回 Heisse, more on German economic reform

Heisse,

It sounds like that you will need to take Economy 101,
before defending your adopted country. The German rigidity
is notorious. Their fear of change and competition,
jealous of others, and bureaucracy are all well documented,
and nothing has changed fundamentally.

The current “boom” of a meek 2.5% growth is treated as a
miracle in that slow moving, stagnating country – formerly
known as “sickman of Europe.” The present growth is mainly
cyclical.

The Spiegel article you referred to actually just proves
what I wrote was right – only that the Germans again implemented
their “reform” using a half-hearted means.

The use of “temps” is aimed at liberating the labor “market,”
but just as the temps themselves, this solution can only be
a temporary one. Over the long run, it can only be that the
temps are absorbed into the existing, low-efficiency regular
workforce, or to have long-term, permanent “temps” – and suffer
the result of this great social injustice. Pick your poison.
The real solution can only be to improve labor productivity
using a real labor market with real liquidity.

The hard fact is that there is a “two-tier” system
when it comes to German workers. While 10-15% temps can
provide some liquidity at the low-skill level,
the low productivity caused by not having a real labor market
will only persist.

My prediction is that there will be a major recession in
Germany starting mid- to late 2008.

The German workers will (some already are) demand pay raise
this year. And great wage pressure will set in next year.
There will be a major inflation from wage increase.
The central bank will increase interest rates, further
slowing down the economy.

More troubles will be with the German companies. Coupled with a
slowdown from foreign demand, high euro exchange, and
production disruptions caused by strikes, wage negations,
there will be a big slowdown for German companies and the
overall economy. Some may not even survive. In return,
the workers will suffer job insecurity and loss.

The signs are not rosy at all!