You Can Tell an Election is Approaching …


Those allegedly so fiscally virtuous Germans that are condemning all of Europe to pursue faux 'austerity' are apparently not as tightfisted as was hitherto widely assumed. We have previously pointed out that contrary to widespread lore, Germany is drowning in public debt as well. Back then we published this chart:




Germany's public debt to 2010 – click to enlarge – chart source unknown.





This chart is by now somewhat outdated, as according to the Economist, the most recent number is $2,794,774,316,940, or roughly € 2.17 trillion.

Apparently that is not enough, as Germany's government has now joined the 'austerity is over' chant´, so to speak singing from the Moscovici hymn sheet.

According to Der Spiegel:




“Wolfgang Schäuble sounded almost like a new convert extolling the wonders of heaven as he raved about his latest conclusions on the subject of saving the euro. "We need more investment, and we need more programs," the German finance minister announced after a meeting with Vitor Gaspar, his Portuguese counterpart.

The role he was slipping into last Wednesday was new for Schäuble. The man who had persistently maintained his image as an austerity commissioner is suddenly a champion of growth. If Germany couldn't manage to trigger an economic recovery, "our success story would not be complete," he said. And as if to convince even the die-hard skeptics, he added: "The German government is always prepared to help."

After three years of crisis policy, it was an impression shared by very few people in countries like Portugal, Spain and Greece. They are more likely to associate Schäuble and his boss, Chancellor Angela Merkel, with austerity mandates ushering in hardship, deprivation and unemployment.

But a new way of thinking has recently taken hold in the German capital. In light of record new unemployment figures among young people, even the intransigent Germans now realize that action is needed. "If we don't act now, we risk losing an entire generation in Southern Europe," say people close to Schäuble.


To come to grips with the problem, Merkel and Schäuble are willing to abandon ironclad tenets of their current bailout philosophy. In the future, they intend to provide direct assistance to select crisis-ridden countries instead of waiting for other countries to join in or for the European Commission to take the lead. To do so, they are even willing to send more money from Germany to the troubled regions and incorporate new guarantees into the federal budget. "We want to show that we're not just the world's best savers," says a Schäuble confidant.

The government's change of heart isn't just a sign of selflessness and compassion. More than ever, the chancellor and the finance minister are worried that Berlin's tightfisted, heartless, austerity-obsessed image could solidify throughout Europe and do irreparable political damage. An exporting nation that sells two-thirds of its exports to other European countries cannot be unconcerned about its image abroad, they reason, especially when its government fears that constant criticism from the center-left Social Democratic Party (SPD) and the Green Party, claiming that it is acting as the gravedigger of the euro and dividing the EU, could hurt it in the upcoming election campaign.”


(emphasis added)

We should note to this that Germany has never exactly been a hotbed of liberal economic thought. It is no coincidence that national socialism rose to power in Germany in the 1930s. The country was in the grip of socialist and nationalist ideologies, both of which were strictly anti free trade and highly protectionist, among other things. The socialists thought to 'protect' the wages of German workers, but were faces with the problem that Germany had to sell goods abroad as it needed to import raw materials, inter alia food. The nationalists offered the 'solution' the socialists could not offer: we will make Germany an autarkic country, they claimed. How to go about this was clear: the country had to conquer other territories and appropriate their resources that way.


Adopting a Market Economy by Sheer Coincidence

After the war was lost, there was a brief period during which liberal thought (we use the term 'liberal' in its classical meaning) made a comeback, ever so briefly. As professor Hans F. Sennholz wrote about Germany's economic resurgence:


“[…] it may come as a shock to libertarians to learn that the "miracle" of Germany's revival was not the result of a conscious rejection of socialism, but was rather an accident of political and social conditions. There is evidence, too, that the current market economy of Germany is in grave danger of being destroyed by the very people who built it up.


How, then, did Germany happen to stumble on the market economy? The answer lies in the political and economic situation of Germany after the war. Three factors, none of which is ideological, contributed to the establishment of a sort of market system.

The first was the fact that Germany had reached the end of the socialist road. The socialist system of distribution had completely collapsed and production was almost at a standstill. There was nothing left to distribute, nothing to be rationed. The hundreds of thousands of officials who enforced the mass of economic laws — all enacted by the former Reichstag — were perplexed and helpless. Millions, of whom I was one, depended upon and actually lived by the "black market."

More and more people became convinced that socialism had to be retracted a step in order to increase production; the wicked capitalist incentives of profit and ownership had to be temporarily reinstated. Just as Lenin's New Economic Policy had given Russia a breathing spell for about seven years, so Germany was to have a rest period on her way to the "higher social order."

The second factor that led to the emergence of a market economy was the presence of a few very astute politicians who molded a new political party — the Christian Democratic Union. Under the brilliant leadership of Dr. Konrad Adenauer they created a political counterweight to the socialist organization, the Social Democratic Party, which openly advocated Marxian doctrines. Drawing heavily on the support of the hierarchy of the Catholic Church, they united the opponents of Marxian socialism in a new organization. They shrewdly opposed the socialists on every major issue.

For instance, they favored decentralization, orientation to the West and, above all, a "social market economy." This planned opposition to an old Marxian party paid off in victory at the polls. But having opposed socialist economic planning for diplomatic reasons they saw no way but partly to realize the campaign promises when they formed the government. Thus the collapse of the socialist economy and the political maneuvers of a new party fighting for power contributed to the emergence of the market economy.

But the most important causative factor was still another. The German clamor for freedom was solely directed at the occupation powers. German freedom meant freedom from foreigners. To oppose the Allied occupation policies and to criticize Allied actions was a matter of national pride. But what brand of economic policies did the American, British and French military governments actually conduct?

In the first place they continued to enforce the existing German legislation and economic controls. To these they added their own socialistic supplements or interpretations. For a German politician to oppose the American administration, therefore, meant opposition to American Fair-Dealism in Germany. To oppose British policies meant opposition to British socialism. For the German opposition there was no choice but to fight socialism and Fair-Dealism. And so they bickered and struggled, the Allies for continued economic controls, the Germans for their abolition.

In enumerating the reasons for the existence of a market economy in Germany we must pay homage to a small group of scholars who raised their voices for freedom and free enterprise. Professor Walter Eucken in Freiburg and three scholars in Geneva, Mainz and Cologne wrote and spoke on the desirability of individual liberty and capitalism. But their voices were almost drowned out by the thunder of nationalist and socialist slogans.

Only when the market economy was established because of the reasons just described, and when economic freedom was beginning to shower its rich benefits on everybody, did recognition come to them. Professor Wilhelm Röpke of Geneva became the intellectual spokesman of the new era. It was mainly through him that the German public became aware of the fundamental changes of policy. His interpretation of the economic comeback as the inevitable outcome of capitalist policies found increasing acceptance. Today there exists a German school of political and economic thought for freedom and free enterprise which has its roots in the writings of Professors Röpke, Eucken and others.”


(emphasis added)

As can be seen from this, the adoption of a market economy in Germany after the war was essentially a historical accident. The ideologies that had ruled supreme in Germany up to that point were not as discredited as they should have been. After all, the German people had imbibed socialism and nationalism for many decades. The alternative of free market capitalism didn't even occur to them – they were the unwitting victims of the policies advocated by the 'socialists of the chair' in the late 19th century, the self-appointed 'intellectual bodyguard of the Hohenzollern', the Prussian ruling class.

Today, names like Röpke or Eucken no longer ring a bell with the average German citizen. The relatively free market economy that was instituted after the war has become a severely hampered market economy, groaning under regulations and taxes like few others in the world. It must however be noted that it was a nominal socialist, Gerhard Schröder, who introduced the liberalization of the labor market that is today credited for the fact that Germany's economy has escaped the euro crisis.

Anyway, the belief that government can be used to 'create economic growth' by means of spending remains evidently deeply ingrained, even in the party that Konrad Adenauer founded. Southern Europe cannot be 'rescued' by directing more government spending at it. The policies that have been implemented to deal with large government debts must be altered. Spending must be slashed and taxes cut. Countless regulations must be rescinded and licensing laws repealed. It is the only way forward. Spending tens of billions on some new government boondoggles is at best going to create a brief illusory boost to economic activity and will in the end only saddle tax payers with an even larger bill. What is so difficult to understand about this?





Dear Readers!

You may have noticed that our header carries ab black flag. This is due to the recent passing of the main author of the Acting Man blog, Heinz Blasnik, under his nom de plume 'Pater Tenebrarum'. We want to thank you for following his blog for meanwhile 11 years and refer you to the 'Acting Man Classics' on the sidebar to get an introduction to his way of seeing economics. In the future, we will keep the blog running with regular uptates from our well known Co-Authors. For that, some financial help would be greatly appreciated. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


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3 Responses to “Germany to ‘Gamble on Stimulus’”

  • No6:

    The world wants to be deceived, so let it be deceived.

  • SavvyGuy:


    > Paradoxically the quickest way to end socialism is for everyone to participate 100%.

    Bravo! This statement is right up there with what Margaret Thatcher (RIP) once said: “The problem with socialism is that you eventually run out of other people’s money.”

    Seems that every couple of generations some new technologies are invented, e.g. airplanes, radio/wireless and automobiles in the 1920s, computers and the Internet in the 1990s. Productivity and specialization increase, but consequently vast swathes of the population find themselves disenfranchised. Along come enterprising politicians promising bread and circuses to appease the majority. Socialism becomes rampant, funded by sovereign debts that geometrically progress skywards.

    We have seen this movie before, and we know how it will end!

  • worldend666:

    Getting a bit impatient with the refusal of the majority to see the light Acting Man? This article’s conclusions were a little blunter and more frustrated than usual.

    A friend asked me yesterday “can we fight socialism?” . My answer was, sure you can. You can leave, and if you can’t leave you can refuse to work. Quit your job, sign on the dole. It’s the only way to end socialism quicker. Paradoxically the quickest way to end socialism is for everyone to participate 100%.

    The truth is no matter how blatant the truth is the beneficiaries of socialism (the voting majority) will not be interested until the benefits dry up.

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