The Stash

Has Germany Undermined The Case For Stimulus?

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Reading this Wall Street Journal piece about how France and Germany are emerging from their recessions at least a quarter before the U.S., it might be tempting to conclude that fiscal stimulus is just a waste of money. After all, amid calls for Germany to spend more in the run-up to the G-20 meeting in March, German chancellor Angela Merkel took a famously hard line against additional stimulus.

But, in fact, Merkel soon reversed course and acceded to more spending. On top of which, as the Journal points out, Germany has incredibly generous automatic stabilizers, which provided fast-acting fiscal stimulus without requiring government action. As the story notes: "German government subsidies for workers whose hours have been cut prevented hundreds of thousands of job losses this year, say analysts and business groups."

This Bloomberg piece elaborates on the payroll subsidies:

As the government throws money at public works projects, beleaguered exporters are relying on two far older forms of state aid for German companies to see them through the crisis: payroll subsidies and state-backed loans.

On the last Friday in January, fewer than a dozen workers check machinery at Munich-based Hawe Hydraulik SE, a family- owned engineering company that makes hydraulic parts for cranes, oil drills and other industrial equipment. The government is helping to pay the rest of their 230 colleagues to stay at home. About half of Hawe’s 277 million euros in sales last year came from foreign customers, and orders dropped 40 percent in the last three months of 2008 compared with the year earlier. In January, the company introduced a Monday-Thursday workweek for its 1,200 production employees in Germany. ...

Hawe hasn’t fired any of its employees this year, mostly because of subsidies under Germany’s so-called short-work system, established in 1910. The government pays 60 percent of an employee’s salary and welfare contributions on the days that workers stand idle. The subsidy rises to 67 percent for employees with children.

Sounds both like a conservative's worst nightmare, and like it was incredibly effective at shortening Germany's recession.

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