The German elections on Sunday went pretty much according to the polls. Another victory for Chancellor Merkel.
Much of the commentary has focussed on the success of the far-right Alternative fur Deutschland (AfD) party. One of its leading candidates eulogised the German armed forces during the Second World War – a topic even more sensitive topic there than it is here.
The AfD took nearly 13 per cent of the vote and 94 seats in the Bundestag. This puts them within striking distance of the Social Democrats (SPD). The SPD share of the vote collapsed to just over 20 per cent, barely half the support it attracted only a decade ago.
The Social Democrats – the German equivalent of Labour in the UK – were annihilated not just in areas like Bavaria where traditional centre-right parties have always been strong. They lost very heavily in the old East Germany, where the AfD secured its highest level of support.
It is no accident that the rise of the AfD and the fall of the SPD go hand in hand.
A popular myth among the liberal elite in Britain is that our country has an exceptionally high level of inequality compared to the rest of Europe. This far from being the case.
The same forces which have widened inequality here have operated in Germany, in some ways even more powerfully.
The opening up of Eastern Europe in the early 1990s has had a strong effect. Employers soon realised that economies such as Poland and the Czech Republic possessed educated labour forces, whose productivity potential had been suppressed by the gross inefficiencies inherent in planned economies. German companies opened up new production plants in the old Soviet bloc countries in Europe rather than at home.
This has been combined with the impact of both globalisation and mass immigration.
The effect on wage rates of this increase in competition in the labour market has been dramatic. Christian Dustmann at UCL has examined the evolution of wage rates in the former West Germany.
The fifteenth percentile of the wage distribution is the level at which only 15 per cent of wages are lower. In West Germany, at the fifteenth percentile, real wages have fallen almost continuously since the mid-1990s.
At the fiftieth percentile, where half get more and half get less, the reduction has been less sharp. But the fall had set in by the early 2000s.
At the eighty-fifth percentile, we see the mirror image of the fifteenth: real wages grew strongly, reaping the benefits of the recovery of the economy.
In the states of the old East Germany, the problems are even worse.
The sharp rise in inequality is a key reason for the collapse in support for the social democratic parties across Europe. Their traditional voters have been the ones who have been hit the most by static or falling real incomes. They have not been defended by social democrat parties, which now represent the interests of the public sector urban professional classes.
The fact that Jeremy Corbyn’s Labour did not suffer the same fate as Germany’s SDP is a clear indictment of the Conservative campaign in the election.
