Tests of German Resilience

Prob Counterpoint: Also a v. goog link to German Economy ….. and whither it goes

Thursday, September 27, 2012
The German Economy and the European Crisis
Even though most economic commentators focus on the deterioration of the periphery and are nervously taking note of how that is coming to impair the core countries, the strength of the German economy is nevertheless seldom questioned outside the Eurozone.

This Real News Network segment focuses on a generally-overlooked issue: wage suppression and the increasingly precarious conditions that German workers face, and how that plays into Eurozone politics. In July, we provided readers with an important report by Josh Rosner on the state of the German economy. From its executive summary:

Past Eurozone growth, particularly in Germany, did not come from meaningful improvements in productivity, but rather on the back of household wage reductions and industry-friendly reforms to the labor market – the Hartz reforms – which transferred wealth from the people to the banking and export-driven sectors of the economy.

While German and French taxpayers are justifiably angry, their anger is largely misdirected. Rather than embracing the false narrative blaming only peripheral nations for requiring bailouts, the anger should more rightfully be directed at:

• Designers of the European Monetary Union who, at the creation of the EMU, ignored regular and repeated warnings, from noted academics, analysts and policy advisors, that structural weaknesses would lead us to the crisis we now face;

• Banks, in the core, with weak internal controls and excessive leverage, which were profligate lenders in search of yield, to weak private, corporate and sovereign creditors in the peripheral countries;

• Those officials and technocrats who failed to properly regulate the domestic banking industry and allowed bankers to treat all sovereign debt as equal regardless of the differing debt capacity of the issuer;

• Rating agencies that failed to offer meaningful analysis of sovereign credit capacities and also assumed that too-big-to-fail financial institutions ratings should reflect an implied or explicit guarantee by their home country;

• Political leaders who, since the beginning of the crisis, downplayed its ultimate costs and, thus, delayed its resolution and increased the ultimate costs to taxpayers;

With this as a backdrop, it logically follows that the German government and central bank are seeking to protect the markets for German exporters and the German banking sector. Accordingly, the German government will be forced to choose either a large share of the costs of supporting a further integration of the European Monetary Union or, alternately, the larger economic and social costs of its failure, including the massive costs of recapitalizing German banks and financial support for German industry Either approach will lead to German debts rising markedly while its economy contracts. The costs will be astounding.

This report provides a useful perspective from within Germany, particularly on the need to move away from an export oriented economy and the obstacles to achieving that outcome.

Read more at http://www.nakedcapitalism.com/2012/09/the-german-economy-and-the-european-crisis.html#BlYJFR1q4RLmcWfg.99

An interesting piece, in deed, and „authorized“.

1. The very first sentence:
“From its early post-war catch-up phase, Germany’s formidable export engine has been its consistent driver of growth. But Germany has almost equally consistently run current account surpluses“

Why then was the accumulated German Current account NEGATIVE as late as 2004?

Calculate it for yourself for a 38% GDP begin of 2012 (lookup RBS or other “scorecard” , and some 5% GDP CA surplus in the few years before.

2. Page 7 “Not only was plentiful labor available”

Why did Germany then engage since 1955 (http://en.wikipedia.org/wiki/Gastarbeiter) hiring people for a full one million people coming from Turkey, Greece, Italy, Spain, Yugoslavia? Because we all got multi cultural, back in 1955? Why can Germany parachute 150 perfectly Greek speaking tax organization experts any minute? Maybe because they are native Greeks, making their way in Germany?

After WWII 20 % of the working population of Germany was dead or permanently disabled.

3. The plain anti German propaganda seems to be now not only organized, but “authorized”, since Lagarde took over the IMF. Maybe DSK was not good enough at plain lying?

Makes me somehow actually wonder, why David – O –Donnell doesn’t apply at the IMF. Very good salaries, tax free, as far as I heard. He can at least say “Frankfurt School”, although he still can not say what it means : – )

4. Since this February Soffin II is active, which can replace ALL German banks over a weekend completely with 480 b credible fire power. We are not taking any chances. The folks, who think they can push their debt onto the german tax payer should better sober up soon.

Its a good paper. Seems that it has touched a nerve here anyhow!
Heres what nobody wants to go to : this is going to end with germany paying. Sorry Genauer, but thats the fact. You pay by one or more of
a) by inflation
b) by transfers
c) by the breakup of the euro and the TARGET2 chickens of doom coming home to roost on your spike overvalued DM.

But thats good. It shows that as it should be Germany is the economic core. A peaceful, democratic strong openhanded germany is surely something the continent needs (deserves?)
B
(in the peripheral core)

Im struggling to remember much criticism of germany as the modern day ottoman empire? I do recall concerns about the costs of reunification and the rigidities in the labour market.
Germany, like all large countries, will get criticised whatever it does. Get over it.

Provocative piece of recent German Economic History by Wolfgang Münchau

Eurozone crisis
Why German unification was a mistake
3 October 2012Der Spiegel Hamburg

Thirty years after the inauguration of Helmut Kohl and 22 years after German reunification, the former chancellor is being celebrated as the father of German unity. But the truth is that, by hastily joining the GDR to the Federal Republic, he planted the seeds of the euro crisis, argues Wolfgang Münchau.

http://www.presseurop.eu/en/content/article/2799441-why-german-unification-was-mistake

Text from Blind Biddy:
“Hi Genauer! Looks like you did not lose your revolver – or are you just happy to meet me again?”

@ grumpy

This what Krugman thought at the beginning of the Schroeder era.

http://web.mit.edu/krugman/www/kompete.html

@anewdawn

As http://en.wikiquote.org/wiki/Daniel_Patrick_Moynihan , (“From the wild Irish slums of the 19th century Eastern seaboard” ??) said: “Everyone is entitled to his own opinion, but not his own facts.”

I did not challenge the OPINION of this paper, but some evidently completely false claims to fundamental FACTs (accumulated CA surplus and extreme scarcity of labor, hints to any similar scarcity are very welcome!).

The 2 claims I brought were not about some petty things like how many combs Ireland and Germany traded in 1958, or the arrangement of the chairs on the deck of the Titanic : -)

I am somewhat skeptical, that D-O-D or B-E-B, or Eureka here will ever agree with me on how the GDP cake is divided up between various social groups, although I believe now, that there is more common ground to be worked on and expanded. So far we have different OPINIONs, as it was, is, and will be. And that is perfectly fine with me.

But we should get at least the most important FACTs approximately, agreeable ,right.

I think you are dead wrong on “deeply insecure”, more to the contrary, but you are right on that our mood is souring, significantly, more to that later : – )

Genauer – no idea what that last post is about. Do you disagree with my opinion that somehow germany will pay? if so, on what basis.
Am i the only one that finds a small faint shudder up my spine when someone says “germany mood is souring, significantly, more to that later”. Are we supposed to be scared Genauer? Worried? Chagrined? Mystified?

@ All

As far as Wolfgang Munchau is concerned, it – German re-unification and the history of Europe since – was all one big mistake!

http://www.presseurop.eu/en/content/article/2799441-why-german-unification-was-mistake

I do not subscribe to such a view. Indeed, it seems to me to be rather silly. But the law of unintended consequences definitely applies.

There are two facts around which it is not possible to get;

(i) it is not possible for all countries to run current account surpluses with one another

(ii) membership of a single currency area removes the safety valve of devaluation to reduce the pressure from resulting payment imbalances.

If one reads the first link in the Press Europa coverage, the seemingly conclusive argument is made that Kohl negotiated creation of the euro in return for German unification. If he did, which I very much doubt, he got the better side of the bargain and demonstrtaed that Mitterand had a poor grasp of economics. The problem now is the same as it was then i.e. disparity in the relative competitiveness of the German and French economies.

Nothing much has changed. The new French government is beginning to look like that of Mitterand in its first few years. The debate in France is till about ratification of the ESM treaty when the negotiations on the next one have already begun!

Genauer what sort of “painful trade sanctions” do you have in mind? Which are legal within the union that is.
You so realise you come across as a ranting bully an
Image Germans should avoid?

@ All

Tip! To get round the WSJ pay barrier, cut and paste the title of the article to Google and enter search.