Analysis: Germany fears social unrest



by Stefan Nicola



Berlin, April 23, 2009



Observers fear that Germany, Europe's largest economy, could be gripped by social unrest this year because of mass layoffs sparked by the worst recession since the end of World War II.

In France, frustrated workers are blocking factories and holding top managers hostage. The economy of neighboring Germany, experts say, is much more vulnerable to the negative effects of the global economic crisis because it is largely export-driven.

Germany's main customers, such as the United States, the large European nations and Russia, will definitely pull back on imports. This will only increase the woes of German companies, which are already suffering because of a credit crunch on the international banking market, Germany's leading economic experts said Thursday in Berlin.

A joint statement drawn up by several leading economic institutes predicted the German gross domestic product would plunge by 6 percent in 2009, the biggest recession since the end of World War II.

"And there won't be a stabilization until mid-2010," Kai Carstensen, of the Munich-based Ifo Institute for Economic Research, said Thursday in Berlin.

Germany will lose 1 million jobs this year, with just under 5 million people unemployed by the end of 2009, Carstensen said.

The gloomy outlook for the German job market has observers worried that social tensions may grip the country.

"It could be that social peace, which is important for the stability in Europe, is in danger," the head economic expert of Deutsche Bank, Norbert Walter, said in an interview with German public broadcaster ZDF.

Michael Sommer, Germany's top union official, told German television station ARD he fears "social unrest" because the economic crisis is about to affect the core of Germany's society -- "workers, employees and the middle class."

He added that the most recent predictions could be compared to the economic situation in the early 1930s, which helped bring Adolf Hitler's Nazi Party to power.

"You know how people react when they are losing their livelihood," Sommer said.

Politicians are equally worried.

"I can imagine that in two or three months, people's anger could grow significantly," Gesine Schwan, a candidate for the largely ceremonial German presidency, told the Munich-based newspaper Merkur.

German Labor Minister Olaf Scholz meanwhile urged companies not to lay off people but instead expand the so-called Kurzarbeit, a program relying on government-subsidized short working hours.

Placing workers on short hours, however, makes sense only for a certain amount of time; if the economy doesn't recover soon, Kurzarbeit would be too expensive, some experts say.

German car maker Daimler, which has some 70,000 workers on short hours, said recently that it could no longer rule out job cuts. Bosch, the world's largest car-parts maker, on Thursday said its net gains plummeted by 87 percent to $485 million, adding that it was mulling layoffs.

To soften the impact of the crisis, the German government already launched two economic aid packages. Despite international and domestic pressure, Chancellor Angela Merkel has resisted calls for a third one. The economic experts Thursday in Berlin backed Merkel's position, arguing that a third package would be too costly at the moment. "We should wait for the first two packages to take effect before we start proposing new measures," Carstensen said.

Because of the aid packages that include infrastructure investments and tax breaks, Germany's federal deficit is expected to jump to 3.7 percent of GDP in 2009 and 5.5 percent in 2010. This is still fiscally conservative compared with the 13 percent deficit forecast for the United States this year, but the Germans are notorious for their uneasiness over amassing large amounts of debt.

Meanwhile, the experts said Berlin should concentrate its efforts on repairing the root of the crisis -- bad banks.

They said the German government should provide embattled financial institutions with cash to avoid a second, potentially catastrophic credit crunch when more and more midsize companies file for bankruptcy.

Berlin may then have to "force banks to accept state aid" or even nationalize some banks in order to contain the worst damages, Carstensen said.