October 29, 2006
Sitting in the only kosher cafe in Munich, it is hard not to feel that this city is where it all started.
Sitting in the only kosher cafe in Munich, it is hard not to feel that this city is where it all started. This is where Adolf Hitler kicked off his reign of madness, this is where he wrote Mein Kampf and this is where his initial power base solidified.
Here in Catholic Bavaria, Nazism flourished.
In later years and, in contrast to conventional wisdom, election data reveals that the Catholic Germans redeemed themselves and, by 1929, were much more likely to be anti-Nazi than their Protestant neighbours. However, in the early years, Munich was the catastrophe’s epicentre.
Today, Munich is the model city. It is open, tolerant, extremely wealthy and appears to be at ease with itself. Public transport is efficient, clean and cheap. Unemployment is low and, if this is a recession, I shudder to think what Germany during a boom would look like.
People are flocking into the city from all over Europe and, in the ultimate sign of confidence, even the Jews are coming back. An enormous synagogue is being opened this week on the anniversary of Kristallnacht when, in 1938, Jewish people were attacked and hundreds of Jewish shops and synagogues vandalised.
Today, Germany is slowly moving out of its slump. Even if the mainstream economic data doesn’t show it, there is a palpable feeling the worst of the 1994-2005 recession is over.
If you talk to anyone trying to source property here in the past few months to satiate the voracious appetite of Irish investors, they will tell you that the market is getting considerably tighter than it was last year. So we are coming to the end of an era, and a new dawn is rising.
This means all change for us, because Germany’s recession was Ireland’s opportunity.
As long as these people did not spend too much, their interest rates remained low, giving us a free lunch.
One of the reasons for the sluggishness of Germany’s recovery, is that it is still in a bind with the former East Germany. Despite the fact that unification took place a decade and a half ago, greater Germany has not quite digested the former communist statelet. The best example of this is that practically all the waitresses in the main square here – Viktualienmarkt – speak with the peculiar Saxon accent, have a weakness for plum hair dye and wear far too much green eye shadow – all telltale signs of people from the East.
They are still working in West Germany, sending money back home rather than trying to get a job in their home town. The East has 17 per cent unemployment, and the vast majority of these jobless people will never work again. This drags German growth and keeps our interest rates relatively low.
So, although it did not seem so at the time, Ireland is probably the greatest beneficiary of the Berlin Wall’s collapse. If you want to pick a date for the start of the Celtic Tiger period, you could do worse than November 9, 1989.
Today, Munich is still trying to get over this unification dilemma. Because of the threat of yet higher taxes to pay yet more social security across the Elbe River, consumer spending remains muted here.
On the other hand, Germany’s share of the world’s exports has continued to increase.
Amazingly, Germany accounts for 10 per cent of all world exports, while having less than 0.015 per cent of the world’s population. Bavaria is home to Audi and BMW, while up the road Porsche and Mercedes continue to corner the global prestige car market.
So Germany is the polar opposite of Ireland. It is earning more abroad than it is spending at home. Ireland, on the other hand, has moved decisively into the ‘‘spend and borrow mood’’. Our balance of payments is now 4 per cent of GDP, we are spending other people’s money at a rate not seen for years and, crucially, our productivity is falling.
This is where skilled German workers have got it right: their productivity is impressive.
The reason BMW and Audi have not moved from expensive Bavaria, where the taxes are high and wages even higher, is that these workers are irreplaceable.
Germany operates a two-tier labour market and, when you ask them, they are explicit about it. The only way Munich can keep going is by allowing immigrants to take up the low-wage, low-productivity service jobs, while ensuring that the Germans maintain their high productivity, high-tech jobs in manufacturing.
Nobody in Germany seems to bat an eyelid when you point out this two-tier labour market; in fact, they say that one can’t exist without the other. The falling birth rate and ageing of the population means this country has no alternative but to operate two distinct labour markets.
When we look at Ireland, the same forces are at work and we will find a two-tier labour market unavoidable. In economic terms, workers are not all equal. A highly educated Irish pharmaceutical engineer is more valuable to the economy than a Bulgarian labourer. This might be difficult to swallow, but it is true. Each has their place in the economic hierarchy of the labour market and each knows that.
This is why it was a mistake to ban Romanian and Bulgarian non-skilled workers this week, irrespective of what Britain did. An economy is an interdependent ecosystem much like a rain forest where every living thing impacts on each other, where one thing could not survive without its neighbours.
The Romanians and Bulgarians would have found their place and in the process injected dynamism into the labour market.
Like the Poles in the past few years, they have been indispensable for us and we have been a godsend for them.
The evidence from Bavaria is that there is space for all and that the upshot is a better life for all the workers, immigrants and native, skilled and unskilled – acting in what appears to be their own self interest but in fact, is a sensitive inter-related network.
A two-tier labour market works, has always worked wherever immigrants are present in large numbers and should be allowed to do its thing in Ireland. Unfortunately, 86 years after independence, economic decisions taken in Whitehall still have an impact on us.