2021-09-17 09:00:13 Merkel Leaves the German Economy With Trouble Under the Hood

Merkel Leaves the German Economy With Trouble Under the Hood

However, her long-serving finance minister, Wolfgang Schäuble, was a key enforcer of policies that protected German banks while imposing harsh austerity on the rest of Europe. Germany refused to support the concept of collective European debt at the time, a position that Ms. Merkel abandoned last year in the face of the fallout from a pandemic that threatened European unity.

Ms. Merkel, too, had some good fortune on her side. During her tenure, the former communist states of East Germany largely caught up. And Ms. Merkel benefited from her predecessor, Gerhard Schröder’s, reforms that made it easier for businesses to hire and fire employees and put pressure on unemployed people to take low-wage jobs.

Mr. Schröder’s economic reforms resulted in a sharp drop in unemployment, from more than 11% when Ms. Merkel took office to less than 4% today. The changes, however, were unpopular because they weakened regulations that protected Germans from layoffs. They paved the way for Mr. Schröder’s defeat in 2005 by Ms. Merkel.

The lesson for German politicians was that it was better not to tamper with German privileges, which Ms. Merkel did not do for the most part. Many of the new jobs were low-wage and offered few opportunities for advancement. As a result, there has been an increase in social disparity, with a rapidly aging population increasingly vulnerable to poverty.

“We have seen a clear increase in the number of people who live below the poverty line and are threatened over the last 15 to 16 years,” said Marcel Fratzscher, an economist at Berlin’s D.I.W. research institute. “Although the 2010 years were extremely prosperous economically, not everyone benefited.”

Despite her background as a doctor of physics, Ms. Merkel’s failure to invest more in infrastructure, research, and education reflects the German aversion to public debt. As finance minister, Mr. Schäuble imposed fiscal discipline, prioritizing budget surpluses over investment. The German Parliament, which is controlled by Ms. Merkel’s party, has even made balanced budgets a legal requirement, a so-called debt brake.

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Merkel Leaves the German Economy With Trouble Under the Hood