Monday, August 2, 2010

Is the German Economy Booming? No...

The Globe and Mail reports:

While the rest of Europe is just beginning to crawl out of crisis and into the first tentative rays of growth and recovery, Germany is positively booming. Export sales are up dramatically, spurred especially by Chinese sales; consumer spending has returned sharply; banks and housing markets are unscathed – and, most significantly, while the rest of the continent and the United States experienced harsh job losses, Germany has actually seen unemployment fall this year to 7 per cent, below Spain’s boom-time level.
How? By bailing out workers with a unique plan that has short-term implications that aren't all that different than what is done in the U.S.:
In a system known as kurzarbeit, or “short-time work,” the German government pays up to two-thirds of the salary of employees who would otherwise be laid off, as long as they remain employed. The employer is expected to cover any hours actually worked and to keep up their pension and benefit payments.
Similar to U.S. unemployment benefits when you think about it... workers only receive government aid if they are not working (though they are not counted as unemployed even if they are working 2 days a week), but with unique long term differences.

The good? Corporations have an incentive to keep people on the payroll even if they are not needed; should the economy rebound, these individuals will be there.

The bad? Corporations have an incentive to keep people on the payroll even if they are not needed (i.e. the same thing); over the long run this may pose a structural headwind to future growth as it will prevent new companies from emerging post-recession; one of the sole benefits of recessions historically has been the new ventures that emerge (excess workers for entrepreneurs + no opportunity cost for unemployed workers = ripe recipe for new companies).

As for the quote that the German economy is "positively booming" (note German Q2 GDP has not yet been released).

Not so much when compared to the U.S., even though the U.S. recession started first.

Source: BEA