Watch Your Piggy Bank!

Interesting piece in the FT today about the imagined consequences of the new German “Hartz IV” laws. These laws will among other things reduce non-means-tested unemployment benefits to one year’s duration. The measure forms part of the package of labour market ‘structural reforms’, and personally I see little to argue with here.

The interesting part relates to the perceived consequences:

Last week in the eastBerlin suburb of Hellersdorf a man forced three youngsters at gunpoint to take off their clothes, burn them, and dance around an improvised bonfire. The incident may have looked perplexing, but local reaction quickly blamed the usual suspect: the reform of Germany’s unemployment laws.

“When the new rules about unemployment benefits take effect, incidents like this will multiply,” a resident told the Berliner Zeitung daily. “I’ll have to get a pit-bull.”

Now as the article quickly goes on to point out, there is no reason whatsoever to imagine that the two events (the Hartz laws and the “bonfire of the vanities”) are in any way related, what is interesting is to note that some people see them as being so. This must be some reflection of the national mood in Germany.

As the Hellersdorf incident shows, anything that goes wrong in Germany, it seems, can be blamed – however wrongly – on Hartz IV. In another case, press reports warned that unemployed parents would be forced to raid their children’s piggy banks before they receive benefits.

Adding to the gloom is last week’s news that industrial production in Germany declined in June at the fastest rate in the last ten months. I just don’t see where people get the ‘recovery round the corner’ idea here.

Just back to the FT article for a moment, ‘our Elga’ is still as much in fashion as ever I see:

For Elga Bartsch, economist at Morgan Stanley, “Some people used to say the proof that Agenda 2010 did not go far enough was that no-one had taken to the streets. Well, now they are taking to the streets.”

My only difficulty this time is that I’m not sure whether this is meant to be a good thing :).

This entry was posted in A Fistful Of Euros, Germany by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

6 thoughts on “Watch Your Piggy Bank!

  1. Sorry to go immediately off-topic. Hartz IV as a general blame-taker (Allgemeineschuldentraeger) is desperately needed, as it looks increasingly as if one of the most versatile blame-takers of recent years is about to leave the stage: grammar reform (neue Rechtschreibung). In contemporary German life, if something goes wrong, you can be sure to within a precise standard deviations that one of the following is, at root, to blame: the law on store-opening hours (Ladenschlussgesetz), the railways (die Bahn), the phone company (die Telekom), or grammar reform. The post office used to be a popular blame-taker, but that seems to have faded. Either the post has gotten better, or people have found ways not to have to rely on it. At any rate, given that the amount of blame to be spread around hasn’t fallen significantly, the eclipse of one of these carriers would have put an unbearable burden on the other three. Hence Hartz IV and its social function.

    (Another useful blame-taker, the manager of the national soccer team (Bundestrainer) is unavailable at present. New managers have a honeymoon period of unspecified duration during which none of the nation’s ills can be laid at his feet, and Juergen Klinsmann is currently enjoying that period.)

  2. You’ve forgotten the other two great standbys – the Americans, for the left, and the erosion of Christian (well, Catholic) values, for the CDU/CSU/?VP. The “Spa?gesellschaft” (= “fun society”) was pretty fashionable a couple of years ago but has faded (possibly due to mounting evidence that nobody is having very much fun).

    Or, for readers of the Feuilleton sections, it’s usually safe to blame it all on Martin Walser.

  3. Doug,

    I think your comments are very much ‘on topic’. But that aside I – being the notorious optimist that I am – do not agree entirely with Edward’s gloomy view with respect to Germany. Things are a lot better than they appear.

    And as far as taking to the streets is concerned, today, a motley coalition from the left is organising monday-demonstrations (Montagsdemonstrationen) to protest against the labour market reforms. Their explicit use of the term “Montagsdemonstration” has become a point of contention even among critics of the reform package, as it is the label of the demonstrations that led to the East German velvet revolution in 1989. Recycling the term may well prove to be counterproductive – even though many of the demonstrations will take place in the east as Hartz IV is clearly reducing redistribution from West to the East – as the use of the label makes it apparent for everybody but those completely blinded by ideology that Hartz IV and a totalitarian government have nothing in common.

    This will be no winter of discontent though. There will be continued confusion and legal adjustments through next summer. Then we will be able to get a first idea of the law’s consequences.

    Short of a national therapy session, Germany’s consumers need a break from new reform labels. Continuously changing incentive environments are about as helpful as no incentives at all.

  4. The measure forms part of the package of labour market ?structural reforms?, and personally I see little to argue with here.
    There are at least two things to argue with here.

    Although most agree with the necessary outcome – a more flexible labour market etc. etc. – these measures are unjustly hard on some. Of course, when one is not in the firing line, it is easy to reconcile that a few must suffer for the good of the many.

    Firstly, there is a time-lag problem. One of the reasons unemployment benefit is the way it is, is because of the reluctance of employers to hire, particularly those “older” people now defined as over 45. German employers also seem psychologically incapable of offering salaries lower than those previously earned by candidates, even though the candidates are prepared to lower their expectations. Thus, again, older candidates are unfairly rejected. Reducing the benefits duration before dealing with the restrictions on those wanting new jobs is putting the cart before the horse.

    Secondly, how would you feel if you paid into the Christmas hamper fund for a full year to be told that you get an empty basket! Many of those now being made redundant have paid high social insurance costs over the last many decades on the basis that, should they ever need it, the insurance will reduce hardship. In a normal commercial environment it is illegal for an insurance scheme to abrogate its responsibilities.

    (BTW Unemployment benefit in Germany, though very good, is not as sweet as some reports lead you to believe. Currently, the theoretical “maximum” duration is 3 years however a professional friend made redundant for the first time after 20 years continuous employment got less than 2 years. Additionally, although the maximum rate is often quoted as something like 70% of salary it is capped at much less than the mortgage payment for a 4 room appartment, so without savings forget about your family eating etc.)

  5. “In a normal commercial environment it is illegal for an insurance scheme to abrogate its responsibilities.”

    … unless it goes bankcrupt. Besides, you evidently know that the public German social security system is by no means a “normal commercial environment”. Germany is bound by art. 20 of its constitution to be a democratic and social lawful state (Rechtsstaat). There is obviously much to say about the interpretation of that “social” but either way, it becomes rather obvious that “social” does not usually mean a “normal” commercial environment.

    The problem here is that politicians from all parties believed too long that the system’s non-sustainabiltiy would not affect them if they did not simply believed in a fake myth of security themselves. Now they realise that we have to pay a price for assur?ng people for fifty years that the future is in the bank already. It is not. It never was. The future is uncertain as it always was. That, clearly, is some kind of shock to the highly risk averse contemporary Germans. I even understand that very much. I takes a while to adjust. And maybe “our prices” were a little more sticky than those of others given that until recently, everything seemed to be in perfect order, and given that in West Germany, things are still pretty much in order.

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