Austerity in time and space: the case of Germany

germany-96590_960_720In today’s post Felix Wiegand, Tino Petzold and Prof. Bernd Belina argue that while austerity policies have often been implemented as part of a short-term, often authoritarian political offensive (a “shock strategy” as Naomi Kline put it) in (West) Germany this was carried out “piecemeal” over a thirty- to forty-year-time frame, which also included the subsequent adaptive and normalising effects. The authors discuss several important historic markers and dynamics to illustrate this process while emphasising the multi-scalar and spatially unequal nature of implementing austerity.

The history of austerity in (West) Germany, following the Allied victory over Nazi Germany, began during the first half of the 1970s as the Fordist development model started to come apart not just politically, socially and culturally, but in particular economically. Two decades of relative stability of German society and the “brief dream of never-ending prosperity” were followed by a cycle of economic crises that had reached its temporary high point in 1974/75. During the first years, the (West) German state reacted to the effects of the crisis with counter-cyclical fiscal and economic policies based on Keynesian ideas. However, a turn to austerity policies was soon after carried out – at a time when power relations in German society shifted and a “national state characterized by market competition” was created.

This was started by the social democratic-liberal government coalition led by Helmut Schmidt, German Chancellor from 1974 to 1982. During his first government policy statement on May 17, 1974, Schmidt announced a change to how government debt will be managed. He said that “[t]he Federal Government will use all constitutional and political measures at its disposal to their fullest extent in order to commit federal, state and local authorities to cost-cutting budgetary policies starting in 1975.” The following year’s Budgetary Structure Law substantively implemented this announcement by putting the Federal government on a restrictive fiscal path.

The budget situation of states and municipalities worsened during the subsequent years of deindustrialisation processes as a consequence of the crisis and because of tax law changes such as the elimination of the payroll tax in 1979. As the local state experienced a fiscal crisis, local political projects were established that combined cost-cutting measures with early types of entrepreneurial urban policies – events that put in motion the long-term transformation of urban politics.

Also on the federal level, the focus shifted to austerity and neo-liberal supply-side politics towards the end of the social democratic-liberal coalition government (“Budget Operation 82”) and in particular during the conservative-liberal governments under the leadership of Chancellor Helmut Kohl (1982-1998). In his first government policy statement, Kohl put fiscal policy at the center of the attack on the Keynesian welfare state consensus by announcing his vision of a “well-managed country through well-managed budgets.” During the 1980s, the German government consolidated the federal budget and lowered public spending – similarly to developments in the UK under Thatcher’s leadership, albeit without the same intensity of conflict with organised labor.

The unification of the two German states in 1990 opened a window of opportunity for continuing the policies of the 1980s.  On the one hand, the policies of the German transitional privatisation agency supported an enormous privatisation project for making formerly publicly owned East German companies competitive for the global market. On the other hand, expectations for a speedy global market integration of these now privatised companies led to the (neoliberal) decision to forego tax hikes for financing German unification. Instead, the government opted for not interfering in the market in hopes of covering the cost of unification by an economic upswing.

After it became obvious early on that these hopes would not materialise, the German government responded with a classic “failing forward”, in Peck’s terms, of neoliberal policies. The growing public debt increased the pressure on the government for limiting new borrowing. As a result, municipal “budget consolidation plans” became popular during this time. The Maastricht Treaty (1992) and the Stability and Growth Pact (1997) implemented similar policies on the European Union scale. The federal Savings, Consolidation and Growth Program (1993) aimed at cutbacks of around 35 billion Deutsche mark by slashing unemployment and social welfare payments by 1996. This policy was, however, only the beginning of a comprehensive reduction of welfare state services under the banner of budget consolidation characterized by a roll-back of the welfare state, cuts of public sector jobs and reduction of public investments.

There are similar connections between attempts at shrinking the welfare state and the policies of Chancellors Gerhard Schröder (1998-2005) and Angela Merkel (since 2005). Massive tax cuts during the social democratic-green coalition governments under Schröder’s leadership, adopted with the intention of improving the competitiveness of German companies, exacerbated the structural underfunding of the state. Under Merkel’s leadership, public debt continued to increase during the peak of the 2008-2009 financial and economic crisis, as bailout packages for failing and troubled financial institutions worth billions of euros and further tax cuts were adopted. At the same time, Germany introduced several constitutional regulations and mechanisms such as the balanced-budget amendment (2009), the European Fiscal Compact (2012) and municipal “budget consolidation programs.” The constitutional changes institutionalised the neoliberal ideal of a balanced budget on various scales and further limited the financial scope of public expenditures. In recent years, this politics of constitutional austerity has been reflected, for example, in the German government’s 2010 austerity package, in public service staff reductions and inadequate compensation levels for state and municipal employees and – despite some concessions regarding social spending – in a new round of municipal cost-cutting measures.

The diverse nature of the individual measures enacted on the various scales of the state shows the significance of the spatial dimension in the process of implementing austerity in the Federal Republic of Germany. On the one hand, financial burdens that mainly arise from the delivery of welfare and public services, which have been funded through Germany’s federal system, have increasingly been shifted to lower levels of government – a classic scalar dumping. German states such as Bremen and the Saarland as well as many municipalities in the former industrial heartland have experienced the full brunt of de-industrialisation processes – in addition to the limited opportunities of income generation and the negative repercussions of tax cuts on government revenues. This has left many levels of government exposed to a form of structural underfunding and has established austerity as the norm even in the absence of cyclical crises. It becomes apparent that the spatial hierarchy within Germany’s government system has been used on a regular basis for imposing specific budgetary consolidation requirements and austerity policies onto subordinate levels of government – often against their will and beyond their capabilities. This practice has taken on a new quality with the institutionalised balanced-budget regulations that have been introduced at all levels of government since the 1990s and in particular after the 2008-2009 financial crisis. The scalar linking and reinforcing of the individual mechanisms and policies across various government levels has created a tightly laced corset of austerity in Germany.

In a sense, all levels of government are impacted by austerity. A geographic perspective, however, shows that austerity’s tangible effects and the remaining room for action are unequally distributed across Germany. The local scale suffers the most from austerity. Within the federal government structure, municipalities are the lowest level of the spatial hierarchy and possess, despite their constitutional right to home rule, particularly little room for action. Especially (larger) cities are the focal points where public service agencies and poorer as well as marginalised populations are spatially concentrated. Cost-cutting measures are directly experienced by urban residents on a day-to-day basis and, more often than not, lead to an extensive crisis of social reproduction. As a result, austerity is hurting municipalities and, in particular, cities the most – although the extent differs from city to city and from municipality to municipality. The politics of austerity has affected first and foremost economically disadvantaged municipalities during the last decades and has even further reduced the already few resources that are locally available for addressing economic and social needs. On the other hand, prosperous cities and municipalities have been in the position to further improve their locational qualities through low taxes or exciting social and cultural attractions. This is one of the main reasons for why spatial disparities as well as the level of socio-spatial inequality between (and also within) municipalities has further increased in Germany during the last decades.

The case of the Federal Republic of Germany illustrates that scholarly research on austerity must draw its attention to the big picture of multi-scalar and spatially unequal processes whenever possible. This insight should prompt not only researchers in academia, but also all those who envision and organise an emancipatory politics, to meet this challenge. The everyday politics of austerity  and the associated incremental implementation of normalisation and adjustment processes force us to develop emancipatory strategies based on everyday experiences. At the same time, however, the spatially unequal nature of austerity impedes the development of political projects that would be comprehensive and far-reaching enough for confronting the multi-scalar linkages of institutionalised austerity. But that’s another blog post.

Felix Wiegand is a researcher and lecturer at the Department of Human Geography (Goethe University Frankfurt, Germany) and works on (urban) austerity, crises and the transformation of statehood; Tino Petzold is a researcher and lecturer at the Department of Human Geography (Goethe University Frankfurt, Germany) and works on multiscalar austerity in Germany; and Bernd Belina is professor at the Department of Human Geography (Goethe University Frankfurt, Germany) and works on critical geography, austerity and criminology.

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