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Dublin: 12 °C Sunday 26 October, 2014

Column: Germany – the big kid who won’t play by the same rules

Germany is the EU’s largest economy yet it has no national minimum wage; and its policy of maintaining low wages and subsidising exports into EU member States is destabilising to the EU economy, writes Tiernan Brady.

Tiernan Brady

GERMANY GOES TO the polls on the 22nd of this month. Don’t stop reading just yet. It’s hard enough to get interested in our own elections never mind paying attention to elections in other countries. But what happens in the German elections matters to all of us. And in Ireland we are guaranteed to feel the impact of the outcome.

One of the key points of interest for Ireland and Germany is Germany’s low wage economy.

Germany is the EUs largest economy. It retains an AAA rating with the markets and had a trade surplus of over €200 billion last year. It’s in good shape. But despite all these positive market indicators, much of the German workforce is trapped in a low wage economy.

This low wage economy is putting economic pressure on other member States.

An unfair economic advantage

Germany has no national minimum wage and therefore has an unfair economic advantage against its fellow EU member States. Clearly, this goes against the principles of the EU. And clearly, this ought to be against the rules.

According to the German Federal Employment Agency almost 30 per cent of the German workforce earns less than €9.50. Lithuania is the only country within the EU with a higher percentage of low paid workers.

Low-wage employment is not evenly spread across the population; low wages are concentrated among migrant workers who are earning significantly less than their German counterparts.

In addition, German laws encourage the creation of “mini-jobs” where the employee will receive €450 per month. These have become very popular with German employers.

These “mini-jobs” were introduced – and excused – in the 1990s at a time when the German economy was in the doldrums. Yet the “McJobs”- as they have been nicknamed – continue to exist at a time when Germany can boast a huge trade surplus and a lower unemployment rate than the EU average.

So why is the question of whether Germany has a minimum wage and a low wage economy important for Ireland?

Although it is offensive to think that in the largest economy in Europe people are being paid wages as low as €3 an hour, this isn’t just a question of social solidarity.

Producing goods at a significantly cheaper rate

There is also the matter of economic self-interest. German policy gives it an undue and unfair advantage over Ireland and other member States who have national minimum wages. It allows Germany to produce certain goods at a significantly cheaper rate than other EU member states. A lower cost of labour translates into lower prices than would be profitable for companies based outside Germany.

This process is called “social dumping” and it distorts trade unfairly in favour of the low wage economy.

In recent years we in Ireland have heard a lot from the bigger EU countries about how there needs to be a level playing field in the EU when it comes to corporate tax rates. Ireland should not be shy about calling for a change in Germany’s labour laws and wage levels. The current inequality in wage laws presents a much more imminent and powerful obstacle to achieving a level economic playing field in Europe.

Ireland would not be on its own if we did call for change. The Belgian government has made a formal complaint to the EU Commission about Germany’s low wages. The complaint was triggered by Belgian abattoirs who were being threatened with closure due to cheap German imports being dumped in Belgium. In Belgium abattoir workers are paid a minimum of €12 an hour compared to between €3 and €4 for migrant workers in German abattoirs.

In February, the German steel conglomerate ThyssenKrupp announced the closure of one of its Spanish plants, not because it was undergoing economic, financial or production-related difficulties, but because it wished to transfer production of the type of steel coils made there to two plants in Germany where the wages could be lower. Spanish MEPs have raised the issue in parliament and called for action from the Commission.

Worries about the negative economic impact

The Commission itself has also started to express worries about the negative economic impact Germany’s labour policies and wage levels are having on other EU member States. The Commissioner for Social Affairs, László Andor, has called on Germany to raise it wage levels and reverse its export strategies.

Even in Germany the issue is now a live one. The current leader of the opposition Peer Steinbrück is committed to introducing a national minimum wage if he is elected. He recently challenged Chancellor Angela Merkel on the issue during a televised election debate.

Ireland needs to give its support to these voices.

This isn’t just a case of sour grapes from one hard pressed EU country looking over the fence at its thriving neighbour. The German policy of maintaining low wages and subsidising exports into EU member States is destabilising to the EU economy. It represents a real threat both to economic growth and EU social cohesion.

Germany is having its cake and eating it at a time when across the EU other member States are having to make hard and painful choices about fiscal policy.

Solidarity is supposed to be one of the key tenets that binds the EU together.

Germany has not been slow to remind Ireland and other EU countries of same in recent times. It’s time for Germany to heed their own message.

Tiernan Brady is an MA in International Relations and one of the directors of GLEN –The Gay and Lesbian Equality Network. He is writing in his personal capacity.

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