Marcel Fratzscher

Marcel Fratzscher, a former head of International Policy Analysis at the European Central Bank, is Committee Chairman and President of the think tank DIW Berlin.

Germany’s Strange Turn Against Trade

BERLIN – The window of opportunity to complete the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union is closing quickly. National elections will be held this year and next in the US, France, and Germany, and the campaigns will play out in an environment that is increasingly hostile to international agreements in any form. The biggest risk might come from the least likely source: Germany, an export powerhouse.

As it stands, some 70% of Germans citizens oppose the TTIP, almost twice the average in other European countries. They overwhelmingly believe that Germany will not benefit economically, that lower-skill workers’ wages will suffer, that large corporations will gain power at the expense of consumers, that data and environmental protection will be compromised, and that citizens’ rights will be undermined. 

But a slew of studies have proved all of these claims to be overblown or outright wrong. In fact, Germany – whose economic progress since the end of World War II has been driven by its consistent openness to international trade and economic integration, and which remains one of Europe’s most open and trade-dependent economies – would be among the main beneficiaries of the TTIP.

It is projected that the TTIP would raise annual per capita income in Germany by 1-3%, or €300-1,000 per year by 2035. Moreover, with nearly 50% of German jobs linked, directly or indirectly, to the tradable sector, the deal would also help protect employment. And, by boosting the ability of the US and Europe to set global business standards, German firms’ international competitiveness would rise. Not every individual or company stands to gain from the TTIP, but the net effect on Germany’s economy and citizens would be clearly positive.

Why, then, do so many in Germany oppose the deal?

One reason is that Germany’s apparent economic success has increased aversion to change. The country not only endured the global financial crisis of 2008-2009 and the European sovereign debt crisis; it has actually thrived in recent years, experiencing robust GDP growth and impressive wage gains. The unemployment rate has been halved since 2005, reaching a record low of 4.6% today, and its current-account surplus has soared to a staggering 8% of GDP.

The sense of being Europe’s economic superstar has generated policy inertia, bringing the country almost to a complete standstill on economic reforms. While most other Europeans are desperately looking for any opportunity to pull their country out of crisis, Germans see little reason to meddle with an ostensibly prosperous status quo.

Unfortunately for Germany, its current path is not as smooth and secure as people like to think. In fact, since its lost decade as the “sick man of Europe” in the 2000s, Germany has caught up with other advanced economies in only some areas. It still has one of the lowest rates of public and private investment among OECD countries, and will be hit harder than most by a dramatic demographic shift over the next decade. Beyond providing an immediate economic boost, the TTIP would help Germany weather the longer-term challenges it faces.

Germany’s opposition to the TTIP also reflects the recent surge in populist and nationalist sentiment in much of the Western world. The appeal of such forces is particularly pronounced in the EU, owing to the popular perception that European integration has weakened national sovereignty and left citizens subject to decision-making by unelected technocrats. The last thing many Europeans want is yet another set of supra-national rules, formulated behind closed doors, governing their economies.

This sentiment is especially acute for Germans, who remain bitter at, as they perceive it, having been Europe’s paymaster during the crisis. Some now fear that the TTIP is just another trick, intended to take advantage of Germany’s economic strength and generosity. Overcoming this fear will be no easy feat.

A third reason for Germany’s opposition to the TTIP is that the country is already engaged in a battle for wealth redistribution. Germany currently has the highest inequality in private wealth in the eurozone, and it has experienced a sharp increase in wage inequality over the last two decades.

In fact, many Germans anticipate a further increase in inequality. Not only is the minimum wage widely circumvented; some politicians have capitalized on fears of the current influx of refugees to win votes, claiming that openness to foreigners will only make inequality worse.

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Compounding Germans’ disillusionment is the sense – shared by many in Europe and elsewhere – that the system is “rigged.” Volkswagen managers received huge bonuses this year, despite the global scandal caused by the company’s years-long effort to evade emissions standards. And the release of the Panama Papers has revealed how the wealthiest avoid paying taxes. Claims that the TTIP would benefit primarily the wealthy have thus struck a chord with labor unions and others.

A trade-dependent economy has much to gain from freer trade, especially with a market as large as the US. Germany should be using its political clout to push its European counterparts to seal the deal. Instead, with the popularity of the country’s two largest political parties, the Christian Democratic Union and the Social Democrats, falling fast, Germany’s leaders are unlikely to push an unpopular deal. That is bad news for everyone – especially Germans.