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February 21, 2017

Schulz to undo Schroder’s Agenda 2010

We are taking Martin Schulz’ candidacy in Germany very seriously, not because of the polls but because he is the only SPD politician who can credibly distance himself from the Grand Coalition in Berlin as well as from the SPD’s own unpopular reform programmes of the previous decade. We know that he only became the SPD’s chancellor candidate by accident - the decision by Sigmar Gabriel not to put himself forward after he realised that he didn’t stand a chance. But that does not detract from the fact that the SPD has the most potent candidate since the early Gerhard Schroder.

His critics say that Schulz is full of hot air, and would implode when forced to unveil his programme. We think they are complacent. Schulz did produce a big bang yesterday, during a trade union junket in Westphalia, but it was not an implosion. He pledged to abolish most of the stinging bits of Gerhard Schroder’s Agenda 2010 reform programme, which was hugely unpopular among SPD voters, and which cost the SPD the 2005 elections. The party has since fallen from a high in the low forties to just 20% under Gabriel, but has now recovered to over 30% in the polls under Schulz. The Agenda 2010 was the big symbolic issue for the SPD, and Schulz is taking it back. No other SPD candidate could have done it because they all have blood on their hands. 

Schulz specified yesterday that he wants higher pay for the unemployment and for pensioners, including a statutory minimum pension. He wants to strengthen co-decision rights of workers in companies, shorter working hours, and free childcare in companies. And he wants to crack down on temporary work contracts, and restrict them only to situations where temporary contracts are plausibly justified by the employers. Schulz said that the SPD had made grave mistakes by aligning itself with the neoliberal mainstream.

The papers celebrated the return of confidence to the SPD. Die Zeit quotes one SPD official referring to Schulz as the St Martin of his party. Jasper von Altenbockum, the FAZ’s political columnist, who is no friend of the SPD, acknowledges that Schulz’ strategy is logical. What does he have to lose? His opponents will accuse him of paving the way for a coalition with the Left Party, but people will make that point in any case. He might as well go on the attack now and secure the initiative. He wonders what Angela Merkel can do to stop him. Both politicians are hard to read, he concludes.

Even if Schulz only implements parts of these promises - and there is no way he will be able to implement all of them - it will nevertheless have an important impact on the German budget deficit in the long run. We know that the German debt brake is not water-tight. Its importance does not lie in its legal foundation, but in the overwhelming support it enjoys. We have no doubt that a Schulz-led government would test the limits of the debt brake. By incurring a fiscal deficit, Germany's current account surplus, which we consider the single most toxic imbalances in the eurozone right now, would diminish. We would prefer a strategy focused on public sector investment, rather than handouts, but this is still better than the current government's strategy of allowing fiscal surpluses to build up.

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February 21, 2017

Dutch minister under fire for disability benefit fiasco

Anther member of Mark Rutte's cabinet is under fire for not being totally forthcoming to the Tweede Kamer, after presiding over what NCR calls the biggest fiasco of the Rutte II government. Martin van Rijn, secretary of state in charge of nursing and care and a member of the labour party PvdA, kept reassuring the Dutch parliament that everything was under control with the reform of the so-called personal budget, while the reality was that the ministry was in total chaos.

The Dutch personal budget (PgB) is a form of state support for the disabled allowing recipients to purchase care services of their choice. Since 2013, the Dutch government undertook an in-depth reform of the PgB intended to stamp out benefit fraud. At the same time they also expanded the eligibility for the subsidy and reversed cuts to its budget. The way to achieve this was by taking away the cash from the recipients, and managing the expenses centrally. By all accounts the system that was put in place was a bureaucratic disaster and it broke down in 2015, with tens of thousands of people losing the care they were receiving previously. But all along van Rijn - who as a junior minister is separately accountable to the parliament - kept painting a rosy picture of the situation, and agreeing impossible targets with the parliament. According to NRC, it became a common practice at the ministry not to put down in writing any problems, as what is set on paper can leak. Drafts of documents were successively watered down. The parliamentary opposition now accuses van Rijn of being more concerned with protecting his own image than with solving problems. And they intent on bringing him back to the floor of the Tweede Kamer to confront accusations that he concealed the true state of affairs at his department from them, which allowed him to survive the previous political crisis around the failure of the PgB reform.

This story seems like a microcosm of what's wrong with European social democratic parties (with the possible exception of Germany right now). The Rutte I coalition of the liberal VVD and the Christian Democrat CDA collapsed over Geert Wilders' refusal to endorse an austerity turn in 2012. Then after the PvdA staged an impressive election surge, it joined the Rutte II cabinet and struck an austerity deal. Then they picked van Rijn, billed as a "golden boy" for his managerial experience, to direct the reform of disabled and elderly care. Van Rijn had previously taken the revolving door from the Dutch civil service to being CEO of pension fund PGGM. But the managerial ability turned out to be about passing the buck. The optics of the whole thing are really bad, especially for the PvdA, just three weeks before a general election.

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February 21, 2017

On what to do about Germany’s current account surplus

Among German economists Marcel Fratzscher is one of the few who are warning about the current account surplus, a subject widely considered irrelevant. Fratzscher does not support higher deficits, rather believing the problem is only solvable through shifts in the private sector. The corporate sector in particular has been running a savings surplus since 2003, a hugely anomalous and ultimately troubling development.

He notes that the accumulated German trade surplus has been €2.2tn since the year 2000. Also that the total value of this savings surplus, which has been invested abroad, has fallen to €1.6tn, a loss of €600bn or about €7500 per head. The cause of these massive losses is the behaviour of German financial institutions, who invested the surpluses badly. Some of those losses accrued to German taxpayers who then bailed out these institutions. No other country in the eurozone incurred greater losses in the global financial crisis than Germany, or forced its citizens to take on such massive amounts. What makes this loss even more galling is the extremely unequal wealth distribution in Germany. The bottom 40% of German households hold virtually no net savings. He argues that the best policy response would be to invest the money domestically - into education, innovation and infrastructure. Such investment would increase productivity and employment. He is calling on his countrymen to wise up.

There are reasons why the private sector in particular is not investing. It sees more profitable opportunities abroad for a variety of reasons that are hard to influence in the short term. We are not arguing that a high public sector deficit could adjust the path on its own, but without it it will not be accomplished. However Fratzscher is like the German mainstream in support for the debt brake, the constitutional mandate for a quasi-zero deficit over the economic cycle. By fixing the public sector's balance sheet, we believe that Germany has thrown away the key to the only policy instrument that could effect the change.

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February 21, 2017

Untouchable Le Pen

Mediapart makes a good point saying that the public measures Marine Le Pen with a different yardstick. She too stands accused of nepotism and fictive employment, and yet the accusations won’t stick on her. She inherited the job as party leader as the daughter of her father Jean Marie Le Pen with a shady past of party financing. Her nice Marion is in the party as well. Her programme is as inconsistent as it gets, and calls for France's exit from the eurozone, yet does not provoke any outcry as she is seen as standing for protectionism and the defence of the public sector. The other candidates battle against each other as if the price were the second place in the race. And this is to Marine Le Pen's benefit.

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