The slump in Germany (1993)

From the July 1993 issue of the Socialist Standard

The optimism and euphoria that accompanied the reunification of Germany two- and-a-half years ago has evaporated. At the time Chancellor Kohl and other European politicians talked of the coming of yet another economic miracle, not only for a unified Germany but for the whole of the EC.

So confident was Kohl of success that he decided to give the East German currency parity with the West German Deutschmark, in spite of warnings from the Bundesbank officials of the inflationary consequences that would ensue. German social welfare payments were also extended to the whole of East Germany. The result was an increase in the purchasing power of the formerly poorly-paid East German workers who rushed to spend the newly-upgraded currency on goods previously unavailable to them. The extension of welfare payments to the East German population has been estimated to cost the German Treasury DM 170 billion per year.

These measures did not, however, make up for the obsolete nature of East German industry, where manufacturing production has failed to catch up with that of West Germany (see graph). Eighty percent of railways in the East were still steam-driven at the time of unification. East German workers, although paid in DMarks, still get lower wages than their West German counterparts. Inevitably, they have taken strike action to obtain comparable wages.

Steel workers have recently managed to obtain an increase in wages from about 60 per cent of western levels to 80 percent this June and 90 percent by October 1994 (Wall Street Journal, 24 May). These concessions have been obtained against a background of a severe crisis in the European steel industry that has already forced two western German steel companies—Kloeckner Werke AG and Saarstahl AG—into bankruptcy proceedings. Effective unemployment in eastern Germany is up at 30 percent. "German industrial output is now 7 percent below last year", according to the Sunday Times (28 March).

The automobile industry is also being hard hit by the depression:

  Results from Daimler Benz, Volkswagen and BMW are among their worst on record, reflecting world-wide recession and the rapid deterioration of the German economy. Volkswagen, Europe's largest car manufacturer, lost DM 1.25bn (£503m) in the first three months of the year after sales fell by 23 percent in Germany and more than 17 percent across Europe as a whole . . . Volkswagen plans to cut 12.500 jobs over the next two years, while Daimler is shedding 7 percent of its 367,000 workers" (Daily Telegraph, 14 May).

With the inevitable rise in welfare spending accompanying rising unemployment and immigration estimated at 500,000 per year, pressures to cut government spending have developed.

Worsening deficit

The German deficit for the state sector will amount to over 8 percent of GNP this year, which is similar to that in the UK. in order to try to maintain stability against a background of runaway public spending the Bonn government signed a solidarity pact with the local governments of the western and eastern regions:

  Under the terms of the pact the government agreed to certain measures in return for restraint. Income tax is to increase in 1995, but so does public borrowing for Eastern Germany in order to help restructure the obsolete industries there. It was also accepted as part of the pact that there would be no cut in social spending in the economies pursued by the government (Daily Mail, City & Finance. 5 May).

Since the pact was signed, however, there has been a marked change in outlook for the German recovery that these measures among others were supposed to help. According to the Economist (19 May), "the budget deficit is rising alarmingly as recession cuts revenue and drives up unemployment. Unless the government cuts spending its finances will deteriorate further. The Finance Minister T. Waigel has proposed cuts of DM 20bn annually beginning next year”.

Leaking boat

Much of the propaganda extolling the benefits of a unified Europe have suggested that subsidies to ailing industries would help smooth over cyclical downturns, the euphemistic term used by orthodox economists who do not wish to acknowledge the worsening features of recession.

Subsidies have certainly not helped Germany or other European states in difficulty. The crucial restructuring of Europe’s stricken steel industry is in danger of total collapse, leaving British steel struggling against unfair competition from heavily subsidised Continental producers, has warned Industry Minister Tim Sainsbury:

  Mr Sainsbury told his counterparts that Spain and Italy ran the risk of undermining the whole restructuring programme “unless they finally agreed to reduce public funding of their loss-making steel producers as well as to implement radical cuts in capacity" (Daily Telegraph, 5 May).

The German Economics Ministry now forecasts that the western German economy will shrink by at least one percent this year. The vision of Germany as a strong economy at the centre of Europe is fading. "Investors have concluded that Germany is in the same leaking boat as other members of the ERM", commented the Financial Times (22 May). “Unification has swept away its financial stability and the historic strength of the German current account; inflation is now well entrenched; and the all-German unemployment rate is the highest in the EC".

Compounding Germany’s economic difficulties further is its exposure as a result of huge loans to Eastern Europe. It is estimated that total loans to Hungary, Poland and Czechoslovakia by German firms had reached almost $2 billion by the end of 1992. Many banks loans to these regions are not receiving any returns on their investments. Total exposure to Russian banks, hardly the most secure, is greater than that of all the rest of Europe combined.

Interest rates

Many government spokesmen throughout Europe are urging the Bundesbank to lower interest rates in order to bring about European recovery. The fact that interest rates in the US are at their lowest since the 1930s with no major recovery occurring is not explained. The Bundesbank sees its primary function as to prevent inflation, and the fear is that reducing interest rates will revive it. Memories of Weimar and runaway inflation die hard.

The depression has come to Germany and is deepening. The problems of Germany are the problems of Europe and are ultimately caused by the present world slump. The idea that the Maastricht Treaty can overcome these problems is absurd. For the Treaty to work it would have to be assumed that the competing economic powers in Europe have common interests. The violent movements of currency markets, in spite of central banks losing millions trying to restore stability, is indicative of the futility of trying to adjust or solve the problems of capitalism by altering interest rates.

One disturbing feature of Germany’s plight is the revival of rightwing movements. "Opinion polls show a steady increase for parties of the extreme right led by the Republicans", according to the Financial Times (German Survey, 26 October 1992). Failure of the capitalist politicians to solve the problems that result from the depression has led to widespread disaffection with the major political parties. Refugees in Germany are being blamed for unemployment and housing shortages and have become the focus for attacks by neo-Nazi skinheads.

The problems developing in Germany have happened or are developing in other parts of Europe, namely, rising unemployment, falls in production, bankruptcies, growth in extreme rightwing racist movements along with public spending crises. These problems do not develop or emerge exactly simultaneously in each country, but the overall trend is there.

The problems occurring in Europe are fundamental to the capitalist system. When the working class world-wide understand and accept this then the remedy will be the abolition of the system that puts countries and peoples against each other either on the marketplace or on the battlefield.

Terry Lawlor

The German Question (1990)

From the February 1990 issue of the Socialist Standard

On 9 November last year, that hated symbol of political repression, the Berlin Wall, was opened up for the first time in 28 years. The scenes of joy and celebration as thousands passed without hindrance through the concrete scar that had divided the city were truly emotional. The impossible, it seemed, had happened but how and why?

During the last two years thousands of East Germans have voted with their feet— 330,000 in 1989—leaving a country that failed.to meet their economic expectations. Despite official claims of economic growth and greater prosperity the workers remained unconvinced and many questions unanswered:

Why is good quality meat often not available? Why are clothes so expensive? Why are housing conditions still so poor? Why are there still shortages of a thousand and one little things from needles to biros? Why are supplies of bananas, oranges, lemons and other important fruit still so very inadequate? Why are there still so many slum schools and hospitals? Yes, and why after all these years should the GDR worker still find it difficult to buy his own version of a Volkswagen compared with the West German, French, Italian or British worker? (David Childs, The GDR: Moscow’s German Ally, p.162).

This lack of economic success was difficult for the authorities to deal with as people in East Germany had access to West German television. East Germans could see the “consumer society” of their West German neighbours and wanted to share in it—though when they got there they found themselves the latest victims of the Wohnungsnotstand (housing crisis), having to live in caravans, in prefabricated housing and even on specially equipped ships (Hamburger Morgenpost, 7 October).

Fall of Honecker

The mounting pressure of refugees leaving for the West, coupled with the reluctance of the East German “Communist” Party, the SED, to adopt political reform, forced the protest on to the streets. Mass demonstrations took place in Leipzig, East Berlin and other cities demanding free speech and human rights and an end to the old-style leadership. Many opposition groups were formed to articulate these demands, the most notable being “New Forum”.

The SED was now confronted by pressure from two directions. Internally from mass demonstrations and fleeing refugees and externally from the joint Russian policies of glasnost and perestroika.There can be no doubt that when Gorbachev visited Erich Honecker (then leader of the SED) in October 1989 to mark the 40th anniversary of the “German Democratic Republic”, he brought with him some harsh criticism. Two weeks later, Honecker was toppled from power and replaced by Egon Krenz. However, Krenz was not the ideal choice to instill mass support and trust from the population. It was widely known that he had congratulated the Chinese “Communist” leadership after the massacre of students in Peking. So even though Krenz lifted the travel restrictions, which in turn led to the opening of the Wall, he had no credibility and was too closely associated with the old guard to win respect and quell the unrest. Krenz was soon replaced by Hans Modrow, the SED leader from Dresden who is being championed as a “reformer”.

Modrow has formed a new government, hoping to win back the confidence of the population. Several top Party officials including Erich Honecker were arrested and faced a corruption investigation. Honecker has since been released but it is obvious that he was a man with aspirations to be a English country gentleman:

Mr Erich Honecker, the now disgraced former leader, had at his disposal an annual sum of £2.1 million for luxury goods supplied by a special supermarket in the village of Wandlitz, near Berlin where he and other politburo members lived. A keen hunter, Mr Honecker employed a staff of 22 at his hunting estate north of Berlin where the deer were fed on hundreds of tons of imported corn. (Guardian, 14 December).

Several changes have taken place since the Wall was opened. Along with the drive against corruption, the hated secret police—the Stasi—have been disbanded and the Party has adopted a new name to match its new image SED-DS (“Socialist Unity Party of Germany—Democratic Socialism”). However, the most important changes have been the exclusion from the constitution of the SED’s “leading role” in society and the announcement of new elections in May.

These changes look impressive on paper, but it should be remembered that the SED still holds the reins of power. Out of 27 government posts, the SED have 16. All the important ministerial positions—defence, finance, internal security, education, economic planning, foreign affairs, home affairs—are held by SED members. As yet no real tangible change has taken place and much will depend on how the opposition can mobilise popular discontent and eliminate its political differences, if they are to be successful in the May elections.

German reunification?

Whoever governs in East Germany after May, a gradual move towards political pluralism and economic reform is probable given the pattern in other East European countries. Economic reform will entail relaxing state control and introducing elements of the free market. Western capitalism will be eager to exploit the cheap resources and labour that exist in Eastern Europe. No doubt part of the West’s enthusiasm for recent developments has something to do with the prospect of a large exploitable East Europe becoming available.

Since the opening of the Wall, there has been much speculation about the eventual re-unification of Germany. Opinion in East Germany itself seems to be divided, according to a report in the Guardian (19 December):

Participants in East Germany’s round table talks made an urgent appeal yesterday to the governments in Bonn and East Berlin not to endanger stability in Europe by moving into premature talks on German reunification. The joint appeal by government parties, opposition groups and Church representatives came on the eve of a meeting in Dresden today between Chancellor Kohl and the East German Prime Minister Hans Modrow; Dr Kohl's first meeting with East Germany’s new leadership is expected to attract pro-reunification demonstrations; while opponents to unity have announced protest marches in Dresden and Berlin.

Moreover, in West Germany a recent opinion poll carried out by Der Spiegel magazine (20 November) indicated that only 27 per cent of those asked thought that reunification would be possible in the near future.

Obviously here we are entering the world of speculation, but the author’s guess is that reunification in terms of a single unitary state, joint armed forces and single currency is for the moment unlikely. For such a prospect would entail great changes to the political and military map of Europe and poses many unanswered questions. What would be the position of a unified Germany vis-à-vis the existing miIitary/political blocs of Europe? Would a unified Germany accept demilitarisation and adopt a neutral status? Would a reunified Germany be part of the EEC or COMECON or perhaps of both? The questions are endless The most likely short-term outcome is the development of a “community” of the two German states, with increased economic and cultural ties together with freer movement across the borders. But one thing is certain: whether there is one or two German states, German workers will still face the same social problems and economic insecurities that world capitalism produces.

Workers can change history

The recent developments in East Germany and elsewhere in Eastern Europe substantiate the long-held socialist argument that the so-called communist countries of Eastern Europe have in fact nothing to do with socialism. What exists in Eastern Europe is state capitalism. Workers in these countries are exploited by the state which functions as a capitalist. The “communist” parties with their control of the state machinery constitute the exploiting and ruling class and any challenge to their political monopoly has been hitherto ruthlessly crushed. Despite the official rhetoric that East Germany is a “Workers’ State”, the workers themselves know that the system does not function in their interests. They have experienced the economic exploitation and deprivation, while the Leninist vanguard who claim to represent them live in luxury country houses, drive expensive western cars and enjoy a standard of living that most workers there can only dream about.

All this demonstrates more clearly than ever that workers, both East and West, share a common experience. Whether we live under state or private capitalism we will never truly be free until we liberate ourselves from capitalism itself. The common ownership and democratic control of the world’s resources—-socialism—remains the only answer to the problems we experience as workers. The events have shown that things do change. Workers can change history. What seems impossible today can be reality tomorrow. Old certainties, as well as the Berlin Wall, can fall—why not capitalism?

Steve Dowsett