Germany is ageing. And this has consequences on the entire Europe since its needs of public investments are less urgent, its commitment in favor of environment less real, despite appearance, and its calls in favor of saving returns more insistent. At a time when, in France, we are amazed by the youth and the openness of out minister of Economy, -but is it going to last?-, in Germany, Wolfgang Schäuble, 74 years old, receives a full support to protect the interest of aged people.
Germany has laid down its model until now with success, which is based on a mercantilist strategy that’s nothing new. More than a century ago, a young trainee, at the French embassy in London, described it with the following words : “a sweet or brutal action, general, continuous, is stretched to all around the world from all around Germany to make wealth coming back from all around the world to every locations in Germany”. And Paul Valery added, since it was him, “A natural discipline links German individual action to the whole nation action, and organizes personal interests. So, instead of competing again each other or destroying value, they add to each other and they mutually grow stronger”. Who could pretend that these comments are not amazingly relevant and that these remarks don’t explain better than any speech on competitiveness or labor costs, the commercial success of the country and the leadership it gained in Europe? One third of the French people believe that unemployment is due to the employers, one other third believes it is due to employees and the remaining thinks it is Europe fault. And if all of them were wrong? Why, in France, don’t we propose to 1st year students in economy or at the college, to read these lines from “la Conquête méthodique”, which were republished in 1925?
But the German model has reached its limits which is the ageing of the population. Based on criteria adopted 20 years ago, i.e. in a different world, Germany appears today as the best pupil in Europe, its public accounts generate a surplus, and its unemployment rate is at an historical low. But these undisputed achievements are less the result of virtuous practices than the consequence of its demographic decline. Less children generates less consumption and less public expenditures, education and child benefits, for instance. Less young people arriving at the working age means a less urgent need for jobs creation. A low unemployment rate generates less money for compensation and reduction of social transfers. But it is also a weaker and weaker growth rate, yet enough to satisfy a declining population.
But Germany is not alone in Europe. The low dynamism of its economy weighs on its neighbors who have quite different constraints regarding public expenditures since their populations are increasing and opposite requirements since their young need to find jobs. But public finance rules, following the Lisbon treaty, signed at the end of 2007 and entered in application 2009 December 1st, are the same for all nations, and countries with a deficit, partly because of their low growth rate, can’t use anymore as a tool, their budget to support their economies. The only thing which is still available is monetary policy.
The European Central Bank was created by the Maastricht treaty along with the euro. Its status guarantees its independence and that was a German demand. Its mandate was to keep price stability, another German demand. It can support growth and employment, only if its action does not affect price stability. At that time, that philosophy was restrictive. The ECB was the Europe gatekeeper because nobody could imagine a situation where inflation would have almost disappeared and where it would be necessary to act in order to obtain that prices increase to reach the definition of price stability accepted by everybody, i.e. a level under but close to 2%. Everything has changed in 20 years, following, but not only, the financial crisis. Price stagnation in Europe went along with growth stagnation which resulted from the depressive consequences of the German economy and from the impossibility, due to European treaties, to boost the economies through public expenditures. The ECB had to substitute itself to the states and to launch unprecedented expansionist policies in Europe through the acquisition of public debts, and even now, private ones, along with a dramatic cut of interest rates.
This policy is, today, violently criticized by Germany, and not only by its Finance minister. Advocate, twenty years ago, of the independence of the institution, German political leaders are not going without trying to influence its decisions, until now without success, because this policy has consequences on their savers returns and especially on their pension system which is based on defined benefits. Previous contributions and correspondent pensions were based on an interest rate level the current rates cannot any more deliver. This will put first the institutions in charge of paying pensions in trouble, and potentially the State which will have to intervene in case of a crisis. More, this policy is very unpopular for a large part of the population who sees it as a threat on its standard of living.
Germany is in the situation of the boot’s on the other foot. By imposing to neighbors restrictive policies, by playing the role of the good pupil when its structural weaknesses are obvious, the country has forced an institution designed at its origin to protect its interests, to follow a policy which is straight against these interests. Mario Draghi, until now, stands firm. But we must not think that the pressure will be released because the German banking system is much less strong that it is believed. “Sparkasse” network is weakened because it needs, to finance the economy, savers deposits, which are affected by the reduction of interest rates. Its organization, which is similar to our territorial “mille-feuille” is heavy and has high costs. And the big German life-insurers will have, sooner or later, to include, in their accounts the provisions reflecting their difficulties to deliver the pensions they have promised to deliver.
The next European crisis will come neither from Greece, nor from migrants but from the dead-end where Berlin is now because of its demographic decline and the weakness of its banking system. Its industrial successes, in spite of the scandals, will not be enough to hide these realities. French political leaders must be aware of that, in order, maybe with the support of their Italian partners, to prevent these future problems and to convince Angela Merkel that we are aware of them but that the solution cannot come from putting into question ECB independency. Germany must accept a modification of the Lisbon rules to take into account demographic differences between countries and launch the structural reforms which will permit to her country to be really a model economy, instead of going down into an irreversible ageing, harmful to the whole Europe.