Don't Hate the Germans, or the Greeks or the Spaniards
I wanted to highlight a piece by Brendan Greeley of Bloomberg Businessweek on the German legacy of sacrifice and how that colors disputes within the euro area:
In 2003, when all that German saving was headed out of the country to the rest of the booming euro zone, Germany's then-center-left coalition undertook a series of painful labor and welfare reforms, making it easier to bring on part-time workers. Forget Germany's post-war austerity; the country can point proudly to a recent record of thrift and sacrifice.
. . . Despite Germany's success in keeping wages down, the country's households still earn much more money, in absolute terms, than families in the euro zone economies for which it sees itself as a model. The median German household earned €33,000 a year in 2010. In Spain in 2008 (the last year for which the ECB has numbers), the median household earned €25,000. In Portugal, that's €15,000. At its worst in 2006, Germany saw unemployment of 12 percent. Unemployment in Spain has been above 12 percent for all but five of the last 20 years; only once has it briefly dipped lower than 8 percent.
The memory of sacrifice and wage reform in Germany is both recent and real. It is also relative and out of scale with the economic suffering that parts of the euro zone are seeing now. To stay competitive, Germany kept its wages stagnant for several periods during the second half of the 20th century. It is asking other countries now to drop wages, all at once, to do the same.
And to regain its competitiveness when its own unemployment hit 12 percent, Germany reformed its labor markets, a step that the euro zone's periphery -- and even France -- need to take. But Germany is now asking for labor reform and wage cuts together, when Spain's unemployment has topped out at around 26 percent. It's not hard to see why Germany feels it has the moral standing to prescribe medicine it has taken itself. It's also not hard to understand how Spaniards might feel when they read the prescription pad.
There's been a tendency for people in the euro fight to take sides: to view Germans as bloodsucking leeches determined to shake every last penny out of the pockets of poor southerners or, contrariwise, to think of Greeks and Spaniards as profligate deadbeats who are freeloading off their more prudent neighbors.
The truth is more like one of those intricate marital disputes in which the grievances go back decades, with some truth to all the accusations being hurled back and forth. The Spaniards and the Greeks did make mistakes -- and the ordinary people are suffering in order to keep German banks healthy -- and everyone is being asked to sacrifice more than they'd planned, or feel willing to, in order to keep the marriage together. You might be able to imagine a better resolution on strict utilitarian grounds. But when was any marital dispute ever resolved on strict utilitarian grounds?
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Megan McArdle at firstname.lastname@example.org