Redwood on the Eurozone

[Dave225]

Brian Kirby - 2012-11-16 11:47 PM

 

nowtelse2do - 2012-11-16 8:59 PM

 

....................Now I see, the leader of the pack is doing everything it can to stay the leader, And like in the past is causing untold misery on the populations of other countries, not by a killing war but an economic war. It could backfire on them dramatically thoe couldn't it.

Could it start a killing war or have we progressed far enough from that? I'm beginning to think that this could be a very nasty problem for the Eurozone and the EU.

Can't think where I read it now but some German companies were buying into other niche market companies in other parts of the Eurozone, then transferring them back to Germany after closing them down in the original country. Anyone else read that?

 

Dave

Sort of, I suppose, but the assumptions about the motivation seem a bit overdrawn. I think you're looking for Germany to behave in a domineering way, so you are finding it. I think this is far more cock-up than conspiracy.

 

Before the Euro was formed, Germany was suffering from the over-valuation of the DMark. It needed something to bring down the exchange rate on its famously "strong" currency, but was deeply suspicious of the planned Euro. It tried, and in part failed, to get the Euro modelled on the DMark, which had much tighter controls than almost any of the other putative member currencies. Had they won that argument, I think the Euro would have been far more successful, but the politics of every other country having to adopt a DMark masquerading as the Euro was too great. So, they eventually got what they now have.

 

The damage to the economies of the PIIGS has not, so far as I know, been directly caused or encouraged by Germany, though many Germans have profited from it. What is wrong with the PIIGS is more or less what has always been wrong with them, their politics, generally, is bent, and relies mainly on clientelism for votes. You buy votes by making impossible promises to gullible, relatively poorly educated, people. Realising those promises requires higher taxes, but your influential mates don't like the taxes, so you don't compel them to pay. So you rack up increasing deficits.

 

It is very roughly the same story with all, though the way the debts have been accumulated, and by whom, differs. Now, as they say, the tide went out, and you can see who was skinny-dipping.

 

Having found that their own politicians have duped them, but the Germans in large measure financed the duping, the poorly educated populations have turned on their own states, because it is all they can recognise as the author of their discomfort. Truth to tell, it is their own stupid fault for electing bent politicians, but that is too harsh a lesson to learn. It is also notable that most have relatively short histories as democracies, or even as sovereign countries. Part of what we are seeing, IMO, is a rude awakening to the realities of democracy, and what is needed to make it work effectively. They'll eventually get there, but not before there is more blood on the floor.

 

I fully accept that the political organisation of the southern European countries is not the same as the north. It has always been that way but they have managed to survive due to being independent of a common currency. The Lira has suffered devaluation innumerable times in its history and the economy survived, in its own inimitable fashion. I also think you are being a tad incorrect in stating they have short histories as nations. Spain has been around even longer than the UK and I could add the UK has only been a democracy for a relatively short time. Prior to that we were a set monarchic nations fighting each other.

 

The issue was that Germany had 2 aims in its recent history. The first was to get re unification of the 2 parts and that was never going to happen while the Soviet empire was in place. Once that crumbled they saw the chance and realised that the cost was going to be enormous. So the money had to be created somewhere. The second was that they truly wished to be an accepted part of Europe as they had guilt feelings over their recent past and would agree to many things to get the other nations to like them. So initlally they joined with their northern neighbours but when France wanted expansion to increase its own sphere of influence, Germany went along even conniving in fiddling the books to get certain countries in. They also blew the argument when they and France fiddled their own books when they broke their own rules on solvency. This allowed others to basically let things slide. In many instances, it is the banks in these countries, and those in other countries that willingly loaned money that have run up huge debts and require bailouts from the State. Pretty similar to the UK perhaps?? The German banks are heavily exposed to debt levels in the south which is one reason for their inaction in allowing a solution to occur. Writing off some of these debts is going to be the only solution but then the northern banks suddenly lose a huge part of their paper value and the unrest seen in the south will also appear in the north.

 

So to my mind Germany has a choice. It either continues with its desire to be 'good Europeans' and will have to accept the financial cost, or it washes its hands and becomes a pariah State again as it will not be trusted again for a very long time. Merkel I suspect knows the first option is the only correct one, but would like to get re elected first as presenting it now will indubiatably lead to her removal. Of course her successor will have the same choice to face. The big problem is time. Fiddling while Rome burns has never been a great strategy at any time and if the solution had been commenced a few years ago, then by now things would probably have settled down. As it is it will be the markets that force the decisions to be taken and if the Euro is a casualty then the European dream will be on ice for a very long time.

[Brian Kirby]

Dave225 - 2012-11-17 11:56 AM.................... I also think you are being a tad incorrect in stating they have short histories as nations. Spain has been around even longer than the UK and I could add the UK has only been a democracy for a relatively short time. Prior to that we were a set monarchic nations fighting each other.....................

 

I agree with that Dave, except your para above.

 

What I actually said was "It is also notable that most have relatively short histories as democracies, or even as sovereign countries."

 

I accept that this could have been worded better, but I think the essence is broadly correct.

 

Portugal, Italy, Ireland, Greece and Spain are still fledgling democracies. Roughly Portugal since Salazar, Italy roughly since WW1, Ireland since 1916, Greece since the Colonels, and Spain since Franco. It is true they existed as physical entities, in the geographical sense, long before, but not truly as unified states.

 

My point was that they are still leaning democracy (as we are) but that they were late entrants into the field. Not unique in that respect, so others could be cited, but I think that relative democratic immaturity disadvantages them under present circumstances.

 

With the broad exception of Ireland, by degrees all have fairly unpleasant recent histories involving protracted civil wars and/or repressive dictatorships, huge influxes of immigrants, and folk memories of more glorious pasts. I think none of the above help in achieving stable democracy.

[nowtelse2do]

Brian Kirby - 2012-11-16 11:47 PM

 

nowtelse2do - 2012-11-16 8:59 PM

 

....................Now I see, the leader of the pack is doing everything it can to stay the leader, And like in the past is causing untold misery on the populations of other countries, not by a killing war but an economic war. It could backfire on them dramatically thoe couldn't it.

Could it start a killing war or have we progressed far enough from that? I'm beginning to think that this could be a very nasty problem for the Eurozone and the EU.

Can't think where I read it now but some German companies were buying into other niche market companies in other parts of the Eurozone, then transferring them back to Germany after closing them down in the original country. Anyone else read that?

 

Dave

Sort of, I suppose, but the assumptions about the motivation seem a bit overdrawn. I think you're looking for Germany to behave in a domineering way, so you are finding it. I think this is far more cock-up than conspiracy.

.

 

I can go along with your theory of it being a cock up Brian, which most probably is what it is but Germany has form. I spend as much holiday time as possible in German and Austria and I have always been treated with politeness and respect but have also seen that nasty arrogance that a certain minority have (very unpleasant when it is shown) but they do have a sense of humour believe it or not (I think you will know that) and on the whole found them most accommodating. Never had a bad holiday there yet.

 

Dave

[Brian Kirby]

nowtelse2do - 2012-11-17 6:32 PM......................I can go along with your theory of it being a cock up Brian, which most probably is what it is but Germany has form. I spend as much holiday time as possible in German and Austria and I have always been treated with politeness and respect but have also seen that nasty arrogance that a certain minority have (very unpleasant when it is shown) but they do have a sense of humour believe it or not (I think you will know that) and on the whole found them most accommodating. Never had a bad holiday there yet.

 

Dave

But, you get them everywhere, Dave, not just Germany. I well remember being given a lecture on the glories of Portugal by an elderly chap on a bus in Lisbon in '09. Apparently almost all the worlds great inventions were made by Portuguese. He piped up because he clocked us speaking English between ourselves, and seemed to have decided we needed educating: I just bit my lip, and refrained from pointing out the then present state of his country. Sadly, it has got substantially worse since.

 

Of course there are some arrogant prats in Germany but, as you say, a lot more pleasant and engaging folk. What they have in spades is total confidence that what they make, do, and say will be "right". It can grate, and it can lead them to think the whole world has adopted DIN standards, but they work hard at it and I rather envy them. Germany is, by and large, very conformist, which I think is why they go abroad to be naughty! Too many wagging fingers at home. :-)

 

But, overall, one has to concede that Germany "works", at pretty well all levels, rather better than most of the rest of Europe, UK included. Doesn't suit all, but it is a well maintained, well organised, very orderly, country. There's a lot to be said for that.

[CliveH]

One economic difference between Germany and the UK is our predilection for Dividend income from shares.

 

Germany tends to focus on overall share value and the Dividends are by comparison to the UK, low.

 

This means that their companies on balance have a more secure footing as people invest for the long term.

 

Here in the UK, we tend to have companies geared to give high levels of Dividend Income. This those companies focus on the short term rather than decades ahead.

 

This is reflected in the Bonus Structure of the Banks as well.

[Brian Kirby]

Well, for some reason I hadn't expected that point of view from Clive! I very much agree with that.

 

I think there is another difference, which is the relationship, possibly consequential, between German business and German banks. I understand that most of the larger German businesses have a far closer relationship with their bankers than is common in the UK. It seems this closeness is beneficial because not only does it result in the banks (often smaller than UK banks) having a much closer understanding of what the business is doing and why, but also that investment decisions more often involve the banks, so they are less inclined to walk away and just pull the plug if things go wrong.

[CliveH]

I would not agree with you about German Banks per se Brain - there are plenty of European banks in difficulty - German ones as well.

 

The issue of German overall investment strategy vs our model is an interesting one.

 

Ours is seen to be more able to react and more dynamic.

 

The German model is more staid and inflexible.

 

It is for both of the above reasons that a) Germany needs the Euro experiment to succeed because without the Eurozone structure the german business model is extremely vulnerable and b) we, on the outside of the Eurozone are better placed as well as being more flexible to opportunities.

 

That said - all over the news today is how LR/Jaguar has at long last signed a joint venture with the Chines Cherry auto company. This relationship will not be fruitful for many years tho LR/Jaguar has wanted to do it for a long long time. Audi/VW and BMW all have been building cars in China for some time.

 

Poor old LR/Jag had a good product but had to overcome import tariffs in China whereas cars built in China under licence suffer no such tariff - so German banks saw the long term benefit and backed their own countries expansion into this fantastic new market.

 

It took LR/Jaguar to become owned by Tata - a hugely successful Indian company, with access to funding from the sub-continent for this latest development to get off the ground.

 

Our banks are too interested - STILL!!! - in short term gains.

 

So I see advantages and disadvantages in both working models. What is actually needed is more flexibility on the part of the germans such that the Euro zone is engaged with the real world and not the world only the germans live in and bugger the rest.

 

As for us - our banks need a reality check and MUST be allowed to fail. We have the back up system in place but all the time the banks sit back and think that "they are too big to fail" because that is exactly what idiot politicians tell them and us. At the moment our banks have no incentive to take a longer term view because they can go for the quick buck safe in the knowledge that, being "too big to fail" they will get bailed out if their short term gambles fail.

 

 

[Dave225]

Interesting comments from all but dare I say... not many solutions being offered. Can I offer a question for answers. Just how do you think the Eurozone should resolve its current problems. The best answer will get the author an all expenses paid trip to Brussels to explain it to the EU leaders, as they do not seem to have many ideas themselves.

 

As for the comments regarding the nature of Germans, it is quite complex, and quite different from our attitude here in the UK. Britain is a land where humour is a major part of life and laughing at ourselves is common. We, if you wish, 'always look on the bright side of life' to paraphrase Eric Idle. Germans are more serious minded people and humour is not of a variety we recognise too easily. They do have jokes but dare I say there is usually a sign shown that says 'laugh now'. They also have an inbuilt restriction against rebellion., unlike us.I suspect part of it is historical. For many years Berlin's main export was mercenaries to fight various inter Europe conflicts and so military prowess and discipline is almost burned into their souls. There is also the issue of WW2". Yes, it has been over for nearly 67 years but some of the participants are still alive and of course their children are very much alive. Some of the children abhorred what happened but others no doubt have simplified and ignored things in their minds to excuse the behaviour of their parents in some way. Some may even actually hope for a return to those dark days, but I hope they do not get their wish. My point is that although 67 years have passed the new Germany has been involved directly or indirectly with many who were of the Nazi era, even if not 100% supporters, and have influenced the way the country has developed. That is just a fact of life. It would have been impossible to remove every German who was involved with the Nazis or there would have been no adults left. I guess it will take the growing up of the next generation to finally exorcise that period. In addition, half the country faced a further 44 years of Soviet control which did not differ too much from the previous Nazi era, so here there is even more latent ideology to overcome. The Stasi as we know were not the kindest of people so have created people who follow a certain mould. I have worked with many Germans and have lived and worked in Austria, a nation that is 'joined at the hip' with Germany. Very nice people and I enjoyed it but there were times the old comments from the war of 'squareheads etc' did seem to have a grain of truth. Very much a 'black and white' people and could not understand that shades of grey would work. I worked for an Austrian Company in Hungary and was frequently having to act as intermediary as many Hungarians bluntly loathed the Germans and Austrians. I learned later that that was the main reason I was appointed. Gee, thanks Bud.

 

I suspect the above does in many ways influence the way Germany is reacting to the EU crisis. Many see themselves as having suffered already and refuse to accept any cost to assist others. Others are more tolerant and recognise that this may be the only way to ever move forward. Whether they like it or not, they have to take the lead and the Dutch will follow suit. They are another nation that seems to be happiest joined to Germany's hip which considering all that has happened is a little strange.

 

Whatever happens will be the result of market forces no doubt and Germany knows that it can no longer just force private funds to take 'haircuts' it will the German Taxpayers who have to take it next through failures of their banks.

[Syd]

 

I for one will be delighted when the doo doo hits the fan for France :D

 

Not that I wish anyone any harm :D

[CliveH]

I do not want anyone particular nation to suffer "doo doo" - sadly having seen how Greek people suffer from that inficted on them by their own politicians and the un-elected EU Commissioners - I have no desire to see that debacle repeated.