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Memorandum 2017: Alternatives for a Solidarity Europe: Instead of "Germany First"
by Alternative Economic Policy study group
Monday Jun 5th, 2017 8:04 AM
The European Union is at a crossroads. The reason lies inthe neoliberal redistribution policy favoring capital incomes over many years. "Mass unemployment intensified and was not ended in Europe. Millions of those with work are in precarious working conditions." The poverty rates increase and the pension systems are not secure anymore. The rich continue to commit fraud on the capital markets as though a financial- and banking crisis never happened.
MEMORANDUM 2017

ALTERNATIVES FOR A SOLIDARITY EUROPE: INSTEAD OF "GERMANY FIRST"


By the Bremen Alternative Economic Policy study group


[This short version of Memorandum 2017 is translated abridged from the German. The translated 2008, 2014 and 2015 memoranda are available at https://alternativeeconomicsblog.wordpress.com/2017/04/17/memoranda-on-alternative-economics/.]


The German economy was traditionally supported by the export of high-quality industrial goods. This model picked up speed in the 1990s. After the German unification process and Eastern Europe's market opening, the trade surpluses grew so explosively that greater and greater surpluses were realized in the balance of payments. Top-flight products, a weak national economic wage-development and extended work-benches with low wages in Eastern Europe were the recipes for success. For a long while, "Germany first" was the implicit motto of German economic policy. But Germany was not first because it was screened. Quite the contrary! The German development model needs open borders and free trade. Germany comes first because German industry overpowers other industries in the competition.


The turbo-charger was switched on with the introduction of the euro. With surpluses in the balance of payments, a currency comes under upgrading pressure. The currency of the exporter is sought on the markets. Its upgrading raises the prices of products which worsens the competitive position in prices. This mechanism drops out within a monetary union. However the common currency also helps with exports beyond the eurozone. The euro has not come under strong upgrading pressure as occurred with the D-mark since the monetary zone altogether has not realized enormous surpluses like Germany. The euro has even been devalued which helps the export economy.


The last augmentation of the export orientation was the Agenda policy of Red-Green. The wage-rate formally crashed. Cuts in wages and social benefits have negative growth effects for a domestically-oriented economy. But the German economy does not have that orientation. The shortfall in domestic demand could be compensated by flourishing exports. Germany's export surplus model was strengthened.


The German export model has consequences. The problem is not that German industry supplies the world market. That is a manifestation of the international division of labor. The surpluses are the problem because they have many negative consequences. Firstly, the buyers of products in Germany must become indebted to pay for the goods. Then a production volume far greater than local needs ensures superseding industrial production in other countries. This is also true for services. As a result, unemployment is exported so to speak without new jobs being created at home…


Criticism of the "Germany first" model becomes louder and louder. This criticism does not only come from the southern European crisis countries. The EU commission, the OECD, the IMF and the US administrations under Obama and Trump criticize Germany for its aggressive export policy. The unanimous credo is: Germany must raise domestic demand more strongly through more investments and higher wages to equalize the balance of payments with growing imports. The Alternative Economic Policy study group has urged this for many years and made concrete proposals on realizing a transformation.


Amid the international imbalances, the completely irrational policy of Donald Trump has a rational core. It seeks to drive down the gigantic US balance of payments deficits. However, this cannot succeed with demarcation and protectionism.


Germany will be in a Bundestag election campaign when this memorandum is published in 2017. The political-economic orientation is up for debate. Whether another way is taken than "Germany first" in the world market will depend on the chosen economic policy.


Thirty years of neoliberal policy and the aftermath of the great 2008/2009 economic- and financial crisis left their traces in the last Bundestag election. In Memorandum 2014, the Alternative Economic Policy study group underlined the deficits. Past governments either did not remove or even caused these deficits. The public infrastructure decayed because the investments were not enough to maintain the system. Tax revenues increased but were not sufficient to reduce the investment backlog. Growth was strongly dependent on exports because of lack of adequate domestic demand. The deficits in education and care increased rather than decreased; the energy turn seemed bogged down. Distribution of wealth was marked by unparalleled disparities. Low wages and poverty increased. Unemployment decreased but the work volume stagnated and precariousness of the labor market reached dimensions never seen before. These deficits were described in the election programs of the three opposition parties SPD, the Greens and DIE LINKE (the Left Party) and a change, of course, was urged.


A stronger domestic direction of the economy could have been resolved. However, this change of course did not occur. In their coalition agreement, the Great Coalition of the CDU/CSU and SPD decided for the status quo or business as usual on nearly all points,


The catastrophic economic development and a lost four years must be seen on this background. It is all the more astonishing to look back at the end of the legislative session at a mixed or checkered result weakened by several malformations of the last years.


ECONOMIC DATA SHOWS POSITIVE DEVELOPMENT


Economic growth rose in Germany in the last years. Seen over a longer time period since 2000, the economic development in the last three years was positive. If the high growth rates in 2010 and 2011 – reflecting the catch-up process after the crisis – are ignored, a higher or comparable growth only appeared in a few years. After the stagnation in 2012 and 2013, the annual nearly two percent increases of the real gross domestic product adjusted for inflation represented a stimulation…


EUROPEAN INTEGRATION IN A SERIOUS CRISIS


We are far removed from a positive development in Europe even if the economic output in most countries is higher. The real GDP in the whole European Union rose 1.9% as in Germany. The varied crisis of European integration involves the European idea and not only the economic development.


The European Union is actually at a crossroads. For a long time, the European idea was joined with the hope of finally overcoming the national trenches and securing peace in Europe after two world wars. Many regard cooperation instead of confrontation as the foundation for prosperity and democracy. Little can be seen of this today. In many European countries, right-wing populist and right-wing extremist parties are advancing or already in the government…


The European Union's promises of prosperity were broken since the 2008 financial crisis. In the southern European crisis states, 20% unemployment prevails and youth unemployment is up to 44%. Social benefits were dramatically reduced and wage and social standards abolished or undermined. The economic output of the eurozone and the EU altogether is slowing down; the actual growth is frequently at a low level.


The development of the domestic European market, the economic- and monetary union with its stability criteria and liberalization of the labor markets were the central motors of integration. This integration approach hits its limits with the Euro-crisis. On one side, this leads to the radicalization of neoliberalism that enforced the austerity policy in an authoritarian way against citizens and the national government as in the Greek example. On the other side, centrifugal and nationalist tendencies arose in the EU. The Brexit was the last low-point of this development.


The Troika of the European Commission, the European Central Bank, and the International Monetary Fund is an expression of neoliberal "post-democracy" (Colin Crouch) – of an institutional structure without democratic control that can annul decisions of national parliaments or even referenda as in Greece.


Within the EU, the German government was one of the strongest drivers of neoliberal austerity policy and described this again and again as "without an alternative." In the eurozone, crisis countries were always told the crisis could not be mastered without a severe policy of low spending in the public budgets and without "structural reforms" in the social security systems. Thus social- and wage-cuts were called necessary for survival. Countries in financial difficulties only received aid from the bailout fund with strict conditions…


After the election victory of Syriza in the January 25, 2015, Greek parliamentary election, the new government under Prime Minister Tsipras tried to break the country's downward spiral. The consequences of the imposed policy were very disastrous. With his minister of finance Varoufakis, Tsipras sought to end the dictatorship of the Troika (the European Commission, the European Central Bank, and the IMF) and to restore national sovereignty with new negotiations. On the other side, the German government was not ready for concessions. The economic facts only interested a few. Greece should be forced to its knees. "Contracts must be fulfilled," it is said – even if a country is driven into economic ruin and cohesion in the European Union is massively damaged.


The disastrous consequences of European policy call for a change in direction. A European Union is needed – not in the form of today's neoliberal EU but in the form of a community that can solve the challenges with mutual advantages. A nation state cannot overcome the global problems of economic- and financial crises, climate change, security policy and terrorism. After Trump's assumption of office, the world needs less nation-state and more international cooperation and international organizations like the EU to master these tasks.


Dissolving the eurozone, returning to national currencies or a system of adjustable exchange-rates is hardly sensible. The consequences for the debtor states were very dramatic. They had to pay higher interest-rates for their government loans. At the same time, their state debts rose. The countries could fall into an interest- and debt trap. They could not finance their budget deficits given the dramatically higher debt burdens. They needed ever greater capital imports to finance their balance of payments deficits. Independent of political orientation, their governments was forced to a drastic austerity policy.


FREE TRADE AGREEMENTS LIKE CETA AND TTIP ARE NOT PROGRESSIVE ANSWERS TO PROTECTIONISM


The weights in the debates over trade policy have shifted with the election of Donald Trump as US president and his announcement on raising duties on imports up to 35%. Supporters of free trade agreements like CETA or TTIP tried to bring all opponents of protectionism behind their positions. However, these agreements are not the right answer to Donald Trump's policy of screening. They are not building blocks of an open democratic world of exchange and prosperity. Quite the contrary! They are important components of a neoliberal agenda that only serves profit interests while the rights of dependent workers, consumer protection or care of the environment fall by the wayside and state regulations should be suspended.


"The logic of CETA and TTIP is that protective standards, – whether for the environment, consumers or workers, are trade obstacles per se that unnecessarily raise the costs of businesses. Therefore these standards should be lowered and not raised. When one of the countries strives for improvements, their conformity to CETA or TTIP is scrutinized.
Thus both agreements would be ideal instruments for preventing improvements. That cannot be a good development for the employee side. (Sabine Stephan, 2016). Therefore
The German government pressing ahead with free trade agreements is a misguided policy.


The central moment of consumer protection in Europe, the precautionary principle, is undermined. "The sustainability chapter (in CETA) doesn't adequately protect the precautionary principle. On one hand, only "cost-efficient" protective measures are allowed – a criterion that can hardly be defined in advance. On the other hand, the restrictive rules […] of the WTO are impacted that only permit protective measures when they do not unnecessarily impede trade and […] only if they are limited in time." (Fritz 2017).


Additional free trade agreements of this kind must be prevented. With CETA, there is still the hope that it will breakdown in the ratification process in individual states. TTIP should be buried at last. With his threat of protectionist measures, Trump has revived the debate over free trade agreements. However, screening and building walls do not solve any problems. The world profits from an intensive exchange of goods and services. Still, this exchange only improves the living situation of people when it occurs under fair conditions and under democratic regulation.


THE POLICY OF THE GERMAN GOVERNMENT: FEW POSITIVE INITIATIVES AND MANY MISSED OPPORTUNITIES…


The close connection of investments and the personnel of public service is often consciously faded out. With education, the connection is obvious. A new school without teachers is senseless… The flight into models of public-private partnership (PPP) leads to privatizations through the backdoor. The radical job cuts were a mistake that was suddenly discovered… After years of denying the problem, the personnel in the security fields were selectively increased in 2016. Internal security (secret service and police) is frantically upgraded. Other public services fall by the wayside.


CLIMATE POLICY AND THE ENERGY TURN ARE NOT ADVANCING


The Great Coalition cannot refer to great successes in climate protection policy…


The protection of the atmosphere plan should outline the way for a far-reaching de-carbonization of the German economy (an 80 to 95% reduction in emissions by 2050). The interim goal for 2030 is 55%. The greatest savings in emissions up to 2030 should be in the energy- and construction sectors. Emissions should be cut in half in the industrial sector, 40% in transportation and over 30% in agriculture. These are very ambitious goals.


The German government should be measured in its concrete measures, not in its bold long-term goals. From this perspective, the climate protection plan is a failure. Firstly, immediate measures are lacking…


THE DISTRIBUTION QUESTION IS BLOCKED – DESPITE FAVORABLE GENERAL CONDITIONS


Since its founding in 1975, the distribution question has been in the center in the analyses of the Alternative Economic Policy study group. They were isolated with this position since the distribution question was not considered in the economic debates for a long time or it was answered in a neoliberal sense: inequality stimulates growth since positive incentives are created.


One of the few prominent exceptions is the British economist Anthony Atkinson. He noted a disinterest of many economists in distribution questions: "Distribution questions are not of central interest for economists. Some economists insist their guild should not grapple with the question of inequality." Atkinson vigorously opposes this mindset: "Firstly, the allocation and redistribution of total income are important for people. The extent of the differences has a profound effect on our society. Some people can afford tickets for space travel while others stand in line at soup kitchens. A society where everyone can afford his meals would have more cohesion and more openness for common interests. Secondly, all production is influenced by distribution." (Atkinson 2016). The Alternative Economic Policy study group profited from Anthony Atkinson's work. Unfortunately he died much too early in 2017.


The distribution theme is now experiencing a regular hype in economic debates. The question about the seriousness and the consequences is often raised. Concrete measures that could lead to a more just distribution are hardly found in the political-economic demands of economists. Policy lags behind its possibilities.


An important point that is often underexposed on the business side in the distribution debate is the growing concentration and centralization of capital. Better conditions for gaining profits result from that concentration as well as economic and political power. The sales of the ten largest corporations in Germany in 2014 were as great as the gross domestic product of twelve EU countries (Finland, Ireland, Greece, Hungary, Slovakia, Latvia, Estonia, Cyprus and Malta). Compared to the economic output of Germany, these sales amounted to 32% of the GDP. This shows the dual power arising from this concentration and not only the economic magnitude of corporations: firstly in the economy and secondly toward the state. This concentrated and uncontrollable power is used ruthlessly by the owners of businesses and their high-paid managers. This has nothing to do with a (social-) market economy and perfect competition (as in economic textbooks or a dynamic competitive process). Rather starting from a power-economy is more realistic.


The owners (entrepreneurs, owners of capital and investors) alone decide over the means of production used in the capital-, exploitation- and accumulation-process in free enterprise capitalist systems. They also decide over dependent workers and the use of the profits…


The disastrous effects of the Agenda policy can be read very clearly in the primary distribution between wages and profits. Between 2003 and 2007, there was an unparalleled drop of the wage rate. The 7.4% fall in the wage rate in a short-time was unique both in an international and a historical comparison… The low-wage areas collapsed. The lowest ten percent of income earners had ten percent less real income in 2014 compared to 1991. The introduction of the minimum wage first brought an improvement here…


Simultaneously the falling oil prices ensured that consumer prices only rose 0.5%. This represented a real wage increase of 1.7%. This enormous increase of purchasing power was not to the burden of businesses. Everyone profits from more favorable exchange-relations with foreign countries – private households, businesses and the state…


AN ALTERNATIVE ECONOMIC POLICY IS NECESSARY


The demand of the Alternative Economic Policy study group for a comprehensive investment- and spending program is very much in the news. Maintaining and developing an efficient infrastructure is primary, more than short-term business cycle stimuli. "Firstly, the ideological goal of `breaking even' should be abandoned…" (IMK 2017)…


The Alternative Economic Policy study group has long urged an investment- and spending program of 100 billion euros annually for the necessary social-ecological reconstruction of society. The expenditures are apportioned to the areas education (25 billion euros), transportation infrastructure and digitalization (10 billion euros), energetic building revitalization (5 billion euros), local health care infrastructure (20 billion euros) and additional labor market spending (30 billion euros including funds for raising the Hartz IV rates).


Unmet social needs are the starting point for such investment- and spending programs. These needs concentrate on legitimate desires for more and qualitatively better education, for less energy- and resource consumption, for better measures of providing vital necessities and better public services. At the same time, this program aims at increasing employment and mass income, reducing unemployment and improving the material situation of large parts of the population. This necessary program is described in detail in the Memorandum 2014. Such public investments and expenditures are not based on industrial capacities that fuel growth and must be run at full capacity with more demand.


The urged investment- and spending program leads to more growth. However, this growth must be organized on the background of overexploitation or uncontrolled exploitation…


For a long while, the Alternative Economic Policy study group emphasized orienting economic policy to present needs and not to capital's logic of exploitation. The demand for a radical reduction of working hours implies an economy with fewer growth pressures even if the study group doesn't advocate a stagnating or shriveling economy (in relation to the GDP). This is also true for nonprofit-oriented economic organizations under public or self-governed management supported by the study group – different from profit-oriented economic forms with an inherent growth pressure.


Not only investments are demanded. Revitalizing the social state is necessary. What increases in personnel are needed so public service can again be an anchor for good, living-wage work for both market-determined and non-market determined public services?... An urgently necessary strategy for the renaissance of public service requires embedding in a fiscal- and political-economic framework that supports this strategy.



Adequate transfer payments are also part of the revitalization of the social state. The demands of the study group for the fundamental reorganization of the pension system underline the following points:


The return to transfer payments is sensible and feasible.

The legal pension should guarantee the living standard…

A tax-financed solidarity minimum pension should be guaranteed by the state to avoid old age poverty in the new system.

The Alternative Economic Policy study group categorically rejects raising the retirement age. The initial age should be lowered to 65 and 63 for especially burdened groups.

Businesses are urged to make available adequate jobs for seniors…

Independent persons should also be integrated into the pension system.

The adjustment of pensions between East and West Germany must be implemented immediately.


An overall social reorganization is only conceivable when the existing economic power is pushed back. The demands of politics to correct the past malformations in the market, competition, concentration and centralization are manifold. Competition needs the strong "state hand" of political control… Cartels must be sanctioned in the criminal law and not only with fines and market shares reduced to prevent mergers. De-mergers of businesses to shatter counter-productive economic power are necessary.


NEW REGULATION FOR THE LABOR MARKET


The precarious labor market is an important problem for employees. Precariousness could be contained and easily slowed down but remains at a high level. Better employment conditions can be established with several regulations:


Abolishing unfounded time limits. There is no justification for term limits with new positions in public service.

Reduction of subcontracted work and work contracts. Work contracts should be regulated. Raises are necessary on account of special burdens.

Abolition of mini-jobs and more rights for part-time employees. Tax privileges for mini-jobs are not justified and should be repealed.

Minimum wage.


The Alternative Economic Policy study group urges raising the minimum wage to twelve euros an hour.


TRAINING AND PROMOTING JOB SEEKERS…


BUILDING A PUBLIC EMPLOYMENT SECTOR


Building a public employment sector is necessary to give the long-term unemployed above all an entry into the labor market. The new positions to be created must pay into social security and guarantee an income ensuring survival (around 1500 euros gross). These new positions must be oriented in the common good or public interest.


WORKING HOURS IS A THEME AGAIN – IN POLITICS


In the last years, the discussion around working hours has intensified, above all through demands for more time-sovereignty, for example through individual legal claims to choosing working hours. These demands include a shortening of working hours toward a short full time for everyone. The IG Metal union began a working hours campaign under the motto "My Time – My Lifer." Employers and the German government try to co-opt these goals by propagating a "flexibility compromise" or use it to further undermine the working hours law. Alternative concepts for reducing and organizing working hours reflect the needs of employees for different but shorter working hours.


The overall social goal must be to create additional jobs with good work. For many years, the study group insisted full employment on the basis of good work cannot be attained without a redistribution of the existing work volume through reduced working hours. A short full time can be achieved in the sense of a 30-hour week with full compensation. The following demands on reduced working hours are sensible:


Lowering the general age of retirement to 65 and 63 for particularly burdened groups.

Reduced working hours should be encouraged for senior- or nursing care, further education, and voluntary or honorary work (see Memorandum 2015)…

Lowering maximum legal working hours to 40 hours a week. The campaign of trade associations… for ten hours a day can be countered offensively.


JUST FISCAL POLICY TO FINANCE SOCIAL PROJECTS


The Alternative Economic Policy study group urges a more just fiscal policy, long-term financing of a more efficient social state and adequate public investments:


A one-time wealth tax extended to ten years must be introduced. This wealth tax would benefit the federal budget…

The revival of the wealth tax should be tackled. The tax rate could be one percent on assets of more than 500,000 euros…

The profits from selling parts of domestic businesses should not be tax-free.

The corporate tax rate should be raised from the present 15 to 30%.

The trade tax or business tax should be developed into a local community tax.

Capital revenues should be taxed again at the personal tax rate.

A speedy introduction of the financial transactions tax…


THE SEVEN PILLARS OF A RADICAL EURO REFORM


The continued existence of the eurozone is in danger in two ways. On one side, the monetary union threatens to be torn by a divergent economic development and on the other side from losing political support in the population. Therefore taking radical reform steps and turning away from the neoliberal economic course is necessary. The enforcement of such a program is enormously complicated given the difficult political process in Europe. The Alternative Economic Policy study group sees the seven pillars as a necessary orientation for all coming reforms.


An End of Austerity. Expansive Fiscal Policy and European Investment Programs


The new economic policy of the EU must consist of two elements: an expansive European fiscal policy and a European investment program that helps solve industrial and regional structural problems.


A European Balancing Union


The Alternative Economic Policy study group urges a "European Balancing Union" as a counter-pole to the model of an "austerity union" that predominates today… A balance of the two sides is sought between countries with balance of payment surpluses and countries with balance of payment deficits.


A Communal Debt Acceptance


Introducing Eurobonds was proposed for reform of the eurozone at the end of 2010 in the course of the euro-crisis. Euro-bonds are government bonds accepted by the EU states or the Euro-states. The study group endorsed this proposal in its Memorandum 2011. The goal of the proposal is reducing the interest rate of the heavily-indebted countries and preventing their extortion by the financial markets.


Ways to a European Social Union


The social dimension of integration should be strengthened. The social dialogue should be revived in its different manifestations. Concrete measures for a European labor market- and employment policy are necessary. A wage- and income policy and a coordination of the overall social security system are vital.


Stronger Financial Market Rules and a Powerful Tax Policy

The idea of free financial markets was finally discredited with the international financial crisis. The goal of regulation must ultimately be a renewal of the financial sector in which the power of key actors like big banks, rating agencies, and mammoth insurance companies is broken. A return of private health care and senior provisions to legal solidarity social insurance with transfer financing, the introduction of a financial consumer protection office and restrictions on speculative investment possibilities are part of that goal. In addition, a common tax policy that counters tax dumping and legal and illegal forms of tax evasion and tax avoidance is imperative.


A Coordinated Macro-Policy for the European Monetary Zone


A uniform monetary zone needs both a monetary policy and a fiscal policy to implement a consistent economic policy. The Maastricht treaty attached great importance to the debt criteria but completely ignored the necessity of an expansive fiscal policy on the European plane. A European fiscal policy must be devised to remove this deficit.


A Europe-wide Democratization of the Economy


State regulation and better macro-economic coordination are only one side of the coin. Democratic structures in the businesses must supplement this policy. That the political-democratic super-structure of society meets an autocratic sub-structure in the economy where only the owners of capital and management are heard is not acceptable. In the businesses, entrepreneurial joint-determination must develop into a joint-determination on equal terms between capital and labor… Already in its Memorandum 2007, the Alternative Economic Policy study group developed a conception of a holistic economic democracy.


Time threatens to runaway for Europe. A very different agenda threatens to mark policy with the return to nationalist tendencies. The favorable conditions of the last years were not used to solve the urgent problems and set really strong accents for domestic demand, ecological reconstruction, and revitalization of the social state. Instead, criticism of Germany first" was ignored. Such a favorable international constellation cannot be expected for the next years. The time is ripe for realizing an alternative economic policy. Majorities exist for an alternative. 75 percent of all Germans think incomes should be distributed more equally (in 1993 it was 35 percent). These majorities must be mobilized for a social awakening and the sense of a new era about to dawn.