I’ve recently been reading Peter Longerich’s biography of Heinrich Himmler (disclosure: I was Longerich’s student) and one thing that stuck out was that his translator seems to have solved a longstanding problem in Nazi-era translations, but not to have noticed. The problem is this: what do you do with völkisch?

This adjective was widely used as a self-identification by Nazis, and also by all sorts of people in the wider extreme-right movement in the German-speaking world from the late 19th century onwards. It’s sometimes translated as “nationalist”, but this is widely considered inadequate. Consider the main Nazi newspaper: Nationalist Observer is both clunky and also too harmless. It sounds like it might be a paper in provincial Ireland, competing with the famous Impartial Reporter of Enniskillen.

The problem is that the adjective is derived from das Volk, the people or the nation or the race or even the tribe or host, depending on context. The Warsaw Pact countries tended to describe themselves as People’s Republics, which translates as Volksrepublik. A Völkische Republik would have been a very different animal. Bees, in German, live in Bienenvölker – bee nations or bee tribes.

But this only expresses the incoherence of the content behind the name. To be völkisch is not the same as being nationalist. It wasn’t bound to a state or a government, or to a particular physical territory. Although it rejected civic nationalism, it excluded some members of the nation on the ground that they disagreed with it purely in terms of political opinion. It also included some foreigners, and never quite decided whether it wanted to include people who adopted German culture and served German interests, or to exclude them on essentialist grounds of race.

When the Nazis took over Alsace-Lorraine, they decided early on to reintegrate the provinces into Germany-proper, but they got hugely confused dealing with the people. If you were a blonde, German-looking, person with a German surname, but you opted to remain a French citizen, racial examiners might classify you as especially German precisely because of the stubbornness and determination you exhibited in insisting on Frenchness. Depending on who was politically in charge at that moment, they might either decide that you must be denied to the French enemy and reintegrated into the German nation, or else that you were racially German but politically probably a communist, and therefore you should be sent to a concentration camp. On the other hand, if you weren’t blonde enough but you insisted on Germanness you might be deported to France, which all things considered might have been the best thing that could have happened to you, while heaven help you if you were an unblonde who opted for France, and therefore both racially unworthy and a traitor to boot. But sometimes these last options were swapped, depending on power politics in Germany.

It wasn’t equivalent to “fascist” either. Unlike Italian fascism, a lot of völkisch people despised modernity. Unlike Spanish, Latin American, or Austrian versions of fascism, they tended to consider Catholicism the enemy. And it wasn’t even equivalent to “Nazi”. Albert Speer or Hermann Göring didn’t really fit with it, especially when the bit about hating modernity came around.

But Longerich’s translator briefly hit it out of the park by translating it as “racist”. The leading Nazi newspaper Racist Observer sounds just right to me. Although völkischkeit wanders about all over the place, race is always central to it. The varying worldviews on history, culture, policy, etc. are all organised around race and racism. An important point about völkischkeit is that it always had pretensions to the status of science, and the source of this pretended authority was the concept of race. It was racist in the sense that it demanded discrimination, apartheid, slavery, and eventually genocide. It was racist in that it claimed inspiration from other regimes it considered racist.

Of course, the notion of race is itself incoherent and pseudo-scientific. Völkischkeit incorporated poorly understood concepts from genetics, physiology, and statistics. The genetics was usually pre-Mendelian, the statistics pre-Fisherian (even if RA Fisher himself was more than a little racist), and the physiology already overtaken by genetics. Himmler, for one, had started looking for an escape-hatch by 1942 or thereabouts through vague notions of recessive genes and spontaneously emerging leaders among the subhumans. In many ways, this reminds me of bad science-fiction.

Völkischkeit might well be considered a genre fiction more than anything else. It consisted of poorly understood, not-quite cutting edge scientific concepts, plus a variety of myths and aesthetic tropes, organised into narratives by wishful thinking. This may remind you of H.P. Lovecraft, and it probably should as he was a prize racist. It should come as no surprise that, according to Longerich, Himmler was addicted not just to pseudo-science of every sort, but also to crappy genre fiction, consuming vast quantities of both.

Only a madman could doubt the integrity of…

The French conservatives tearing their party up are weird enough. And they’re still at it, with one important figure trying to get deputies to support having a new election, others picking a fight with Sarkozy’s rightist advisor Patrick Buisson, appeals to Cope to step down and rowdy public meetings, the Socialist in charge of parliamentary financing scheming to offer Fillon a little extra. Tonight’s headline: Discord persists between Cope and Fillon. You could say that.

But it’s as nothing to this German story. So there was this guy who repeatedly claimed that his wife’s division of HypoVereinsBank was smuggling cash into Switzerland for the benefit of its wealthy, tax-evading private clients. He even pressed charges with the Bavarian police but nobody took it at all seriously, although he named 24 of the clients and their advisors at HVB and gave details of the Swiss bank accounts. Eventually, he was arrested for assaulting her.

Well, you can’t condone this kind of behaviour.

Unusually, he was sent to a secure psychiatric hospital, and has been there ever since, while HVB surfed the bubble and sank in the crash. Had he been found guilty, he might not have done time at all. No, stop. Going by the account here, he was held responsible, but acquitted on the grounds of diminished responsibility and sent to the funny farm because he thought HVB was crooked, a belief that only a madman could apparently hold.

And now it turns out he was…right in every detail, even if he accused another figure in the case of being on the side of the bankers because he lived next door to one. HVB’s private clients operation was hugely involved in tax evasion, and yes, carloads of raw cash were driven to Switzerland, to be paid into accounts with codenames like “Monster”. The original file on the case has been shredded. And HVB’s internal audit knew as long ago as 2003.

Now, although the state minister of justice is getting support from the top, this isn’t stopping the taxman from working down the list, reminding those on it that an arrangement could always be made for those who voluntarily choose to settle their outstanding debts.

And if that wasn’t good enough, with its distinct Jimmy Savile flavour, a sinister lobbyist hacks into the Ministry of Health’s e-mail on behalf of one of Germany’s most powerful interest groupsthe pharmacists.

When opposites agree

A surprising moment of consensus: Der Spiegel and the Taz both rip into Peer Steinbruck, former German finance minister and leading the race for the SPD’s candidacy as chancellor. Not only that, they do so for substantially the same reasons.

First, they agree that Steinbruck denied in the autumn of 2008 that the financial crisis was a problem, claiming that it was the Americans’ fault and nothing to do with Germany, and even said that there was no need to bail out the banks. Secondly, they agree that he argued vehemently that a response to the crisis would be national-but-coordinated, rather than European, thus leaving Ireland and Spain to cope on their own, and he refused to lead an IMF working group on the issue. These days, he supports euro-bonds. Thirdly, despite all his bluster, he then reversed course and bailed out the banks, setting a precedent.

It’s fascinating that the green-left Taz and Der Spiegel, which might as well be the Bundesbank’s house journal, manage to agree on so much. Taz is predictably more radical, pointing out that WestLB swelled up with dodgy asset-backed securities and eventually burst while Steinbruck was its regulator and that he even got a light-touch regulatory policy for derivatives written into the 2005 coalition agreement, and that he also denied that there was any need for stimulus in the autumn of 2008 before changing his mind. (Who now remembers crass Keynesianism?)

Meanwhile, Guy Verhofstadt and Danny Cohn-Bendit have a manifesto. What can those two possibly agree on? Inevitably, it’s more federalism. As with everyone who uses the phrase “more Europe”, what they want to do with it isn’t clear.

Making the eurozone fit for the challenges of the 1990s

British economist Jonathan Portes remembers the UK’s exit from the Exchange Rate Mechanism:

We argued that the fundamental problem was that we’d joined the ERM at the wrong rate; sterling was overvalued, meaning that we were stuck with a structural current account deficit. The only way to maintain the peg would be through what is now, in the eurozone context, referred to as “internal devaluation”; that is, real interest rates at a higher rate than dictated by internal conditions, and a long and grinding squeeze on wages and prices.

Our solution? We didn’t dare suggest complete abandonment of the ERM. One possibility was for sterling to “realign”, that is devalue, to a considerably lower rate, boosting exports and allowing interest rates to fall. Even better, politically and perhaps economically, would have been if the Germans could have been persuaded to realign upwards, so avoiding the perception that sterling was being singled out; but the French were resolutely opposed to any devaluation of the franc.

The fascinating thing here is, of course, that nothing has changed. In many ways, this is because the issues haven’t changed. Keynes said that the whole complex problem of European currencies and trade in the 1920s could be reduced to one question: how much of France’s war debts would be paid by workers and how much by savers, whether through taxation or through inflation. The answer would set the price level and hence the exchange rate, and how much of a trade surplus Germany could run, and therefore how much of Germany’s war debts could possibly be paid.

Similarly, in 1992 the questions was how the costs of German reunification would be split. Taxation was chosen over inflation, capital was privileged over income. Now, arguably, the question is how the cost of the Great Bubble will be split, and you guessed it. Portes is damning on the reasoning behind this:

The UK had long suffered from periodic cycles of boom and bust, most recently exemplified by the deep recession of the early 1980s and the unsustainable boom of the late 1980s. Monetarism – targeting various measures of the money supply – had failed miserably. The alternative was to “import” credibility from a country with a demonstrated record of maintaining low inflation while avoiding boom and bust – Germany, and we could do exactly that by tying our exchange rate and monetary policy to theirs…

But for me, the most important lesson was a more general one about “credibility”- a concept often used and abused by both politicians and economists. As with the ERM, the argument made by the current government and its supporters for sticking to its fiscal consolidation plan, despite its evident failure, is that the strategy has established “credibility”, especially with financial markets, which can only be preserved by sticking with it.

But of course this is not a justification, economic or otherwise, for the policy. Instead it is an argument for never changing policy at all…

The real hit to credibility comes from sticking to unsustainable policies; and economic success comes from abandoning them and doing something sensible instead. That is one lesson from Black Wednesday we could usefully remember.

Meanwhile, Migeru from the collectif antilibérale has an excellent column taking a sector-balance approach.

Political Europe, with rockets.

Something that has been interesting me recently is the surprising resilience of political Europe. It’s not supposed to work this way – economic integration was meant to pull the continent together into ever-closer union, and the imperatives of economic integration would somehow cause the political sphere to follow along. For years, the criticism was always that the EU was either a boring technocratic project with no zang or zap or anything else with a Z, and that we needed to find a way of getting the public engaged, or else that it was an anti-democratic project imposed on the public.

These days, in many ways, the economic integration has gone into reverse. The simplest index is the gapping-out of every kind of interest rates within the EU. A more sophisticated one is the shift from financial flows between peers to ones mediated via the European Central Bank. This is counter-intuitive, but the point was to facilitate trade and finance among European businesses, not to force everything through a central counter-party.

But the political level endures. People reliably poll strongly in favour of “Europe”, especially in the countries that are suffering the most. And even if the elite consensus seems battered, people are still willing to consider merging the entire European aviation industry.

The failed EADS-BAE merger, however, reflects the limits of the political consensus, and also the changes in it over the last 10 years. People often say that European states are unwilling to touch defence as an issue, because the ultimate attribute of sovereignty is the ability to wage war. But this isn’t quite true. The scale of international integration within NATO is at least as impressive as it is in the EU, especially as it deals with precisely this issue. And it’s not obvious that the obsession with gaining or losing sovereignty is a useful analytical construct, as it tends to obscure the content of policy in favour of meta-arguments.

Why did EADS-BAE not happen? Why did it get as far as it did? It didn’t happen, for one thing, because it was enormously complicated. Both the French and German governments hold shares in EADS, and although the UK government doesn’t own a stake in BAE, it does have reserved powers over it. Further, the French aviation industry outside EADS exists and is a substantial shareholder in it. Sorting all this out implied, among other things, settling the question of whether the French state is more committed to the purely national industry that produced the Rafale or to the European (but heavily French) one that produces the Airbus, something which touches on complex interest politics in France. It implied that the UK government rights in BAE be recognised, which in turn suggested that the British would have to have a stake again.

And it implied settling the question of where Germany fits into European defence and into the European aerospace world. This would actually prove to be the breaking point. Germany, as a nation of export-oriented engineering manufacturers, is always keen to expand its technological base. The second world war shut it out of aerospace for many years, first because the Allies simply banned it and many of the people ended up in the US or the Soviet Union, and then because of the lasting impact. German politicians, officials, and industrialists have been trying to make up the lost ground ever since, and European joint projects have played an important role. West Germany was a charter member of Airbus, of the MRCA program, of Eurofighter, of Eurocopter.

Some of the joint projects were Franco-German, others (like Airbus, Tornado, and Eurofighter) were broader. Interestingly, there was never an Anglo-German project, but there were plenty of tripartite ones, especially after the UK joined Airbus in 1977. One thing that marked many of these projects, though, was the tension between the UK and France on one hand, and the Germans on the other. The key issue was workshare, how much of the production would happen in each country, and more interestingly and significantly, what would come from each country. The French, and the British, considered themselves to have a leading role. The Germans were keen to create a base of know-how on subjects their industry hadn’t had the opportunity to master.

This was dramatised by the history of the Eurofighter project. It began with a great deal of optimism, following the successful Anglo-German-Italian Tornado, which it was meant to replace. The French had decided to join. There were the usual problems in defining the requirements, although they were nowhere near as complex as they had been on Tornado (it had to be a fighter for the Brits and then evolve into a bomber, a maritime bomber for the Germans, and a reconnaissance and electronic warfare aircraft for the Italians, and then a different recon variant for the Brits). By 1985, BAE Warton had a technology demonstrator flying.

Then, things went wrong. The German side wanted to take responsibility for much more of the fuel system and the flight control system. Not only did the British and French consider these to be the crown jewels of their aviation technology, but they also suspected that the Germans were overconfident about how long it would take to create such a capability in Germany. The British were ideologically suspicious of government industrial policy in general, while the French and Italians understood it all too well and accused the Germans of trying to build a competitor industry at their expense. Eventually the French quit and started a unilateral project at Dassault, which to the enormous embarrassment of everyone else would arrive in operational service years before the Eurofighter. The Germans did get the flight controls, and as predicted the project ran enormously late and over budget, before the control system was eventually given back to the UK.

The delays and the cost overruns brought their own problems. By the time the prototype was flying, the cold war was over, and everyone wanted to reduce the production run, especially as the planes were so much more expensive than projected. The cuts to the run meant that the unit price went up. That induced more wrangling. And by the time the planes were finally being delivered, the customers’ requirements had changed.

With the EADS-BAE merger, many of the same patterns emerged. The price of accepting the deal included moving the HQ to Germany, something the French saw as positively offensive. This wasn’t quite as fair as it might have been 20 years ago. In the meantime, the Airbus narrow-body line at Hamburg-Finkenwerder has produced vast numbers of Airbus A320s with success, and developed a speciality in reworking A300s and 310s. (The British could have had it back in the 80s if they had been willing to pay, but they really didn’t believe in industrial policy.) In that sense, Germany is a much bigger contributor to Airbus than it used to be.

The British and French were able to settle their own differences surprisingly easily, reflecting ten years’ effort to mend relations after Iraq, and cooperation on big aerospace projects as far back as the 1950s (for deep historians, the first world war, when the British made the airframes and the French the engines). That was one of the reasons the deal got as far as it did.

Another was that BAE’s decade-long acquisition spree in the US is running down. Careful arrangements were planned to avoid annoying the Americans, but the background fact is that most of BAE’s assets in the US are very much about building the requirements of the War on Terror. If you associate the company with aircraft, it looks deeply odd that it owns quite so many factories making the armoured patrol vehicles the US army bought in vast numbers for Iraq, making explosives detectors, making all the icons of the Bush era.

Further, neither the US or the UK procurement bureaucracies are at all keen on the “prime contractor” business model that helped Lockheed Martin, Northrop-Grumman, Boeing, and indeed BAE waste so much taxpayers’ money in the 2000s.

What does this all tell us? Political Europe is still kicking. The limits of it, though, are still what they were, even if they are very often drawn between different office blocks in Paris as well as along the Channel or the Alps. The EU is troubled, but the Special Relationship isn’t what it was either, although the entente cordiale is surprisingly strong. German corporate ambition is a powerful force, and one that tends to blind the people involved to the fact that there are engineers in Italy.

Political union is transfer union

It is very often suggested that there is no point looking at solutions to the European crisis that don’t involve more “political union”, an EU institutional term meaning a move towards a more centralised and “federal” (in the special EU sense) union. This argument is curious.

For a start, what is it about political union that is meant to solve the problem? Some people will probably say that it would be “a message” or “a signal” or something, a demonstration of commitment to the European Union that would in itself create confidence. But this sounds a lot like hand-waving to me, or the kind of genius that suggested introducing a pan-European tax as a way of making the Union more popular (yes, Mr. Verhofstadt, it is not entirely forgotten).

More seriously, political unions tend to have a substantial budget and the capacity to use it in a discretionary sense. In the political union between the provinces of Germany, there is a systematic redistribution of money between richer and poorer parts of the union. In the political union between the states of America, there is less overt redistribution, but there are very large federal agencies that in practice tend to redistribute money around the union. NASA, for example, had a secondary and very important role subsidising the industrial development of the South-Eastern US, and this goal influenced important design decisions in the Apollo and Shuttle programs.

It is also true that some degree of redistribution is inseparable from anything that could be described as a political union. Try to imagine the opposite. The political union would have to be designed so as to make absolutely no change to the a priori distribution of income, an exercise that boggles the mind in its complexity and futility.

The simplest model would probably be a libertarian utopia/dystopia with a minimal state devoted solely to defence, funded by a flat tax on the citizens. But now imagine what would happen when its army deployed for annual exercises. A large quantity of income collected all over the union would suddenly be spent in the exercise area. If, as is likely, there were a limited number of convenient training areas, or the army tended to train where it expected to fight strategically, we would expect to see a military-industrial complex emerge in those areas.

Just because your biggest customer is the army doesn’t make you useless, of course, it may make you indispensable. And in that case, our political union that is not a transfer union would have to think about how to keep you going between deployments, in which case it would be undertaking both industrial and regional policy. A state (or political union) that has no budget, or a budget that is economically indistinguishable from the absence of one, is no state (or political union). Marx thought that the state would wither away in true communism; you can argue about what he meant, but I think he imagined a society in which the functions of the state were either unnecessary, or else carried out by the citizen as a matter of course, not even perceived as a duty. A state whose budget changed the structure of the economy so little as to be totally non-redistributive would, I think, have a fair claim to have withered away.

I can’t see how an entity that made no transfers of wealth or income can be considered to have the functions of a political union. Further, even if a political union was created that was not also a transfer union, it wouldn’t solve the problem. Various parts of Germany need transfers from others; the same goes for all political unions. Declaring “political union” doesn’t solve the problem in itself. It might be taken to mean “direct ECB management of Greek public finances”, but then this is just hoping that the Greeks can find some more money with more will, and perhaps a pony as long as the pony is Karlsruhe-compliant.

Here is the problem: political union is transfer union, or it is not political union, and anyway, if it is not transfer union it is no solution. Transfer union is unacceptable. Therefore, political union is unacceptable, and anyone who talks political union is saying “Let the file mature while we do what the EU does best, holding an Inter-Governmental Conference”.

Slight return to the politics of wage bargaining

A little late-night raking over the embers of my jihad against Nick Rowe. RPPE discusses an interesting point of Robert Solow’s – notably that the idea of a vertical long-run Phillips curve and accelerating inflation above the NAIRU is, or was, conventional wisdom, but nobody ever believed that you could push it the other way and get accelerating deflation. Believing in monetarism implied both disbelieving in sticky prices and also believing in them at the same time.

Anyway, from there we get to the question of exactly what “wage bargainers”‘ expectations might be and how they got set in the 1980s.

The big question that comes out of all of this is if when we are talking about labour markets and inflation if we are not better to put our arguments essentially in the terms of political economy such as institutions and bargaining power or in narrow technical terms? Can you even talk about expectations without talking about institutions and power?

Go, read. See also Bloomberg on a little German sunshine and Business Monitor predicting strikes in May. Some people think that’s a bad thing, of course.

If you don’t want to read about the content, this is the post for you

So, a bit of Euro-summit processology and diplo-speak. Why not? This was a failure of diplomacy, after all – all the states involved are allies and have largely convergent interests, the problem is managing conflict politely, but here we are.

The first question I’d really like answered is why David Cameron didn’t take the same course as the other states that disagreed, and simply say that he needed to consult parliament. It is theoretically possible for a British prime minister to both sign and ratify treaties executively, but it’s been assumed since the first world war that they must be at least seen by the House of Commons, and anyway this one required some very serious legislation at the national level.

I can’t imagine that the Tory hard right would be anything other than delighted by the chance to kick it out, even if the fact of being consulted and given power over a real goddamnit treaty didn’t fix them in itself. Had the Commons killed it, there’s no reason why it wouldn’t just have been another ratification foul-up, like the ones we regularly have with Irish referendums and decisions from the courts in Karlsruhe. Of course, it might never have happened – the treaty will need ratifying, quite probably this will mean one or more referendums, super-majority votes, recourses to the supreme court, and the like.

This raises a further question. Why did we need all 27? They’re not all in the Euro. The Eurogroup is a thing, and the French especially are in favour of it. It is, I suppose, still considered important to pretend that everyone will one day join, but this seems a bit remote as an argument.

And why was daft pork like the location of the European Banking Authority even up for discussion? It’s the sort of thing you expect from someone like Berlusconi, whining that there’s no food in Finland in the hope of some marginal-constituency shiny. The best explanation I can think of was that somebody was hoping that this would derail the whole project, without spoiling Franco-German relations, but it got a bigger response than they expected.

Another way of looking at it is that the European Commission has come out weaker – the new new thing is a pure side-deal, even if the Commission (or at least its EMU Directorate-General) has been very austerity-minded. Either a full 27-state amendment, or a Eurogroup one, would have protected its status and special role.

But then, I seem to recall Daniel Davies arguing that the Commission could be seen as Germany’s soft currency lobby. There ought to be such a thing – it’s Germany! the great exporter! – but it often seems to be nonexistent. On the principle that a revived mark would rise relative to the euro, the logic goes, the European institutions are the lobby for a lower German currency.

If this is so, it makes a lot of sense that the German hard-currency lobby would want to cut out the Commission and even the ECB, which implies going for an intergovernmental solution. Form requires, however, that it stays officially all blue and yellow, so all 27 must be involved in a treaty revision. The French didn’t like the idea much, but liked the idea of openly disagreeing with the Germans less, and hoped the Brits would kill it. The Brits thought it was the final triumph of euro-socialism, or something, and over-reacted. As a result, it went through anyway, with any waverers whipped-in by being told that it was just the Brits being bad Europeans. I think this story fits the facts.

Chart of the week, IMF edition

Via the TUC Blog, this chart from the IMF is worth studying. It shows the sources of public debt in Europe since 2007 for Germany, Italy, France, and the UK.

You will notice that: yes, Virginia, the Germans bailed out the banks. Also, the Germans carried out the biggest discretionary fiscal stimulus in Europe at 5% of GDP. In all, German public debt increased as a percentage of GDP by more than Italy or France’s and second only to the UK’s. Also, Italy’s problems are entirely to do with growth or else with interest rates. And it looks like the political ability to pull in taxes is pretty important (something Daniel Davies pointed out not so long ago).

Sewing? No. Reaping.

The deflationary settlement of intra-eurozone imbalances has not necessarily developed to Germany’s advantage. German industrial order books shrank by 12.1% for exports to the eurozone, while orders from the home market fell 3% and from the rest of the world by 0.3%. Interestingly, the worst sub-sector was semi-manufactured goods and chemicals, i.e. inputs into industrial supply chains. This, to me, suggests that the crisis is affecting places like northern Italy – not just selling fewer BMWs to the periphery, but also selling fewer fancy chemicals to go into the plant in La Spezia that made the propellers for the Queen Elizabeth class aircraft carriers.

Meanwhile, does it worry anyone else that no media outlet has managed to report Angela Merkel’s actual words leaving the G20? Reuters started it, but didn’t provide an actual quote, and anyway it’s usually good practice to distrust any English-speaking journalist’s German. At the same time, the Guardian‘s live blog gave up and started reporting what people were posting on Twitter. Not just that – I’ve also seen journalists referring to “Berlusconi’s economic stimulus plan”. If only!

It’s been a bizarre week, but if the papers can’t do mindless stenography of the words of the powerful, what are they for?