Ger­man wage rises must be po­lit­i­cally ac­cept­able

Financial Times USA - - LETTERS -

Sir, Martin Wolf (Com­ment, May 17) makes a strong case for a rise in Ger­man wage costs rel­a­tive to those else­where in the eu­ro­zone but also recog­nises the dif­fi­cul­ties of bring­ing this about. Three mea­sures might make such a shift eas­ier and more ac­cept­able in po­lit­i­cal terms.

First, Ger­many un­der the Schröder ad­min­is­tra­tion car­ried out a “fis­cal de­val­u­a­tion”: it re­duced so­cial se­cu­rity con­tri­bu­tions, levied on ex­ports but not im­ports, but raised value added tax, levied on im­ports but not ex­ports. Many eu­ro­zone countries have since im­i­tated this move, with ad­verse dis­tri­bu­tional re­sults. It is ap­pro­pri­ate now for Ger­many to re­verse that move and carry out a “fis­cal reval­u­a­tion.”

Sec­ond, some wage rises could be pro­grammed not in Ger­many but along its sup­ply chains into cen­tral and eastern Europe. This would ap­pear in the stats as a de­cline in Ger­man pro­duc­tiv­ity rather than a rise in wages but would have the same ef­fect of mod­er­at­ing Ger­man com­pet­i­tive­ness while also re­in­forc­ing sol­i­dar­ity across rich and poor mem­ber states.

Fi­nally, it would be valu­able to re­visit the harsh so­cial se­cu­rity re­forms also im­ple­mented un­der Ger­hard Schröder in the ques­tion­able view that a low wage sec­tor was needed in Ger­many.

The re­sult was to make Ger­many an ex­cep­tion to the usual pat­tern where there is more in­equal­ity among the rich than the poor: there are very wide in­equal­i­ties among the poorer half of Ger­man earn­ers and it would be ap­pro­pri­ate to move many of the most dis­ad­van­taged to­wards the me­dian. Man­aged in this way wage costs could be raised with de­sir­able dis­tri­bu­tional shifts both at home and abroad. Pro­fes­sor John Grahl Eco­nom­ics Depart­ment, Mid­dle­sex Univer­sity London NW4, UK

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