Pay no attention to the social democrat behind the curtain.

Perhaps we’ve been watching the wrong German politician throughout the whole Greece/Eurogroup drama. Usually, the Vice-Chancellor of Germany is one of those posts that comes with a lot more dignity than it does power, like the US vice-presidency in the pre-Cheney days when it wasn’t worth a pitcher of warm spit. It tends to be given out as a decorative title to a junior coalition partner, rather in the way Nick Clegg was given the title of Deputy Prime Minister, something which has even less basis in British constitutional practice.

But Bernd Hüttemann reminded me of something important on Twitter yesterday, as follows.

Sigmar Gabriel, for it is he, is not just vice-chancellor and SPD leader, but also federal minister of economic affairs, and the minister responsible for government-wide coordination of European policy. The ministry gives details of its role here.

It has to ensure that the German government has a common line-to-take towards the European institutions, to keep the Bundestag informed, and to give directions to the German representatives in COREPER 1. That’s the boring-but-important stuff such as Competition, Energy, Agriculture, etc. It also gives directions jointly with the ministry of foreign affairs to German representatives in the more politically glamorous COREPER 2, including the General Affairs council, Justice & Home, and crucially, ECOFIN. It is the government’s authority on European law. Its officials chair most committees on European issues within the German federal government, including the permanent secretaries’ committee on European affairs, which they lead jointly with the foreign ministry.

The foreign minister is, of course, Gabriel’s fellow Social Democrat, Frank-Walter Steinmeier. This gives him a lot of agenda-setting power and a lot of access to Angela Merkel. He probably has more executive power than Joschka Fischer did as vice-chancellor and foreign minister. Having a bigger gang behind him, and also a European crisis, means he also has more than FDP leaders Westerwelle or Rösler although they had the same ministry.

This is important. In a sense, even decades after reunification, we still see two Germanies. People on the Left tend to swing between admiration for its social democracy, long tenancies, environmental commitment, demonstrative feminism, cycleways, safe-standing terraces at the football, and the like, and utter exasperation with its commitment to European monetarism, bourgeoisity, inflation dread, and tolerance of Bild Zeitung‘s ravings at the Greeks. People on the Right tend to wish they could have a budget surplus, a Bundesbanky monetary policy, and more public churchiness, except when they’re convinced Germany is a terrible warning of the inevitable doom of the welfare state. It wasn’t that long ago.

Wolfgang Schäuble, of course, personifies the hard-money version of Germany. But Germany doesn’t only have a finance ministry. It also has a ministry of economic affairs that has an eye to industrial priorities and real institutional strength, rather like the brief Department of Economic Affairs Harold Wilson set up in the UK back in the 1960s was meant to be. The DEA was intended pretty much as an anti-Treasury, and I think we can read Gabriel’s role at the moment as something similar – a growth-oriented lobby that would structurally lean towards a lower exchange rate, because it represents mostly export-heavy manufacturers and industrial workers.

In practice, a lower effective exchange rate for Germany means keeping the Euro show on the road, complete with Greece. Either leaving the euro, or kicking out the south, would surely cause the rate to rocket upwards with ruinous consequences for Gabriel’s clients. It’s therefore very significant that the export lobby in German politics has managed to get more influence over Germany’s interface with the European institutions. And here’s the man himself:

This might explain an important feature of the agreement the Eurogroup eventually reached. Greece is said to have “capitulated” by accepting the “November 2012 targets”. However, the agreement specifically doesn’t set any fiscal target for the year 2015, and proposes that we meet again in June to negotiate a new program replacing that of November 2012. Therefore, the targets don’t exist for this year, and those for future years are by the by. Perhaps they will influence the talks in June, but this strikes me as a concession without much substance. A bit like making the FDP leader vice-chancellor. And the talks will be heavily influenced by the boring technical stuff Gabriel’s ministry has most power over.

This might also explain why Schäuble seems quite so grumpy these days. Much of the content of policy reaches German officials in Brussels and elsewhere via Gabriel and Steinmeier’s staffs. In a real sense, he only has full and undivided control when ECOFIN (or the Eurogroup, which isn’t explicitly evoked by the ministry’s text) is meeting at ministerial level, and he is physically present. Which puts an interesting light on the whole row about that nonpaper that was supposedly issued after he left the building…

When he isn’t, his main means of influence is either shouting the odds in the media, or else going via Angela Merkel, who is of course free to support him or not. Merkel’s interests are well served by this. She keeps the options open, and avoids having to explicitly back either lobby. At the same time, it rules out either the two social democrats, or else Schäuble plus one of them, ganging up on her to commit Germany to some policy of their own. I would therefore cautiously discount some of Schäuble’s bluster in front of journalists.

Hamburg

It’s probably worth keeping an eye on German elections at the moment. Hamburg voted today, and the results below will update as more results come in, via Der Tagesspiegel. Basically, the SPD won big but will need a coalition partner, probably the Greens, the FDP and the Left had a respectable showing, the AfD version of the far-Right just, just scraped into a western German parliament for the first time, and the CDU had a nightmare, literally their worst result ever.

Click on “Gewinn/Verlust” for the changes in % terms – the CDU lost 5.9%, the AfD picked up 5.8%. Ouch. But most of all, the Non-Voter Party had a great night, picking up 44.5% of the vote.

On that score, I expect the main effect to be “That’s over with now” rather than “Chase the AfD”.

The AfD trolls itself.

Strangely, different extreme-right groups are falling out among themselves at the same time, in that odd synchronicity European politics occasionally has. After UKIP’s pre-Christmas train-crash over candidate selection, here’s the AfD tearing itself apart over policy.

Das Schreiben unterstellte Lucke auch, er stehe in vielen Fragen den Grundanliegen der AfD-Basis entgegen. So habe er sich geweigert, „gegen das Gender-Mainstreaming zu agitieren“, weil das Internetlexikon „Wikipedia darunter die Gleichstellung der Geschlechter definiert – und das ja eigentlich gut sei“. Außerdem habe Lucke im Europaparlament für Sanktionen gegen Russland gestimmt und er habe vorgehabt, in einer E-Mail im November allen Parteimitgliedern den Austritt nahezulegen, die „kritisch über Zins- und Zinseszins, das Geldsystem oder eine goldgedeckte Währung, über den Einfluss amerikanischer Banken auf die Politik oder die Souveränität Deutschlands nachdächten“.

It turns out Herr Lucke has been banned from responding to their own internal trolls, for fear he would cause too many resignations. Anyway, an AfD troll is obsessed by “gender mainstreaming” (perhaps they want to be like the French but copy-pasted wrong?), the gold standard, bankers, Russia, and “interest and interest on interest”. For clarity, they’re agin interest, bankers, and gender, but fer gold and Russia.

Wolf Biermann trolls the Bundestag

So the German parliament invited legendary songwriter, dissident, and wonderful professional malcontent Wolf Biermann to the session celebrating 25 years since the revolution. That went as badly as you might expect, or perhaps as well.

Where do we start here? Obviously there’s the bit where he calls the Left Party MPs the “wretched remnants of everything we so fortunately overcame”. There’s the speaker of parliament, the CDU’s Norbert Lammert, a man who looks and talks exactly like a conservative called Norbert, who calls him to order on the grounds that he was invited to sing, dammit, and if he wants to speak he can always get elected. Biermann remarks that the DDR didn’t manage to shut him up and Lammert won’t.

While this goes on, the breaking news caption informs us that the association of the post-1945 expellees is electing a new president. Geschichtsträchtig.

There’s the performance itself, as if the rest wasn’t part of the performance. And then there’s the bit where Lammert tries to make up for it by congratulating Biermann on his silver wedding, and Biermann breaks off from chatting (does he chat? I rather think not) with, or at least to, Sigmar Gabriel to remind him that it’s also the anniversary of the great, socialist October Revolution, as he puts it.

Even if Lammert’s intervention might not have been wholly serious, it’s a masterpiece of awkwardness. As well as a guitarist of note, a brilliant lyricist, and an unmistakable voice, Biermann is one hell of a troll.

Their Eyes Were Watching Vlad

Occasionally, representatives of Germany’s Left party (Die Linke) will complain about being tagged as the successors to East Germany’s communist party. Well.

As part of the German parliament’s debate about the budget and foreign police, Gregor Gysi, parliamentary leader of Die Linke, spoke out forcefully against further sanctions against Russia. He called them “absolutely counterproductive.” He added that they provoked Russian countermeasures and hurt the economy. Rational policy, in his view, would be to lift the sanctions immediately.

Not to be outdone, Sara Wagenknecht, Gysi’s first deputy, said that economic warfare with Russia was damaging and “playing with fire.” She added that NATO maneuvers and EU sanctions were making the implementation of a ceasefire in Ukraine difficult.

Russia and the Russian government are, of course, utterly blameless in all of these events.

Not coincidentally, the party’s history as recounted on its English-language web site begins in 2007. If I had their background as the unreformed heirs to the Kremlin’s stooges, I’d keep it off the web site, too.

A bit of export blogging

The Commission has taken an interest in the German trade surplus. As you know, Bob, they took an interest in the government deficit in the early 2000s as well. This isn’t mere snark, though. Here’s a really interesting chart from Jared Bernstein‘s blog.

ULC_us_germ

Germans haven’t had much of a pay-rise for years, but neither have Americans. To put it another way, German export success isn’t driven by cheap labour or indeed cheap anything. Bernstein is swinging off a post of Paul Krugman’s about intra-eurozone trade issues, but because he’s a nonrespectable palaeokeynesian like me, he looks at this from an industrial policy point of view.

There ought to be some room for manoeuvre here, and this is the sort of thing that the UK Labour policy community is obsessed with. How does the industrial machine work? If it wasn’t low, low prices, what happened? It’s not an abstract saveyness of pure virtue, either, because savings rates aren’t what you might think they are.

save

It’s not a timeless truth, either, as Mark Schieritz charts.

LBS_BIP_DE_1950-2013

A quick reconnaissance over German politics

So you might think this blog ought to have written much, much more about the German elections and the coalition process that came after. Mea culpa, but the truth is that it just wasn’t interesting or new and the reasons are well defined here, with the notion of the post-political situation. Germany had an election as post-political as anything you might get in Italy. The biggest row was about the idea of having a compulsory vegetarian day in schools. The opening of talks between the parties is well satirised here as a vacuous media pseudo-event.

Even now, in the coalition process, the SPD has been essentially competing with Angela Merkel to agree with her own policy, by ruling out any European funding for bank resolution that doesn’t come with a troika programme and the concomitant 25% reduction in GDP. Perhaps the only genuinely political moments were the periodic Snowden eruptions (apparently the biggest clown over this, Roland Pofalla, wants to be a cabinet minister. we’ll see).

The original reading of the election was that it was an awe-inspiring triumph for the Right. The evidence of this was that they did well in Bavaria, demonstrating only that a lot of journalists don’t read their own newspapers, and that the CDU had a historically high score. On the other hand, the parties of the Left actually ended up with more seats, through the moderately countermajoritarian voting system and most of all because of the crash of the German liberals, the FDP, who lost all their seats. Merkel had to pick between an unstable rightwing coalition beholden to Bavarian pols who are unelectable in the rest of Germany, which would be vulnerable to the parties of the Left picking off individual centrists, and something else.

The something else is a new version of the grand coalition of 2005, with the CDU and the SPD in government together. This is much more stable, and importantly permits the chancellor to have an independent political role. In a government that has to tack to the hard right to please the rightmost Bavarian MP and then back to the centre, Merkel is a weathervane. In one that’s spread right over the range of German politics it declares to be respectable, she’s the boss.

On the other hand, viewing it from either flank, it’s utterly vacuous. If you don’t like the EU, or even if you don’t like the current macroeconomic settlement of it, there is nothing for you here. It is deeply post-political, in the sense that the SPD and the Greens get to compete for the role of second coalition partner so long as they don’t propose anything new or interesting.

It should also give pause to everyone who likes the idea of breaking up the great social democratic parties. This project is further ahead in Germany than anywhere else, and the result seems to be a Left party that doesn’t achieve much or increase its vote much, a SPD whose main argument is that the Left are all commies and wasn’t it that lot who cooperated with the Nazis in 1932 to kill the Prussian SPD government*, and a Green party that’s not much better on its key issue than everyone else but doesn’t seem to know or care that wage-earners exist as such.

It’s because the SPD and the Left party loathe each other so much, and the Greens are as ECB-minded as anyone, that the numerical majority of the left in the Bundestag is not a political majority and the numerical minority of the Right is a political majority.

SPD members’ experience of grand coalition was basically horrible, and the effort to sell the project to the 470,000 members seems to rely heavily on pompous old men telling the base off. Like so.

In France, the push to the left from Mélénchon is at best like one of those solar sails – it might be just perceptible over 30 years – and at worst immeasurable. And the reality of post-politics is that however many votes SYRIZA or Grillo gets, does anyone really imagine it will matter?

That said, that said, German politics may be post-political but it is not yet post-democratic. The SPD’s biggest outstanding issue in the coalition talks is a €8.50/hour national minimum wage, which is more impressive when you realise that about 40% of German workers (including part-timers) earn less than that. There is a Billiglohnland inside Germany that is rarely discussed. Gesamtmetall is already on board.

This is largely because low wages in Germany are mostly in the non-tradable bits of the economy. IG Metall and Gesamtmetall can agree on this because it’s not their problem. As I often point out, nobody buys a Mercedes because they’re cheap. But if the services workers get a coup de pouvoir d’achat, it ought to provide at least some additional aggregate demand and suck in some imports.

And, after all, it was the FDP’s Lambsdorff paper back in 1982 that introduced neoliberalism to Germany, or rather reintroduced it if you believe the Freiburg school was its originator.

It’s something. It’s not much, but it’s something. Of course, the SPD membership could still vote it down, in which case we get the Right with veggie days.

*well, it was, and I’ve said this to people I know on the extreme left, but it’s depressing to see that Sigmar Gabriel has nothing better to offer as an argument.
**ok, Siggab has worse to offer.
***as a general theme, Steinbruck, then Siggab, what is it with the tiresome Sir Mucho Pomposo types?

Weihnachtsmarktwirtschaft

After soziale Marktwirtschaft, the social market economy, and freie Marktwirtschaft, the free market economy, what about Weihnachtsmarktwirtschaft, the Christmas market economy?

So there’s one of those packaged German Christmas markets outside the Royal Festival Hall at the moment. I was down there last night having a bratwurst and I thought: That’s like Europe! This does remind me a bit of both Thomas “Airmiles” Friedman’s vast collection of highly informative cab drivers and also the vicar in my home village who one Christmas night preached that “Have you ever been at the airport, waiting for your luggage, watching all those strange bags come around, when suddenly, there’s yours? Well, that’s like Jesus“, but I do have an actual point here.

And after all, England Rugby League legends Sam and George Burgess were hitting the bratwurst about the same time and you know they’re right:

Obviously the beer was imported. So were the sausages. But even the bread rolls came out of a box from “Der Heimatbäcker” that promised 80 Stück of Turbobrötchen. All the cooking gear had German brand names on it. The only local contribution was labour, either British, Portuguese, or Polish. It reminded me of a post on my own blog about the introduction of Passivhaus building standards into the UK, and the problem that for a long time this is likely to be a drag on the economy because until the supply chain builds up, it’s basically importing houses.

However, this has much wider applicability. As I keep blogging, ever since 2009 or thereabouts, the core of the EU’s economic problem is trade. It’s not just me; the official line on Spain and Italy’s problems is that they’ve got to move their current accounts towards balance or indeed surplus. That is why they’re ordered to wreck as many generations as it takes to achieve internal devaluation.

The problem, though, or rather one of the many problems, is the Christmas market economy. Getting final products out that compete with the world’s top exporter depends on intermediate products out of the supply chain. And one thing we know is that a hell of a lot of small industrial companies have died the death in southern Europe over the last few years.

One of the worst things about deflations is that they kill the rich ecosystem, the so-called industrial commons, that supports the tall trees of the industrial canopy. This happened in the UK in the 1980s and 1990s, and it’s one of the reasons why trying to reduce the UK’s trade deficit has been so difficult. In the 1970s, the Treasury was astonished by how much of industry was in “Engineering: Not otherwise classified” and concluded that the statistics were useless. But I think an important lesson since then was that the losses to those everything-is-miscellaneous small manufacturers in the 80s permanently weakened the economy.

So, Spain, Italy, and UK “rebalancing”: même combat. Of course, the UK has options that aren’t available to the others here – like devaluation, reflation, and QE.

Update: Another example of the Weihnachtsmarktwirtschaft is Apple’s iGadget production in China. It used to be widely believed that only design lived in Cupertino and all the work was done in China, and this was either disgraceful or brilliant depending on partisanship. In fact, Apple owns and sometimes even invents the tools, both at the Foxconn final assembly line and in the German, Japanese, Korean, and British suppliers. A corroborating lesson is that the other behemoth of mobile to survive the shakeout is Samsung, which produces components on an enormous scale and is of course a key supplier to Apple. As a result, very little of the value content in an iPhone is actually Chinese.

The fact that cheap final assembly elsewhere in Europe with the high value intermediate manufacturing as well as the design work staying in Germany would suit German manufacturers as much as it does Apple should be too obvious to need saying. This is of course largely what the German auto industry does in Poland, Slovakia, and the Czech Republic.

Off course

Recall this AFOE post on the industrial politics of the abandoned BAE-EADS deal? Here’s an object lesson, from the Galileo navigation satellite system. The French were hugely keen on the project for political-military reasons and because they knew how to build it; the Germans wouldn’t pay into it unless they got to learn. Unfortunately they had a lot to learn and now the project is a mess and Thales is sending herds of engineers to Germany to fix the satellite. If we’re unlucky, the answer might be to smush the EADS Astrium and Thales-Alenia Space satellite operations together, which might leave us without the pretty impressive Italian and UK satellite industries but with the German company that just demonstrated it wasn’t much cop.