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.

Bang!

Oh well, here it is: yes, Virginia, the BND shared enormous amounts of surveillance material with the NSA, both from their military SIGINT group deployed with the German army in Afghanistan and from, well, Germany. Officially, this didn’t contain any information on German citizens. Also, the Germans offered the Americans the use of two software applications they developed, presumably as part of the deal for X-KEYSCORE.

Meanwhile, the Germans have given notice on an agreement from 1968 that permitted the western allies to request surveillance in cases that affected the security of their forces in West Germany. This document had apparently not been used since 1990 (they say). Oddly, the US and UK agreed immediately to terminate it by exchange of notes, but the Germans were still negotiating with France yesterday.

Edward Snowden and the Political West

Germany is the theatre in which the consequences of Edward Snowden’s disclosures are being played out. Why is this?

Obviously, privacy and data protection are especially sensitive in Germany. After the Stasi, the centrality of big databases to the West German state’s response to the left-wing terrorists of the 1970s, and the extensive Nazi use of telephone intercepts during the seizure of power, it couldn’t really be otherwise. Privacy and digital activism is older and better established in Germany than anywhere else – in the US, for example, I consider the founding text of the movement to be the FBI vs. Steve Jackson Games case from 1990 or thereabouts, while the key text in Germany is the court judgment on the national census from ten years earlier. But the UK has a (strong) data protection act and no-one seems anywhere near as exercised, although they probably should be.

So here’s an important German word, which we could well import into English: Deutungshoheit. This translates literally as “interpretative superiority” and is analogous to “air superiority”. Deutungshoheit is what politicians and their spin doctors attempt to win by putting forward their interpretations and framings of the semirandom events that constitute the “news”. In this case, the key event was Snowden’s disclosure of the BOUNDLESS INFORMANT slides, which show that the NSA’s Internet surveillance operations collect large amounts of information from sources in Germany.

The slides don’t say anything about how, whether this was information on German customers handed over by US cloud companies under PRISM orders, tapped from cables elsewhere, somehow collected inside Germany, or perhaps shared with the NSA by German intelligence. This last option is by far the most controversial and the most illegal in Germany. The battle for Deutungshoheit, therefore, consisted in denying any German involvement and projecting the German government, like the people in question, as passive victims of US intrusion.

On the other hand, Snowden’s support-network in the Berlin digital activist world, centred around Jacob “ioerror” Applebaum, strove to imply that in fact German agencies had been active participants, and Snowden’s own choice of further disclosures seems to have been guided by an intent to influence German politicians. Der Spiegel, rather than the Guardian, has been getting documents first and their content is mostly about Germany.

In this second phase, the German political elite has shifted its feet; rather than trying to deny any involvement whatsoever, they have instead tried to interpret the possibility of something really outrageous as being necessary for your security, and part of fundamental alliance commitments which cannot be questioned within the limits of respectable discourse. The ur-text here is Die Zeit‘s interview with Angela Merkel, in which Merkel argues that she knew nothing, further that there was a balance to strike between freedom and security, that although some kinds of spying were unacceptable, the alliance came first. The effectiveness of this, at least in the context of the interview, can be measured by astonishingly uncritical questions like the one in which she was asked “what additional efforts were necessary from the Germans to maintain their competitiveness”.

So what’s going on? British intelligence historian Richard Aldrich’s history of the UK signals intelligence agency, GCHQ, is illuminating. He argues that since the 1980s, the (West-) German government has had a long-term policy of building up the BND intelligence agency’s SIGINT capability. This was explicitly encouraged by the NSA, specifically its then director William Odom, who wished to get less European intelligence from the British. Obviously, this implies German intelligence sharing with the NSA.

At the same time, the (West-) Germans wanted to get more of their own information on subjects that interested them, notably operational-level (corps and above) military intelligence on the Soviet forces. The British were also concerned about this, for different reasons. The intelligence alliance between the UK and US, and the so-called Tier 2 partners (Canada, New Zealand, and Australia), predates NATO and was often sceptical about the security of NATO and West German institutions. As a result, signals intelligence reaching NATO commanders in Germany was often marked CAN/US/UK EYES ONLY and therefore too secret to show the Bundeswehr, who were providing 500,000 soldiers in 12 armoured and mechanised divisions with 24 hours’ notice. The absurdity of this can be seen from the fact that NATO multinational HQs often had a German general as one of the three posts of commander, deputy commander, or chief of staff. The British were, for their part, concerned that the US system was not going to get usable reports forward into the field in time to be any use. Both the UK, with the Nimrod R1 program, and the Germans spent serious money to solve this.

Another factor in the 80s was that France was encouraging other European countries to contribute to its own intelligence collaboration. Joining this would only add a further degree of dependence, on France, if Germany didn’t bring something to the table. Building up the BND and sharing information therefore served several different motives.

There was a patron-client motive, in which the Germans sought greater independence from the US (and its allies). There was an alliance-integration motive, in which the Germans (and the UK, and the US) sought to strengthen the alliance’s (or alliances?) technical capability and to deepen the partners’ commitment to it (them?). And there was also a bargaining or marketlike motive, in which the Germans were seeking to have more intelligence on hand that could be traded for advantages, whether with the French, the US, or whoever. I think this is also true of the other participants in the intelligence alliances – the UK, for example, didn’t build its own satellite capability, partly because there was a feeling that the Americans would do it better, but also because participating more deeply in the US satellite program, by having part of the take from the satellites downlinked at Menwith Hill and analysed at GCHQ, created a stronger bargaining position with the Americans (and others) in terms of the final intelligence product.

We now know, thanks to the latest Snowden event, that the BND and the federal version of the Verfassungschutz were offered the use of the X-KEYSCORE system, which seems to be an analytics tool for working with a wide variety of Internet surveillance data sets. Interestingly, the Verfassungsschutzer were offered training by BND officers, implying that they already had the system.

The US motive can also be analysed in the same terms as above. As an ally, they may have wished to strengthen German antiterrorist efforts (this happened shortly after the discovery of a terrorist plot in Germany). As a patron, they may have wished to reward their client, and also discourage them from developing their own technology or cooperating with some other party (like China!, following Britain’s lead). This was fairly common in the cold war era, according to Aldrich, when there was both a will to improve NATO communications security and a will to maintain some advantage over the other NATO partners. And as a bargaining actor, they may have acted because they were offered a good deal in return. So, what was the deal?

(If you want a clue, you might wonder what the large company operating in both the US and Germany mentioned in some of the PRISM documents is.)

In general, I think the BND is likely to have shifted from being closer to the “patron/client” model, towards “bargaining/market”, while still being very much “alliance/integration”. After all, the last sections of the NSA facility in Germany were handed back in May last year. It is very telling, though, that one of the first reactions to the Snowden disclosures from German politicians was outrage that Germany wasn’t considered even a “Tier-2″ partner – probably fake outrage from those in the know. (As we have seen, this term has a definition.) This isn’t the reaction of people who are horrified at the thought of spying, though, rather that of people shocked that their investment in spying is not paying off as well as they hoped.

So, to round off, the point of the battle for Deutungshoheit is to maintain the primacy of Atlanticism in German public debate on foreign policy. This is, in many ways, the mirror image of the primacy of ECB-ism in debate on economic policy. Those who accept the consensus are respectable, those who aren’t, aren’t. If you doubt, the same issue of Die Zeit would tell you that the EU-US trade agreement must be signed for the sake of the “political West”. Everything going on here is touching on German privacy fear, but also on profound questions of geopolitics, and just politics. It is therefore very interesting that Der Spiegel, usually very, very NATO-minded, is being so difficult and un-biddable.

It is also probable that Edward Snowden’s best chance to get out of Russia is to disrupt the politics of SIGINT in Europe as much as possible.

People Like Us

From German finance minister Wolfgang Schäuble weekend surge of editorials on the Eurozone crisis (via Süddeutsche Zeitung) –

Alle internationalen Studien bestätigen dies, genauso wie die EZB, die EU-Kommission, die OECD und auch der IWF – in der Reihenfolge geleitet übrigens von einem Italiener, einem Portugiesen, einem Mexikaner und einer Französin.

Roughly: All international studies confirm this [importance of sound fiscal policy] — from the ECB, European Commission, OECD and IMF, led in each case by an Italian, a Portuguese, a Mexican and a French woman.

The nationalities are presumably meant to indicate the non-Northern European nature of this consensus. But is it really going to appeal to the unemployed Italian, Portuguese, Mexican, or French that one of their nationals happens to be head of an international organization — staffed heavily from by-the-books economists — which produces studies justifying the policies from which they experience adverse effects?

UPDATE: An English version of the piece appears in The Guardian.

Massive Volumenreduzierung

The Guardian‘s scoop on GCHQ’s submarine cable tapping:

The processing centres apply a series of sophisticated computer programmes in order to filter the material through what is known as MVR – massive volume reduction. The first filter immediately rejects high-volume, low-value traffic, such as peer-to-peer downloads, which reduces the volume by about 30%. Others pull out packets of information relating to “selectors” – search terms including subjects, phone numbers and email addresses of interest. Some 40,000 of these were chosen by GCHQ and 31,000 by the NSA. Most of the information extracted is “content”, such as recordings of phone calls or the substance of email messages. The rest is metadata.

German politicians are horrified:

Sabine Leutheusser-Schnarrenberger, the German justice minister, said the report in the Guardian read like the plot of a film.

“If these accusations are correct, this would be a catastrophe,” Leutheusser-Schnarrenberger said in a statement to Reuters. “The accusations against Great Britain sound like a Hollywood nightmare. The European institutions should seek straight away to clarify the situation.”

The FAZ reports in some detail and talks to the German intelligence services:

Man arbeite ganz anders als die transatlantischen Partnerdienste, heißt es. Wenn Amerikaner oder Briten das große Schleppnetz auswerfen, dann sieht sich der deutsche Dienst als der Schwimmer, der mit einer technisch ausgefeilten Harpune darauf erpicht ist, den großen Fisch zu erlegen. Tatsächlich kann der BND mit seinen insgesamt rund 6500 Mitarbeitern den Abhördiensten der Amerikaner und Briten rein personell nicht das Wasser reichen. Anstatt große Datenmengen abzuspeichern, rastert und verdichtet der deutsche Dienst sie.

Dabei nimmt man in Anspruch, immer effektiver zu arbeiten. Hatte man 2010 noch 37 Millionen Kommunikationen, im wesentlichen E-Mails, gefiltert, so waren es im folgenden Jahr weniger als drei Millionen. Im Jahr 2012 liegt man bei weniger als einer Million Daten, weil die „Selektionsfähigkeit“ aufgrund bestimmter Suchbegriffe und Algorithmen verbessert wurde. Die Zahl der sicherheitsrelevanten Ergebnisse – es sind wenige hundert – ist gleich geblieben

I translate:

We work quite differently to our transatlantic partners, a source said. If the Americans or the British throw out a big trawl net, by contrast, the German service sees itself as the swimmer who sets out to catch the big fish with a harpoon honed on the cutting edge of technology. The BND, with around 6,500 staff, can’t keep up with the British or American SIGINT agencies in terms of personnel. Rather than storing huge volumes of data, the German service condenses and filters it.

This requires a constant effort to work more efficiently. 37 million communications, essentially e-mail messages, were caught in the filter in 2010, but less than 3 million the following year. For 2012, the figure is less than a million, because the system selectivity has improved with better algorithms and better search queries. The number of results that were relevant for national security, a few hundred, stayed the same.

Note the careful spin here. We don’t take all that traffic. No, only carefully selected nuggets out of it. The numbers are falling every year!

But it’s obviously impossible to filter the traffic, however selectively, without first pulling it in. And if the numbers are falling, it’s because the filtering process, and presumably the analytical capacity and computing infrastructure involved, has become more effective. You could even call it “massive Volumenreduzierung” or something. What a masterly piece of non-denial denial.

I note that Steffen Bockhahn of the Linkspartei has made this point at the foot of the piece.

High-Trust and Low-Trust Societies, Banks, and Europe

Pawel Morski:

A “banking system responsive to local needs” quickly becomes “piggy bank for local politicians”.

Well, local politicians are elected, after all. Democracy is a thing. But I know what he means. That Spanish caja that was run, into the ground, by the Catholic Church. That kind of thing. WestLB back in the day when it financed William Hague’s best friend buying all the pubs and the Ministry of Defence married quarters and Peer Steinbrück was its regulator, before it blew up and the explosion threw him all the way from Hannover to Berlin and he got to be federal finance minister, SPD leader, Mr Prudent McBluebollocks an’all.

Does Neal Ascherson really not know about HypoVereinsbank?

I think the operational question here, certainly as far as the UK is concerned, is “are we a low-trust or a high-trust society?” It works for the Germans (for some values of works, and except when it doesn’t work), it doesn’t work for the Spanish (except of course when it did).

Sparks = high trust, cajas = low trust. We like to think we are a high-trust, low-corruption north European country, but I often think the history of the UK post-1979 is the history of an emerging low-trust society.

Of course, when we were canonically much more trust-y, Jimmy Savile was raping everything in sight, the Met Police was basically our biggest organised crime gang, and the MOD was perfectly happy to test nuclear weapons on our own soldiers. But then, trustful Germany has had some pretty decent scandals. Do you remember before Wolfgang Schäuble was All Better Now, when he was responsible for a massive illegal party financing system linked with the Elf-Aquitaine scandal? ‘Course you do. And further back, when he did precisely the same thing with German arms manufacturers?

But trust is an interesting concept. If you knew for a fact the people you dealt with were honest, you wouldn’t need to trust them. Trust and betrayal go together. High-trust societies are ones where people behave as if they could trust each other, and that choose to deal with the inevitable abuses of trust in certain ways. Low-trust societies are ones in which people behave as if they cannot trust each other, and especially, as if there was no realistic hope of sorting out abuses of trust later.

I actually wonder if the distinction is really about what happens after a breach of trust is discovered. J.K. Galbraith’s bezzle, the inventory of undiscovered embezzlement in an economy, is a universal phenomenon but the means of dealing with it differ dramatically. When an aeroplane crashes into the ground, in the UK or, say, the Netherlands, the first people on the scene after the fire brigade are the AAIB inspectors, whose mission is to establish the facts. In Italy, or Greece, the first people after the fire brigade are the police, come to arrest any of the crew who survived. The distinction is telling. If you can’t expect justice, and you can’t expect the truth, you might as well practice cynicism like you practice an instrument, as a skill or even an art.

In a sense, social trust is an ideology. We choose to believe that our neighbours are basically decent people in a civilised society, or that of course they’re all the same and all crooked, but wouldn’t you be if you had the chance, and so you better look after number one. And if it is an ideology, it is part of the political sphere and it can be changed. Now there’s something for you – hope. But I fucking hate hope and hope-mongers, so…ah.

One way of looking at Francois Hollande’s campaign for the “moralisation of politics” is an effort to do just that, to keep France from becoming even more of a low-trust society than it already is. Of course, whether France is a Latin country (stereotypes: Catholics, inflation, tourists, Picasso, bureaucracy, conspiracy politics) or a northern one (stereotypes: Vikings, Gothic buildings, electrical engineering, the Republic, international modernism, ENA) is a cliche up there with whether Britain is facing Europe or the high seas or whether Russia is in Europe. But perhaps there’s some truth to it. Is it…spreading?

Low-trust societies, I think, emerge when the norms imposed by the elite are both compulsory and also impossible, and especially when the elite doesn’t seem to practice them itself. You could put it another way: it’s Berlusconi’s Europe, and we’re just living in it.

Daddy, what did you do at the University?

From the department of cross-European otherness: some German politicians never finished their university degrees. Apparently, this is shocking. To the point where some of them worry about explaining it to their sons, and Green leader Claudia Roth gets hate mail for it.

That said, more than one confesses to having their staff regularly edit their Wikipedia entry to eliminate the stain. Now, that is shocking.