August 15, 2005
Dublin in the summer of 1905 felt like a very British city. Yes, you were in Ireland, but British rule in Ireland, and particularly Dublin, would have felt very secure.
Had anyone suggested that, within little more than a decade, there would be a bloody rising, leading to a war of independence and culminating in the Free State, you would probably have laughed off their forecast as the deluded dream of extreme nationalists.
In the summer of 2005, anyone suggesting that Europe in general, and Germany in particular, might revisit the path that led to the rise of Hitler, could be similarly dismissed. Yet, on closer inspection, remarkable trends have emerged in Europe over the past few months which indicate that populism could resurface quite easily.
In France and the Netherlands, the No votes to the European constitution were a warning, but the recent political developments in Germany – where a populist protest party formed three weeks ago is registering 12 per cent at the polls – are much more telling.
Germany votes on September 16.Until a few weeks ago, it was expected that this would result in either the centre-right or the centre-left winning, but from nowhere, a party with the loose description of Der Linkspar, or Left Party, has elbowed its way into the reckoning.
The Linkspar is the brainchild of the former leader of the East German communist party, Gregor Gysi, and the former firebrand of the Social Democrat Party, Oskar Lafontaine. Both are eloquent orators and are using ordinary Germans’ main fears – unemployment and foreigners – to galvanise voters.
Neither man has a clear agenda, but their platform is a hodge-podge of issues designed to push plenty of old-fashioned populist buttons.
All the usual suspects are in the mix, from the far-left favourite of higher taxes on business, to the far-right gem of blaming foreigners for stealing German jobs one day, to banning foreign speculators from taking over German companies the next. Last week, it was a defence of Iran’s right to develop nuclear weapons against the US/Israeli alliance in the Middle East, and an adoption of the slogans of the anti-globalisation movements.
Despite the strong impression that the Linkspartie is making it up as it goes along, Europe’s most educated electorate is responding. Why?
An unexpected place to start explaining why Germans would support a mix of protectionism at home and anti-Americanism abroad is China. China is changing the economic landscape for everyone, but it is threatening Germany more than any other country in Europe.
The reason is that Germany is the world’s pre-eminent exporter of manufactured goods.
Despite years of high costs, Germany has managed to retain its dominance across a variety of areas. This means Germany has much to lose from China’s emergence as the workshop of the world.
But, unlike the US, which has an enormous trade and current account deficit that prompts regular China-bashing from political and corporate leaders, Germany’s trade account is in enormous surplus, so the threat from China is not well signposted or understood.
This opacity is the nub of Germany’s problem, even though China’s threat to Germany is being felt in the more politically sensitive arena of unemployment.
In contrast, the US feels Chinese competition in the virtual world of current account deficits and currency fluctuations, which may send regular readers of the Financial Times into delirium, but does not determine elections.
Unemployment, on the other hand ï¿½ particularly if it stands at over five million voters as it does in Germany – affects the very soul of the nation.
But why does China have a more significant impact on German unemployment than it does on American joblessness? And why does that lead to anti-American, rather than anti-Chinese political sentiment in Germany?
This is the conundrum. German jobs do not necessarily get exported to China directly. The mechanism is more circuitous. Due to the opportunities that globalisation gives to transnational corporations, every time they make corporate decisions, they are factoring the cost in China into their calculations.
It is impossible for any civilised society to compete with Chinese rates of pay that start at 50 cent an hour, so the German worker is priced out of the manufacturing market for new jobs.
But those in existing jobs are protected by strong labour laws so, in the short term, it is those without jobs (the unemployed and young workers trying to come into the labour force for the first time) who suffer twice as much.
The reason this same process has not led to a rise in American unemployment is that the US has replaced manufacturing jobs with service jobs, and its service economy is driven by its credit bubble, which has been fuelled, as in Ireland, by its housing boom.
In Germany, there is no housing boom. In fact, house prices have hardly budged for ten years. Without a housing boom, you get no credit bubble; with no credit bubble, there is no consumer spending; without consumer spending, there are no service jobs; and with fewer jobs, a country will never have political consensus.
So far, so explicable, but why has German political anger that results from the economic conundrum been directed at America, rather than China?
There are many reasons for this. Possibly because China is remote, it is difficult to articulate what form anti-Chinese protests might take. Another possibility is that those who respond to the Linkspart’s anti-American rhetoric can’t actually see the full picture. It is also possible that anti-globalisation, because it is primarily a vehicle for anti-Americanism, offers a readymade cocktail of easily-recognised villains, which might be confused if the Chinese were thrown in.
My own hunch is that being anti-American is simply easier.
The leaders of the Linkspar are part of the long continental leftist tradition of anti-Americanism. Whatever the reasons, the Linkspar is tapping into German fears that the world is changing too rapidly and that this change is threatening their country.
It is easy to see why the cosmopolitan elite of the political and corporate world does not fear this threat, for it is benefiting from it.
But in Germany, France, Italy and Holland, the man on the street is worried. If your livelihood were to be outsourced to Beijing, wouldn’t you feel the same way?
The election in Germany should be examined closely to see what happens when a nation feels economically threatened. Not for the first time, Germany is being hypnotised by populists with listenable and potent rhetoric.