News Analysis

Friday 22 August 2014

Eamon Delaney: Now we're paying for ignoring this frank ambassador

The German, whose Celtic Tiger warnings were denounced as rude, tells Eamon Delaney why he has hope for Ireland

Eamon Delaney

Published 03/06/2012 | 05:00

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Sometimes we really don't what to hear what outsiders think of us, especially if it's the hard truth. You may remember the furore caused by Christian Pauls, the former German ambassador, in 2007 with his remarks about the excesses of the Celtic Tiger.

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Speaking to a meeting of German business people in Dublin, he made some observations which were absolutely valid and, as things turned out, very prescient, but he got rounded on, and had to go on the radio to "explain" his views. Specifically, he described how in Ireland junior ministers earned more than the German Chancellor, almost 20 per cent of the then workforce was in the public sector, our "chaotic" hospital waiting lists would not be tolerated anywhere else, our wage demands were too high, and our immigration policy needed to learn from other countries. He also described how hospital consultants had rejected €200,000 a year posts as being " Mickey Mouse" money and brought laughter from his incredulous audience by describing the Irish obsession with having new cars, with new reg plates, whereas the average car in Germany was about nine years old.

All of these things were entirely true (some of them are still true, unfortunately), and have since been pointed out repeatedly. You'd think we'd be grateful for such blunt assessments from a foreign envoy but far from it. Ambassador Pauls was denounced for his "rude" and "undiplomatic" observations and in a bizarre interjection, Gay Mitchell said that his comments were "somewhere between resentment and spite". (Spite, at what, exactly?) And Foreign Minister Dermot Ahern ordered a dressing down.

If, in retrospect, Pauls feels annoyed and vindicated, he doesn't show it, and instead reflects philosophically about his time here and the hubris of the Tiger. Now retired (since 2009) and living in Berlin, he still has plenty to say about Ireland, Germany, the EU, Greece and the way forward.

"Basically, you got carried away on this new found prosperity," he says ruefully, "and felt that this bonanza would go on forever. Look at property prices. I had seen property bubbles burst three times in the UK, and in the US, and yet this wasn't on people's minds. In Ireland, as in the UK and US, housing is treated as a commodity -- unlike in Germany." Pauls describes a courtesy visit, when he arrived in Ireland in 2005, to John Hurley, then governor of the Central Bank. Hurley seemed to be "really worried about the size of property in our economy". The previous year there had been 45,000 units built, that year there was going be 60,000, and the following year it was projected for 80,000. It was just growing and growing, says Pauls. What a shame these "worries" didn't penetrate through to the political culture.

The ambassador also personally witnessed this appetite for property. One time he had to act as notary for a property purchase in Dresden by a young couple from Ireland who clearly didn't know what they were getting into. He asked them repeatedly, have you researched this? Do you know the laws of tenancy in Germany, and how difficult it can be for a landlord?

In summary, the Irish are perceived as "having had a party" and now they are paying for it. "There is a relaxed attitude to Ireland because we know you are going to make it," says Pauls. "Exports have remained steady or have risen over the past four to five years, and the country has strong assets, a young, educated population, which is English speaking. You are a resilient people. We know what you've gone through. Let's face it, look at where you were 50 or 60 years ago, when Ireland was exporting its people, and there was no confidence."

By contrast, he exudes very little confidence about Greece and gets utterly impatient with the image of the poor unfortunate Greeks being bled dry by European banks, etc. "The problem in Greece is not just the politicians and the banks but the ordinary Joe -- this needs to be said." Pauls spent seven years in Greece and could not believe the level of tax evasion: from the hairdresser, to the newspaper seller, to the small restaurant on the picturesque island. "Everyone was in on it. Nobody seemed to be paying taxes and this was going on for years, for decades. And the people voted for political parties which tolerated all this and did nothing about it."

So why did no one highlight all this until now, I ask. "Because we felt we could carry Greece," he responds, ("we", meaning the EU, and Germany) "the same way we thought we could carry some of the new East European countries. But now with the euro crisis we are exposed." It is also the fault of a currency which is one size fits all. "Who would have thought that a country with a population of less than 10 million could endanger the entire eurozone?" Pauls even questioned the Greeks being allowed to enter the EU itself in 1981. "We said to ourselves afterwards, we will regret this for the rest of our lives. But the Greeks were admitted hastily as a reward for getting rid of dictatorship."

The real problem now is that we are at the mercy of the markets. "In 2000, who could have known that the financial markets could have become so dominant." And on this Pauls faults the EU including Germany for (still) not bringing in proper controls. "If the bankers cannot run their own game, the authorities should put the proper instruments on the table. We should not allow a situation where a bank becomes too big to fail and yet in Spain now we have banks in a potential Lehman's type situation. What do the Chinese and Asians think of this inability of the Europeans

to control their banking sector?"

As for Germany, "it is in a situation where it never wanted to be -- in the driver's seat". But is this not part of the problem, I ask, the Germans being unwilling to step forward and assume a leadership role, instead of allowing EU drift and being paralysed by old Bundesbank policy and its obsession with inflation?

"But we never wanted this," he repeats. "Because of our history, we don't ever want a situation again where the Germans are perceived to be telling everyone else what to do." He cites the "Fourth Reich" jibes in the UK but I tell him this is exaggerated, and that actually Europeans respect German economic power but want them to be flexible and lead imaginatively. At the moment, Germany is a strong economy, but it is having it both ways by trading with a weak euro and having a great standard of living. He concedes that Germany has certainly profited from low prices, but argues that real wages have fallen and not kept pace. "As for this talk from Europeans that the Germans should loosen up and consume more, this is simply not in their nature. We are content with what we have, we don't go shopping with credit cards! If you gave a German extra money, they would save it." And as for the argument that Germany should import more to balance out their high exports, he reckons it would mainly be from China and India and so other Europeans would not necessarily benefit.

The reality is that the Germans called it right, he says. The future was not, as we were repeatedly told 10 years ago, "services, and more services" but also manufacturing, which they protected. He rightly extols the virtues of the "mittlestand", the small-to medium-sized businesses and skilled manufacturers which are the backbone of the German economy. "There are thousands of these, many of them world leaders in their fields. Often they are family owned, for generations, with no shareholders looking for more profit, but quietly run for their existence and keeping people employed." He paints a benign picture of old-style conservative capitalism, as opposed to the "slash and burn" vulture capitalism which has got us where we are. But it also suggests, I tell him, that maybe what Europe needs is more of the German model -- on all fronts. He laughs. "Well, 10 years ago we were described as the 'sick man of Europe', because we wouldn't abandon manufacturing, but who is the sick man now?"

Pauls doesn't deny that the ECB (with German support, presumably) is also responsible for lending too freely to Europeans banks, but he avoids overly blaming bankers in general. "We all have to take responsibility for our own actions." However, he doesn't understand why the Irish public should be saddled with the debts of Anglo Irish Bank and doesn't see why we can't be allowed to burn the bondholders. "The investors should take the hit, that is the way the game is played." He is surprised that this hasn't been pursued more forcefully. Perhaps the expectation is that this will be allowed to happen further down the road.

As for Christine Lagarde's comments about Greece, Pauls says that when he heard them he thought: "I'm so glad she's not German." But the fact is that he is German and he does say these things. Retired or not, he is refreshingly direct and thoughtful for a diplomat, as we discovered in Ireland back in 2007. One wished that we had more like him today, in Germany and in Ireland, to call things exactly as they see them. And would that we had listened to his blunt observations back in 2007, instead of denouncing him for raining on our party -- and telling the brutal truth.

Sunday Independent

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