German Wine Market Opportunities

Moreover, the current political situation in Germany is more fragile than it appears, and this affects both political outlook as well as decision-making in critical policy areas, such as the Cyprus bail-in decision. A bit of recent background is worthwhile here.

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Since 1990, Germany has lived through two momentous events:

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1. The reunification of East and West Germany. Known as the Wiedervereinigung, this process saw a wrenching change on two levels. In West Germany, it led to the massive rationalisation of public sector organisations. A large-scale search for efficiency occurred, leading to the merger of state organisations, the closure of cherished institutions such as state operas, and other cutbacks. In the East, the process was even more drastic, as the entire state-run economic apparatus was dismantled. During this time, publications such as The Economist referred to Germany as the “sick man of Europe”, in reference to its high unemployment and low GDP growth. The costs of reunification are estimated to be as high as $ 2 trillion, and it is important to remember that this cost was born almost entirely by the former West Germany.
    

2. The end of the Deutsche Mark and the adaption of the Euro, in 2002. Outside observers tend to overlook the role Deutsche Mark stability has in the German consciousness. One of the primary lessons taught in the German school system is the hyperinflation in the Weimar Republic in the 1920s was a direct cause of Adolf Hitler’s accession to power. In 2002, when Germany voted to end the Deutsche Mark and adapt the Euro, the German voters believed that they were changing one stable currency for another. The reality is quite different, as high public and private expenditure in the Eurozone periphery was driven by low interest rates, and has resulted in no small part of over-indebted sovereigns and households. Many German voters resent both the fact that they are being asked to “bail-out” profligate countries, but are also exposed to so-called Target-2 payment obligations in the European Central Bank clearing system. This is a complex issue, but the fact that Germany is already a high-tax country, with a high poverty level and job insecurity (see below), means that popular anger against European bail-outs is rising.
    

Between the “finalisation” of reunification and the adoption of the Euro, a set of labour market reforms were launched by the government of Chancellor Gerhard Schroeder in the late 1990s. Known as the Harz reforms and finalised in 2003, these had the objective of making the labour market more flexible in an attempt to reduce chronically high unemployment and low average growth.

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Some of the main elements of the Harz reforms include:

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• The reduction of unemployment and welfare assistance to approximately EUR 382/month for a single person, with additional stipends for housing and childcare;

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• The restriction of unemployment insurance to no more than 12 months;

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• The introduction of temporary contracts, known as “mini-jobs”

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• The reform of vocational education and training.

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The Harz reforms have had a mixed impact on Germany. On the one hand, these have reduced the cost of labour for German firms, which have taken advantage of the new laws by introducing temporary work contracts. This enables German manufacturers, for instance, to scale up and scale down employment based on orders, and to avoid high fixed costs.

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On the other hand, this has had several gravely negative effects on employment and consumer income:

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• There is no minimum wage in Germany. The growth of temporary jobs means that millions of workers are employed in insecure contacts, often earning less than EUR 1 per hour

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• The fact that people are either “employed” in vocational training, or in “minijobs”, means that they do not count on unemployment roles. Yet given low pay and low opportunities for advancement, the economic impact of this “working poor” employment is no less critical for the economy.

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• Low-wage jobs now account for 20% of total jobs in Germany, compared to 8% in Italy. The “minijobs” enable the job holder to claim up to EUR 400 per month in tax-free income, to which they can add social assistance.

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• Of Germany’s 82 million population, 15.8% were at risk of poverty in 2012, according to Eurostat. In France, the comparable figure is 14%, while in the EU-27 it was 16.9%.

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German consumers are increasingly worried about job security. They exhibit high price sensitivity and avoid making expensive purchases, particularly for discretionary items such as food. There is a high rate of closures of restaurants, small retailers and other businesses relying on consumer spending. In their place, large discount supermarket chains such as Aldi and Lidl dominate food purchases.

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This is confirmed by Eurostat research on final consumption expenditures on food and housing. Table 2 shows a comparison of final consumption expenditure on food and non-alcoholic beverages across the EU. Predictably, German consumers have far lower expenditure on these two categories than Greeks or Cypriots.

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Table 2: Eurostat Cross-Country Comparison of Final Consumption Expenditure