Saturday, August 27, 2011

Learning From the German New Deal of the 1990's

“The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity.”
John F Kennedy

Few people realize that one Country tried a New deal only as recently as 18 years ago, Germany. The German modal could be the modal that some countries would choose today. But few people realize the German New Deal failed.

When the Berlin Wall fell, East Germany became part of West Germany to become a new Germany. The West German Government spent billions rebuilding Eastern Germany, investing in public works and the financial bailout of ordinary East German incomes.
The billions were paid by the taxpayer in the form of higher indirect and direct taxes, whilst key West German Industries were given incentives to invest and relocate in the East. The funds to pay for this rebuilding were funneled through private Companies, Banks and Government approved agencies.
The aim of this program was to create a new Germany for 12 Million citizens of the East that had a failed banking, industrial and at that time educational system. A mini-boom was created, and many large West German Corporations made fortunes out of the rebuilding.
This boom ended by the late 1990's, when the unemployment problem in the East was still increasing, even though East Germans had better roads, streets and nicer hospitals and schools. Eastern and parts of central Germany became a modal of unemployment.
East Germany depopulated, with many East Germans relocating to the old West, leaving behind Europe's biggest pool of empty properties, in Towns and villages that lost over 20-50% of their population.
Property values plummeted and never recovered, leading to German banks preferring to invest in sublime property in the USA than helping an estimated 46% of Germans who still rent today, because of the lack of domestic property loans.
The effects of this massive failure of the German New deal is seen today, high unemployment became "hidden unemployment". With the Government "creating" jobs around collecting fines for breaking new laws.
The "Chicken Police" were one example, hiring unemployed Germans to collect a tax from householders who kept chickens. A tax, paid for each Chicken, offenders who were caught not paying the fees, were fined heavily, covering the salaries of the "Chicken Police. who drove around catching and fining "offenders."
Aside from many of the ludicrous jobs created, the dark side of this failure was the need to create revenues by the Government to pay for the millions of unemployed. These indirect taxes, lowered the incomes working Germans earned, cut small and medium business profits and led to "work share" schemes and "means tested" unemployment benefits to cut costs.
The aim was to discourage people from taking benefits, reduce the actual unemployment figures by rejecting applicants who owned a property or had more than 5000 Euros in assets. Technically leaving millions of Germans neither employed or unemployed, making the disastrous unemployment figures look good on paper.
Along with questions about where many of the billions disappeared, with many Corporate CEO's caught on corruption charges. All the New Deal did was to whitewash dilapidated Towns and villages, impoverish more Germans, and enrich a few large German Corporations.
There were some success stories, but looking at the former Eastern and Central Germany today, you see "rust belts", emptying Villages, states were populations have decreased by over 30%, and real long term unemployment levels of over 8 million.
By 2030, experts believe the population of Germany could decrease by 20 million, as Germans have lost the confidence to have a family. Germany now has the Worlds lowest birthrates, and in some areas Europe's highest unemployment rates, along with the biggest wealth gaps in Western Europe.

Before the crash, middle class Germans were embarrassed lining up at Soup Kitchens in Financial Centers like Frankfurt and Munich. Well dressed, somber and hungry, a testimony to the failed New Deal of the 1990's that Germans are still paying for today. 

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