2 thoughts on “Sweden and Germany pave the way for Europe”

  1. Posted 23/07/2012 at 21:34 | Permalink

    Germany has a specific Mittelstand model of small and medium size business clustering. Thanks to their collaboration they create their own economies of scale and help each other in manufacturing and exports. The model also gives workers a stronger say in managing the company which makes the business being run on trust and stronger ethical values. This made it much harder for managers to fire people which is why they made the workers work in shifts. A temporary solution to fight the crisis but it worked since it didn’t depress the German aggregate demand, as there is a big difference in holding to a job with a temporarily lower wage than losing a job altogether. There is also the question of the apprenticeship system in Germany that works very well in solving the youth unemployment.
    My point is that Agenda 2010 didn’t help at all in the recent recession. It was the old model Germany had before which clearly works.

  2. Posted 25/07/2012 at 09:06 | Permalink

    The cultural differences of which you speak of certainly made it easier to implement the reforms. The same argument can be applied to Sweden and its relatively higher equality before their 1992 shock and recovery. However, the structural reforms are the ones that made the system more robust to outside shocks, which is exactly the reason why Germany and Sweden experienced only a mild shock compared to the rest of Europe (see this paper: http://ftp.iza.org/dp6250.pdf and this text: http://www.voxeu.org/article/should-we-believe-german-labour-market-miracle). The specifics of the German model only made the reforms easier to implement, and I believe the causal relationship between the reforms and increasing German business freedom and export-led growth is strong and significant. There is no one solution applicable to every country, but increasing business freedom, reducing bureaucratic burdens, lowering marginal tax rates, and reforming the labour market are certainly among the most successful solutions.

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