Opinion: complacency is a slow poison | Opinion | DW | 03.04.2015
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Opinion: complacency is a slow poison

It's Easter in Germany and most Germans will spend the holidays feeling good about how things are going for the country. The country's political leaders seem complacent too. DW's Henrik Böhme thinks that's a mistake.

The crash is coming, that much seems clear. The state of Germany's economy is just too good to be true. Germany's most important stock market index, the Dax, is smashing one record high after another. So far this year, its lowest level was 9,300 points - not long ago that would have been seemed unthinkable. Economic growth projections are being revised upward and so are business climate barometers such as the Ifo index.

Sectoral wage negotiations are being completed between employers' associations and unions with relatively little friction. Workers are getting raises - not lush ones, but generous enough to avoid strikes and disruptions.

The unemployment rate has hit its lowest level in 24 years, and the demand for skilled labor remains high. People have more money in their pockets - and they're spending it: on holidays and new cars.

A eurozone member victorious

Germany is the only real winner that emerged from the eurozone crisis. If the country had kept the deutschmark, the currency would be so hopelessly overvalued that Germany's exporters would find it impossible to sell their goods abroad.

DW's Henrik Böhme

DW's Henrik Böhme

The tough reforms that Germany adopted in the early 2000s, imposing wage restraint and labor market flexibility, are still benefitting Europe's largest economy today.

In addition, Germany is profiting from a zero-cost stimulus: An oil price that's worth half what it was a year ago. And don't forget the weak euro, a boon for Germany's numerous exporters.

So, is everything hunky-dory? A closer look suggests not.

For a start, there's tension with Russia over Ukraine. Just two years ago, Russia's President Vladimir Putin opened the Hanover trade fair side by side with Chancellor Merkel, and all the talk was about the booming economic relations between Germany and Russia. That's over for now and it goes to show how quickly things can change.

Not a good time for savers

Germany's economic dynamism is being carried by the European Central Bank. The Federal Reserve in Washington had previously engaged in massive bond purchasing - now it's the ECB's turn.

The idea is to throw an inconceivably large amount of money at the market, hoping banks will then increase their lending if their bad debts are paid for. Top that off with a zero interest rate policy and you've got a dangerously intoxicating cocktail.

A zero interest rate policy harms an important demographic group: Savers. Germany's middle class is full of them. But today, those prosperous enough to save money have no sensible options for investing it.

So a lot of the central bank's money finds its way into the stock market. That's the reason for the high-flying Dax, and more generally the boom in stocks worldwide. All that ECB-generated money has to go somewhere and it's ending up in stocks and real estate.

But what happens when the central banks change their policies, and interest rates start rising again? In Washington, the Fed has been signaling for months that any rise in interest rates from the current near-zero level would be implemented very gradually to avoid any surprises, minimize disruptions and give markets ample time to adjust.

But there may nevertheless be a risk of disaster in this turnaround. Not every withdrawal therapy ends well. Already, even before the Fed begins raising rates, there are some clear losers: In the mere expectation that rates will rise later this year, investors are pulling money out of emerging markets and putting it into the US, which they deem a safer haven.

Advice for the Chancellor's office

What does all this mean for Germany? First, it should stop giving away millions of euros. And it should stop lecturing European partners (including Athens) with unwelcome advice. It needs to realize that the robust state of the German economy isn't the result of this government, but the reforms put in place by its predecessors.

Furthermore, much larger investments are needed. Ten billion euros to be spent over the next three years, as promised by Finance Minister Wolfgang Schäuble is great, but it's a ridiculously small amount for one of the richest countries in the world. (Especially considering our crumbling infrastructure or pitiful to nonexistent broadband Internet access that makes us a laughing stock of well-connected South Koreans or Latvians.)

Yes, one could say there's an economic boom in Germany, but only if one looks at today's numbers. It belies the true situation. If global conditions suddenly shift, the German economy could be vulnerable.

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