When I was in Portugal a few years ago (Porto mainly), I noticed taxi drivers at the rank queue who would get out of their cars when the front of the queue changed and push them to the next spot in the queue. It was like something one would see in a very poor nation without fuel. But then austerity had created poverty in Portugal and the taxi drivers were just trying to eke out a living as best they could and make as many savings as they could along the way to spread the meagre receipts they earned as far as possible. But then that was just Portugal, right! They have been living beyond their means for years and needed the reality check that austerity brought, right! They should follow Germany’s lead and tighten their belts and enjoy low unemployment and the strongest economy in the Eurozone, right! But, of course, the reality is different. Germany has become so obsessed with recording fiscal surpluses that its trucks can no longer transit important bridges and so the export model is being undermined. It is so obsessed with screwing its own people and overseeing an increasing bias to precarious work with low pay that the future retirements of their workforce is in jeopardy. The chickens are coming home to roost in a big way for Europe’s so-called powerhouse. No other nation should follow its lead.
Remember the Juncker plan aka the ‘EU Infrastructure Investment Plan”, which the current European Commission President devised between drinks as his grand scheme to revitalise Europe after years of failed policies interventions.
The plan outlaid a measly €315 billion over the period 2015-2017. Yes, it ends this year.
The estimates of the sort of capital injection that was actually needed at the time to address the failing infrastructure in Europe and to kickstart growth was multiples of the sum that the European Commission provided for.
Massive capital injections are needed in the Eurozone after two decades of starved public investment.
The Deutsche Welle report (March 7, 2015) told us that “all truckers heading eastward towards Duisburg” should “bring a pillow” because the main bridge on the A40 autobahn that “crosses the Rhine River between Oberhausen and Duisburg” was deemed unfit for heavy vehicles given its deteriorating state of repair and increasing traffic usage.
It is “one of western Germany’s most heavily used bridges in what is one of the most important inland waterway transportation hubs in all of Europe”.
At the time the report was published, engineers working for the state of North Rhine-Westphalia estimated that of the 880 bridges in operation, “229 bridges have been assessed: 150 will have to be rebuilt, and 64 will have to be repaired.”
Just before this bridge was closed, another bridge between Wiesbaden and Mainz – the A643 Schiersteiner Bridge – was closed because the roadway had sunk several centimeteres overnight (in fact, 30 cms) after one of its main structural pillars collapsed (Source).
It reopened after extensive repairs.
As an exporting nation, the bridge infrastructure is crucial for its on-going prosperity.
When government embark on austerity they typically find it hard to attack what is referred to as recurrent spending because the impacts are immediate and tied to people – pensions, educational overheads, health expenses etc.
It is much easier to hack into capital expenditure because the negative effects are more remote from our daily experience and take time to reveal themselves anyway – usually beyond the current political cycle.
But when they do start to impact, chaos enters the scene.
As in Germany, where the public infrastructure has been so starved of funds that it is now starting
Last year (September 14, 2016), I read a report on CNBC that the A1 bridge between Cologne and Leverkusen in Germany was no longer capable of supporting the traffic, particularly heavy vehicles.
Trucks have been banned from using the bridge since 2012, which is one of the most important arterial road links in Europe. Truck drivers now have to take a 30 kms detour to access other (similarly endangered) bridges across the Rhine river.
One “study estimated that closing of the Leverkusen Bridge would cost €108 million per quarter in additional fuel and time.” (Source)
The report said that:
Crumbling bridges and traffic jams are staining Germany’s global reputation for efficiency. The infrastructure in Europe’s largest economy — as in the United States — has been slowly deteriorating from a lack of investment over the past few decades …
In 2006, Germany ranked third in the World Economic Forum’s Global Competitiveness Report for the overall quality of its transport infrastructure. This year, it has slipped to 11th place, while the United States ranked 13th.
The German Institute of Urban Affairs estimated that 15 percent of Germany’s municipal road bridges need to be completely rebuilt. German railway company Deutsche Bahn said new measures to increase train punctuality will take several years. Last year, 1 in 4 long-distance trains on the network did not run on time, in part because of construction efforts.
A recent report in the Handelsbltatt Global (May 25, 2017) – A Rusty Bridge Too Far – reported that:
Leverkusen Bridge in Cologne, for example, is host to an almost perpetual traffic jam, its steel so rusty that trucks are no longer allowed to use it. The chaos on this bridge across the River Rhine is so bad that it was a factor in the defeat of the North Rhine-Westphalia government of Social Democrats and Greens in recent state elections …
Leverkusen Bridge is beyond repair and experts refuse to predict how long before it collapses. The cost of replacing it is pegged at around €600 million – only a fraction of the tens of billions needed across the country.
The austerity-obsessed German government is claiming the solution lies in private-public partnerships with the private sector stumping up the funding.
We have been down this road before in many Anglo nations and have learned the hard way – PPPs are generally disastrous.
Please read my blogs – Public infrastructure 101 – Part 1 and Privatisation failure – the micro analogue of fiscal surplus obsessions – for more discussion on this point.
The Financial Times article (August 4, 2017) – Cracks appear in Germany’s cash-starved infrastructure – carried the sub-heading “Bridges and roads crumble as local authorities use funds to reduce deficits”.
Which really says it all.
It also reports on the disastrous Leverkusen Bridge closure and says:
To outsiders, Germany can seem like a well-oiled machine. But its reputation as a paragon of efficiency obscures the fact that many roads, bridges and public buildings are in shocking disrepair. Starved of investment for years, a lot of infrastructure is slowly crumbling.
On Thursday, authorities were forced to close another bridge over the Rhine after a crack was found in a cable fixture. Normally some 100,000 vehicles a day cross the bridge at Neuenkamp, which is about 80km north of Leverkusen and one of the most important transport links between the Ruhr industrial belt and the Netherlands.
There is nothing new in the world of austerity or so the saying goes.
While some would say that the lessons never get learned by the ideologues that push austerity, that characterisation somewhat misses the mark because it is reasonable to expect they know what is going to be the consequences and that these results work in their narrow favour.
Although it is probably also true that these characters sail by the seat of their pants more often and not and then revise history when they get caught out – as Thatcher did when she devastated public infrastructure in Britain during the 1980s.
I wrote about this sort of degradation in the following blogs (among others):
On February 23, 2017, Germany’s Federal Statistical Office reported that German governments in total had recorded the highest fiscal surplus since reunification. The surplus of around €24 billion continues its run of surpluses (over the last three years).
The surplus was equal to 0.8 per cent of GDP. The federal surplus was €7.7 billion, which the Chancellor called “rather small” (Source).
Angela Merkel told the media at the time that:
At the same time, we don’t want to take on new debt. So the room for manoeuvre is rather limited.
The following graph shows the evolution of the German government fiscal balance since 1995, about when the convergence process began.
You can see the early period of the Eurozone when Germany consistently violated the Stability and Growth Pact rules and forced the European Commission to change the rules to avoid punishing Germany’s recalcitrance in this regard.
The impacts of the GFC are clear and the response since 2011 is also clear – ever bigger surpluses.
Yet investment in transport infrastructure in Germany (roads and bridges) has been falling in real terms since Germany entered the Eurozone.
This DIW (German Institute for Economic Research) Report (October 2013) – Transport Infrastructure: Higher Investments Needed to Preserve Assets – noted that:
From 1991, annual gross fixed capital investment in the road network in real terms remained virtually constant at 11 to 12 billion euros (at 2005 prices). In recent years, however, this figure fell to less than ten billion euros
The next graph shows the evolution of the investment ratio (capital formation as a percent of GDP) for Germany – total and government – from 1970 to 2016.
It doesn’t take too much to connect the movements in the previous graph with the decline in government capital formation in Germany. In 1970, the German government was investing 4.7 per cent of total German GDP on public infrastructure. By 2016, this had dropped to 2.1 per cent of a much larger GDP.
A leading German economist told the FT that:
For too long, Germany was focused on balancing its budget and reducing the deficit rather than on investment, and over time that really adds up.
Further, the funds provided to local authorities (States) by the Federal Government have been diverted “to reduce budgetary deficits and build up surpluses”.
In 2009, the ‘debt brake’ amendment to the German constitution banned “Germany’s state and local governments … from running structural deficits.”
Are you starting to form the words ‘moronic’, ‘mindless’, ‘ideology gone mad’ in your lips yet!
Well, we are not finished yet.
In 2012, the Spiegel Online Report (March 23, 2012) – Berlin’s Poor Collect Bottles to Make Ends Meet – told us that “Many pensioners and unemployed people in Berlin are turning to an unusual means of supplementing their meager incomes: collecting discarded deposit bottles.”
In this land of plenty, the so-called powerhouse of Europe, where trucks can no longer traverse key bridges and the costs of transport are rising significantly, its poorer people were resorting to rubbish bins to supplement their incomes.
This was no green environmental exercise. Rather, it was barebones survival for those who are trawling through the rubbish.
One of the images that never leave you if you work in poorer countries is the sight of people (of all ages) trawling through rubbish piles to make ends meet.
But in modern-day Germany, Spiegel told us that:
Significant numbers of financially destitute people are now resorting to collecting discarded glass and plastic bottles … But whereas the majority of those collecting used to be the homeless, alcoholics and drug addicts, more recently it is Berlin’s pensioners and long-term unemployed who are increasingly turning to the practice in order to make ends meet.
The powerhouse of Europe!
But the desperation of poverty is not just confined to pensioners and the unemployed in Germany these days.
A recent Euronews report (July 26, 2017) – Germany’s “working poor”: employed but still in poverty – gave a graphic account of the problem.
Despite low official unemployment, many who “have a job … are known as the working poor”.
They are so badly paid, despite having qualifications, and are forced to work in temporary or part-time jobs because of a lack of overall quality employment growth that their incomes render them among the impoverished.
The Report says that “Berlin … [is] the ‘capital of the working poor” as a result of the concentration of precarious employment in that city.
We learn that:
… one in five workers are paid less than ten euros an hour, they are the “working poor” … they are people who work 40 to 50 hours a week but who cannot make a living.
One of the consequences of this dive into low-paid, precarious jobs is that the old pension systems are starting to break down. Workers can no longer “put money aside for retirement”.
The pension formulae that used to work when people had full-time, secure jobs with real wages growing in proportion with productivity are now producing ridiculous outcomes for workers forced by austerity and neoliberal deregulation to eke out a living on precarious income streams in an increasingly low-paid work environment.
One worker (Adriana) told EuroNews about a letter she just received about her future pension:
Adriana has been a teaching music for more than two decades. She’s set to retire in 2033. When she received the letter informing her about her future pension, she was shocked.
“Well, no-one will believe me when I say it so I will show you the letter,” she says, taking the document out of her bag and placing it on the table for everyone to see. “Here it is, in black and white. I will receive a monthly pension of 351.82 euros. I have to pay 400 euros for my flat, my pension won’t even cover the rent.”
The powerhouse of Europe!
Once again we come to understand that Germany cannot be a viable model upon which to base a prosperous Europe.
Neoliberalism combined with Germany’s obsession with fiscal surpluses is undermining even its own prosperity and future.
Crowdfunding Request – Economics for a progressive agenda
I received a request to promote this Crowdfunding effort. I note that I will receive a portion of the funds raised in the form of reimbursement of some travel expenses. I have waived my usual speaking fees and some other expenses to help this group out.
The Crowdfunding Site is for an – Economics for a progressive agenda.
As the site notes:
Professor Bill Mitchell, a leading proponent of Modern Monetary Theory, has agreed to be our speaker at a fringe meeting to be held during Labour Conference Week in Brighton in September 2017.
The meeting is being organised independently by a small group of Labour members whose goal is to start a conversation about reframing our understanding of economics to match a progressive political agenda. Our funds are limited and so we are seeking to raise money to cover the travel and other costs associated with the event. Your donations and support would be really appreciated.
For those interested in joining us the meeting will be held on Monday 25th September between 2 and 5pm and the venue is The Brighthelm Centre, North Road, Brighton, BN1 1YD. All are welcome and you don’t have to be a member of the Labour party to attend.
It will be great to see as many people in Brighton as possible.
Please give generously to ensure the organisers are not out of pocket.
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.