Tuesday 20 August 2019

Deutschland uber alles, we are all Germans now

Germany is calling the economic shots which means we and the rest of the EU must make ourselves in their image, says Brendan O'Connor

IT is sometimes said that one of the reasons nothing ever improves in Sicily is because, to quote Giuseppe Tomasi di Lampedusa's The Leopard, their vanity is stronger than their misery. They see no reason to improve themselves because they think they are perfect.

We have a touch of that ourselves in this country, as evidenced by how we lighted on that piece in the Financial Times last week that told us that the ratings agencies are unfair to Ireland and, in fact, we are poised for a fantastic recovery as our exports and our competitiveness improve. And, indeed, our own Ibec's upbeat assessment of a future so bright we have to wear shades.

Which is all nice to hear and all. But last week one couldn't help thinking that we would have been better off to have lighted on Michael Lewis's piece about Germany in the current edition of Vanity Fair, the latest in his astounding series that included a mostly fair report from our own corner of the world. It was probably far more relevant to our situation and to the events of the last week than the FT piece.

Lewis is already being pilloried by the Germans for his latest opus. He has been accused of stereotyping and ridiculing the poor Germans, both things to which they are very sensitive. And indeed, he does devote the first page of his piece to the German's cultural obsession with poo.

Getting beyond that, Lewis tells some truths that most people would be afraid to articulate. His major thesis is perhaps best summed up in one sentence. Concluding his chat with the German deputy Minister for Finance, Lewis says: "He couldn't put it more bluntly: if the Greeks and the Germans are to coexist in a currency unit the Greeks need to change who they are."

And, of course, "changing who they are" means the Greeks need to become more like the Germans. And if you question the relevance of that, then substitute Ireland there for Greece. If we are to stay in an economic union with the Germans we need to become more like the Germans too, or, as Lewis puts it, "probably, eventually, every non-German must introduce 'structural reform', a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans".

Lewis returns to the theme right through the piece. On the euro, he says: "Conceived as a tool for integrating Germany into Europe, it has become the opposite. For better or for worse, the Germans now own Europe. If the rest of Europe is to continue to enjoy the benefits of what is essentially a German currency, they need to become more German."

Lewis is merely articulating what most of us are beginning to realise, and what we realised even more last week. Germany is paying for everything, so Germany calls the shots, and what Germany wants is that we all be more German, which, right now, in a nutshell, for us, means austerity.

The German model also means fighting inflation at all costs. But inflation is not a problem in Ireland. Despite huge increases in energy costs, we recorded the lowest inflation in the EU in the last year -- 1 per cent. This would actually suggest that our real problem in this country is deflation. Strip out oil and gas and you would have to imagine that domestically, what we are seeing is the collapse of demand and thus prices, which would tally with everyday experience in this country.

The Germans also want a strong currency. Again, that doesn't really suit us given that the only positive we have to hang on to now is that we are doing well on exports. Indeed, our recovery is supposed to be built on exporting, even though we are assured that this will not create any jobs in the short term. A strong currency doesn't help the competitiveness we're supposed to be killing ourselves to develop.

And of course the German model is also one of tight monetary control, egged on by the French, for which read, for us, more austerity. But as much as we get praised for our austerity, and how well we are bearing it, and while austerity seems to work very well in theory, in practice what austerity has meant for this country is mass unemployment, businesses shutting down all over the country, some that have survived for generations of boom and bust, the collapse of consumer demand and the creation of ghost towns.

Austerity means real people experiencing the "soul destroying" life depicted in UCD's new study on The Experience of Unemployment in Ireland which details how unemployment causes not just money worries but marriage breakdown,

health problems, shame, inadequacy, the list goes on. But we are all expected to be good little Germans and bear all this dutifully.

Most people were somewhat confused as to what exactly happened at the Franco-German summit last week. Beforehand, we were led to believe that they were getting together to do something to calm the markets. And, indeed, it seemed for once that they were acting relatively quickly. But what they came out with seemed to be an answer to a question no one was asking, which was a commitment to further integrate Europe.

There was certainly nothing to calm the markets. Indeed, whatever the opposite of calming the markets is, Merkel and Sarkozy did it. Admittedly they were helped along by fears of a recession and "bad numbers" from the US. But central to those fears of recession, most notably articulated by Morgan Stanley, was what it called "policy errors, especially Europe's slow and insufficient response to the sovereign debt crisis", so Merkel and Sarkozy just contributed further to the problem with last week's summit.

You would nearly start believing those conspiracy theorists who say that the whole euro crisis was brought about just so they could use the opportunity to create a united states of Europe. As it transpired, the outcome of the Franco-German summit was more proposals to make us all more German, proposals that will suit the Germans but won't suit the rest of us -- tax harmonisation (initially only between Germany and France, but let's not kid ourselves, this will ultimately lead to more pressure for higher corporation tax for us), a financial transaction tax that could murder our economy, and a new golden rule of no budget deficits, which coincidentally, is central to France not having their debt downgraded, which will play well in France. And, of course, there will be no eurobonds, which will play well, as Morgan Kelly would say, in the German tabloids.

Perhaps the most chilling thing about the proposed financial tax, the so-called Tobin tax, was that Merkel and Sarkozy said they would have their finance ministers do some work on it, "to contribute to the work of the European Commission" on such a move. In other words, the Commission weren't doing France and Germany's bidding quickly enough on the financial tax so they are going to help it along.

In other words, Germany, with a bit of help from France, is now nakedly running European policy, and they are doing so in their own interests.

Which makes you wonder if there is anything in the Commission announcing on Friday that it is looking at preparing legislation on eurobonds, when the Germans have made it very clear they don't want them right now. The Germans will presumably prevail on that by contributing to the work of the Commission. And the unspoken understanding about this is that seeing as it is Germany that is providing the safety net for the whole eurozone, no one is going to argue with them running everything. Of course, buying their own way is nothing new for the Germans. While being publicly against the EU becoming a "transfer union" (the transfers being from them to the rest of us), Germany has always thrown money quietly at problems in order to get its own way. It threw money at the principal players in the reunification of Germany, and it has an elaborate system of transfers within its own country to keep the poorer regions up to scratch in terms of infrastructure and so on, in order that the German juggernaut can continue.

Of course, the Germans will tell us that we have to take our medicine and atone for our past sins. And we are told this as if Germany had no sins to atone for. But let us, if we may, go back to Michael Lewis for a moment, who details in his piece how Germany is essentially bailing everyone else out so everyone else can pay back the lunatic loans that now-troubled German banks gave out. You see, as Lewis explains, the Germans' dirty little secret is that while they had no mad credit boom of their own, they did it by proxy, by lending into everyone else's boom, sometimes crazily.

Lewis explains how it worked: "Extremely smart traders inside Wall Street devise deeply unfair, diabolically complicated bets, and then send their sales force out to scour the world for some idiot who will take the other side of those bets. During the boom years a wildly disproportionate number of those idiots were in Germany. As a reporter for Bloomberg News in Frankfurt, named Aaron Kirchfield, put it to me, 'You'd talk to a New York investment banker, and they'd say "No one is going to buy this crap. Oh wait. The Landesbanks will.'

"When Morgan Stanley designed extremely complicated credit-default swaps all but certain to fail, so their own proprietary traders could bet against them, the main buyers were German."

So Germans, in fact, were more like the rest of us than they would have us believe and, indeed, it is the fallout from that that has them wanting us to be more like them. So it seems, Mrs Merkel, that we all partied, eh?

Sunday Independent

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