Brexit and Banks

With Prime Minister May due to trigger Article 50 eight days from now, shit’s about to get real the clock is about to start ticking, not least for the huge financial center in London. Nothing in the present UK government suggests that they will be able to negotiate an amicable separation in the twenty-four months before they are unceremoniously bounced from the European Union. (Less actually, as agreements will have to be finished early enough for the relevant bodies to vote on their approval.) Hard Brexit, here we come.

Likewise, I don’t see any reason for the 27 to let London continue to have the same access to EU financial markets that it had when the UK was a member of the Union. Prudent bankers came to similar conclusions long ago, and indeed Bloomberg finds that plans to move people and capabilities into the remaining EU are taking concrete shape. Frankfurt and Dublin are the likeliest winners: Frankfurt is the largest financial hub on the continent, and home to the European Central Bank; Dublin is the only English-speaking alternative. (At least until Scotland joins the Union.) This was always the way to bet, and reporters’ talks at individual banks are adding micro details to the macro framework.

“Bank of America Corp., Standard Chartered Plc and Barclays Plc are considering Ireland’s capital for their EU base to ensure continued access to the single market, said people familiar with the plans, asking not to be named because the plans aren’t public. Goldman Sachs Group Inc. and Citigroup Inc. are among banks eyeing Frankfurt, other people said.”

Two Japanese institutions Bloomberg spoke with are considering Amsterdam; Morgan Stanley, local patriots, insisted that New York would gain as they and other institutions re-allocated resources away from Europe entirely. Brexit is going to put a huge dent into one of the UK’s most important economic sectors. Taking back control!

A bit of diplomacy and German

OK so. The Germans really aren’t happy about the whole “we 0wnzrd yr chancellor lady!!1!” thing. Today, the German Foreign Ministry suggested that the British ambassador might drop by for a chat, perhaps with coffee and cakes. I say this because there is a fine distinction available in some British idioms between an interview without biscuits, without tea, and without tea or biscuits, indicating a progressively more vicious chastisement.

Anyway, diplomacy is a game where words have very precise meanings. No.10 Downing Street claimed that the ambassador had only been invited, not called in or summoned. One implies an informal conversation, the other an interview with neither tea nor biscuits.

Here’s the official German statement. The verb used is gebeten. The stammwort or root word here is beten, to pray, and the closest sense in English would be “pray” as in “Pray let me have a report on one sheet of paper. Action this day”, as Winston Churchill was in the habit of writing. You can do this in French, too, with “priére de…”, and the tone is similar.

In fact, if somebody offends you by being pompous, arrogant, or entitled in German, you can accuse them of being gebieterisch, “like one who gebetens”, which would be quite harsh in itself. I would certainly feel very different if someone said “Sie sind zu einem Gespräch eingeladen” – you are invited to a conversation – than if they said “Sie sind zu einem Gespräch gebeten” – “Pray attend a conversation”.

Here’s the kicker. The German official translation of the statement says the ambassador was merely “asked” to come by. It wasn’t the convivial “invited”, but it wasn’t “summoned” either. Apparently, the version of the statement in the original is the one that matters in diplomatic practice.

Germany is not turning on itself

I’ve recently read some interesting but somewhat shocking article, recommended by FT alphaville, in The Globe and Mail (Canada): “Germany’s season of angst: why a prosperous nation is turning on itself”. Fortunately, the author Doug Saunders is wrong.

Describing Germany’s booming economy, he writes:

These are, by several measures, the most successful people in the world. Yet it is very hard to find anyone here who is happy about this state of affairs.

And from my personal anecdotal evidence, he is right. When I talk to my fellow Germans about the economic situation, I have the same impression. But why is that? Doug’s interpretation, that Germany is afraid of change, involvement with the outside world, immigration or technological progress may be fitting with an earlier image of Germany. But I find other explanation much more plausible.

For starters, Germans fear the consequences of the Euro crisis in part because some politicians, academics and the media deliberately nurture fear. From “defending the Euro” to Prof Sinn’s exaggerated Target-2 arguments, from claims of high inflation to a Lehman-moment, the Germans are being told that the economic risks for them are huge and imminent, which is only partly correct (if at all). Interesting enough, the political risks – that the German taxpayers will become the major creditors of the periphery thanks to fear-induced bailouts (money and friendship…) – is discussed much less often.

But more importantly, Germans have lived through 15 years (!) of near-stagnation or mind-bogglingly high unemployment or both. That shapes your expectations in two important ways.

First, Germany knows how difficult it is to integrate and reform an economically (much more) devastated country of roughly the size of Greece. In fact, they have just been through it. So not only are they jolly well fed up with paying for something like that: after cumulated net public transfers of €1400bn (it’s not a typo), there are still €6bn in net transfers going to Eastern Germany. Per month. (The brain drain from former Eastern Germany was heavy, so how much “Western” Germany really payed is debatable.) At the same time, many Germans feel obliged to help European friends according to a recent poll:

A new survey finds that 60 percent of Germans believe their country has to help Greece in the eurozone debt crisis — like it or not.

Anyone caught in this tension will stray to extremes at times (like the person that Doug interviewed). The trigger may be when the Greek press retaliates with Nazi-jargon to German tabloids’ disgraceful headlines. Or when German politicians – supported by part of the German press – keep talking about “rescuing Greece” instead of being honest about what is actually being rescued: German investors and banks.

Second, after a decade-and-a-half-long economic struggle, Germans simply cannot believe that those times have finally passed for good, which is fully understandable for a country in whose national psyche security comes first. And no, Doug, the German boom is neither built on the birth of the Euro nor on “a deliberate strategy to keep labour costs low and productivity high”. It is built on Germany having re(!)-gained its competitiveness (warning: shameless cross-linking) and an ECB that will have to conduct too loose monetary policy for Germany in the years to come.

Doug’s other examples, immigration and a new protest movement, as well as nuclear power and the Libya war, have multiple roots that are too complex to discuss in a single post. He might have a point here, but there are more sympathetic and equally plausible explanations. For instance, the success of a populist and alarmist book by Thilo Sarrazin about the alleged decline of Germany is a late response of the German public to problems that have been piling up largely unaddressed over the last 30 years. In this context, Doug much too easily dismisses the internationally underappreciated contrast to Italy, Netherlands, France or even Sweden (!), not to mention Austria, that no right-wing populist party has made it into the federal parliament during the last 20 years, despite an unmatched economic malaise and a proportional election system.

Germany is not turning on itself. Germans just have a hard time dealing with and making sense of the current economic situation – and who could blame them? But if you give it some time, you will see that the 2006 & 2010 World Cup euphoria was not just a break from a national state of angst.

Germany has new Queen, needs new President.

Earlier today, German President Horst Köhler resigned, effective immediately (BBC coverage). His constitutional successor, and now German acting head of state is Social Democrat Jens Boehrnsen, who is the mayor of the state of Bremen and in this function speaker of the parliament’s upper chamber (Bundesrat). A new President will have to be elected by a special constitutional assembly, the Bundesversammlung, within 30 days. Despite Germany’s Presidency being largely ceremonial, and even though Mr Köhler was a generally popular President during his first term and reelected for a second five-year term in 2009, he recently came under attack for lacking a certain inspirational aura, and, worse for someone who was director of the IMF, lacking intellectual leadership in financially troubled times.

Mr Köhler’s resignation may not be sufficiently bad news to kill the national celebration following Lena Meyer-Landruth’s victory in the 2010 Eurovision Song Contest – and the World Cup is around the corner. But his claim that his resignation over an interview that he should not have given – he stated that an export-orientated country like Germany may need to deploy troops to protect its economic interests which unsurprisingly caused a lot of confusion given German history and the obvious unpopularity of military deployments – was “inevitable” because of the dignity of the office seems a bit hyperbolic and thus more as yet another display of what many people have begun to worry about: nine months after taking office, the German government is increasingly in disarray, both conceptually and electorally. In a recent poll, only three per cent of the Germans said they would vote for the junior coalition partner, the Free Democrats, which means they lost about 10% of the vote since last September.

Sure, this is only a snap shot, but it’s also a bit more – it’s fundamental disappointment about this government’s performance from day one on. The parties’ as well as the government’s competence in a number of important areas, notably economics, is challenged on a daily basis. Even members of Parliament are complaining publicly that they are supposed to simply sign off on economic legislation they don’t understand and that the government apparently isn’t able to explain. Imagine how the average voter must feel.

So maybe Mr Köhler’s resignation was a last act of leadership. The debate about who will succeed him will likely be a little different from the usual backroom coalition decisions about who will become President. It will likely become a rather public debate about leadership in difficult times. And that’s both good, and a problem, since the amount of people who may be up to the job and fit the political requirements is rather limited.

Off the top of my mind, I really can’t think of anyone but current finance minister Wolfgang Schäuble. So let’s help Angela Merkel and make the contest a bit more exciting with a little short list of our own – who’s your best bet for “Germany’s next President”?

Fall of the European Left, revisited

Parties of the left are out of power in three of the Big Four now, and everyone expects Labour to lose the next General Election in Britain. Going down the list to the Next-Biggest Four, we have Spain (Zapatero’s center-left government hanging in there), Poland (center-right), Romania (grand coalition of the two largest parties; can’t exactly say left-right, because Romanian politics always don’t map well on that axis) and the Netherlands (bizarre Grand Coalition of Christian Democrats and Labour, with Labour far down in the polls and expected to be kicked out soon). It’s not unreasonable to expect that by next summer, Spain might be the only large country in Europe with a left-of-center government.

There’s a recent post over at Crooked Timber deploring this, and suggesting that it’s because

[We’re seeing] the end of the electoral strategy which began with Bill Clinton and which (arguably) is still being kept alive by Kevin Rudd in Australia. Basically, it’s the view that you can keep a balloon flying by constantly chucking out left-wing ballast. Which worked very well in the 1990s and early 2000s, but it does have a limited lifespan built into it. After a while, you run out of ballast to throw out and you find that the hot-air burners aren’t working any more; the traditional left-wing base of your party has switched off, the unions can’t provide blocks of support and you’re left as a more or less identikit technocrat party, largely indistinguishable from your opponents and trying to compete on the basis of more efficient provision of “public services”.

Well… maybe. I submit that this model works tolerably well for Britain (though I have some reservations); somewhat less well for Germany; and hardly at all for France. (Italian and Spanish politics I leave to those who are better informed.) Continue reading

Random thoughts on the recent German election

Heard repeatedly yesterday: “Steinmeier has been an excellent Foreign Minister, but I just can’t stand the Social Democrats any more.”

I wonder how many portfolios our Yellow friends will get. In theory, a Conservative/Liberal, CDU/FDP government is perfectly normal. But in practice, the usual Black/Yellow government has been something like “300 Black seats, 40 Yellow”. This is going to be more like “240 Black, 90 Yellow”. The Liberals will be able to claim some serious mojo this time.

And speaking of portfolios, everyone is saying Liberal leader Guido Westerwelle will be the next Foreign Minister. (“And what a shame, because Steinmeier was so good.”) Giving this portfolio to the junior partner is an odd German tradition that dates back to at least the 1970s; the last three foreign ministers have been a Social Democrat under a CDU Prime Minister, a Green under a Social Democrat, and a Liberal under a CDU. For at least one of those (Fischer under Schroeder) I wonder if the point wasn’t to keep a charismatic/energetic leader of the coalition partner out of the country and so unable to work mischief. There are a lot of people who still remember 1982’s “Constructive Vote of No Confidence” when the FDP stuck it into Helmut Schmidt’s back, rotated hard, and then snapped off the handle.

Isn’t Angela Merkel’s lack of charisma amazing? A friend and I recently went down the list of G20 leaders and concluded that she was the single most boring individual on it. It’s sort of awesome that someone so utterly dull can be elected the leader of a major liberal democracy in the 21st century. And not just once, but twice! Fantastic!

The weather was gorgeous here in Bavaria, and nice over most of the country. Nonetheless, turnout was anemic. The Social Democrats are already spinning this as an explanation for their crushing losses. It makes you wonder what the results would have been had it rained.

And speaking of which, whither the SPD? When was the last time a major European center-left party got hammered like this in the middle of a recession? If it’s like this when times are hard, how will people vote if the economy is booming?

In retrospect, didn’t the Grand Coalition work way better than anyone thought it would? A year from now, will we be missing it?

When you hear “Angie and Guido”, what comes to mind? (For me it sounds like the title of a half-forgotten Billy Joel song from the 1970s.)

Other thoughts?

Germany’s elections: um… what?

Germany is having elections for the Bundestag at the end of September!

But you’d never know it. Walking through the village, driving to the county seat, I haven’t seen a single sign or poster. It barely gets mentioned on TV news. Newspapers, some discussion, but it’s mostly below-the-fold stuff. Nobody’s that excited.

I haven’t lived in Germany long enough to know if this is perfectly normal, or if this is just a particularly drab and dull election. On one hand, maybe it is? We’re in a recession, but neither of the major parties seem to have good solutions. It’s not like the election is going to make a big difference. The parties of the left are so far behind that Merkel is almost certain to be Chancellor again.

On the other hand, it is very much an open question whether we’ll be stuck with another Grand Coalition. My very tentative guess is yes. If the election were held today, the polls say that Merkel and the CDU/CSU would win a mandate to rule (along with their junior partners, the FDP). That’s because the Socialists are way, way down right now — polls show them as low as 20%, which is truly horrible. That’s a recent Stern poll, BTW, which showed the CDU/CSU with 37% and the FDP with 14% — just enough to form a government.

It seems really strange to me that, in the middle of a harsh recession, voters are abandoning the center-left party in droves. Wouldn’t the Socialists normally reap the benefit of voter unhappiness and fear? Yet it’s the stubborn, none-too-charismatic center-right Prime Minister who’s prospering; the worst-case scenario for Merkel is four more years of the same.

That 20%… just brutal. But surely it’s going to tighten as election day approaches? That would be normal, right?

— Okay, I admit that after more than a year here, I still don’t understand German politics.

Comments? Can someone explain this to me?

History: The Durnovo Memorandum

I just discovered this amazing document recently. (h/t to Mr. David Tenner — thanks, David.)

Durnovo was Russian, and he was the Minister of the Interior for a while under Nicholas II. (His successor was the much more famous Stolypin.) He was a conservative who disliked democracy and was none too fond of capitalism either; his lodestars were Russia’s national interest and the monarchical principle. In early 1914, he was out of office, but still influential… and he was alarmed at the visible drift towards war all around him. So he wrote a 5,000 word memorandum, intended for the Czar’s inner circle, detailing just why this was a Really Bad Idea for Russia. (The text of the memorandum can be found on Google Books here, or as a .pdf over here.)

What’s striking about the memo is how, six months before World War One started, Durnovo absolutely nails it. Nature, conduct, likely outcomes — he’s eerily, astonishingly correct about all of them.

Check it out: Continue reading

Halloween (y/n)

So it’s Halloween tonight. Celtic holiday, sort of, taken over by the Anglo-Saxons, sort of, and then transported to North America and refined into a truly weird combination of costumes, scary, and sugar.

I’m a transplanted American living in Germany, and I’ve found that Halloween is just catching on here. Apparently nobody knew about it a generation ago — it was a weird thing the Americans did on their bases — but now at least some people are putting up jack o’lanterns and handing out candy. (Fewer jack o’lanterns. American pumpkins have been bred for soft shells and easy carving. Germans, not yet. Carving a German pumpkin is more carpentry than art.) There’s nothing like the tsunami of commercial decorations, costumes, and high fructose corn syrup that seizes America in the last days of October, but people know about it and children want to do it.

Normally I’d roll my eyes at this: another American commercial tradition colonizing the poor old continent, like raccoons invading the Black Forest. But Halloween is a sort of cool holiday. It makes no sense, but it’s fun. Fun is good.

So, my question, European readers: where else in Europe is this holiday taking hold? Are there small children going door to door in Hungary? Costume parties in Portugal? Black-cat paper cutouts in the windows in Finland?

Who’s got Halloween tonight?