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Europe's Failed States

A failed state is, by current definition, a lawless place without a functioning government, run by a constantly changing pattern of feuding warlords. A country like Somalia, like Afghanistan or Haiti during long periods of its history.

Any such country in Europe? Surely not. And yet, there are countries in Europe that show serious deficiencies of governance which affect their social and economic performance to a deeply worrisome degree.

Certainly, there is no anarchy prevailing anywhere in Europe, not even in Kosovo, Bosnia or Northern Ireland. Usually, police are quite effective, and so are the secret services. Governments, as a rule, are doing what they are supposed to do: govern.

Yet there are countries which appear to be in a pretty hopeless situation because their governance is not functioning as it should: they are failing on a higher level than Somalia, for instance. They have governments, police and public order but their system is deeply troubled.

We are not talking here about Belarus or Transnistria, Albania or Macedonia. We think of Germany and Italy, for instance.

Part I: Italy

At face value, Italy is a model democracy and an economically highly developed country. Yet it is governed by a super-rich media tycoon who utilizes his parliamentary majority as he seems fit to defend and further his personal and economic interests.

In the face of obvious and bold skullduggery his media manage to manipulate public opinion to a degree not seen in western Europe since the days of, say, Generalissimo Franco in Spain or Colonel Papadopoulos in Greece. The opposition, fractious and weak, does not appear to offer a valid alternative to the government even if it succeeds — against current expectations — to win the next national elections in 2006.

It is not by bad luck that Italy is in such a hopeless situation. The Italians had overwhelmingly voted for a tycoon whose good and bad traits they knew perfectly well. The current government has, for instance, watered down anti-Mafia legislation and cut funding and staffing of Mafia control units. Public protest remained anemic. It seems that actions like this do not really bother the Italian electorate. Nor is there much concern about the government's current efforts to fundamentally change the political and judicial system of the country from a past equilibrium of democratic checks and balances toward a docile, easy to govern country, “banana republic” style.

To make things worse, the leaden years of the current administration are also affecting the economy. Doubts persist that Italy has massaged the statistics relating to its entry in the Euro currency system, and its subsequent stability pact performance. After the Greek disaster, Brussels might be reluctant to look too closely at Italy's statistics for fear that another scandal in such a big country could bury the Euro for good. The recent refusal by the Eurostat statistical office to accept Italy's statistics submitted for its 2004 stability pact performance was innovative but hardly sufficient to enforce future fiscal discipline, as Mr Berlusconi's furious reaction proved.

Rampant domestic inflation “tamed” only by dubious practices of the national bureau of statistics ISTAT has eroded the competitivity of Italy's industry and tourism to the point that this traditional exporting nation has recently become a net importer of manufactures and services. Unemployment is high but underreported because many jobless people gave up the search and dropped out of the statistics. The purchasing power of the disposable income of the majority of Italians is shrinking; only the upper income deciles continue to prosper, including Mr Berlusconi himself.

The leader of the opposition, Mr Prodi, recently warned that the government was aiming to establish a dictatorial regime. A remark like this is not very helpful in explaining the situation. What is happening in Italy is more complex.

The prevailing situation is that of a democracy that has ceased functioning because a solid parliamentary majority exploited with ruthless discipline permitted the government to change the constitution, strengthen the power of the prime minister, and weaken the judiciary to the point where it becomes a docile tool of the executive.

Nothing of this is irreversible but to reverse it Italy would need a different parliamentary majority and a different government. Here is the catch: with Mr Berlusconi's ever tighter control of the media, especially TV, it is hardly conceivable that the Italians would vote against a government which is praised by the media every day of the year. Even if much of this praise is exaggerated, hollow-sounding and based on distorted facts: how could the average Mr and Ms Rossi tell phony from truth?

Unless a hero appears to unite the opposition and find ways to communicate a different message to the electorate, Italians must be expected to vote again and again for Mr Berlusconi. Since no such hero is anywhere in sight, Mr Berlusconi might effectively become Prime Minister for life, quite democratically.

The only wild card, it seems, is the economy. With things going from bad to worse, with high (officially: low) unemployment, polarization of the social spectrum, inflation, balance of trade problems and deepening animosity between Rome and Brussels, the economic situation could deteriorate to the point where the explanations and patches of the government finally lose credibility.

It would be a cruel wake-up call for the Italians. But it is not inconceivable that its clumsy and ineffective economic and social policies could bring the Berlusconi administration to its heels. The question is: how much popular suffering is needed to balance the sweet poison dripping from the media, day in, day out? And who would be replacing Berlusconi? Perhaps Italy's currently most popular politician: the neo-fascist Gianfranco Fini who has been groomed by Berlusconi's media empire.

Twice, in August 2004 and again in April 2005, Mr Berlusconi's party Forza Italia was heavily defeated in regional and European elections. Does this herald change? Not necessarily because national or “political” elections tend to follow different rules. In regional elections, a multitude of local politicians are competing; in national elections it will be Mr Berlusconi against the opposition leader, most likely Mr Prodi.

The odds remain in favor of the incumbent.

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—— Giorgio Ascoltone

Part II: Germany

Whereas the outside world is hardly noticing Italy's troubles, Germany's role as the sick man of Europe is well known. For too long, Germany's economy has been ailing, badly affecting the euro zone and Europe as a whole.

It is indeed difficult to understand why Germany is in such a bad shape at a time when the global economy is growing fast and other European economies are doing well or are outrightly booming. Ireland and Spain, Denmark and Austria, the United Kingdom and Poland are all showing a fine performances, but Germany?

Germany's travails would be much less significant if this country was not Europe's biggest economy and as such a key player in the world economy. Without Germany, no substantial progress is possible in Europe. European integration proceeded smoothly through the decades because Germany had no problem footing the bill. All things European could expect generous funding from former Chancellor Helmut Kohl and his predecessors. Now the Berlin government of Gerhard Schroeder has become a miser trying to cap the cost of European progress, and hence in practice burying any chance of further integration which would help the German economy to recover.

For endless months the Germans have indulged in soul searching trying to find the root causes of their miserable economic performance. Many good analyses have surfaced, as well as prescriptions for reform. Reform has indeed been attempted by the government, partly supported and partly resisted by the powerful opposition. No measurable improvement has thus far resulted from these reforms. But a lot of anxiety and turmoil resulted from the reform discussion and its first practical implications.

Visitors from abroad are vexed by the public mood they encounter in Germany. A truck driver of German nationality who had worked and lived for years in Siberia recently returned to Germany. He expresses shock at the prevailing mood of depression, complaints and dogged defense of benefits and prerogatives. “In Siberia, people are very poor but they cling together to make the best of their difficult life. Here, people hate each other, fight like hungry dogs over a bone, and complain endlessly. I believe things will get worse and the Germans will have to accept that the good old days are gone.”
Failing Economy

Economic statistics are grim. According to a U.S. government analysis, Germany's per capita Gross Domestic Product, measured in purchasing power parities, was in 1970 the third highest among Europe's big countries, after Sweden and Denmark. In 2003, Germany had the lowest per capita GDP of all major industrial countries except Korea. All big European countries have surpassed Germany, including U.K., France, Austria and Italy, according to the U.S. data. Unless the trend changes for the better, Germany is in danger of joining the league of Spain and Portugal, Greece and Poland. This could happen sooner rather than later because Germany's annual growth rate of a currently — and optimistically — estimated 0.5 percent puts the country at the bottom of Europe's list and internationally in the company of Guinea, Seychelles and Gabon.

Yet it is difficult to see the impact of the years of economic decline. The country still looks pretty normal. It has an excellent infrastructure, a vibrant cultural life, and no queues in front of soup kitchens or labor offices. Plenty of luxury cars zoom the autobahns, and there is no shortage of elegant stores and upscale restaurants.

However, private consumption is lagging. Many economists blame an allegedly excessive propensity to save on job insecurity, rising cost of living and heavy cuts in public and corporate pension and health care systems. Other economists — perhaps more realistically — see the majority of the population already living at the limits of their purchasing power and being unable to spend more. Occasional government efforts to revive private consumption through debit spending and tax cuts have failed and only increased public indebtedness.

Private debt is also rising, and so are personal bankruptcies. Some 45 percent of German families own a second hand car; only 35 percent could afford a new automobile; the rest is leasing. Of BMW's new middle size range, 92 percent of cars are sold to corporate buyers; at Mercedes corporate sales average around 75 percent.

Lavish tax write offs for corporate cars are just one example of the huge government subsidies distributed among regions and sectors. Coal miners, automobiles and wharves, first home buyers, commuters and farmers, eastern Germans and job exporting companies, all benefit enormously from state largesse. According to some estimates, over half of all German tax income is spent on subsidies. In the “new laender” of eastern Germany, half of all private income consists of “transfers”, i.e. west German subsidies absorbing about 12 percent of west German GDP.

A government-appointed but independent commission recently warned that the cost of subsidizing east Germany was not only consuming all of west Germany's growth but actually forcing its economy to contract by causing disinvestment. The long term declining trend of Germany was irreversible, the commission warned, unless the subsidies were reduced and replaced by a better system of economic incentives. Small wonder that some ( but only a few) west Germans would like to see the Berlin wall rebuilt.

The only major economic sector doing well is Germany's traditional export industries benefiting from the global boom and the weak euro currency. Most successful are German manufacturers in European markets within the euro zone and outside it where the euro has declined in relation to the national currencies.

Another booming sector is the submerged or "black" economy based on tax cheating, illegal work, and informal retail businesses such as flea markets. Feeling the pinch of contracting purchasing power, consumers first abandoned traditional shops and department stores in favor of discounters, and later turned from discounters to flea markets which increasingly provide basic needs goods, free of value added tax, income tax and red tape. But not all flea markets are doing well. A large market in Cologne recently saw more sellers than buyers, visitors reported.

Encouraged by German tax laws which subsidize the outsourcing of manufacturing, and following general globalization trends, German and foreign owned companies in Germany are rapidly moving their factories and partly also their research & development abroad. They leave behind empty buildings and record levels of unemployment among both German and foreign workers in Germany. Unemployment

Whereas Japanese companies have years ago replaced costly labor by robot automation, German industry generally preferred the easier and less expensive way of outsourcing production to eastern Europe and Asia. The unemployment and job insecurity caused in Germany by this strategy forced German workers and immigrant laborers to accept substantial cuts, thus providing employers with a handsome windfall benefit.

On the whole, Germans in private and public employment are now working longer hours for less pay than a few years ago. Observers are predicting that German wages will have to meet the low wages of eastern European countries half ways before any significant economic revival can happen.

The despite recent cuts still generous unemployment benefits have created a system of welfare dependency similar to the situation prevailing in the U.S. before the reforms introduced by the Clinton and Bush administrations. There are families characterized by two, three generations of welfare dependency which have focused their survival skills exclusively on knowing all the benefits and loopholes of the welfare system. Despite some 5 million officially jobless people or over 10 percent of the work force, millions of humble legal and illegal immigrant workers are still needed to perform the hard and unpleasant menial jobs Germans still don't want and don't need to accept.

According to non-governmental estimates, the real number of unemployed in Germany may have reached between 8 and 10 million, or one fifth of the labor force. In view of levels of unemployment not seen since the Great Depression of the 1930s, those Germans still lucky to have a job cling to it. Tellingly, the incidence of sickness on the job has fallen to its lowest postwar level.

Despite current record unemployment it is easy to see that millions more are in danger of losing their jobs in the near future. Levels of job qualification among German workers are often quite low, despite years of elimination of the least qualified and motivated. Typically it is the older generation which has not kept pace with change and is easily outperformed by younger competitors with their better grasp of information technology and other modern job requirements.

It is therefore dangerous to assume that the unemployment trend has already bottomed out. There are still millions of Germans who are not fully qualified for their type of job, and the wage or salary and benefits level they have become accustomed to. The next wave of corporate reorganization and streamlining could flush them out.

The ranks of the unemployed are now joined by people expelled from the welfare system; the latter generally having no qualifications at all and often being hardly literate. A new crop of functional illiterates is currently bred in public schools of poor districts with a high proportion of children born to immigrants.

In Munich, Germany's richest city, there is at least one school where 95 percent of students arrive without breakfast, and often without learning materials. The school was forced to provide breakfast and allocate time for it. Letters from teachers are often not even read by parents, and the kids' pocket money is spent on cell phones, sneakers and other fashionable gear rather than on school excursions or textbooks. What may be an exception in Munich is widespread in Berlin and other poor northern cities where substantial parts of the population live on unemployment benefits, unregistered jobs (“black labor”), and welfare.

As a result of Germany's economic failure, the social structure is undergoing massive change. Once one of the most homogeneous societies in the world, with a large middle income section, few poor and relatively few rich, Germany is quickly returning to normality.

The exceptional equality resulted from the fact that World War II had impoverished virtually everybody, and all Germans started in 1948 into the postwar boom with the same 20 marks in their pocket. Decades of prosperity combined with governments favoring social equality built a remarkably balanced society which Germans considered normal and took it for granted. It came as a shock to them when they realized that this society was falling apart and nothing could be taken for granted anymore.

Social polarization is fast progressing. The bottom is falling out of the society, creating a new poverty among the unemployed, the old, jobless foreigners and those who lost part of their unemployment and welfare benefits. At the other end of society, the rich are getting year after year richer and perhaps even more numerous because they have weathered the implosion of the New Economy and the following stock exchange bust, and are now benefiting from a global economic upswing.

It is the middle class which is squeezed hardest. Small businesses are suffering from stagnant demand; real estate has lost a third of its former value; virtually bankrupt national, provincial and local governments are pressing increasingly hard on the middle class taxpayer who cannot benefit from the loopholes so diligently used by the rich. The mixed socialist and Green national administration has introduced a multitude of well intentioned new laws and restrictions which stifle entrepreneurial initiative and alienate foreign investors.

A mood of despair and anger is prevailing among business people and workers alike. Many among the rich have left the country for some friendly tax haven where their offices and homes are not raided by tax inspectors. Many among the rich in Bavaria, for instance, once readily visible, have virtually disappeared. When coming from abroad to inspect their properties, visit the doctor and the lawyer, they don't use a German airport where their presence might be registered. Instead they fly into neighboring Austria or Switzerland, rent a car and cross the border unnoticed. Failed Politics

The failing economy and the social tensions resulting from it have fundamental political repercussions. For the first time since World War II it has become hard to govern the country. During past decades a friendly economic climate prevailed which permitted governments to run the country without much public scrutiny and mistrust. The shortcomings of a complicated and contradictory model of governance remained largely unnoticed.

The economic crisis has thrown the flaws of the German model into strong profile. The federal government is blocked by mostly opposition run provincial governments dominating the upper house. Powerful lobbies ranging from entrepreneurs to trade unions, from environmentalists to senior citizens, from medical doctors to healthcare providers are always finding ways of impeding any progress at their expense. The federal government, helpless as it is, takes refuge in Brussels where it can launch or support initiatives which, after adoption by the European Union, have to be implemented by Germany regardless whether opposition or lobbies like it or not.

In fact, Brussels has in recent years proven to be the strongest factor for modernization and reform in Germany. Although badmouthed by everybody, including the national government, Brussels has usually succeeded in overcoming national and often also local resistance to its guidelines and regulations. Without the beneficial role of the European Union, Germany would be in much worse shape than it is today. But in a climate of Brussels-bashing by media, politicians, and civil society alike no honest recognition of the work of the European institutions can be expected.

Under normal circumstances, any national government held responsible for a protracted economic crisis would be ousted by the next elections and a triumphant opposition would take over. But in Germany things are more complicated. Although the government coalition is in very bad shape, the opposition is not held in much higher esteem. People still remember the failure of the last opposition led administration of Helmut Kohl. Also, infighting among various opposition players as well as lack of convincing strategies are discouraging the electorate.

As a result, three major “parties” have formed: those who would vote for the government coalition; those voting for the opposition, and those who have decided not to vote at all because they dislike both the government and the opposition. In a country where abstention from voting is often seen as a democratic sin, the emergence of decided non-voters is a new development, and a potentially dangerous one.

The non-voting bloc offers a playing field for the enemies of democracy, especially on the extreme right. Never since World War II have the neo-nazis had any real chance for becoming a big-league player. Extremist groups and parties came, made a short splash, and disappeared. As a result, Germans and foreign observers alike formed the opinion that the German electorate was, after all that had happened, finally mature enough to resist the extremist lure.

Recent studies, however, have questioned this assumption. A recent thorough study conducted by a Berlin university used new, improved methodology to assess the potential for right wing extremism in Berlin and its surrounding province of Brandenburg. One question asked was whether there should be a “Fuehrer” — using the nazi term for a dictator — instead of the current democratic regime. In Berlin, some 12 percent agreed, in Brandenburg a whopping 24 percent.

It has been recognized that the potential electorate ready for right wing extremism is much larger than the support any neo-nazi party could ever muster. Eastern and northern Germany are the regions where any modern, well organized right wing party could become a major league player. Fortunately, the existing neo-nazi parties and groups are far from being civilized and respectable enough the achieve more than local and possibly temporary success. But that does not exclude the possibility that a continuing economic, social and political crisis would in future stimulate the appearance of a more popular and better staffed extremist party.

The failing economy and the social crisis it entailed have resulted in a grave political crisis characterized by a legislative deadlock and profound public distrust in politicians of any party. There is widespread belief that neither the government coalition nor the opposition are able to run the country properly.

The idea of a coalition of the two biggest parties, virtually eliminating the opposition, is also suffering from public distrust and is suspected to lead to pork barrel politics instead of overall reform.

In desperate search for any alternative the idea surfaced that the president of the republic could suspend some of the constitution's rules for a few years, fire the government and entrust executive power to a caretaker administration run by the European Commission, thus giving German parties time to reflect, reorganize themselves and groom a new generation of better qualified politicians.

Apart from the fact that the Brussels Commission would certainly refuse to accept the responsibility for temporarily governing Germany, the idea as such is utopian. But it shows how deep German politics have fallen and how fragile democracy has become due to years if not decades of mismanagement of the country. A Good Place for Foreigners

While Germany has become a bad dream for many of its citizens, foreigners living there are better off. As long as they draw their income from abroad and don't have to fight German red tape and harsh labor market conditions they can enjoy the advantages offered by a country in decline.

Because of years of stagnant demand, Germany's cost of living is declining in comparison to its neighboring countries. There are still exceptions, though. Nowhere in the EU are automobiles more expensive than in Germany, still one of the world's top car producers. But groceries are inexpensive, textiles are approaching low U.S. retail prices; real estate is expensive but prices continue to decline. Wages are eroding under the combined pressure of unemployment and the influx of workers from the new eastern European EU members who are usually more motivated and often better skilled than Germans. Services competing for customers have become relatively polite. Supermarket cashiers now wish you a nice weekend, a courtesy unheard of in rough old Germany.

Crime is low, environmental standards are high, and cultural life is vibrant as Germans, to forget the economic blues, are eagerly flocking to cultural events. All in all quite a pleasant country, as long as you are not its citizen.

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—— John Wantock, Benedikt Brenner, Heinrich von Loesch