to a slump in Germany’s exports. Throughout the '90s German exports were still suffering the effects of the Exchange Rate Mechanism crisis. This remains an important lesson for the German bourgeoisie. Even today, the example of the Exchange Rate Mechanism crisis of 1992 is happily utilised as an argument for the strengthening of the Euro.

The Euro as a German Wunderwaffe?

It was only in 2007-8, with the introduction of the euro and the Schröder government’s economic reforms that the German export economy properly found its feet again. By 2007 the foreign trade surplus was €198bn. In 2000, it had been €17bn. The low interest rates associated with the euro caused booms in other countries, from which the German export economy could ultimately profit. Thus, Spain’s GNP grew by 3.8%, Ireland’s by 6.8%, Greece’s by 3.9%, and, on average, Portugal’s by 2%. In comparison, average growth in the FRG seemed fairly modest at 1.8%. Nevertheless, markets which could be penetrated by German capital opened because of this, and the stagnation of the '90s was overcome. (2)

The FRG now established balance of trade surpluses, while the above-mentioned EU countries had to struggle with balance of trade deficits. In addition, their economic growth was extensively financed by credit and the excess of imports further inflamed the debt spiral. All in all, the mixture which leads to bubbles. However, not just the imported goods were "Made in Germany", the credit also came mostly from German banks. This accompanied a German economic policy which aimed more forcefully at the deregulation of the financial sector and included comprehensive tax-breaks for entrepreneurs and owners of capital. In 2005 the share of tax paid by business was 2.4% in the EU on average, but in Germany it was just 0.6%! By the 2008 tax reform, the tax rate for entrepreneurs fell below 30% and so below that of France, Belgium and Italy. A few became over-excited and even made taking London’s place in finance their slogan.

The banking crisis of 2008 put an abrupt end to these dreams and long-cherished neo-liberal certainties. Rescue packages of billions had to be served up, in order to combat the worst effects of the crisis and to prevent an extension of it to the real economy. In contrast with other countries (in particular, Great Britain), these state interventions were not exclusively "bank rescues".

Through money for part-time workers, scrappage allowances (3) and injections of finance for small and medium concerns, it was deliberately intended that the industrial infrastructure be propped up to keep the economy on track –measures which paid off in the end. But in this phase Germany’s export economy benefitted much more from the powerful economic programmes of the US and China. These enabled German exports not merely to remain constant, but to increase. In 2010 German exports to China went up by 40%. A particular winner was the German car industry, which experienced a real boom. In the same way, the rescue packages for Greece and Ireland, but also the so-called European Financial Stability Facility (EFSF), are important measures for propping up the German export economy. In its role as the EU’s "responsible paymaster", Germany can not only profit economically, but also decisively upgrade its claim to political leadership within and outside the EU. The stabilisation mechanism for the euro and extensive control over the European Central Bank (ECB) offers elbow-room for an even more direct intervention in the economic policies of other EU states. It is true that the euro is proving to be extremely expensive. However, it is a lever which will be used in the long-term to break the domination of the dollar on international markets, and is thus still central to German capital’s expansion strategy, as the following remark by the chairman of "Allianz" emphasises,

"with the euro we Europeans have weight in the World economy. No euro-country, not even Germany, would be able to throw so much weight on the scales with a national currency. That 26% of the World’s currency reserves are in euros shows the great trust in Europe and its member countries." (4)

From Welfare to Workfare State - the Working Class in the Vice

The euro has proven itself to be an important motor of the German export economy. But it doesn’t work on its own. German competitive advantages over the other EU countries as well as Germany’s position as a mega-exporting capital are based on a wage-dumping policy that has been followed for years. Between 2000 and 2010 wages in the EU countries have risen by 20% on average. In Germany, by contrast, they have only risen by 6%! The bourgeoisie has skillfully utilised the mass unemployment which arose in Eastern Germany following reunification to increase the vicelike pressure on the working class. Over the last ten years, wages and social security benefits have been systematically cut and conditions of employment deregulated. Wages have fallen over the last 20 years, with a continual diminution since 1993. This is primarily a consequence of the spread of part-time work. Nevertheless, the usual hourly wage rate has also fallen steadily since 2003. By pushing forward the so-called "Agenda 2010", the German bourgeoisie was able to record an important strategic victory. This "reform" of unemployment and social benefits increased the pressure on working conditions and deepened the gap within the class.

"Hartz IV" has become a colloquial synonym for poverty and social exclusion. For those hit by it, "Hartz IV" involves what seems like a comprehensive declaration of means to the state. Everything which might yield an income and all savings have to be declared to the officials. This sometimes includes the means of the family, of life-partners and sometimes even of flatmates. When someone loses their job all savings and property in bricks and mortar must be "used up" before payment under the Hartz-IV regulations can be claimed. This amounts to 364 euros a month for adult single people, including single parents. The payment of this sum is linked to the compulsion to take any "reasonable work". Those receiving Hartz-IV payments not only have to demonstrate their efforts to get work to the state, they can also be compelled to participate in the framework of the so-called “one-euro jobs” for non-profit concerns. In cases of a "refusal to work" "sanctions" (5) are threatened, i.e. considerable reductions in benefit. The use of this means the trend towards precarious employment has spread rapidly in the low-wage sector. The wage rate is being further depressed. Already, about a quarter of employees work in the low wage sector. It is no wonder that the bourgeoisie celebrate the Hartz laws as a trailblazing success, which has "turned the labour market around". But the official unemployment figures (at the end of 2010: 3.15 million) are heavily sugarcoated. Real unemployment was at that time estimated to be around 6 million. About 2 million of these people were "long-term jobless" - without any chance of getting even precarious employment. Today, every fifth employee officially works in the "low wage sector", that is around 8 million people, and so earns less than 10 (in the West) or 8 (in the East) euros an hour.

So-called "contract work" has similarly expanded. In November 2010, 900,000 people (a record number in FRG history) were working under this form of precarious work. Contract workers form the workforce of special temping firms and private employment agencies which "loan" them to particular concerns. They have fewer rights re notice of dismissal and earn (even when they work full-time) on average only 50% of the wage of the full-time employees. Around 100,000 contract workers are presently forced to "top up", that is, to claim additional social benefits at the government offices to make ends meet. The number of these and other so-called "toppers up" rose between 2005 and 2009 by just under 400,000 to almost 1.3 million people. 390,000 of them work in full time jobs!

One of the central pillars of this German model of success is the integration and close common work of the unions with capital and the state. The unions in recent years have not only practised wage restraint, but largely helped support the trend towards increasing labour flexibility. Their organisational strategy is geared to relying primarily on the core workforce, while the sphere of contract work and precarious employment is given only a little weight. Politically, this strategy has so far made sense since, despite the spread of the low-wage sector, the middle and high-wage sectors have not yet been directly attacked. To secure their industrial basis, capital and the unions continue to rely on keeping hold of a stratum of highly-qualified specialist workers and keeping them as quiescent as possible.

The Limits and Dilemmas of the German Expansion Project

"Everything has an end, only a sausage has two" as a popular German saying has it. As recently as March this year German exports reached €100bn. This was the highest level since 1950. But, just as quickly, the value of exported goods fell to €84.3bn the following month, clearly a much lower sum. This is an indication that there are limits to the German export model. The upswing in the FRG which was verifiable until this Spring depended exclusively on exports. It was not self-sustaining, and could not galvanise the domestic economy. Foreign trade, on its own, could only produce the effects of growth in a very limited way. So far, German capital has succeeded in finding and using sufficient room for manoeuvre in order to "surf" the BRIC [Brazil, Russia, India and China] countries’ economic programmes and recovery stages. But this room is becoming more and more restricted. The worldwide sharpening of the crisis places almost intolerable demands on export-dependent economies like the German one.

Despite its modern industrial infrastructure, Germany, too, is not immune to the problem of growing indebtedness. At the end of 2010 state debt amounted to 80% of GNP. This breaches the "stability limit" of 60% agreed in the Maastricht Treaty by a wide margin. Even so, new debts amount to 7.6% of GNP, again breaking the 3% limit allowed by the Maastricht Treaty.

This all leads to growing nervousness among the ruling class. So-called Euro-sceptics have had their voice strengthened in the political debates, and have argued against a puffing up of the EFSF and the Euro-bond model. These voices primarily reflect the growing insecurity of the petit-bourgeoisie and the middle classes. The bourgeoisie can allow these voices to speak at the present time, as they are useful in cementing nationalism and ideologically hiding German efforts at expansion. At the same time, the ruling class is thoroughly aware of their limits. Possible state bankruptcies in Portugal, Spain or Italy are openly discussed as "worst-case scenarios", which would wreck the framework of the current European project. No-one dares speculate publically about the effects of a possible bursting of the financial bubble in China. The German bourgeoisie is unanimous that they must maintain the euro as a cornerstone of their expansion strategy, but they do not have a real master plan for it. This is clear, not least because of the very erratic actions of the Merkel Government which, at present, seems to be driven rather than doing the driving. No previous government of the FRG has so rapidly lost popularity. Its balance sheet up to now reads like a complete series of bankruptcies, misfortune and accidents.

One of its biggest miscalculations consists of not understanding the full scope of the Arab revolts until too late. This resulted in very clumsy German actions during the Libyan crisis. The German bourgeoisie had to draw the painful lesson that Great Britain sometimes shoots quicker than the Prussians do and that France, now and then, is a strategic partner with ambitions all of its own. Germany has found itself at a temporary disadvantage in the Arab World and must make up for this on the international stage through the hard and resolute defence of its positions. The present government coalition is very deeply unstable and could be made to fall at any moment by the parliamentary opposition. However, in view of the turbulence on the financial markets, they are frightened to take such a step. At any rate, all the indicators are that important parts of the ruling class are relying on the earliest possible incorporation of the SPD in the business of government.


The working class has paid a high price for the German export model, but has shown little inclination to defend itself against the attacks on its living conditions. There are several reasons for this. Unemployment and Hartz IV continue to work as effective disciplinary instruments. The division of the class into an extensively secure core workforce, a low-wage sector and a middle segment - which is increasingly eroded - still functions and poses many problems and demands for a coming together for common resistance.

In addition, the German bourgeoisie has until now done its utmost to avoid frontally attacking the working class as a whole. It has proceeded and continues to proceed extremely skilfully, sector by sector, branch by branch. It has not only successfully used the existing divisions in the class, but has even opened up new ones. The long period of class peace has left its traces behind. There is little experience of struggle and no embedded tradition of resistance. Tendencies towards individualisation are more and more escalating in the class. Job-loss and unemployment are often seen as an individual fate, sometimes even as the result of a personal failing. It’s true that the ideology of the social partnership and safeguarding one’s own position has been tarnished, but it still finds acceptance (especially in the industrial core workforce). Now, as before, the unions function as the most important guarantor of this social peace of the graveyard. Their membership is on the decrease. After years of falling wages a certain disillusionment has entered the scene. However, most of the members leave the unions in the direction of unemployment and political and social passivity. A few defensive struggles in recent years have collided full on with the unions. But they have not succeeded in going beyond the union framework. They remain episodes which the workers involved mainly judge to be defeats. The intensification of the international crisis is indeed being followed with interest and concern, but more from the perspective of experiences of one’s own weakness. Until now, the "Indignados" movement has not been able to anchor itself in German soil. To what extent the so-called "Occupy Movement" can put down roots in Germany and lead to new dynamics remains to be seen. With all of its political limitations it can, however, act as a sounding board to break the isolation. In view of the current underlying conditions there are limits to the possibilities for development of revolutionary minorities.

One of the most urgent tasks at present is that of driving forward a political clarification process, in order to make substantial steps towards a new beginning for revolutionary organisation. In view of the sharpening crisis, however, this is turning out to be a dramatic race against time - and communists are not exactly starting from pole position in this competition.


(1) Internationale Politik, 21st January 2011. This journal is published by the government think-tank Deutsche Gesellschaft für Auswärtige Politik [German Society for Foreign Policy].

(2) Wonder weapon – an ironic reference to Hitler’s special weapons programme at the end of World War Two including the V2 rocket.

(3) In order to support the car industry, the CDU/SPD Government decided in 2009 to award a scrappage premium of €2,500 for certain cars (the car had to be at least nine years old, and in the possession of the present owner for at least one year). In this way, they stimulated the economy. At first, €1.5bn was put aside for this purpose, and later it was topped up by a further €3.5bn.

(4) Frankfurter Allgemeine Sonntagszeitung 26th June, 2011

(5) Officialdom invented the Orwellian description "compensation for additional costs" for the so-called €1-jobs. The government justified these measures by saying that long-term unemployed should have their entry into the work market facilitated. Basically, it is a question of a forced labour programme. The unemployed are obliged to toil at "non-profit work" for €1 per hour. In this way, a low-wage sector subsidised by the state was created, which puts all wages under a downward pressure.

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