July 12, 2010

The Teutonic paradox

Posted in International Economy · 52 comments ·
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Last Tuesday morning, I drove off the Stena ‘Hollandia’ in the Hook of Holland en route to Germany and on to Croatia.

On either side of the road, houses were confidently decked out with sparkling orange flags as the Dutch nation prepared for the semi-finals that night.

They had every reason to be confident. By the time I arrived in Passau in Bavaria, the Netherlands were already one-nil up.

The journey from Holland leads you directly to the industrial heartland of Germany – theRuhrValley – and then onto the financial capital, Frankfurt, and towards the innovation hub – Bavaria.

When you drive through Germany you can actually see the economy.

By this I mean you can see the power of Germany in the constant flow of trucks transporting Germany’s exports out of the country.

This is the single biggest difference between driving across Britain from Holyhead to Harwich (which I did last Monday) and driving in Germany.

There is a different type of traffic in England. It is leisurely, mainly cars and coaches, and the motorways are relatively uncongested.

In Germany, the traffic is industrial, almost purposeful.

Trucks, if not quite outnumbering cars, are everywhere and you get the sense that this is a place that makes things, whereas in England there is precious little evidence of any industry on the roads.

This is an economy that doesn’t make much any more and what it does, isn’t transported in the back of lorries.

You can feel the German current account surplus on the A3 autobahn which takes you from north to south through the world’s second-biggest exporter, after China.

In the Ruhr, you are driving through an area that shouldn’t, according to most simple economic analysis, exist. After all, how could German heavy industry compete at the high-cost level in Germany with the likes of China? But it does, and not only does it compete, it wipes the floor with its cheaper competitors.

Years ago, when I was studying the German economy, a German lecturer of mine told me that if you wanted to understand the German way of doing things you had to understand the primacy of the white blue-collar, male worker in policy-making.

She explained that keeping the industrial worker productive, in work and on a good wage was a legacy of the rise of Hitler.

The post-war government had to ensure that the source of fanatical politics – mass unemployment among young working-class men – was avoided at all costs. She argued that once you got this, lots of things in modern Germany fell into place.

Yet while this might explain policy from the top down, it doesn’t ensure success, and the fact that large parts of the Ruhr are still producing despite the high costs has to be thanks to brilliant management at the firm level.

To generate the sort of productivity required to keep factories open, there needs to be enormous investment in people, in upgrading skills and making sure that the systems are constantly evolving and adapting.

Contrast this with England, where concerns for the white working-class male revolve largely around policing, law and order, and the Burberry brand.

It is hard to explain how the country that at one stage invented almost everything could have let its industrial might wane so dramatically in one or two generations. But that is what has happened.

As a result England is dependent on foreign capital to pay its way.

Germany, on the other hand, generates so much surplus capital from its exports that it doesn’t know what to do with the money.

This makes it reckless. Contrast the long-term thinking of Germany’s industry with the short-termism of some of its banks.

As you continue ontheA3 past Cologne and move on towards Frankfurt, the financial centre of the country, you approach the centre where the decisions are taken on where the money goes.

The companies make so much money and then put the cash on deposit in Frankfurt, but this money then has to be lent out somewhere.

A country with so much cash can finance almost everything, but here’s where Germany’s dilemma becomes apparent.

The German government is obsessed with austerity and wants to cut back on expenditure.

This means that the German banks need to find another productive home for all the cash.

This is why they recycle it in other European countries.

So German banks lend the cash to the likes of Greece, Spain and us.

They simply can’t do anything else. In a sense, Germany is in a cul-de-sac of its own making.

The heavy machinery of the Ruhr gets exported and the cash comes back to Frankfurt and is then lent out to the rest of Europe, in order that the rest of Europe can buy the products made further south on theA3 autobahn, the car-building and electronics hub of Bavaria.

If the rest of Europe hasn’t got the money to buy Germany’s consumer goods, Germany has to lend us the money to do so.

That is what is happening.

Today Irish banks owe German banks €127 billion and this pattern is repeated all over the EU. So the Germans are caught by their own success.

By being such a brilliant exporter, Germany has ensured that industry in other EU countries struggles, so the other EU countries fail to generate the surpluses they need to finance themselves.

They then must borrow the cash to preserve their living standards and they borrow the German cash that the Germans have to lend because the German government doesn’t want to spend the money at home.

This cycle pretty much ensures that the booms and busts we have seen on the periphery of Europe are a permanent feature of the euro.

The implication of this is that Germany will have to accept the increased risk of periodically being defaulted as the downside for the rest of the EU buying its goods.

I am not saying this is fair, I’m just saying that’s the way it goes. And this is where English history comes in, because when England was the workshop of the world, its capital was invested by the City in all sorts of foreign places and it too suffered periodic defaults.

Are the Germans prepared to pay this price? As I sat with the locals in Passau in Bavaria watching the second half of Holland against Uruguay, I got the distinct impression that they hadn’t figured out the question yet, let alone the answer.

When they do, I wonder what Germany will decide?


  1. Interesting article, David, particularly the reflections on traffic in England and in Germany. One thing that perhaps is worth pointing out, though, is that we shouldn’t fall into the “because I can’t see it, it’s not worth anything” trap.

    I remember meeting a prominent TD when working in the competitiveness area and he was convinced Ireland couldn’t just make services, it had to make something he could see and see being shipped off on to export markets. Ireland now gets half its export revenues from services.

    In a way, that TD had it backwards. Everything is a service. Manufacturing is just a funny form of service, where the use or happiness we get just happens to be via a physical good. Happiness is not a physical good, though, and exports do not need trucks.

    • liam

      Interestingly the TD’s views are not uncommon and not necessarily wrong (but for different reasons). I know of a Japanese company that had operations and investments in the UK (and Ireland as it happens) and their senior management in Japan continuously lamented the fact that UK Govt. policy for years has been to systematically dismantle UK manufacturing industry in favour of the financial services industry. Essentially the view of their president was that to completely abandon manufacturing to the point of having no visibility or control of the process that connects basic research to products, you had no future as a technology company, and this was the approach the UK as a country was adopting.

    • liam

      … Andy Grove (the other intel founder) has interesting things to say on this matter:
      http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-before-it-s-too-late-andy-grove.html

  2. I was in Rolls Royce last week. They have an impressive set up there and in fairness are world class at producing engines for all types of aircraft, as well as addressing the sustainable energy market. Two UK companies, CSR and ARM, are found in virtually every mobile phone on the market. Brit bashing always has a welcome audience here, and I’ll cheerfully grant that Germany are ahead of the UK (and not just in the football stakes), but attending to motes vs beams springs to mind.

  3. Hi Ronan and Triftcrim’. Points taken about services and about Rolls Royce, the article wasn’t meant to be Brit bashing just a few observations on a long drive. The crux was more about the German’s dilemma and the fact that as an exporter of capital you are bound to be in someway affected by the quality of those you lend to. In the German case, it can lead to far too much credit going to the wrong people within the Eurozone. As for the Brits they are ahead in the services game, Best David

    • In my line of work I can come into contact with countless software services consultants. The vast majority are based in the UK and they service markets across EMEA charging mind boggling day rates. That is the kind of lucrative invisible economy that the south of Ireland doesn’t seem to be biting in to.
      It is also a market that is dominated by native English speakers so you would expect to meet more Irish people. From my Dutch-based vantage point I have a very positive opinion of the British services economy, they seem to have a stranglehold on providing branch services for US companies and they are good at selling themselves on continental Europe. Go to any IT conference and the stalls will be full of UK based companies selling their wares.
      It amazes me in some ways because the Irish charm would work a treat in this kind of area.

    • ocallaghanr

      I like the reference to Rolls Royce, a British car manufacturing company that ended up in the hands of its German counterpart. I wonder, is that absolute or comparitive advantage at work? Surely it is in the interests of the German, and indeed wider European bankers to figure out these simple questions?

      Britain and Ireland cannot compete with our Rolls’ and Deloreans, but it is to all of our advantage that we don’t. Isn’t our job as “unified” Europeans to ensure that our natural cultural diversification is utilised to our collective advantage to ensure continued and sustained trade, within and without the bloc? Therefore it is in the interests of Germans to take some sort of interest in the welfare of its neighbours. I think they should be prepared to pay the price.

  4. liam

    Thriftcriminal, its interesting that you picked CSR and ARM in particular. Both of these are specifically Cambridge companies, somewhere David would have driven past if he took the A14 to Harwich.

    The area in and around Cambridge City is an island of innovation and entrepreneurship, and a start-up hot bed, particularly in technology. Its a stunning example of precisely the consequences of that sort of smart economy stuff that the Govt here waffles on about.

    Rolls Royce is a British brand but it would be hard to describe it as an exclusively British company. It is (was) a traditional British heavy manufacturing company that has had to reinvent itself as a global multinational to survive (and done so very well)

    In many ways, CSR and ARM represent the best of ‘new’ UK industry, and RR are an example of a traditional company that has completely transformed itself, where others have died out.

    David, an interesting article, I too like the motorway analogy (even more interesting compared to mostly empty Irish ones!). I think its fair to say that Germany and UK are different economies. I’m not entirely convinced that the UK is still not a country from which we can draw inspiration.

  5. It’s easy to call it Brit bashing. I think that article is spot on and something I personally have observed myself in the past 10 years travelling in the UK. The UK was a phenonmenally well diversified economy with a very healthy investment ethos, which backed real ideas and real entrepreneurs.
    My own view is that they have turned into a bunch of bankers and management consultants and while the bankers invest, it’s not locally with the local inventor or entrepreneur and all they are doing is playing with the money, not really making it productive. There country is suffering as a result and why it’s relevant to us, is because too many people in this country look to the UK for comparisons.
    We need to look to the likes of Germany and in my own extensive experience France. We need to put two words into the vocabulary of anything we do vis a vis our economy and our society and they are “investment & sustainability”.

    • Deco

      Pauloriain – not meaning to steal you thunder, but France has been going nowhere for nearly three decades. Just go away from the big cities, and you see regional centres that have not got any new investment in 30 years. And within the main conurbations there are economic problems also.

      France, the French economy, and more particularly the French system of doing things, has been bailed out by the Common Agricultural Policy, for decades. Despite excellence in some sectors, like Nuclear power, plastics, etc.. The level of regulation from Brussels is making matters even worse, a factor readily accepted by the French tendency to ignore non-compliance by the populace to a whole plethora of rules.

      • Ultimately an economy is there to support a society. France’s is one of the most advance, socially advanced society’s or I should say it’s ambition was to be that and they succeeded very well if you have experienced living there, ie it’s about standard of living, lifestyle – the important things we would all like to aspire to. France achieved a hell of a lot and the proof is in the pudding, they’re budget deficit thru’ this whole crisis is minimal ie. sustainable, so go figure.

        Do you know they have the biggest tourism industry in the world, South of France is the biggest tourist destination in the world. Biggest Wine industry in the World, 30,000 different producers, one of, if not the biggest process food industries in the world (e.g. French cheese). It is one of the most geographically diverse countries you will ever visit, taking nearly 15 hours to go from one end to the next, Alpine Mountains, Coastlines, Plains, Rivers, Lakes. It’s so vast the climate changes from freezing cold winter conditions in the north to what we would consider summer conditions in the south if you go there in the winter time. They still have a shipbuilding industry, are the biggest producer of leisure boats in the world bar none e.g. Beneteau & Jeanneau, just two and I could site way more.

        They have one of the best road networks, rail infrastructure, port infrastructure.
        I would love to agree to a point about what you say, but I don’t see countries as economies. They are society’s and the economy drives a society – plainly speaking, I believe there is a bigger picture which you are ignoring, but then all we focussed on here for years was the “the economy stupid” and we got that one wrong, plus we piled money into our public services which was not “sustainable” as we are all now counting to our cost and where was the “investment”.

        Whatever about your criticism to my point…. again the point being to use the examples of Germany and France to highlight “investment & sustainability” and the reason France can’t sustain it’s advanced society is because the rest of the world is racing to the bottom and ultimately France will struggle to compete, but Sarkozy’s whole mandate was reform, so the French are very aware of where they stand, long before we were or the Brits for that matter.
        I use to read and take notice of publications like the Economist too, but they didn’t call this crisis, quite the opposite and are thoroughly discredited at this stage along with 99% of the economists who were clueless – which is why I wouldn’t be listening to many of them right now…….. but you can if you like.

        • Deco

          Paul – it is hard speaking to the converted. And you love France. My critique is not meant to downgrade France, but to prevent any sort of delusionary thinking. A lot of people who grew up and lived there, have come to Ireland seeking work and opportunity. (What does that say about the place ???)An even higher number have chosen London and Quebec.

          The best things about France you have stated, are gifts of nature. I mean if you took that line of argument about the US, you would be correct. Australia. Or about Russia. Even bankrupt Iceland. So, can this be of relevance ?

          France has a lot of tourism, but I would say that Italy gets more money from tourism, and Spain probably gets more tourists. Bear in mind that a large number of Americans coming to Europe land in London first.

          But let us not start positioning a society which has flaws as the panacea, when if might actually be a way of introducing a new combination of flawed ideas. We need to be very careful. There is a whole plethora of daft ideas doing the rounds recently. And it is very easy find one or two dozen fools in Kildare Street to make the most ludicrous ideas the latest silver bullet, and a policy framework, which will eventually end up shooting the general public in the foot.

  6. coldblow

    David

    You mention Cologne. Towards the end of Sebald’s masterpiece ‘Austerlitz’ the main character passes through the city in a striking hallucinatory scene and is struck by the material abundance. (I think the same thing occurred to Bill Bryson now that I think about it.)

    Now, my German teacher is good value, ultra reliable and top-class time-keeper. She has never heard of Sebald, however when we discussed the Greek situation a few weeks ago she followed the Bild line and was adamant that Germany should not be bailing out a corrupt state.

    Unless you know about these things or have tried to educate yourself the idea that baiing out EU peripheral states is largely an attempt to retrieve core states’ imprudentl bank loans would strike the ordinary man in the street as far-fetched. I don’t think Gunther is going to be very glucklich when he cops on to what has happened to his savings. I hope he looks at the matter coolly and sensibly.

    I can’t remember what statesman once said that if you wanted to become a creditor nation you would need to invest in a large army.

  7. Deco

    You are correct, the Germans (and others like Japan, Korea, Taiwan) have resolved to keep their industrial base. Meanwhile other countries, especially in the English speaking countries, decided from the mid-1980s onwards to move towards more sophisticated ways of making wealth. This is what is described in “itulip.com” as the FIRE economic [ Finance, Insurance, Real Estate).

    We in Ireland are also facing the challenge of trying to keep our industrial base. The GP Finance spokesperson, Dan Boil, responds to this challenge with his dictum “saving the banks is more important than saving the factories”. Ridiculous in the extreme, considering it was uttered as Calamity floundered in trying to save 3000 jobs in Limerick. The GP, as the tail that wags the dog, has decided that we need a more sophisticated models of economic development. In the GP, they are convinced that we can suceed economically, without being competitive. (this sort of explains the ridiculous goings-on in the electricity sector). This shows absolutely no understanding of economics. This also shows GP centric control of state policy,to the extent that the GP are directing policy to the detriment of any others who are outside their own own sectoral interests. In effect, they are far more serious than Michael Lowry or JHE. The IBEC sponsored media likes to attack these two for not thinking outside their own geograhpical constituencies. But local candidates exist because of the IBEC ICTU control over state policy making. (By the way, in the US, every left leaning commentator would be describing such conformity as corruption, but in Ireland is regarded “as an essential builing block on the road to recovery” (Cowen).

    Of course, if it was only the leadership of the state that was driven to steadfastly keep a course of stupidity, we would be in dire trouble. (and we know that IBEC are pleased – otherwise they would fund different political parties). But the state, as Constantin Gurdgiev now tells us, is 60% of the economy. And the sophisticates were telling us that this was a sign of advancement because Sweden was heavily taxed, and state controlled. Actually, for the last thirty years Sweden has drifted towards less state control. But, it is worse than that because of the massive private sector debt. Plus we must add a whole host of structural impediments to competitiveness, which are in the private sector. In Ireland there is too much consensus. There is no differing of opinion. And we know how the consensus builders react when their is difference of opinion (Ahern labelling Eddie Hobbs ‘not a factual person’ – and his suicide remarks after DMcW’s commentary on the real estate bubble). No consciencous objectors needed in Ireland when it comes to making policy.

    The second problem, is the Irish concept of management. It is nonsensical. It is the ultimate conceptualism of gombeenism, and obsessed with control. Ireland’s “Richeliu-Model” Authority culture is the source of many massive problems. And I say Richelieu model, because I reckon that is where it came from.

    Today, Seanie Fitz, a man who did a lot of good in the bad times, and a lot of bad in good times, is in the spotlight. Seanie Fitz was a challenge to the system, and then became part of the system. And when he became part of the system, he became part of the problem. It was like as if he stopped thinking and starting gloating. I expect Seanie Fitz to be taken apart as some sort of scapegoat so that the media, can deflect any criticism directed at the rest of the elite. This is what you get for advertising spend, favourable media coverage. And perhaps even a profile of your MD/CEO on the back page of the Irish Times business supplement this Friday.

    But the one thing that has survived this crisis, without any serious criticism, has been the concept of management in Ireland. Now, the Germans had to reinvent their management culture in the 1950s. And Japan had to do the same. And both created much improved authority models.

    But, that is not going to happen here. The outwardly sophisticated know-it-alls who got Ireland into the septic tank of debt are still in power. That is the oen thing that is not changing fast enough. And the GP will make sure of that. Like Seanie Fitz, the GP have become part of the power-business system, and now they are toxic. In fact the GP have literally become part of the system, with GP ministers seeding GP activists and failed candidates into state jobs. In fact within the GP it is so readily assumed that you will get a state job, that Deirdre de Burca went into hysterics when she failed at lobbying to get into MGQ’s Brussels office. (Though Junior Suds did get in).

    Nepotism is the one metric that you can use to measure how much reform is not going to happen in Ireland.

    Good luck to any society that reforms itself, that fights it’s own corruption and that works hard deserves to be rewarded. Germany is a good example. Ireland is at the other end of the spectrum, still enforcing the Richelieu authority model of control / compliance / extortion over it’s citizens.

    Here is something to leave you on a postive note. The Con-Dem Coalition have produced. It is the complete reverse of the policies of Phony Tony and Flash Gordon. Basically, they have realised the massive harm done by New Labour to the British way of life, and Magna Carta. So they have decided to throw a lot of new Labour nonsense out. (I hope that the next government here does something similar, and throws out all the quangoes, the nepotists, and the stupid over-regulation).

    http://www.telegraph.co.uk/news/newstopics/politics/david-cameron/7884681/David-Cameron-and-Nick-Clegg-Well-transform-Britain-by-giving-power-away.html

    Meanwhile, Clowen has decided that he can direct half a billion Euro of your tax money to “innovation”. (Don’t ask me how much will be wasted on involved quangoes-I have no idea-transparency comes at a fixed cost per quango). I have a better suggestion. Declare IBEC an illegal terrorist organization that is a threat to democracy. After you do that, the oligopolistic arrangements will start to fray and then innovation will happen afterwards. And that will also solve our cost-uncompetitiveness. Only, IBEC ‘own’ the political establishment.

  8. Philip

    Germany’s main lead is in material science and chemicals. Most esoteric alloys, plastics, optics you name it – they lead the world in it. Quality comes not only from management, but from getting first principles right and deploying it as a standard across their entire industry. This requires coordination at industry and government level. It also explains why they are the world’s toolmakers. When you start an operation in Germany, you are 90% of the way to a quality product or service. And before we start saying Germany is a heavy manufacturing country – SAP (leading software for enterprises accounts, HR, logistics etc) is German as well.

    Excellent UK companies like ARM and indeed heavily capitalised monsters like RR are independently driven entities. They could be anywhere in the world. There is nothing British about them other than their origins. You start a business in the UK, you are on your own with your own determination and little else and you give thanks you have a large domestic market and speak English.

    What I am saying is that Germany as an economic entity exists. UK is merely a derivative form of economy – not something that occurs from first principles. UK threw all that away when it decoupled wealth production from money production.

    There is nothing contradictory in the Teutonic mindset. Theirs is a value proposition based on getting more value. Money is a derivative. For the rest of us it’s the opposite. So what if there is a default. As far as the German is concerned, it means a corrective action in a process. A default is merely an event – and it will not be let happen again. For the rest of us – well, if you have no value…what do you expect?

  9. paddyjones

    This is Davids old default mantra, now he is saying that Germany will carry the can for the rest of us. Yes we are in a bad state we will owe 140 billion including NAMA by the end of 2010, then 160 billion by the end of 2011, then 180 billion by the end of 2012 and on it goes on and on. By this stage our borrowing rates will be that of Greece and the bond markets will be closed to us.
    We need to stop the borrowing now , we need to cut the deficit now before its too late.
    The Germans are not stupid they will not accept default and there will be consequences , they will impose extreme measures on us they will force us to cut the deficit immediately, none of this slowly does it. Surely Ireland is the next Greece , I don’t accept it will be Spain or Portugal.

    • liam

      What needs to happen PaddyJones, is for us to get some balls and tell the Germans that we’re sorry but we’re not going to give our taxes for the next twenty years to their banks.

  10. Deco

    We used to focus on creating stuff and real value once. But since we got sophisticated, we moved above all of that….We discovered the virtul value of virtual concepts….like our gigantuan pride….

    Just look at Seanie, the man you could get money for nothing. And he is proud too.

    Kunstler made commentary that the “something for nothing” society/economy would collapse and would only re-emerge if it became much simpler and much more humbler. But, Ireland, deviantly is fighting that Kunstlerian promise. We are too sophisticated for a disaster to happen to us. Our self concept comes first.

  11. Gege Le Beau

    Think I have read it all, blaming the unemployed ‘working classes’ for the rise of Adolf Hitler when every serious study done on the period CLEARLY indicates it was the bankers (at home and aborad), German industrialists/arms manufacturers, the German senior military officer class (seeking to have the honour of the armed forces restored) and most of all the middle classes (who actually voted him in) who brought Hitler to power.

    Unemployment (during the Great Depression) went across all social strata but particularly hit the middle classes/petit bourgeois who saw their savings wiped out (the working classes were too poor to have saved anything), it was the powerful who put Hitler in power in the mistaken belief that he could be controlled!!!!

    The ‘working classes’ if anything opposed Hitler and were involved in socialist/communist groups that were crushed in the Risings of 1919 in Munich and elsewhere, they wanted to see an end to the oppressive class system run by the monarchists and those listed previously, which had led them to ruin in WWI.

    A basic lesson in life, do your own research and do not rely on the interpretations of others, it can have massively undermining impact./

    Have we such short memories, live long enough and you’ll see the ‘dangerous’ working classes blamed for every dam thing.

    Just on an aside, I was speaking to an 88 year old gentleman recently who told me that Mein Kampt was widely on sale in Cork before the war, he remembered one bookshop window where the only item advertised was Hitler’s book. He also remarked that the Lord Mayor of Cork at the the time refused to entertain a visiting German Naval Captain out of protest at the treatment of the Jews.

    • toh

      It is ironic that the myth that Nazism was a working class phenomenon has been so successfully perpetrated, since Nazism(and all varieties of Fascism) is so clearly just common-or-garden lower middle class snobbery on steroids.

      Nazism was never the dominant force in any major German city, these being strongholds of workers parties of the Left. The mass of Nazi votes came from the lower middle class and peasants, who resented the rise of the working classes that they so despised and could no longer look down on economically . The party’s money came from the rich, which we were once allowed to identify as the the ruling class, and now must refer to obscurely as ‘elites’ or ‘insiders’. That is why such sentimental tosh as ‘Shcindlers list’ is so offensive to the victims of Nazism. First the rich authorise the massacre of millions(like the rulers of Rome provided the Colloseum) in order to bolster their position, then Hollywood comes along and makes films like ‘Schindlers List’ and ‘The Sound of Music’ to turn history on its head and insult the memory of the dead once again, by pretending there was any significant opposition to Nazism in the upper reaches of German and Ausrian society. There was no such opposition.

      For younger readers lets repeat, the millions of Jews and Gypsies and leftists slaughtered by the Nazis were slaughtered by the German capitalism by a party funded by the likes of Krups and Thyssen and I.G Farben (still making your weighing scales and escalators and penicils) and for what? To delay the arrival of Soical Democracy and its damned high taxes.

      Germany keeps its working class in employment, not because they believe corner boys created Nazism, but because it is simply not possible for the successors of the owners of Krup Thyssen or IG Farben to impose their ancestors vision of pure untrammelled capitalism on a German people who know what pure untrameeled capitalism is capable of, if it feels itself cornered.

      • Gege Le Beau

        @toh – the potential in Germany as Marx and Lenin knew was far greater than anything that came out social democracy later, there was the real expectation/hope that ‘THE REVOLUTION’, the one that would radically alter the world system would come from an industrialised/post-war Germany.

        The industrialists, the Army and others did everything in their power to crush this broad democratic movement in 1919, also known as the Sparticist Uprising http://en.wikipedia.org/wiki/Spartacist_uprising, which in turn led to the weak Weimar Democracy, which played a major role in spawning Adolf Hitler (Putsch in 1923, Chancellor (1933))

        Interestingly, Hitler was made Chancellor by Germany’s politicians and the President Von Hindenburg who hated the ‘Bohemian Corporal’, but the major force behind Hitler was German industrialists/bankers including international finance as Hitler promised to create a good ‘business environment’ and rearm, soon his concentration camps were full of socialists, Union leaders and any would be opposition, and of course, those young working class men.

        Hitler met with leading corporates including the CEO of IBM among others (see the famous photo from the Berchtesgaden ), the Catholic church was somewhat ambivalent, they liked Hitler’s anti-communism but to their credit the church in Germany (Bishops and Priests) did speak out from the pulpit, for which they paid a price, but Hitler too dread carefully as the South especially was and still is very Catholic.

        Hitler and his cronies had the following phrase engraved quite cynically on the belt buckles of his soldiers: ‘Gott mit Uns’ or ‘God with Us’, a bit like the way it is invoked in the US and I believe appears on the US dollar bill if I am correct.

  12. tony_murphy

    I was in Germany on holiday recently visiting relatives of my wife. We travelled by Eurostar from London. I was shocked by the number of factories along the train line as we travelled to Cologne and on to Hannover. I began to fully understand what David had being saying about how Germany was the powerhouse of Europe.

    I was genuinely surprised by how much I enjoyed my time there. We stayed in a B&B for less than 40 Euro a night. Food and drink prices were reasonable. A bottle of Chianti for 2 Euro! etc. I really enjoyed the company of my German hosts.

    We stayed in a really nice town to the north of Hannover, many beautiful houses – at a fraction of the cost of many houses in Ireland. Cycle paths everywhere, good public transport links. A real community atmosphere where neighbours came together and had BBQs and the like on a weekly basis.

    Yes the complained about their Government, the amount of tax they had to pay. The pay taxes for everything. We didn’t really talk about the economy, but I could see that people were very suspicious of bankers, inflation. They were very reluctant to take on debts. They were opposed to bailouts for sure. Greece was high on their radar, as was Spain, but Ireland wasn’t yet

    I’m definitely more likely to consider a move to Germany following my trip. I’ve tired of the gombeen men. They have a stranglehold on Ireland.

    I’m back in Ireland for a short holiday soon, I doubt I’ll get anything like the value I got in Germany. I will be keeping my wallet firmly in my pocket as much as possible

  13. adamabyss

    1. “A country with so much cash can finance almost everything, but here’s where Germany’s dilemma becomes apparent.
    The German government is obsessed with austerity and wants to cut back on expenditure.”

    2. “They then must borrow the cash to preserve their living standards and they borrow the German cash that the Germans have to lend because the German government doesn’t want to spend the money at home.”

    Using these two quotes from David’s article above, I have a question that may seem irrelvant and stupid but nevertheless here is is;

    If the Germans decided that they would instead spend their cash surpluses at home (in Germany), what could they possibly spend it on (instead of lending it out to irresponsible countries)? For example, why don’t they design and build spaceships and colonize the moon rather than throwing money at the likes of Greece and Ireland? Aren’t there further improvements they could make to the infrastructure of their country and their society in general? Why the reluctance to spend on themselves when they see the mess that other nations make with their borrowed money, dragging them down in the process?

    Thanks, Adam.

    • liam

      Hi Adam,

      My understanding is that the German Bank’s behaviour was not so much a matter of national policy as the greed of individual businesses looking to make a quick buck out of the less well developed parts of the EU. The whole EU deal was always that the Germans put public money in to regional development in the EU so that their private sector could have a greater pool of consumers that could be sold products and services.

      • adamabyss

        Makes sense Liam thanks. Maybe they should review their national policy then, or maybe they are. I don’t know. Cheers, Adam.

  14. With all due respect Deco or not, whatever, I am basing my analysis on first hand evidence and can back it up with real world examples a couple of which I have already given you, it’s called primary data. Please do enlighten us to your own experience. I suspect you are widely read amongst the English speaking media…. which might just have a certain perspective. I don’t know of any society or economy that has it all right, none, that place would be called a utopia if it existed, but it doesn’t and France certainly is no Utopia, hence I prefer to live in Ireland – especially since the boom went away.

    Deco, you are sucking me into you critique and that annoys me, but I have noticed all you do is critique others opinion without any real original thought. May I humbly suggest you firstly post your full name and secondly just put up your points of what you think without patronising others and belittling the points they make with accusation of bias.

    Before I finish and this is the last one, you obviously don’t know what you are talking about when it comes to understanding France. Funnily enough the French laugh at the arrogance of the “Anglo Saxon world” as they call it, because even though the French get so many things right, it is always written off by the Anglo Saxon world as just being a French thing. I too have come to see this so many times – it is only once you have lived in a place that you can truly understand it. As they say to truly understand others you must first walk in their shoes. One of my parents is English, one Irish so it would be safe to say I have that side of the experience and have lived in France. Best of luck, but remember just because forums like this allow you the opportunity to air your opinions, it does not entitle you to make up the facts……. France is not up the creek like the Anglo Saxon world……. FACT

    • Deco

      Paul – you are taking this personally. I am not. And I would prefer if you didn’t. You have provided no primary data – except concerning scenery in France. My question concerning France, is why are the young people leaving. In this case they are going to London, Quebec, the US, the Netherlands. France is not producing enough labour opportunities for it’s young. So, I am not in favour of following the French model. There are so many provisions for the labour market, that it is anti-employment. Don’t try to convince me, try to convince the French who have given up and left for good. And strangely enough, they have left for Anglo-Saxon economies mostly.

      Apart from that I visited France in 2008, and to be honest, I was shocked. You can literally achieve time travel back to the 1980s. There is a parallel here with the Mitterand Revolution in the early 1980s, and the end of “le trentes gloreuses”.

      I am not endorsing Reaganomics. Being critical of France does not make one a Reaganomics advocate. I have commented in favour of the analysis provided of consumerism by the documentary “The Century of Self”, and in the writings of James Howard Kunstler.

      From my dealings with French people, I have for the most part been with their diligence, their professionalism, their teamwork, and their enthusiasm. Therefore I conclude there must be something else that is not working. Maybe the system, or maybe the people in charge of the system. In this respect there are parallels with Ireland. Also, we should be wary of making a new layer of errors on top of those we have already made. I do not care what appears in print in the Irish Times. The Irish Times instructed us to beleive in the everlasting property market. The IT has been writing glowing reviews of all the leading lights of Irish business. The IT has journalists who advocate a Mitterand policy framework for Ireland, and is continually pushing for this. But, it has failed the youth of France. It deserves a critique. This idea that somebody should be patronised for a valid criticism, is nonsense.

      Is there way to deal with the modern economy ? Well, I think that the East Asian economies are doing well. They generate jobs for young, they provide infrastrucure, they allow failed capitalists to fail, and they are improving every year on a range of scores of human development. I mean, they are getting results, so they must be doing something right.

      France did not have a domestic subprime crisis – despite New Labour smugly advocating this in the middle part of the decade. France was correct to not go down that road. But the economic activity in France was low. Therefore the money in deposits went to other Euro-zone countries chasing profit. (Sacre-Bleu). End result massive exposure to Greece and Spain. Rather than create subprime in France, the French banks pushed subprime in the PIGIS. And Sarkozy got an EU bailout for Greek bonds, which is really a bailout of French banks holding Greek bonds. And this is the French politician who aimed to reform the system, to provide work for the young French job seekers.

      Here is a non-Anglo-American analysis of the bond market.

      http://www.telegraph.co.uk/finance/china-business/7886077/Chinese-rating-agency-strips-Western-nations-of-AAA-status.html

      The major surprise is the rating they give French government bonds, which are rated equal to UK gilts. This is a surprise, because we know that the UK is in a financial mess – with a serious buildup of multiple forms of debt over the past decade, to very dangerous levels. This to the extent that Vince Cable was shocked at how bad things were when he seen the real figures. Have the Chinese found out something that is absent from the Western media ???

  15. philo

    Hi,
    These articles just get stranger. The need to constantly recycle the what’s and whys of what went wrong in this recent recession is truly astounding. If every word written in these articles and that of all news and blog sites were turned into euro coins then for sure they’d be no shortage of money in the world. These articles lead you so far from reality that I believe most of use are in a parallel universe. I’m sorry to be so blunt and I really don’t want to offend, but people unless you want yourselves and each generation to come to become slaves to a money system based on debt run by a cartel then you need to move beyond this philosophical hogwash.

    David’s article does highlight a few things just not the ones he’s pointing too.

    Germany’s national debt is around 1.7 trillion Euros. Why would a country knowingly enslave its people in debt if it was generating such surplus?

    Germany’s banks have loaned credit to banks and governments across the EU and around the world. Its scale is not important. Irish banks have done the same and that of all the EU member states. What is being overlooked here and on most all other sites, papers, TV etc is why we have this ludicrous situation were broke countries are indebt to other broke countries banking systems

    Over 90% of money (credit) created today is done so in commercial banks by fractural reserve lending. This is electronic money created out of thin air. Our money system is based on debt, so all new money (credit) is borrowed into existence with an interest burden added. Only the principal is created, so for this system to function new debt must be continually created. Hence the reason banks are lending (creating credit) to other banks, people, corporations, governments is because the system would collapse if this ludicrous cycle doesn’t continue.

    Booms and busts are not isolated to the EU or Euro zone but to every nation on the planet today, as the same flawed monetary system is in place around the world.

    People this is not complicated and does not require endless books and articles and complex philosophical hogwash to try to grasp why the planet is in debt? All this smoke and mirrors does is keep people away from the horrible reality.

    Phil

    PS There is a nugget of gold in the way David describes the German industrial machine. A successful economy and monetary system should reflect the nature of what money is. That being a creative tool that represents the labour and ingenuity of the people coupled with the natural resources of mother earth. The tool should be measured against this real output as opposed to the false multi of trillions monopoly economy created on computers of banking and financial institutes around the globe.

    • StephenKenny

      Booms and busts are not restricted to human societies, but to all flora and fauna, and arguably to geological systems as well – there’s an interesting sunspot ‘boom’ due fairly soon.
      Our struggle, over the centuries, has been to attempt to tame our natural instincts that maintain this cycle.
      For those of us who’ve been on this site since before all the trouble blew up, it’s interesting to watch the cycle of a bust going along, bearing in mind that in recent decades, broad economic troubles tend to lag financial market troubles by 2 or 3 years. The current stage includes political extremism – unfortunate, unintended, but very foreseen by many.
      All over the world, people have stopped panicing, and in their various ways have given up trying to fix the problem. By ‘fix the problem’; what I mean is that they’ve stopped trying to fiddle with financial levers in such a way as to try and maintain our standards of living as they were before the thing started.
      What next? I predict political instability, and therefore extremism, economic woe for most, and continued efforts to shore up the old order. Eventually, in most countries it will break up, in an essentially orderly manner, and we will return to ‘an honest days pay for an honest days work’ which means, just to be clear about my thinking, we’ll return to the days when there was a substantially lower standard of living for all, and it will be generally understood that it is beyond the powers of government to make everything better by fiddling around with interest rates, or lending policies, or something.
      But before then, we’ll have a weird twilight period of growing extremism: the rich getting fantastically richer, feeding off the uninformed fantasies of the electorate regarding a quick economic recovery taking us back to 2005; some upticks in the economy, fed by varying forms of ‘stimuli’ and mini-bubbles; another financial crash, followed by reality coming home; leading to the mass of the electorate voting for extreme policies, including swinging wealth taxes; left and right extremists (it really doesn’t matter which) gaining ground.
      As far as I can see, this path is almost set in concrete. In nature, look out over a savannah during a period of maximum population for the herbivores, it looks lovely, all gently grazing. But on the fringes you know that a huge population of baby predators are therefore growing up, and that next summer, there will be much carnage. In time, the predators will run low on food, their infant mortality rates will rise, and the cycle will continue.

      • Colin

        Maybe our old friend Bertius Ahernicus had a particular insight into this phenomenon.

        http://en.wikipedia.org/wiki/Lemming

      • philo

        Hi Stephen,
        Thanx for taking time to respond. I agree on there being cycles in nature etc but I’m going to stick to point and not go off with philosophical analogies.

        You state the current stage includes “Political Extremism” In context to my first post can you please explain how what I write ties in with this?

        You go on to mention that with political instability comes “extremism” again can you please explain how that relates in anyway to what I originally posted?

        You go on to say, After that we will return to an orderly manner where we will have an honest days pay for an honest days work. Honest for whom? Study in the 2000 by the World Institute for Development Economics Research at United Nations University found: that the richest 1% of adults alone owned 40% of global assets, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth. Again I ask honest for whom?

        Let’s look at the “honest” role that banks play. Banks create credit from thin air which they then lend out at interest. This is usury. I’m not a religious person and you don’t often see the different religions around the world share common ground. But in this instance all major religions frowned upon usury, to quote Aristotle “The most hated sort of money-making, and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural use of it-for money was intended merely for exchange, not for increase at interest. And this term interest, which implies the birth of money from money, is applied to the breeding of money, because the offspring resembles the parent. Wherefore of all modes of money-making, this is the most unnatural” You see Stephen the people (banks) that invest the least (invest in terms of human labor & ingenuity + the planets resources) in any real world work project or industry gains the most. So for a final time i ask honest to whom?
        I don’t have a perfect solution to the problems around the world. I agree that they will always be cycles within any system. What I would suggest you are over looking or missing with all your predictions and monitoring of these cycles is the disproportionate sharing of wealth in boom times which is reflected equally in times of bust on who carries the burden. This is a man made system and while we may never have it perfect in function we can have it fairer for all.

        Phil

        • StephenKenny

          Hi Phil

          My intention was not to belittle the processes that have been, are, and will occur. As to wealth disparity and the banks: Global and national wealth disparities are separate issues in as much as we can pass a simple law to deal with the national, but nothing so simple is possible with the global.
          National wealth disparities in the US & UK have reached the level of the English Regency period, which is, quite frankly, mind blowing. Whatever your moral views on this, and we all have our own, it is a situation that is simply bad for the economies, for all sorts of reasons.
          The global disparities are a different matter, and clearly are far more complex and variable. The % figures of nominal wealth are pretty meaningless – in what sense is my home really worth a thousand times as much as a home in most African countries? Although it is off topic, it seems to me that it is more sensible to approach these problems from the standpoint of trade and international law. THat is not to imply that these are not problems that we must work on, but lets not kid ourselves that there is a simple solution that has any chance of working.

          As to the banks, as I have argued for 3 years now, I do not see it as being the banks fault, per se, that we have the problems we have. The problem is political. It is the politicians who make the laws, and who run the regulators. If the law restricts capital ratios for all banks, then they will all live within those rules. If the laws restrict the activities of banks, then the banks will all live within those laws. Where they break the laws, as happens so much in the City of London and Wall Street, they will go to prison, as happens not at all in the City of London, and actually quite a lot on Wall Street. After the previous US banking crisis, the ‘Savings and Loan’ crisis, when the US regulator was all done, over 3,000 bankers had gone to prison (Google William Black Savings and Loan, or something). You may remember the insider-trading scandals of the late 1980s (Ivan Boesky et al), it was the US regulator who arrested very senior bankers at work, and led them out in handcuffs for all the world’s press to see, and locked them up.

          The blame falls squarely on the shoulders of the politicians, and the executive. You might say that it was the banks that persuaded them to deregulate, and I would agree, but is was the politicians, supported by the civil servants, who passed the laws.

          As to the extremism – I was merely following on from your thoughts expressed in the last sentence of the first paragraph. My apologies if you thought I was implying anything else – I wasn’t. While people are trapped and happy, then all is well, but when they become trapped and poor, they will look for a solution, and it is all too often an especially opportunistic politician who rises on a platform of blaming the rich, the foreigners, or those who eat their eggs the wrong way round, or something.

          Here’s a change that I’ve always wanted to enact: A set of tax laws that make it more financially advantageous to rent a home, than to own one. Think of that.

  16. tony_murphy

    The Eurozone – stephanieflanders

    http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/07/the_eurozone_crisis_whats_it_a.html

    Spotted link which I think is interesting

    http://www.lobster-magazine.co.uk/articles/rrtalk.htm

    Also Reading Peter Hitchens columist for Mail on Sunday, his book Abolition of Britian at the moment. Think his blog is worth a read. He recently won a George Orwell award

    • coldblow

      The second (Lobster) link is fascinating. Not sure he’s right, but it’s certainly thought-provoking. The final part has some relevance to DMcW’s article insofar as it offers an expalanation for Labour’s capture by the ‘moneylender’ and the accompanying decline in British manufacturing. It brings back to me a few things that were going on when I was growing up there. I note the author of the article edits the website and has written a short book on the rise of New Labour.

  17. Philip

    This blows everything out of the water. http://reprap.org/wiki/Main_Page

  18. michaelcoughlan

    Hello All,
    I find this article very interesting. I know I am going to split hairs but I would like to point out a few observations and try and confine my response to the context of the original article. First of all David says “Germany, on the other hand, generates so much surplus capital from its exports that it doesn’t know what to do with the money. This makes it reckless.” I would suggest that it makes the German banks reckless as opposed to Germany itself reckless. The total number of bankers who landed us in the shit would fit in Michael O’Leary’s Taxi. David also says that “By being such a brilliant exporter, Germany has ensured that industry in other EU countries struggles, so the other EU countries fail to generate the surpluses they need to finance themselves”. It may well be an unintended consequence that the excellence of Germany’s exporting sector puts the rest of us in the shade from an exporting perspective but I don’t believe that it is Germany’s intention to enslave the rest of us rather they feel the need to run a decent current account surplus because it is the right thing to do. The MOST important point made in this article is the importance placed by Germany on making sure that the working and lower middle class workers take home decent wages is what ensures Germany’s continued success more than any other fact. This is because when people in this socio economic category have decent purchasing power money gets spread around in the economy at a very local level. This ensures the multiplier effect as the people have the disposable income to pursue their personal interests where they are at their most productive. Contrast that with England where in order to compete they simply force people to work longer hours for less money or in the US where ordinary people are simply abandoned altogether. The manipulation of the unemployment figures in the US is appalling because once your unemployment benefit stops they don’t even count you. When you add the number of people in this category in the US to those receiving unemployment benefit the figures are over 35%. In the US senior banker’s wages were in the $40m category pa whilst the take home pay of ordinary Americans stagnated for the last ten years. Most of the banker’s salary simply gets reinvested in shares or property and not spent locally which inflates the price of shares and property etc. Money itself is merely a tool to facilitate trade and was invented to fulfill this purpose. People should focus on trade and forget about Capitalism or Communism because when both are confined to the history books human beings will still be trading with each other. I don’t believe we should scapegoat ordinary Germans with extra taxes because their banks like ours are reckless we should take a leaf out of their book and increase our savings, pay working and middle class people better and make sure that the ratio of top banker’s salaries to that of the ordinary German workers doesn’t degenerate into the appalling free for all the people in the US are enduring. The Germans always have had respect for a hard working population where as in the UK your social standing is higher if you derive your income by a means which doesn’t involve labor or toil. The contrast between the success and failure and the two countries and the reasons why couldn’t be more striking.

  19. One could argue the possibility of default on the periphery is worth the security of knowing competition against the hub centre is lessened with competitors enfeebled by the boa constrictor of debt to the centre.

    German banks 1 : Peripheral banks 0

    US Stimulus 1 : European Stimulus 0

    China Stimulus 1 : European Stimulus 0

    Instead of a stimulus package in Germany, that would help consumers across the Eurozone, Germany is going for austerity and preaching austerity to Eurozone banks.

    This shows a lack of trust that stimulus packages will be spent wisely by PIIGS; or maybe a lack of concern for eurozone taxpayers, perhaps sparked by a confidence Germany will become stronger against the until now threat that other eurozone countries could threaten its dominance.

    Perhaps the hope is Micheal O Leary’s across the planet will locate their startups in Hamburg, rather than in (D)Ireland. One thing for sure, as well as the future viability of the eurozone, its current direction, should be strongly questioned.

    • Re thread on France above, French of course are famous for their frugality and their saving power, credit cards are not as popular over there and they have strong methods that prevent gazumping.

      OT, look forward to future article on the land of Croatia, the land of Shakespeare’s Twelfth Night, Dalmatian coast and wonder if they will join the EU. Arn’t the mafia very big there?

      Seems further east you go, the bigger the powers of the mafia grow.

  20. Original-Ed

    The difference between a British and a German Industrialists is that the MD of the former will have the financial times on his/her desk, share price is very important, where the latter will have a sample or a model of his/her product and quality is the primary concern.
    The British are more imaginative and inventive, but they find mass production boring and the decline in their manufacturing was triggered by the rise of Japan and it’s quality awareness.
    In small volume high value, high skill niche areas, like aero engines they excel, but in high volume, low value areas they need a disciplined outsider to maintain rigid control over processes.
    ARM is a great example of playing to their strengths, generating serial innovations for mass producers across the world – if only we could do that, we’d be made.

  21. paddythepig

    The Germans can choose where to allocate their surplus money. If they decide that Europe is not the most productive place to invest it, they can invest elsewhere. They can cut off the supply to us, what then?

    Rather, it is us who haven’t figured out what is the fundamental question. Such as … why can’t we trade and export like the Germans? Are we too thick, too lazy, too corrupt, too naive? What is wrong with us?

    Soccer analogy. When you get whipped 7 goals to nil, you can do a number of things. Blame each other, blame the ref, blame the ball, blame the pitch, blame the weather, say the opposition were lucky, blame everyone except who you should blame.

    Yourself.

    Germany’s surplus is not the problem. The collective deficit’s of the European nations, and their root causes, are the problem.

    Paddy.

  22. Colin

    Hi David,

    I noticed in my 4 days in Germany a few years ago that the cities (Frankfurt and Kaiserslautern in my case) are free from traffic congestion. It was quite remarkable how pleasant the streetscapes of the cities were to stroll around and take in the sights and sounds, plenty of green areas, little noise apart from the tinkling of trams, nobody in a mad panic to get from A to B, no chuggers, no intimidating undesireables and a low key police presence.

    I came to the conclusion that Suburbia must not exist there, that people are happy to live close to their factories / offices / schools / shops / hospitals etc…. meaning owning a car is more of a nuissance than a luxury, and that they are not afflicted with a “keeping up with the Joneses” mentality. I advise every Irish man and woman to spend a few days there, and simply observe how things are done there, and contrast that with life back home.

  23. toh

    paddythepig is too easy on the Germans (and the French, lets not forget them). David McWilliams has tried time and time again to draw attention to the irresponsibilty involved in Germany’s lending 120 Billion to our banks, but it seems to me that most people skip over his argument as if it were a clever debating point. Hard as it is for Celtic Cubs to swallow, but the truth is that Ireland (and in particular its useless ruling class) is same infantilised society of their parents and grandparents, and is easily taken advantage of when it tries to play with the grown-ups.

    While the man in the street before 2008 might be excused for not knowing that the Irish banks were jokes, senior German bankers and their regulators would have known since the beginning of the decade. The Economist magazine had been questioning what was happpening for years and so did the New York Times . All this was dismissed, if it was alowed to be discussed at all, as yjr result of the evil Brits spading rumours because they were jealous of the wonderful Celtic Tiger. That was the level of ‘debate’ as we headed over the cliff.

    THe German bankers (being grown-ups) knew there was no evil Brit conspiracy, that the criticisms were justified but sill they shoveled money in the direction of the clowns who ran our banks. They didn’t do this in spite of knowing these people were immature clowns, just playing at being real bankers. On the contrary, it looks like they cultvated this business precisely because they knew they were dealing with childish fools, who had risen to the top in a country with very immature politics and culture. These German bankers and regulators knew ( a thing we were never told until it was too late) that we the Irish taxpayer would have to pay it all back in the last resort. Just think for a moment of the cynicism involved in this calculation before you absolve the Germans of responsibilty.

    The best characterisation I can give of this mode of operation is ‘economic paedophilia’.

  24. StephenKenny

    hi toh
    I don’t follow your reasoning with regard the German banks. A number of banks, including German and French ones, made a very poor bet, and since it’s gone bad, will lose a lot of money. What’s the problem?

    I wouldn’t quote the Economist myself; since it’s decision in the mid 90s to ‘broaden it’s appeal’ (much acclaimed at the time – accessibility etc) it’s articles are generally shallow, poorly thought out, and as a publication, are vague. They did have an article in 2005 talking about a possible US housing bubble, but given the staggering scale of the problems with almost every aspect of the political, financial, economic, regulatory, property, and consumer credit landscapes, it might have been a little more appropriate to get hold of some high powered megaphones and shout it from the rooftops, as many lesser publications were doing.

    • toh

      What I mean about the German and French bank’s culpability is that they must have been well aware of the risks in dealing with the Irish banks but they didn’t care because there was this supposed implicit guarantee of bank debt by the state, so they stuffed us with debt knowing our clownish government could be bullied into guaranteeing it at the last resort.

      I referenced the Economist because it constantly warned about the Irish bubble (was it an Irishman in their Economic Intelligence Unit whose name escapes me?). These warnings were poo-pooed on the radio by tame economists as British ant-Irish spite .

  25. stanb

    Quote from the Teutonic Paradox by David McWilliams:

    “By being such a brilliant exporter, Germany has ensured that industry in other EU countries struggles, so the other EU countries fail to generate the surpluses they need to finance themselves. They then must borrow the cash to preserve their living standards and they borrow the German cash that the Germans have to lend because the German government doesn’t want to spend the money at home.”

    Stan P. wrote:

    [rant ON]

    please read it carefully.
    The problem is that the German …. GOVERNMENT does not want to spent money at home.

    Let me re-phrase it.

    This guy believes that the German companies are making money so that the government could spend it!

    The government which did not earn them, does not own them and did not move a finger?

    Presumably if they taxed the German companies to death and then spent the money on windmills then everything would be “peachy”, RIGHT? It is so stupid it is almost funny providing one does not live in Ireland, Spain nor Greece.

    He mentioned this “government spending” severa times in his articles. In Poland, I was quite adept at reading between the lines. Not any more. I do not find it worthwhile. I also do not want to attack McWilliams. He is doing a good job. I have a very subtle point [to make] instead.

    When I was leaving Poland I thought I was immune from communist bull…t . I thought that since I have read all the underground literature, I listened to radio Free Europe etc and that I can not be fooled by their propaganda. Man, was I wrong!

    This stuff gets in through your pores, through your lungs and through thousands of other ways you do not even suspect and it affects your “BIOS”. You can see it in Canada as well as in Ireland: people expect SOLUTIONS from the Government. They invent new solutions where the government plays a prominent role.
    They compare the “good” German Government to “bad” Irish Government. They think government spending “helps” the economy.

    They simply can not grasp that the government is not the solution, not part of the solution and not even part of the problem!

    The government IS THE PROBLEM!

    At this point I must say I am not [generally] against the government. For example, you absolutely need a liver, but not a liver cancer. The difference between the liver and the liver cancer is just a small mutation in a DNA Yet the regular cells keep you alive while the mutated will kill you in no time.

    This is what has happened to the governments. It was needed for defense, for law enforcement, highway system and industrial regulation.

    It mutated to take care of everybody and everything, from craddle to grave. Make no mistake – it is a cancer! People tend to forget that Adolf Hitler was democratically elected the Chancellor of Germany. When you want help from the State, watch out what you wish for. You might get it!

    Stan P.

    (posted by Stan B.)

  26. Deco

    The problem with this idea that the Germans are responsible for their trade surpluses, is that it fails to recognize the abdication of other countries regarding their trade deficits. Spain and Britain have had considerable trade deficits for over a decade. However, the domestic politicians told the populace that this was never a problem. In the US Dick Cheney even commented “deficits don’t matter”.

    The countries who are indebted are also responsible for their own voodoo economics mindset, and for taking their own politicians seriously. Media organizations are being soft on the ‘consumeriatat’ telling them that it is somebody else’s fault. And in doing so they are upholding ‘consumer confidence’. Therein, we have an intellectual problem, and it is rooted in the advertising revenue side of the media.

  27. manofiona

    In a normal economic union ie, one which is also a political union, there is nothing particularly disturbing in having a concentration of production and financial (or other) services in particular areas and having people throughout the union borrow in order to purchase products or services. Such a system works when there is overall regulation of credit and there are compensating flows of funds from richer to less richer areas through central government taxing and spending power. This happens to some degree in all states and is the basis of the prosperity of very large countries such as the US, which are real economic unions.

    Europe is trying to obtain the benefits of an economic union (including a common currency) while maintaining separate sovereign states. Such a system results in dispersion of regulatory power and limited possibilities for financial flows between from rich to less rich. The result is the mayhem we have seen of countries which essentially encouraged their citizens to borrow without limit from lenders who believed that implicitly the richer countries were de facto guarantors of the debts of the prodigals.

    There can be no successful monetary union except within a genuine economic union and there cannot be a real economic union without political union. That is the lesson from the current crisis for Germans, Irish and all other Europeans.

  28. [...] the above highlights is systematic flaws within the Euro-zone. As Irish economist David McWilliams argues, the Euro is geared towards having economic melt-downs over regular [...]

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