Cause and Effect in European Politics and Law

Hans im Glück vs. Clever Peter

Ralitsa Kovacheva, March 21, 2011

I have never been a fan of national psychology theories, especially in their simplistic versions implying the “Germans are disciplined”, “Bulgarians are cheap cheats” ,”Englishmen are snobs” and “Frenchmen are spoiled”. I have always believed that modern society evolution should not be determined by traditions, religion or ethnic composition. Lately, however, I am increasingly considering that I was wrong, especially after meeting more and more people who ask the same questions.

Is it possible Germany's economic success, despite the crisis, to be precisely a result of some national characteristics that are reflected in state governance and consequently - in public reaction? And whether those, who easily define the southern countries in the euro area as "lazy" because they have accumulated large debts and deficits, and have increased their salaries, while reducing productivity, have right?

I spent the last few days talking to politicians, bankers, analysts and journalists in Brussels about the development and, especially, about the reasons for the debt crisis in the eurozone. I will not mention their names deliberately, first because the talks were informal and second, because I will not tell you any news that may need confirmation - only the views of people from different countries, professions and social positions that create an interesting picture, with no claims of being comprehensive and the only true one. I am telling you this because obviously the debt crisis has not only economic and financial dimensions, but it has much deeper roots in national histories, characters and mentalities. And all the findings are important not so much to explain mistakes from the past but to avoid them in the future.

And before you say that the issue of the debt crisis is not relevant for Bulgaria - yes, Bulgaria is among the best performers in terms of level of public debt, but the discussion in Europe has long ago gone beyond the level of numbers. Now the discussion is about the deeper problem – the lack of competitiveness of the so-called peripheral economies in the eurozone - Greece, Ireland, Portugal, but also Spain, Italy, Belgium, France.

In a search of the lost competitiveness the Germans took the initiative and said: look what we have done and do the same – it has worked in our case. Indeed, German reforms of the past 10 years, repeated almost verbatim in the so-called Pact for Competitiveness (subsequently restyled in a Pact for the euro), have given results. Thus, the economic performance of Germany at the time is not a surprise and the explanation that German exports have benefited from the euro at the expense of weaker economies in the euro area, is just one of the reasons.

But the real reasons are in the so called AGENDA 2010 – a comprehensive package of reforms carried out in Germany after 2003 by Chancellor Gerhard Schroeder. These reforms were necessary because the country was is in a difficult situation after having poured money into East Germany for an entire decade. The economy lost competitiveness because the “East” was “dragging down” the “West”.

What happens then? The government undertakes reforms, defined by some left-minded analysts as a “social carnage”. The unemployment benefits were cut, as well as the time of their payment, wages and pensions were frozen, the retirement age was increased, the labour market was liberalised to allow more flexible part-time work, the rights of the trade unions in collective bargaining were decreased. At the same time, the tax burden was reduced to stimulate business. In other words - a Thatcherism, as the opponents of the reforms liked to call these painful measures.

Almost 10 years later, a senior German official in Brussels explained: until then we, as whole of Europe too, had a secure middle class. It thought no one and nothing could take their social benefits and that these were guaranteed. These reforms have introduced fear in our society that it could lose what it possessed, and a feeling that in order to assert your social and material status, you have to work more and longer. But we couldn’t pay social benefits, allowing people to stay at home, we couldn’t afford to retire early because Germans were starting to work quite late (because they study a long time), my interlocutor defended the painful reforms.

This fear, apparently, was a good motivation, along with convincing the public in the need of reforms and, of course, the firm hand to implement them. Nobody argues that the changes were easily accepted by German society. But the political price paid by Schroeder’s government is negligible compared to the long-term benefits for the country. But the other eurozone countries preferred to wait and take advantage of "social welfare" to secure political comfort. Now, when Germany puts its demands for reforms on the table, they feel offended of this “German dictatorship” and describe it as an attempt to "Germanise Europe”.

Actually, there are countries which undertook the necessary painful measures without anybody prompting or forcing them. For example Estonia: the country has been a member of the euro area since the beginning of this year and managed to emerge from the crisis with impressive results and minimal debt and deficit. Such reforms are being carried out in the other Baltic states too. The German politician asked my colleagues from Latvia and Lithuania, how the austerity measures were accepted by the people. Because, he admitted, the reforms were so tough that if we had these done, even the Germans would rise to protest. We saw the reactions of the Greeks, not to mention such reforms to be implemented in Spain and Portugal.

The explanation, according to journalists from Latvia and Lithuania, is the forbearance of society: these are people who have endured the Soviet Union for 50 years. Now they are saying, we will bear more and they do not protest. Young people are fleeing the country and the elder have nothing to fight for. Moreover, they say, the reforms may seem impressive to you but in our view, from the inside, everything is the same.

Thus described the situation resembles that in Bulgaria. Bulgarian society doesn’t respond to any pressing problems anymore. It is simply waiting. Meanwhile young, educated, ambitious people are seeking their way out. The others continue to wait for “something to change”. Well, but as it is obvious, the governments in other countries have benefited from that patience to carry out painful reforms in an environment, if not of understanding, at least of tolerance.

Why have Bulgarian governments abandoned the "reform momentum" (in the wording of the European Commission's CVM report from July 2010) early in the new millennium, and used public indifference to consolidate their political comfort? Because, although governments of different colours have come and gone, in fact, as recently an analyst wrote, these were only “switches between different leadership groups and their business circles, each of them eager to benefit at the state's expense.”

In the end, the discussion was summarised by a colleague from Denmark, at a respectable age and with a lot of experience: everything depends on people and politicians. And he is probably right because there is no other explanation of the fact that same things are totally achievable by some societies and absolutely unattainable for others. Citizens are those who elect politicians and define their agenda. Citizens are the ones who must realise the need for a change and to require politicians to make them.

But how this collective awareness and this collective striving for development happens? How thousands of Bulgarians, expecting the state to raise wages, to reduce gas prices and to make all people wealthy and happy can turn this expectation against themselves? How will politicians stop buying power in order to earn from it, and to begin to govern the country so that everyone can earn?

None of the participants in the conversation knew the answer to these questions. And I was thinking only that Germans have the tale about Hans im Glück (happy Hans), who was not very smart, but won a golden goose and then the hand of the princess. And the Bulgarians have their Clever Peter, who had lunch with the steam from the dish, because he was clever, but poor. The fairy tales are not statistically significant, but there has to be a reason why they were told, right?