Germany's year: Has it been worrying or wunderbar?

[Guest PatrickT]

Europe's largest economy has a talent for provoking strong reactions abroad, from outrage to something approaching hero-worship. And that was particularly the case during 2015.

One minute Germany is lionised as a model of economic efficiency and political probity. The next, demonised for being just too successful and bulldozing weaker eurozone partners.

Germany should lead more, demand some critics, who accuse Berlin of being too timid, with unhelpful historical hang-ups.

Or Berlin should stop throwing its weight around, cry others. Too powerful and dominant, they say - sometimes muttering the inevitable World War Two cliches.

At the beginning of the year Berlin was the imperial hard-hearted centre, cruelly punishing Greece for not being, well, German enough. German Chancellor Angela Merkel, a new iron Chancellor, was portrayed variously with Prussian helmet, Hitler moustache or Nazi uniform by Greek protestors and press.

 

By the end of the year though, Mrs Merkel was suddenly too soft. Lambasted as a bleeding-heart liberal, too lax with migrants. Or held aloft as a saintly Mother Theresa, giving refuge to Syrians fleeing war.

Fighting back

2015 saw Germany hit by one crisis after another: more than one million migrants and refugees arrived needing instant shelter; Greece almost crashed and burned out of the eurozone; and even Germany's proud Volkswagen, national treasure and embodiment of the German virtues of reliability and honesty, was discovered to be cheating emissions tests and conning customers.

So what's all this done to brand Germany? And how is the German economy actually doing?

"In fact 2015 was a good year for the German economy," says Professor Marcel Fratzscher, economist and president of DIW Berlin, an economic think tank. "And it was an excellent year for workers. Unemployment is the lowest it's been for three or four decades and wages have increased by up to four percent."

All of which explains why domestic consumption, traditionally the Achilles heel of the German economy, is at a 15-year high.

 

Just as well, because a slowdown in China, and European sanctions against Russia over Ukraine have both hit German exporters hard. So for 2016, unusual in thrifty Germany, it's spending rather than exports that will drive economic growth.

The VW effect

And it's a trend that looks set to continue. Experts predict that interest rates in the eurozone are likely to stay rock bottom for the next two or three years at least. So German savers are plundering their bank accounts and hitting the shops. A welcome boost to spending, particularly because it's not a splurge fuelled by debt.

And so far the VW emissions cheating scandal has not had a wider impact on the German economy.

Sales in the US have plummeted. But there's no sign as yet that the damage to VW, which marketed itself strongly as a "reliable" German company, has also hurt other German brands. Possibly helped by a belief among sceptical consumers that a lot of carmakers get up to no good occasionally.

 

The migrant effect

But what about the huge cost of taking in one million refugees? In 2016 alone providing accommodation, welfare and German classes for refugees could cost up to 30 billion euros.

Surely that will take its toll on the German economy?

In fact, the opposite is true, argues Professor Fratzscher: "We would see a slowdown in the German economy, if it weren't for the massive stimulus of spending on refugees," he said.

Economic GDP growth for 2016 is predicted to be around 1.7 or 1.8 percent, which is similar to the initial estimates for 2015. Without the government spending on the refugee crisis, equivalent to between 0.5 and one percent of GDP, actual economic growth would go down.

"They don't just put the money in a black hole and bury it," he explained. "It's spent on housing, which stimulates the construction sector, and food, which someone has to provide, or security services. Most of these services are provided by private domestic companies, so it's a very effective transfer from government to Germany's private sector. So it doesn't just benefit refugees, but the whole economy."

 

'Young, motivated people'

Businesses also view the influx of refugees as positive, says Artur Fischer, CEO of the Berlin Stock Exchange: "It's a great opportunity to answer the demand for workers."

Germany's record-low unemployment figures mean that some sectors can't fill job vacancies. So business leaders are calling for the government to enable refugees to get to work quickly by speeding up the asylum process, and improving access to German language courses.

"These are young, motivated people who want to work. They have travelled thousands of kilometres and risked their lives to get here," says Mr Fischer. "They haven't done that because they want to live on social welfare. They've done that because they want a chance in life."

Many Germans are unconvinced that it's even possible to get so many people into the workforce so quickly. Do they have the right skills? And if so, how can their qualifications be recognised? And possibly most important of all, can they learn German quickly enough?

"When I was 22, I couldn't speak English. But I was working in a English-speaking company. So within six months I was fluent," Mr Fischer remembers. "It's a question of proper integration. People need to be spread around the country, and not be isolated in the middle of the countryside or end up ghettos."

Logistical challenge

Many Germans are nervous about what will happen if Germany finds itself having to look after a million new refugees every year. And there is widespread outrage from voters and politicians about a perceived lack of solidarity from Germany's eastern European neighbours, who don't want to share the burden by taking in a share of the refugees coming to Europe.

 

But given the size of the logistical challenge, it's remarkable how Germany has so far coped. Despite attempts by populist parties to stoke fears, there has been no large anti-migrant backlash within mainstream society.

And Angela Merkel has defied repeated predictions of her imminent downfall - whether over refugees or Greek debt - by cannily outmanoeuvring rivals, maintaining party loyalty and keeping her governing coalition onside.

Mrs Merkel has repeatedly compared the challenge of the refugee crisis to how over the past two-and-a-half decades Germany has managed the seemingly insurmountable economic task of reunifying communist East Germany, economically a failed state, with West Germany after the fall of the Berlin Wall.

We did that, Angela Merkel has said, so we can do this.