PARIS - Germany's relatively low unemployment rate didn't stop the International Labor Organization (ILO) this week from delivering a brutal assessment of the European powerhouse.
Yes, the ILO 2012 report on global employment trends cites Germany as both the most powerful country in Europe and, along with Australia, the only developed country that has managed to boost its unemployment rate to below pre-crisis levels. But the authors of the report, presented on Tuesday, also accuse Germany of being no less than the cause of the current euro zone problems.
Rising competitiveness of German exporters has increasingly been identified as the structural cause underlying the recent difficulties in the euro area, they denounced in an accompanying article inside the report.
The ILO targeted the deflationary wage policy implemented in Germany after reunification: As German unit labor costs were falling relative to those of competitors over the past decade, growth came under pressure in these economies, with adverse consequences for the sustainability of public finances. More importantly, adds the ILO, crisis countries were barred from using the export route to make up for the shortfall in domestic demand as their manufacturing sector could not benefit from stronger aggregate demand in Germany.
In Germany, the increase in private consumption was more than 1% lower than other euro zone countries between 1995 and 2001. The strategy which aimed to return the country to productivity created conditions for a prolonged economic slump as other member countries increasingly see only even harsher wage deflation policies as a solution to their lack of competitiveness. This was the last straw, according to the ILOs report, as the internal devaluation overly affected employees in the service sector, leaving manufacturing costs high.
Little has been done, on the other hand, to improve productivity itself.
Read the original article in French
Photo - hpeguk