Social Democracy’s Great Error: Similarities Between the Schröder and Zapatero Administrations

In circles close to the former Zapatero administration, attempts have been made to represent former Prime Minister Zapatero as the politician who “sacrificed himself to save Spain,” comparing him to former German Chancellor Schröder who, though aware that he would antagonize his electoral base with his clearly neoliberal policies, went ahead with them, for he believed that doing so would save Germany from its economic stagnation.  In hindsight, it might seem that the defenders of such policies had a point in seeing Schröder as “the savior of Germany.”  This country appears to be the only one in the euro zone that doesn’t have a public debt problem: the interest rates of its debt are the lowest and most stable in the euro zone.  And German inflation and unemployment are the lowest in the monetary community.  It would appear, then that financial markets have full confidence in the German state, which, with its rigor and discipline, has transformed itself into the model and benchmark for the other countries in the euro zone.  Till now, that perception has been amply promoted by the big media that tend to have neoliberal sensibilities.  Let’s see the data now.

But, first of all, it is important to become aware of the debate that took place between former Chancellor Schröder, the head of the then Social Democrat administration, and his then Finance Minister, Oskar Lafontaine, a debate of great relevance not only for Germany, but also for the rest of the euro zone and the European Union (EU).  Schröder’s only priority in economic policy was to stimulate the economy on the basis of boosting exports, which meant a huge concentration of euros in Germany, which were then used to buy public debt of Portugal, Ireland, Italy, Greece, and Spain (PIIGS) and also to make loans to private banks in PIIGS, the sum of whose trade deficits is equal to the German surplus.

Schröder achieved this great accumulation of euros by reducing the percentage of the value produced (by higher productivity) that went to labor, at the cost of augmenting the percentage that went to capital (that is to say, the bosses who own or run banks and exporters).  A condition for Schröder’s achievement of it, in other words, was the weakening of labor, as a consequence of the former chancellor’s application of neoliberal measures (of the sort that Zapatero also implemented and the Rajoy administration will undoubtedly continue).  A result of that is that Germany lost 2.1 million full-time jobs, replaced by 1.1 million new part-time jobs, half a million self-employed, and another half million temporary jobs.  To be sure, unemployment is relatively low at 7.1% (in comparison to the EU-15 average), but that is no thanks to Schröder’s reforms; rather, that is due to the German system of co-determination (in which workers participate in the management of firms for which they work), which facilitates job retention by reducing work hours, transforming full-time jobs into part-time or temporary jobs.  The weakening of labor has resulted in the reduction of wages and social protection.  Germany doesn’t even have a minimum wage, and millions of Germans work for 400 euros a month, the solution proposed by Corporate Spain.  The percentage of workers in poverty grew from 15% in 1998 to 22% in 2005.

There is no full awareness in the media and political circles in the European Union that it is an error to define the German model, based on exports, as an exemplary one to follow.  German economist and political scientist Fabian Linder has written extensively about the scant success of this model (see “Following Germany’s Lead to Economic Disaster”).  German economic growth has been very low and slow, due to weak domestic demand, caused by a remarkable decline in real wages as a consequence of the measures carried out by Schröder and continued by Angela Merkel.

Schröder won the aforementioned debate; Lafontaine lost and with him the German working class and the popular classes of the rest of the EU.  Lafontaine wanted to stimulate the German economy by growing domestic demand, redistributing the fruits of greater output (produced by higher productivity) to workers.  If Lafontaine had his way, German imports would have risen and exports would have fallen, thus stimulating the economies of other countries in the euro zone.  Instead, the Schröder model, continued by Merkel, is sought to be exported to all countries, which is impossible, since the diminishing of domestic demand of all countries is leading to the Great Recession and Depression, including in Germany.

In reality, what we are seeing is a class alliance between the banks (and big employers) of Spain and those of the other peripheral countries, against the interests of the German and other popular classes.  That is, as is well said by Jeff Faux, founder of the Economic Policy Institute in Washington, D.C., “how they win class struggle on the international level.”  And therein lies the problem.  The euro and the euro zone were designed so that what’s happening was bound to happen.  A country, prevented from devaluing its currency, would be forced to devalue its wages and to weaken its social protection.  These two have always been made to seem the only possible choices.  But there is an alternative, and that is the collective response based on stimulating the economy through expansionary policies, higher wages as well as more public spending, to improve the social and physical infrastructure of the country, as was done under the New Deal in the United States and under the Marshall Plan in post-WW2 Europe, and as was also proposed by Oskar Lafontaine for Germany and the European Union.  The fact that Lafontaine lost that conflict meant a great opportunity lost for Germany and everyone else.  And something similar happened under the Zapatero administration.  It would be desirable if the Spanish Socialist Workers’ Party (PSOE), in necessary self-criticism, became aware of it.  Needless to say, the Zapatero administration made some positive reforms, some of which were very positive.  But its Achilles’ heel was its economic policy, which was of clear neoliberal orientation.  The PSOE economic policy would have to change profoundly, along with a change of personnel which I doubt would be made.  So far there has been no hint of criticism of the policy in question.

Vicenç Navarro is the chair of the Department of Political and Social Sciences of the Pompeu Fabra University (Barcelona, Spain).  He is also Professor of Public Policy at The Johns Hopkins University (Baltimore, Maryland, United States).  He directs the Public Policy Program jointly sponsored by the Pompeu Fabra University and The Johns Hopkins University.  The original article: “El gran error de la Socialdemocracia: Las semejanzas entre el gobierno Schröder y el gobierno Zapatero” was published by El Plural on 1 January 2011.  Translation by Yoshie Furuhashi (@yoshiefuruhashi | yoshie.furuhashi [at]

| Print