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Fareed Zakaria’s Neo-Liberal Defense of Germany Pt1

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PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Washington.

At the recent G-8 meetings in Camp David in Maryland, we’re told by the press there was a vigorous debate: austerity versus cuts, cuts versus austerity, and Germany being sort of the bad guy in all this because they continue to push austerity. Now, most of the press reports didn’t add to this that all of the governments at the G-8 had all in fact supported austerity at one time or another. But some of them are seeing it ain’t working. Well, Fareed Zakaria rushed to Germany’s defense in his show on CNN Sunday morning. He said Germany’s not the bad guy in all of this; the real problem is Greece doesn’t want to reform itself. I should mention, Fareed Zakaria is also an editor-at-large at Time magazine and he hosts a regular Sunday morning show on CNN. And here’s what he said.

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FAREED ZAKARIA, CNN HOST: Consider that Germany is being asked to take its taxpayers’ money, in a democracy, and use it to bail out a country like Greece, which is guilty of mismanagement, poor competitiveness, and financial fraud, and it has said yes. In return for this, Germans are being called Nazis in Greek newspapers.

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JAY: A little further on, Zakaria says:

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ZAKARIA: German leaders have said again and again that they are willing to bail out weak euro zone countries. But they have asked for reform as a condition of that aid. The real path to growth for countries like Greece and Italy is less austerity, to be sure, but more reform, reform that opens up their labor markets, breaks protections, and liberalizes sectors of their economies. These are politically hard to do, and certainly Greece has done very little of it. . . . The only leverage Germany has with countries like Greece is that it gets the money incrementally as it enacts reforms. Now, Greece might yet have to default and quit the euro zone, and perhaps the European Union, but if it goes down this path, Greece will find that the markets will refuse to lend it money at reasonable rates unless it does pretty much the same things Germany is asking it to do anyway. Life without Germany will mean a lot more austerity than life with Germany.

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JAY: Now joining us to talk about Zakaria’s show and his later interview in that show with Mario Monti, the prime minister of Italy—joining us from London is John Weeks. John is a professor emeritus at the University of London School of Oriental and African Studies, he’s the author of the book Capital, Exploitation and Economic Crisis, and he’s the founder and a contributor at JWeeks.org. Thanks for joining us, John.

JOHN WEEKS, PROFESSOR EMERITUS, UNIV. OF LONDON: Thank you for inviting me.

JAY: So let’s start with Zakaria’s defense of Germany and defense of necessary reforms. What do you make of his comments?

WEEKS: Well, I think they’re all nonsense, to use a technical term. I think that it’s a complete misrepresentation of the situation. It suggests that Germany has pursued a fiscally sound policy for quite a long time while the other—particularly the Southern European countries have been, you know, feckless and profligate and so on. And now what Germany out of the kindness of its heart regrettably [incompr.] austerity against the countries in the south. That is complete nonsense. It’s a complete misrepresentation from beginning to end.

JAY: Why?

WEEKS: Well, it’s hard to know where to begin, but I’ll try to begin with the big picture. In the late 1990s, the social democratic government in Germany, the Social Democrats, saw that actually all the European countries were growing rather slowly, but Germany was growing rather slower than the others. The main reason it was growing rather slowly was because of complications rising out of unification in 1990.

JAY: Yeah, just for people that don’t know, unification means the bringing of East Germany into Germany as a whole.

WEEKS: I forgot, yes, there’ll be some of your listeners that weren’t even alive when that happened, some of your viewers. Yeah.

So the unification of East and West Germany and some of the policies taken by the German government, which was a conservative government then, caused the economy to grow slowly. Okay? Come the end of the ’90s, the Social Democrat government comes up with a solution [incompr.] growth, and the solution is what would be called in the economic—standard economic literature beggar-thy-neighbor growth.

What you do is you make yourself more competitive compared to your opponents and—I mean, compared to your trading partner, making them opponents. By making yourself more competitive, you export more to them, but you import no more. So you begin to have a export-driven growth or -led growth. And the other side of the coin from that is somebody has to have an import-led growth. And so that is what happened.

In the year 2000, just as the policy was coming into operation, Germany actually had a slight trade deficit with the rest of the European Union. And it also had a fiscal deficit—it was spending more of the income [incompr.] came in. Seven years later, just before the crisis arises, only seven years later, Germany had a surplus with the other members of the European Union of almost €300 billion. So they went from a slight deficit of about €30 billion to a surplus of €300 billion.

JAY: And Germany becomes more competitive how?

WEEKS: It became competitive in a number of ways. One is that the trade unions agreed with the Social Democratic government to hold a real wage freeze, so that the money wages would rise at the same rate as inflation. This meant that they were rising well below growth and productivity. So unit costs were falling. That’s the first thing.

The second thing is that the government introduced an arrangement such that companies that exported did not have to pay the sales tax or employment taxes—like, Social Security contribution in the United States you would call it. [incompr.] have to pay those taxes on those things they exported. So in effect this was a subsidy to exports.

Those two things together—the keeping wages flat and removing certain taxes—of course made, in the short run, Germany’s exports much more competitive. And in fact the turnaround was astounding. Couldn’t possibly—astoundingly quick. Couldn’t possibly be explained by anything other than temporary measures.

Now, maintaining that advantage has been partly achieved through higher rates of investment in Germany and the other countries. But one of the reasons they have higher rates of investment is because they were the country growing compared to the others that were stagnating.

JAY: Okay. But isn’t Zakaria right, then, that if you jump to what Greece’s situation was, he says fraud and inefficiencies and lack of competitiveness and all of that. So what do you make of, you know, his accusations of Greece and that Germany now is perfectly reasonable asking for such reforms?

WEEKS: Well, of course, you know, the Greeks, they’re just like the Italians. They like to just sit around in cafes, they really don’t want to work, and so on. Let’s try to inject a few facts into this discussion. First of all, the average German worker in the private sector works 1,500 hours a year. That’s less than in the U.S., 1,500. If you divide through by the number of weeks, you can see that that’s considerably less than 40 hours a week. The average Greek worker in the private sector works over 2,000 hours of the year. So they worked over 40 percent more than in Germany. Okay, so that’s the first thing.

Now, what about the government? Were they corrupt? And were they profligate? There is corruption in Greece. But the central problem in Greece of the public finances is that the rich do not pay their taxes. The middle class and working class pay their taxes. The rich do not pay their taxes in Greece, and there’s a reason for that. The reason is that at the end of the military dictatorship, the military ceded power to the social democrats of Greece on the condition that no laws would be introduced which weakened, you might say, the economic power of the upper classes. And that’s what got us—partly what’s got us to where we are now.

JAY: What year was that, John? John, what year was that?

WEEKS: That would have been in the 1970s. So there’s been basically no tax reform for almost 30 years.

JAY: So the problem here is the reforms that Germany is calling for as a condition for this so-called bailout is mostly going to be—the burden’s going to be carried by ordinary Greeks. You don’t see a big demand—a little bit of demand for taxation, but not much. It’s not the brunt or focus of the attention. And that’s where the money is, and one would think that’s who’s to blame for all this.

WEEKS: What I’m saying is—I’m not saying that taxation is the solution. What I’m saying is Greece got to a position in which it had a large fiscal deficit, because it had moderate social expenditures, much lower than Germany’s, of course, much lower in terms of—in percent of GNP than in Germany in terms of health care and education and other things. And the funding of it should have come from a taxation, from a progressive tax system. But in effect the rich were evading taxes, and steps were not taken to prosecute them for it. Right?

Now we’re at a stage where to a certain extent all of that becomes irrelevant, because the reforms, the so-called reforms, which the Germans and the European Union, European Commission, IMF won’t [incompr.] those reforms have nothing to do with growth. This idea of opening the labor market will make you grow faster, there is no empirical evidence to support that. There are claims, but there is no consistent empirical evidence done by economists or sociologists [incompr.] to establish that. It is as simple as an attack upon organized labor to try to weaken their bargaining power so the Greek employers can force down wages even more than they are now and can fire people more easily.

JAY: In the next part of our interview, we’ll pick up on this idea, because in part two of Zakaria’s show, he interviews Italian Prime Minister Mario Monti, and Monti says almost exactly what John Weeks just said—maybe not with the same intent, but it wasn’t far. So join us for the next part of our interview with John Weeks on The Real News Network.

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