The government reported a record 2.2 per cent rise in the gross domestic product during the second quarter - the fastest quarterly growth rate seen in reunified Germany. But there is more to it than meets the eye.

By Walter Pfaeffle

The “dynamics” of the recovery are overwhelming, wrote the news magazine Der Spiegel. And a think tank felt obliged to revise upward its outlook the balance of the year and 2011.

Meanwhile, finance minister Wolfgang Schaeuble used the leading German newspaper Frankfurter Allgemeine Zeitung as a platform to back-pedal, saying there is “no place for complacency.”

"The level of GDP is still below that of 2007 or 2008. Even if the recovery should continue at the recent pace, it will take some time yet before the recession of last year will be overcome," Schaeuble said.

Germany should also prepare for potential downward risks ahead that may stem from "developments in raw material markets or weakening growth in the U.S.," he said.

Even Schaeuble’s warnings don’t tell the full story about the economy whose major driving force are exports, making Germany dependant on what is happening in other countries.

Misleading comparisons

First off, economic growth was up by 2.2 percent only when compared to the dismal year-ago period. It was down by 2 per cent over the same period in 2008.

To be sure, exports are up compared to the 2008 pre-crisis level. At the same time, however, dependency on foreign markets has increased.

Why exports are doing so well is something the Berlin government doesn’t like to talk about.

Private economist Joachim Jahnke fills in the blanks.
Exports, he says in his latest weekly letter, are growing mainly because wages are being held down for competitive reasons.

In other words: Export entrepreneurs are getting rich on the backs of the working man. This has dire consequences for consumption in Germany which, similar to the United States, is the key economic driving force.

If wages aren’t growing – they are in fact receding – consumption will stutter, as Germans shop less for fear of losing their jobs in an export-dependant economy.

Schaeuble’s warning is well-placed, given the fact that the inventory buildup has run its course and the government’s economic stimulus program is about to expire.

Growing gap

What we are witnessing in Germany is a widening gap between net wages on the one hand and corporate and investment income on the other.

In fact, corporate and investment income have recovered swiftly from the financial meltdown as a result of lay-offs and other cost-cutting measurea: they rose by an inflation-adjusted 21.1 per cent in the second quarter over the same period a year ago, while wages were up by only 2.7 percent after accounting for consumer inflation.

Looking back a decade, the situation looks even worse. Since the first quarter of 2000, net wages per worker are down by 2.6 percent. During the same period, corporate and investment income exploded by a whopping 31.1 per cent – despite the 2008 financial market collapse.

What few people outside Germany realize are mushrooming soup kitchens for the poor in Europe's wealthiest country and one ot the world’s richest.

The program, known as Die Tafel, is supplying cheap food for the needy. It  is run with the help of some 40,000 volunteers. 

Not just the structurally unemployed depend on government handouts. More and more members of the middle class cannot make ends meet, and rely on the Tafel-Program to feed themselves. 

“I am poor,” a 63-year old widow, mother and former school teacher confessed during the popular talk show, Menschen bei Maischberger, on Wednesday. “I have to live on 500 euros a month,” she said, referring to the government pension known as Hartz IV. “It is scandalous that this is happening here.”

The lady is among a growing number of middle class Germans who have fallen through the cracks. Women are the major victims, as they often lose their private-sector pensions due to child-bearing leaves-of-absence or the husbands' job-related relocation.

“We bring children to this world, sacrifice our jobs, and in the end we are being punished,” she said.