Germans urged to live a little

Frank Englmann used a personal story about his grandfather to make his point to a local bank bigwig about German reluctance to risk the inflation that might come with the kind of carefree spending advocated by the Obama administration.

It was 1922, and Englmann’s grandfather had amassed a small fortune that he wanted to spend on a house. But his wife persuaded him to save the money for their daughters’ educations. Then the German economy collapsed, the money became worthless and the family penniless.

That’s nothing, the bank chief retorted, before recounting, as if it were yesterday, how his grandfather lost an even larger fortune. The old man had sold off lumber from a forest he owned. Then he watched his dreams evaporate when the German mark was devalued as hyperinflation took hold.

“Germany is traumatized with respect to inflation and public debt,” said Englmann, the head of the department of business, economy and social science at the University of Stuttgart. “This is because of the historical experience.”

Europe’s fiscal powerhouse, Germany has the world’s fourth-largest economy, a highly educated and skilled workforce and an export-oriented industrial base that’s the envy of all. It excels at completing vast public infrastructure projects, as well as building the most delicately refined microscopic machinery.

But ghosts haunt the country. Two devastating defeats in years-long wars, division of the nation and several currency revaluations are among the traumas making the nation fiscally tightfisted, to an extent that some, including President Obama’s economic team, say impedes global recovery from a lingering economic slowdown.

“A country that went through two world wars and two periods of hyperinflation is clearly a lot more risk-averse than other countries,” said Joerg Rocholl, a professor at Berlin’s European School of Management and Technology.

Critics say Germany is not doing enough to stimulate demand; it is keeping wages too low and savings too high. To put it in layman’s terms: They think Germans should loosen their wallets and live a little. They fear that the world economy will continue to stagnate if Germany’s consumers fail to spend and its government fails to inject money into the economy.

But it’s a tough sell. Germany seems to be preparing instead to further cut back on spending. Unlike most Americans, Germans pay their credit card bills in full at the end of every month. Only 39% own their own houses or apartments, compared with two-thirds of Britons and Americans. Only about 10% of Germans invest in the stock market, compared with half of all Americans.

Last year, Germany expanded public spending meant to stimulate growth, but at the same time it imposed a constitutional requirement to bring the deficit down to below 0.35% of GDP by 2016, a goal critics describe as unrealistic and unnecessary.

All of this contributes to the impression, shared by Germans themselves, that a strong strain of frugality shapes the national psyche.

“Always saving, saving, saving; it’s part of the German mentality,” says Peggi Liebisch, head of the Berlin branch of the Assn. of Single Mothers and Fathers, which advocates increased social spending.

But she too conjures a financial horror story that continues to reverberate in her family.

Her ex-husband’s grandfather, a wealthy Berlin engineer, was about to retire just as World War II began. The family lost everything — including its properties, mostly in the east — after the war. He was forced to work almost to the end of his life, crammed into a tiny house with five children.

“They have a very strong memory of loss,” she says.

Recent history hasn’t helped Germans overcome their fiscal paranoia. After the launch of the euro currency, prices for small consumer goods jumped as businesses began re-pricing everything from deutschemarks, worth a little more than half a euro. A bratwurst at an annual Frankfurt fair that cost 2.5 deutschemarks one year rose to 2 euros the next, and Germans were again feeling economic ruin was just around the corner.

“Schaffe, schaffe, Haeusle baue,” goes the old saying in the Swabian region of Germany. “Work, work, and build a little house” — and in that order. Other Germans use the saying to make fun of the austere Protestant ethos and lifestyle in Stuttgart, capital of the heavily industrialized state of Baden-Wuerttemberg, but there’s also some truth to the kidding.

“It’s one of the richest areas in Germany, but one doesn’t see it,” said Rafael Lopez, 50, a vendor of chemical supplies who lives in Stuttgart. “There are a lot of rich people. But the Swabian people don’t show their money. You make some money, but you keep it for later.”

Some analysts dismiss the notion that Germans are overly cautious. Hans-Peter Burghof, chairman of the banking and financial services department at the University of Hohenheim in Stuttgart, says Germany is already overextended. Berlin’s assessment of the country’s fiscal health doesn’t include future pension obligations, he noted, putting Germany on far shakier ground than many observers believe.

“We’re a small country, compared to the United States. We shouldn’t overestimate our effect,” he said. “Our enterprises are efficient. Our state is not. And we’re not much better off than many countries.”

But economists mostly agree that Germany fails to put enough back into its economy, given the private sector’s windfall in exports.

Germans “tend to save,” Liebisch said. “They tend to hold on to their money and not invest. We encourage them to invest in the future.”

daragahi@latimes.com