According to a questionnaire given by the leftist German party “Die Linke”, German pensioners have seen a significant erosion of their purchasing power over the last twelve years. Average pension payments this year after deducting all social safety net contributions were 1062 euros in the former West and 1047 in the former East Germany, which is in absolute terms an increase of only 17 euros in the west and a decrease of 23 euros in the east since the year 2000. Meanwhile Germany’s consumer price index has risen twenty percent, meaning that on net pensioners have 20% less purchasing power today than they had 12 years ago.
I think this is significant in terms of voter psychology in Germany and a major reason that bailouts for periphery countries are viewed with such suspicion. I noted in the past that the average German worker has also seen wages stagnate over the past decade or so. In my July post on German sentiment regarding bailouts and the euro I wrote the following about this issue:
“In contrast to German policymakers, German people don’t view the Hartz reforms as unmitigated successes. The reforms have eroded the German social safety net and increased economic insecurity, even while the unemployment rate has dropped.
“If you are an average (West) German worker, you have witnessed the following in quick succession over a twenty-year period:
- A solidarity tax, payoff to Russia, and promise to join single currency as the price for re-unification
- A loss of the Deutsche Mark, the symbol of Germany’s post-war economic discipline and success
- A loss of the German economic miracle of the 1950-1980s and a soft depression due to a confluence of events including reunification, a property bubble, aging society, and poor demographics
- A breach of the Maastricht debt and deficit hurdles due to the soft depression
- A stagnation of wages and a loss of economic security and some of social safety net benefits with Hartz reforms because of soft depression
- A bailout of reckless German lenders pushing government debt to GDP well over 75% and now 81%
- Successive bailouts of other euro area members who have not gone through the same trauma and reform
“The average German worker feels like a cash cow being sucked dry by a quick succession of reforms and bailouts that take money out of her pocket. First it was for reunification, then for European integration, then to right the economy, then to bail out German banks, and finally to bail out the European periphery. Fatigue has set in. As I argued yesterday, this bailout fatigue will take on increasing political importance in Europe as the economy slides further into recession.”
So it is both pensioners and German workers that have felt the sting of the Hartz reforms and they therefore have no desire to allow other countries to get off without similar changes. This wage suppression is also a major factor causing Germany’s low domestic demand growth and subsequent move to a mercantilist stance, something I see as a factor in the imbalances that led up to the euro crisis.
Die Linke plan to run in next year’s general elections with a platform that this wage and pension suppression “must stop”. Die Linke have the most support in the east and they will bring that message to bear on the general election, one reason I have said that Angela Merkel’s party is still vulnerable despite Merkel’s own popularity. It is not yet clear what Merkel intends to do to counter this criticism. But we should have an eye to German domestic politics to understand how Germany’s European positions will play out.