Friday, October 26, 2012

German Hypocrisy on “Strengthening Europe”

Thanks to John Weeks, I see this quote from Merkel speaking before the Bundestag last week:
We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe “real rights of intervention in national budgets”.
The idea is that fiscal orthodoxy is soooo important, and individual countries shouldn’t be allowed to tinker with it.  If they try to run deficits outside the (narrow) boundaries of the Fiscal Pact, officials from Brussels should step in and overrule them.

Germany, as is well known, is (or tries to be) a paragon of orthodoxy in macroeconomic affairs.  Of course, Germany also has a social market economy which violates almost every principle of orthodox microeconomics.  And what happens when proposals are put forward to regulate any of that stuff from Brussels?

You can see the answer in the stalemate over banking regulation.  As part of a quid pro quo for centralizing the lender of last resort function at the European level, an attempt is being made to assert European control over the oversight of financial institutions—and Germany is fighting it tooth and nail.

Germany, you see, has about half of its financial sector assets in public banks.  These are run by state officials whose job is to promote local economic development.  They are given large implicit subsidies and permission to calculate their equity cushion in ways that private banks aren’t.  (Implicit state support is seen as equity.)  Meanwhile, Brussels is dominated by the orthodox view that all public subsidies and political influence should be removed from the financial sector, so that money can flow freely to wherever it can earn the highest rate of return.  Equity should mean share ownership, and shares should be freely traded throughout the EU.

On this issue I side with Germany: public banking, for all its faults, plays a crucial role in their economic model and has contributed enormously to its productivity and export success.  (This is true, above all, for the Mittelstand sector of small and medium enterprises.)  Giving in to the rigid liberalism of Brussels would be a mistake.

Our orthodoxy for you?  Of course.  Yours for us?  Never.  It is interesting that there seems to be near-zero awareness of this contradiction within Germany, although it is screamingly obvious to an outsider.  As Levi Strauss said, culture is unconscious, and this is true for political culture too.


genauer said...

Which microeconomic principles are violated in Germany?

The public banks "Landesbanken" do not have state protection any more, due to EU regulations, are actually less and less involved in SMEs, and then taking their surplus money to the US real estate market they didnt understand, was what got them in trouble. Some of them, IKB, Sachsen LB were de facto let fail.

For me it looks very much that you are trying to built a hypocrisy strawman here

run75441 said...


Click on the link and it will take you there, there offers a better explanation of what Peter is offering up.


Perhaps you might enlighten Peter Weeks on the power of state government over local government. Michigan has the power to appoint emergency managers for school districts, city governments, Townships if they are unable to resolve their fiscal problems. This emergency power supercedes the powers of elected officials. This emergency power authorization passed by the state legislature is the reason for a proposal appearing on the November ballots which will strike down this arbitrary authority.

genauer said...

@ run75441

Shouldnt it be "Dien BIEN Phu" ? in your profile ?

A stark symbol of french military idiocy. To move oneselve into a entrenched, isolated valley position, as a technological superior combatant, to dig a Stalingrad cauldron
for themselves, to built yet another Maginot line, against a numercially vastly superior enemy.

Instead to resort to maneuver warfare. 150 years after Napoleon, long after Guderians "blitzkrieg",
or as the US call it today "shock and awe".

The fundamental principle of democratic self government does not include the right to have that financed by somebody else, who doesnt have a vote on how to spend it.

The classic error of socialist. Let me cite the Iron Lady: “The problem with socialism is that you eventually run out of other people's money. ”

Well, things undemocratic socialists like JOHN Weeks don't want to hear.
Neither the European Parliament nor the European Commision have the power to raise taxes, and therefore have no (final) say in how it is spent. No Taxation without representation. Ever heard of it?

Banks who are unfit to govern themselves, are taken over by the FDIC or similar institutions in other countries.
Companies getting insolvent are ruled by court appointed liquidators.

Bankrupt local government get bailed out by the next larger institution, who then lays down the law.

Staatsbankrott, since Schäuble this week a household name, "ist verboten" (does not happen : - ),
but in Germany too 4 leftie states (Berlin, Bremen, Saarland und Schleswig-Holstein)
are under federal supervision (isnt "Stability council" a much nicer word than "high commisioner" or liquidator?).

Merkel is the elected chancellor, she represents the "full faith and trust" of all the german people, John Weeks and Peter Dorman just represent themselves.

genauer said...

@run 75441

I just see that you engage in LSS.

Maybe you like Warren Brussee, a retired GE six sigma engineer, "The second great depression, 2007 - 2020". He even has a blog.

I found him via searching for actionable six sigma books for a respective project, I think I even have some "belt" certificate somewhere : - )

Peter Dorman said...

Briefly, regarding the Landesbanken:

1. There is no question that Germany is resisting European-level supervision of its public banks. This resistance is being portrayed in the media as a ploy to delay the recapitalization part of the banking union until after the next elections (in Germany), but this is only part of the story. If my interpretation is right, German resistance will continue *after* the elections. We shall see.

2. There are additional Landesbanken which might need to be recapitalized, merged or shut down if (a) the rule against implicit state subsidies as "capital" is enforced, and (b) audits are performed by outside examiners. The exact number is subject to speculation.

3. It is true that many Landesbanken invested in US MBS during the 00's and suffered as a result. My earlier interpretation, which I published on this site, was that they were trying to preempt pressure from Brussels by demonstrating they were earning a competitive rate of return (which, as local development banks, they have no internal obligation to do). I still think that was a factor, as do many Germans. However, Wolfgang Munchau pointed out that, as a result of the massive surpluses accumulated by Germany during the 00's, the banks had more money than could be absorbed by their normal SME borrowers. The civil servants running the Landesbanken (who do not have the training or incentives of private sector bankers) simply parked the excess funds in these ostensibly lucrative assets that were rated AAA. They live in a checkbox culture: if you can check the box that says AAA, you can go on to the next line.

genauer said...


I think you show pretty clearly that the only hypocrite here is you.

1. Your “fiscal orthodoxy is soooo important”. Yes it is, because Greece, Portugal, Ireland, Spain, Italy do not, or would not have access to capital markets, if not for the massive and extremely generous help from more disciplined countries. Investors, including their own citizens, do not trust them anymore, for good reason, to pay their debt in full and on time. The endless criminal attacks of socialists like John Weeks and you, on the Maastricht treaty, “no bail out”, “no money printing”, and now even on the Fiscal pact, even before the ink is dry on it, show that folks like you cannot be trusted for one cent.

2. “Germany, as is well known, is (or tries to be) a paragon of orthodoxy in macroeconomic affairs”. That’s the purpose of rules that people try to live by them. Where is the hypocrisy in Schäuble's “Auch wir bescheissen gelegentlich” (We cut corners too, sometimes )? You failed to give any example, even after being asked nicely, where microeconomic rules are violated in Germany.

3. “stalemate over banking regulation“ The agreement was, that there will be some Euro wide supervision over systemically important banks, and only after having this put into treaties, having the controlling institutions in place, there might be some common liability. There is no agreement about the underlying principles, no treaty in sight, and the socialist criminals like John Weeks and Hollande have made already clear, that they do not intent to keep to any law and treaty; they just want to steal the savings of Germans. Infinite liability without control and ability to punish thieves.

4. In contrast to your allegations the employees of “public banks” in Germany, mainly Sparkassen and Volksbanken, are not government employees. The Bayern LB was incorporated the latest 1972, all biographies I did look up show classical banker careers, and not public servants. After the EU made these 2005 regulations they do not enjoy anymore any implicit guarantees. Well, times are changing; 100 years ago most European nations thought it a good an idea to have national ownership of rail, mail, telecom, energy supply. And in the last 30 years we change this, step by step, and transitions are sometimes a little bumpy. What exactly is new about that, and where is hypocrisy in that?

5. But you are right with one thing, we hold ourselves to a different standard. A higher one. When the Bayern LB and the Sachsen LB had significant losses due to their less than “best and brightest” bankers, the owners, the people of these states swallowed the losses, and did not even dream about to ask federal Germany to chip in. In stark contrast to those socialists, who now try to push their bad debt onto the taxpayers of other nations.

6. I think your article here is pretty typically for lefties trying to drum up nationalist/socialist resentments at the same time, and then trying to extort money with the scare produced. The lack of real comments and the long list of simple trackbacks to “A modest proposal …” is an impressive example, how “gleichgeschaltet” this already is : - )

system failure due to insufficient evolution? said...

Ambiguities, contradictions, stilted questions, but truths also