Category Archives: Germany

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

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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

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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.

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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?

The ECB is still very much in the game

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It was widely reported last week that the Bundestag had “ruled out” or set a “red line” against any further ECB intervention in the market for government bonds. This is nonsense, and based on the common practice of not reading German. The vote, which for a start was a vote taken after debating a statement from Angela Merkel and not anything more concrete, expressed the Bundestag’s agreement with a text containing three statements. The first of these is under the heading “Sachverhalt” (Factual Background) and summarises the current state of play with regard to the EFSF.

The second is headed “Vor diesem Hintergrund stellt der Deutschen Bundestag fest:” (In the light of these facts, the Bundestag understands/recognises/realises) and contains the statements that the Bundestag (I’ll use the abbreviation, Bt. from here on) knows that the EFSF must be used more efficiently, and that it is aware that leveraging it carries a risk, that the existing instruments will be used and that the EFSF shall only be used under the terms of the treaty creating it, and finally, that “with the entry into force of the EFSF, the continuation of the ECB Secondary Market Program is no longer necessary”.

Note that, well, the opinion of the Bt. is a jolly one to have. It explicitly doesn’t say that “The ECB SMP shall not be continued”, and of course the ECB is banned by its charter from accepting any instructions from politicians. Also, this clause – which is the one that was doing the work – is in the first section of the resolution, which merely takes note of its content as facts.

The second section begins very differently: “Der Deutsche Bundestag fordert die Bundesregierung auf:” (The Bt. calls on the Federal Government to…). You will note that we have moved from merely taking note of the facts and expressing an opinion, to a demand from the legislature, which is the supreme power in the German constitution, that the executive do something. There is no reference to the SMP in this section of the document. The only reference to the ECB in it refers to the fact that it is forbidden to buy government bonds direct from government, rather than buying them in the open market or accepting them as collateral on the discount window. This neither rules out continued ECB intervention, nor does it even rule out the EFSF buying bonds from governments and then selling them to the ECB (or, if it gets its bank licence, posting them for rediscount).

On Friday, of course, the rate on Italian paper hit 6% and, as has repeatedly happened before, the ECB presses rolled into action. In fact, it seems that the ECB is operating an implicit decision-rule that it will buy whenever the rate on Italian debt hits 6%. There’s a nice discussion here of the semantics of Merkel’s use of the words “firewall” and “Schutzwall” – the most common meaning of the first is something which selectively permits access to a network, and the second manages to combine both Nazi and East German connotations in one sweeping infelicity.

But it seems to me that the ECB is operating something more like an electric fence. Cows will try to push through the electric fence a few times, unwisely prodding it with their sensitive noses and getting zapped. But then they will leave well alone. The question is how often you need to zap a bond trader before they get the point.

UK shadow chancellor, Ed Balls, for one, got the point faster than either the cows or the bond trader:

I think the most important thing in the markets today is that the European Central Bank has actually intervened and bought Spanish and Italian debt and that shows that the ECB is doing its job. But fundamentally will there be the scale of financial backing for sovereign countries like Italy? We don’t know. What will the actual details of this plan be? We don’t really know. What is going to be the bank recapitalisation? We don’t know. Will the European economy grow next year? That’s really in doubt…I don’t think it’s sensible for Britain to make bilateral contributions to a euro bailout fund. The ECB should be doing this job.

Meanwhile, perhaps we should all worry more about the fact that the European Council communiqué promised “very specific measures” to boost competitiveness and growth, without naming any very specific measures. It’s reminiscent of the famous company launched during the South Sea Bubble to “carry on an enterprise of great advantage, but no-one to know what it is”. But this is the opposite – the South Sea Anti-Bubble, even if the original South Sea Company was in fact a device to inflate away government debt.

Update: Mooo!

If you’re not scared, you’ve not been properly briefed

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So, if Neal Stephenson, J.G. Ballard, Charlie Stross, and Mervyn Peake had collaborated on a movie about the near future of the global economy, perhaps we’d have something about Chinese property developers trying to create the perfectly blank fascimile of a mid-century European suburb in the outskirts of Shanghai, not too far from Ballard’s old concentration camp at the Lunghua airfield, when a massive financial crisis erupts across the Internet. After the Party shuts off access to the major banks, the developers turn to high yield paper traded in Hong Kong, until rates spike and even Hong Kong brokers won’t touch it no more. But plungers plunge, it’s what they do. Shark gotta swim. The music’s playing and while it’s playing, we’re dancing, as someone said.

That’s when they notice the people from Wenzhou, who have a deeply dodgy but robust store-credit network going back to the days when any private business at all was illegal and who knows, maybe even further, back to the chaos of the Civil Wars. They’re in all kinds of business so long as it’s shady and they look out for each other, and they lend money. You wouldn’t be that far wrong if you thought you’d seen them in the movies before, just not as Chinese. More pasta, less mantou. So they roll over the loans.

But this is all can-kicking; the ballroom days are over. Nothing goes quite like a bubble. And pretty soon the Wenzhou guys are in trouble themselves. Colourful identities in shoe-biz are hopping out of tall buildings and pizza-ing the sidewalk. And here’s the kicker. You kick loans out the front door, you gotta turn them over out the back. The deal is the same for Citigroup and dodgy bookies. So they set up “trusts” with big names and float them in Hong Kong…and the Royal Bank of Scotland is a big investor.

No. No. That’s not the kicker. The kicker is this – the big deal, the hacienda if it hadn’t been a nightclub, the daddy, is a whole suburb designed by one Albert Speer.

I’m making none of this up. It’s not old man Speer, of course – it’s his son, also an architect like his grandad and his great-grandad, who was commissioned to build a German town in Shanghai’s globo-shed airport’n'datacentre belt. Trouble, he took that mean they wanted a town like a real German town, all post-war and either Christian or Social Democratic and square and energy efficient. They wanted Rothenburg ob der Tauber, or at least a lot of flickwerk fachwerk. Old Speer would have wanted something different – waiting for the end, he imagined he’d rebuild Germany in aluminium prefabs built by the idled Junkers aircraft industry, very Bucky Fuller, and even tapped up some of his staff to join him in his new practice.

About the Chinese property bubble and the increasing role of the mob, here’s Pat Chovanec. You’ll observe he’s getting a wee taste of the wumaodang in comments.

On Wenzhou and the property bubble, and spiking rates for speculation on margin like in ’29, JamesP at Jamie Kenny’s place. Some more general dread.

Here’s China Daily on sweatshop shoemaker-loansharks dropping out of skyscrapers. Wenzhou sounds like a mashup of Sicily and Leicester. With Chinese people. (Here, take one of these tabs, it’ll make sense.)

Here’s Bloomberg – hey, Bloomberg, even AFOE readers take that seriously – with great detail on Chinese shadow banks and RBS. More RBS, from the FT.

Finally, all that stuff about weird buildings and Albert Speer? I wasn’t kidding. Der Spiegel, auf deutsch. You bet.

Revisiting the Eurodebate

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This post of P O’Neill’s made me think of something. That is, the British debate on joining the Euro, and on Europe more generally. I was strongly pro-Euro, something which now looks as bad a decision as joining the Liberal Democrats was. It’s hard to avoid the conclusion that had the UK had Eurozone interest rates in the 2000s, we would have had an even huger housing bubble and even more gigantic bank balance sheets, and we would have had to resolve them without being able to use the central bank as lender of last resort, and we would have been unable to devalue the currency as a stimulus mechanism.

Any counter-argument requires that the influence of the Bank of England in ECB policy would have been both powerful and right. The first is debatable, but we have to accept that the Bank didn’t restrain the housing bubble and also failed to respond to the crisis in the real economy in 2008, sitting on its hands and mumbling about inflation while the labour market cliff-dived and the bank regulators across the corridor frantically juggled with Halifax-Bank of Scotland, Lloyds, and Northern Rock. Also, the early 2000s situation of a bubbly periphery and a stagnant core would have been even worse with the London housing market in the Euro, and it’s hard to say how that would have panned out.

But what were we really debating in the 90s?

The arguments in favour, at least the economic ones, were that we might benefit from being fully integrated in a bigger trading bloc, that we would benefit from currency stability, that lower interest rates would be nice to have, and that the Eurozone restrictions would be a force that would require industry to be more competitive (or did they just mean lower wages?). The arguments against, at least the economic ones, were that the Stability & Growth Pact would be an anti-Keynesian force for deflation and that the option of devaluation would be removed.

Then there was a whole lot of other stuff. A lot of the “for” side thought it would make us more European and meant by this that it would make us more social-democratic (or Christian-Democratic, or even Free Democratic), although I don’t think any of them could have articulated a mechanism by which this would happen. I suspect that for a lot of us it was a bit like the Estonian MP who told Tim Garton Ash that “Europa ist…nicht Rußland!”, or in our case, Europe was not-America.

A lot of the “against” side seemed to agree with the idea that joining the Euro meant the triumph of social democracy, because they at least claimed to think that the European Union was an inherently socialist institution. Some of them still think this now, when it has imposed structural adjustment on three European countries in order to avoid the nightmare of fiscal expansion in Germany. Others took the Friedmanite line that currency adjustment was a form of free market competition and therefore desirable. This was at least defensible. And others thought that it was a scheme to redraw the UK’s internal borders or replace the flag or something.

The interesting contradiction here was that the same people who worried that we would be unable to devalue the currency were also fervent austerians who didn’t believe in demand management of any kind. It was as if they believed in hardcore new classicism up to the point where it affected their re-election. How could it happen?

Obviously, whether you felt the SAGP would be useful discipline or an anti-Keynesian straitjacket simply depended on whether you expected the economic problem of the 2000s to be inflation or deflation. But the economic argument that was very rarely discussed was the one that is now fascinating everybody – exactly how the Eurosystem, rather than the Euro, would function in a financial crisis. Apparently this was discussed in specialist circles, but it didn’t make even the best of the national press.

To sum up, I agree that the yes side was wrong about fixing the currency. To be honest, when asked, I always said I was in favour of joining if we could join at a significantly lower exchange rate. The benefits of which Jaguar-Land Rover just demonstrated. But this is a cop-out on my part. On the other hand, I think the Eurosceptics and some of the conservative Europhiles should accept that they were wrong about the SAGP – yes, Virginia, inflation was a phantom menace, and the ghosts of 1929 were not finished with us. And we can all agree that we were all wrong about the banking and financial aspects of the Eurosystem, in that we didn’t even bother to argue about them.

I promised to blame somebody in the last post. Here it comes: the key European politicians, especially the French and the Germans and the European Commission officials, who designed the Euro and the Eurosystem. They created a system that had a structural deflationary bias in an era of deflation, one that delivered rock-bottom interest rates to countries in the grip of land fever, and one that couldn’t cope with a banking crisis although it included the biggest banking system in the world. And then they kept putting up interest rates. What’s worse is that they now have the gall to give lectures about virtuous savers – even when they are the same individuals, like Wolfgang Schäuble, who were in power in the 1990s.

International Talk Like a Berlin Parliamentarian Day

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With further proof that a five-party system is much more fun for analysts than for candidates or for governance, city-state elections in Berlin put out the previous coalition, returned the personally well-liked mayor, decimated a party that was a long-time kingmaker in West Germany, and put members of the Pirate Party into a German state legislature for the first time. Just in time for pirates’ international holiday.

Klaus “und das ist auch gut so” Wowereit (Social Democrat, SPD) will continue to serve as Mayor of Berlin, a post he has held since June 2001. The Free Democrats, who played a crucial role in the three-party system of West Germany, appear to have polled less than 2% in this election. In 2006 they won more than 7% of the vote and gained 12 seats; they will have none in the coming parliament.

The Left Party, post-communists and often prominent in Berlin, lost four seats and can no longer serve as a junior coalition partner to the Social Democrats. The Greens thought they might win the mayoralty, after gaining their first state premiership earlier this year in Baden-Württemburg. Though they gained 4.5% and six seats, they will at best be a junior coalition partner. The SPD may also choose to govern with the Christian Democrats (CDU). In the past, this would have been called a grand coalition, but with the second-place CDU polling just 5% more than the third-place Greens (and indeed none of the parties pulling in more than 30% of the vote), it’s hardly a sweeping coalition. Look for a Red-Green government, but with the SPD clearly in the driver’s seat because it has other options.

And then there are the Pirates. Their success in this election is, first, a reminder of electoral volatility at the state level. Anyone remember the Schill Party? Second, it’s a sign that the Greens have a generational problem. Post-materialist voters have tended to be Green voters, but the issues that drew people to the Greens 25 and 30 years ago aren’t as salient now. I’d like to see some polling on how many Pirate voters are first-time voters; I’m willing to bet it’s a high percentage. Third, it may be a signal that the FDP is well and truly toast in Berlin. The kind of discourse about freedom that the Pirates have embraced is something that the FDP could have taken up, but has proven too hidebound to do. Fourth, the Berlin tech-computer scene is engaged, experienced and has both a long history and a deep bench. The city is the home of the Chaos Computer Club and the first location for Blinkenlights, among many other highlights. There’s a big natural constituency for the Pirates, and they turned out. Fifth, digital issues and a diffuse sense of protest can motivate nearly 10% of an urban electorate. That’s enough to tip some more elections. Arrrr.

It’s the geography, stupid

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Central and Eastern European economies aren’t doing well. German IFO business confidence tanks, on expectations of poor export orders. These two facts are related.

It’s been said before that the central core of economics failed to predict the great recession (or damn, can’t we call it a depression already? It’s been four years and it’s depressing enough) and that only a few key groups of people noticed anything unusual. Followers of Hyman Minsky and Charles Kindleberger saw the classic pattern of confidence, mania, panic, and crash unfolding. People who understood the economy as a system of accounts saw a number of huge imbalances in the flow of funds. Marxists considered that the source of the imbalances was the super-exploitation of Chinese workers and the maldistribution of the proceeds of growth in the West.

But I’m not sure if economic geography has been given enough credit. One economic geographer who predicted the crisis is of course Paul Krugman. From a geographical perspective, the CEE economies are part of a huge automotive engineering cluster rather like the US rustbelt or the West Midlands in the UK, reaching over from the Cologne area to Slovakia. (Actually, they always have been since the Industrial Revolution – here’s a beautiful 1938 Tatra and a much less beautiful 1914 Skoda 305mm mortar and caterpillar tractor.) From an industrial economics perspective, they are part of the German motor industry’s global supply chain, whether as upstream suppliers of parts and sub-assemblies or as downstream final assembly contractors. You can argue whether geography or functional specialisation determines this, but that’s not really relevant right now.

To put it another way, they aren’t exporters to “the German locomotive” but rather to the German economy’s customers, at one remove. The determining factor of their order books is how well the final products sell, and in the German economy’s historical default state as an industrial exporter, that depends on somebody somewhere buying more German goods than they sell goods to Germany.

A deflationary adjustment of the eurozone trade balances will be deflationary all the way along the supply chains. This is broadly what I was worrying about in May, 2010. The problem is not quite the same as it was for Keynes in the original Economic Consequences, a book which contains a lot of economic geography – back then, if the Germans were ever going to pay off their debts, Keynes pointed out, the rest of Europe had to let them export enough stuff. Now the boot is on the other foot. If the Greeks are ever going to get out of their debt crisis, the Germans have to let them export enough stuff. And if the Czechs and Hungarians and Baltics are not going to slide back into the mud, the Germans have to import enough stuff from them. Nobody imagines that the Greeks will be importing as many BMWs as they used to, so what can the answer be?

The country of humor is … Germany!

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As an economics blogger, I am not an expert on international humor, but today’s sad news got me thinking. Germans insist – mostly unsuccessfully – that “German humor” is not the least bit oxymoronic, the rest of the world just doesn’t seem to understand it. Which is why the prejudice will probably live on.

One of the most German of all humorists, Vicco von Bülow (”Loriot”), passed away on Monday at the age of 87. Explaining what Loriot meant to German humor and culture is difficult (see above). He was probably to German humor what Monty Python was to the British. His sometimes absurd drawings and stories of twisted everyday situations were a provocation at first, but have strongly influenced the way Germans have continued to develop their humor – in comedies, but also in literature and film. ”This is just like in Loriot” is almost a standard expression in German, describing an everyday situation that turns to become so absurd that it is just hilarious.

An example from Loriot’s work: a couple on a romantic date. He, slightly older and played by Loriot himself, starts a short, somewhat serious but also romantic monologue. The only problem: he has a small piece of a noodle from the last dish stuck on his face. The woman cannot concentrate on anything but the noodle on his face. He, somewhat annoyed by her distraction, tries to remove the noodle but then sticks it to some other part of his face. The noodle therefore travels around his face while he tries to get into a serious relationship talk with a completely distracted girlfriend.

Another example is the almost wordless clip “The picture is crooked”, where an older gentleman (again: Loriot himself) waiting in a hotel room for a business meeting, in his attempt to correct a slightly crooked picture on the wall, destroys the whole hotel room.

The most absurd, yet very German, example is probably “Gentlemen in the bath tub“. Two men meet for the first time in one man’s bath tub, and discuss various aspects of taking a bath, when to let in water, at what temperature, when to put a small duck into the bath tub etc. It is mostly a struggle for authority where both keep a formal distance (“Herr Dr. Klöbner!”) while sitting naked in a mostly empty bath tub.

There are a few ingredients to German humor of the Loriot type: you need an audience that knows and has witnessed too many times before how people take themselves and their procedures and rules a little too seriously. In other words, they need to be German. What is more, you need a twisted everyday situation that turns absurd in a very subtle manner and in a way that does not offend your audience. And you need to put in hard work. Loriot did not consider himself particularly funny (although he was the most modest person I have ever seen). For him, humor was simply hard work: carefully observing German everyday life, constructing these situations in a small play, working out the details with the actors (for instance with the brilliant Evelyn Hamann), and thereby making it absurd in the Loriot type of way.

To be sure, not all Germans like Loriot. But his work is a perfect example of two aspects of German humor: it exists, and it is very hard to export (something that Tyler Cowen pointed out a while ago). Therefore, being German is perfect if you are a humorous person: On the one hand, you (more or less) understand and appreciate US, British and also other European humor to some extent. On the other hand, and mainly thanks to Loriot, you have access to a very special source of German absurdity humor. When it comes to humor, Germany might actually be the best-supplied country in the world.

Germany is not turning on itself

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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.