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Germany’s failing prosperity model

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In the square outside the European Central Bank (ECB) headquarters in central Frankfurt there is a brightly illuminated blue euro sign with 12 yellow stars attached.


Despite the well-publicised troubles facing the eurozone everything looks normal. There is no indication of any of the stars dropping off.
 
Indeed the whole of downtown Frankfurt looks like a haven of prosperity. Well-dressed people mill around the designer stores, swish expense account restaurants and high-rise offices. The nickname of Mainhattan – after the River Main that runs through the city – overstates the scale and number of Frankfurt’s tall buildings. But Frankfurt shares New York’s glitz without the evident grime of America’s financial capital.
 
Admittedly Frankfurt’s red light district is only a short walk from the ECB’s Eurotower but that should not be taken as a sign of economic weakness. On the contrary, it is probably another indication that the bankers of Frankfurt, along with the city’s many international visitors, have a substantial disposable income.

Even outside the city’s traditional centre the people generally look well off. The Eintracht Frankfurt fans passing through the town on Sunday looked as prosperous as Chelsea supporters even though their team has descended to Bundesliga 2.

These appearances of prosperity are real but taken alone they give a one-sided view of contemporary Germany. Times are tougher for ordinary Germans than the comfortable street scenes from Frankfurt suggest. (article continues below)

For a start Frankfurt, with a population of only about 700,000, is incredibly small. The adjective is appropriate in this case since Frankfurt is often bracketed together with London and New York as a financial capital. Yet its Anglo-Saxon peers both have populations of many millions.

Frankfurt is better seen as the central financial hub of a network of towns known as the Rhine-Main area (with Main rhyming with Rhine in German). In total the region has a population of about six million with other substantial settlements including Darmstadt, Mainz and Wiesbaden. Frankfurt itself doubles in size during the day with commuters from the region streaming in to work in the city.

In a sense then Frankfurt is more akin to the City and Canary Wharf than to London as a whole. It is a prosperous hub but it would be wrong to take it as representative of the broader area in which it sits.

More fundamentally the German economic model has come to rely on squeezing the wages of the mass of the population. According to one recent study real wages in Germany have hardly risen since the start of the 1990s. They even fell between 2004 and 2008. With more tax rises planned over the next few years the immediate future for take home incomes looks bleak too.

From this perspective Germany’s economic performance in recent years has resulted as much from squeezing consumption, and therefore imports, as from its famous export machine. Although the country as a whole is fairly prosperous it looks like living standards for the mass of the population have stagnated for two decades or so.

Under such circumstances it should not be surprising that so many Germans are wary about their own leadership and about the euro.

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Daniel Ben-Ami is a writer on economics and finance. His personal website can be found at www.danielbenami.com.

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