October 16, 2014

What happens in Germany is more important than Irish posturing

Posted in Irish Independent · 42 comments ·
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The tourist boat ploughs through the fast-flowing Rhine. On either side of us, barges weighed down by tonnes of scrap metal sparkle in the bright autumn sunshine as they cleave upstream towards Cologne. This river has been Germany’s mercantile artery for centuries and the prosperity of cities like Dusseldorf is based on being a massive inland port of this giant European waterway.

Like much of Germany, Dusseldorf has adapted. It has emerged as one of the biggest conference venues in Europe, underpinning the importance of the hospitality industry, and offshoots of this hospitality industry, in keeping modern cities ahead of the pack. Dublin could learn from Dusseldorf in this regard because in the future this type of upscale tourism, driven by festivals and conferences, may well prove to be extremely lucrative for our capital.

Further down river is the Ruhr and access to the Ruhr Valley – the traditional heart of the German economy. This is one of the most densely populated places in Europe with enormous cities mere kilometres from each other. Although the area has been in decline industrially, German manufacturing industry has proven to be one of the most resilient in the world. The Ruhr Valley – unlike post-industrial areas of Britain, which are wastelands – has not only negotiated the decline but has re-invented itself.

It is there, right in the middle of the Ruhr, that the Irish faithful descended for the match yesterday.

Before the match Martin O’Neill urged us to be confident. He was reflecting the new mood, not just in the Irish team, but in the country that we, as a country, are back in the game.

On the basis that our budgetary plans were seen by the Bundestag in Germany before they were seen by the Dail, maybe the fact that I am writing from Germany on budget day is appropriate.

When you stand back, from an economic point of view, the irony is that what happens here in Germany over the coming few months will have more impact on Ireland’s budgetary position than all the posturing of Irish politicians. While the budget is more or less an electioneering document for the next exercise in spectator democracy, the economy in Germany will set the rate of interest at which our debt is priced, the rate of interest for our mortgages, the crucial dollar/euro exchange rate and the attitude of Europe’s elite to our next corporation tax move.

Germany is beginning to show signs of strain. In the past week we have seen every piece of hard data out of the Federal Republic beginning to weaken dramatically and unexpectedly.

German factory orders fell by 5.7pc in September. Industrial production slumped by 4.0pc and export to the rest of the world retrenched by 5.8pc in the past few six week. This is a disaster for a country that bases its prosperity on the willingness of the rest of the world to spend.

And frugality is the flaw in the German model based on fiscal prudence and a current account surplus. Both of these attributes are merely the reflection of Germany not wanting to spend enough. This shortfall in spending has to be made up by the rest of the world, but if the rest of the world stops spending, then the Germans have a problem.

In the past few months, Europe has stopped spending and as Europe is Germany’s biggest trading partner, ultimately the impact on Germany is felt through falling orders for German factories, falling production and falling exports. All this is now happening.

The problem for Europe is that no growth is not just an economic problem; it is a political headache too. As European growth stalls – yet again – the sustainability of the debts of Europe’s periphery governments come back into focus. The ECB wants to save the Euro, so it decides – as it is doing – to print as much money as possible. This angers the Germans who believe that the ECB is risking all its credibility if it prints money.

The Germans are beginning to understand that Mr Draghi, the Italian head of the ECB, is trying to turn the Euro into the Lira behind their backs. But they also know it is too late. They have traded the mighty Deutsche Mark for the Euro and they can’t go back. The Italians and Spanish have a gun to their heads.

All they can do is complain and accept. This is a difficult position for Europe’s premier economy to find itself in.

Germany is following when it should be leading – and there is nothing it can do about it.

Therefore, low Eurozone interest rates are here to stay and they will only rise in the government debt market (including Ireland) if the financial markets believe that Germany will not pay the bill for the rest of Europe.

Up to now the Germans picking up the tab was almost a given, particularly as the economy was so strong. What happens if the economy here weakens as quickly as the latest data from German industry suggests? Will the Germans have the money to bail everyone out? Will they have the stomach?

Ultimately, the answers to these questions will determine the future path of the Irish economy much more than anything announced on the steps of Leinster House.

That’s what happens when you give away sovereignty: national politics becomes practically irrelevant.

At least the Irish football team had its destiny in its own hands last night. In the final minute a flash of brilliance showed Ireland equal to the World Champions.

Maybe its a lesson to the politicians who sit in Dail Eireann.

 


  1. Subscribe, on the way to Budapest for the first time in 8 years. Interested to see how the place has changed.

  2. Pat Flannery

    That’s what happens when you give away sovereignty”. Same old same old. How much better off we would be if we exited the Euro and rejoined the Pound. We should give it right back to the Brits where it belongs. We need a new tune David.

    • CorkPlasticPaddy

      David,
      As far as I’m concerned it was the Germans themselves who got themselves into this mess that they now find themselves in. It was they who wanted the Euro in the first place as the Deutchemark was to strong a currency. They also got themselves into this mess as a result of the German banks being so flahool in giving out loans to the rest of the Eurozone countries during the boom times and now its come back and bitten them on the bum. Our banks and their banks are the cause of all of this and its the politicians in both of our country who were at fault in allowing that to happen, so, I’ve got no sympathy whatsoever for them.

      • French Frank

        The FF was in serious trouble immediately prior to commencement of the Euro and this monetary union saved it from further devaluation.

        • Tony

          Germany wanted re-unification. France wanted to be propped up. The deal was that if Germany supported the euro, France would support German re-unification. Sneaky back room deals affecting the lives of hundreds of millions. Gotta love politics.

    • Deco

      The Euro is like a rulebook.

      If you want to survive in the Euro, then it is best to play it like the Germans are doing.

      In other words, you must volunteer yourself to live within your means. Most people would readily do so. But the Irish state takes up a massive chunk of everybody’s earnings, and gombeen business interest squeeze out the rest.

      Therefore the next logical state is to demand greater accountability and efficiency from the institutional state. Like happened over the Rehab and CRC sagas. The problem is that the Irish institutional state is completely overextended and over planned. It is into an enormous amount of nonsense. And to pay for this you have an escalating level of extraction from everybody who is not a beneficiary.

      Classic example is RTE. It is becoming inconsequential to most people. I stopped watching television a few years back, and it is amazing. After a few months you actually gain an improved appreciation of time, of what you can do, and improved awareness of what is really going on.

      Of course in response to the fact that people are dropping off RTE, the state has decided to have a tax on people who use the internet.

      Now, in my mind this is complete nonsense. It will be compulsory to pay for the nonsense in RTE (Pravda) even if you have already personally decided to opt out of watching it.

      Yet, this is exactly how the institutional state is behaving. The state deals with the immorality of this by posturing the fact that it is free to those on the dole.

      A bit like the bank bailout, and the current property madness. It is compulsory to pay for it, even if it is completely contrary to the interests of the individual. And the state will respond to the immorality of all of this, with buzzwords like “social housing”. So basically those that work are being screwed once again.

      • Deco

        The Irish institutional state wants a solid currency, but it wants to behave in a rather liquid, and fluid manner, to suit it’s own ends.

        It is starting to behave along the lines of how it behaved before the formal British rule was ended. Informal British rule never really ended. Just look at the reverence show for the largest alcohol producer in the state.

      • Deco I agree with a Lot of what you said. I’m 70 an Allways Lived within my means. What good was It when I have to pay for the person who didn’t Live within means Institutionalised My arse Its a nice name for robbery.
        About unemployed receiving free view to rte Youd need to be paid to watch It. It’s not there fault there Idle Anyone can loose there job,-:)

        • Deco

          I started off without a job. And went through an interview a week for a long time. I went through a range of emotions at the time.

          And in the jobs market these days, it is even tougher to get a start. Much tougher.

    • Gearoid O Dubhain

      IT is the Irish Public Sector which sets economic policy here – ask teachers Michae lNoonan, Enda Kenny, Michael Martin etc, eyc. It was the Public Sector Regulators which failed to regulate and then bailed with Gold embroidered Public Sector parachutes.

  3. In terms of the banks lending too much, I like to use the analogy of a man going to a pub and ordering and drinking 10 pints in 3 hours who then ends up in hospital, who is to blame? – the man being so wreckless or the owner of the pub who wanted to sell as much pints as possible in order to maximise profits?. I believe both sides are to blame, having said that the ECB should have been the economic experts for each eurozone country. I think it was David who said the ECB is/was one of the least regulated central bank in the world.

  4. Deco

    Don’t compare Ireland in economics with Germany. And especially not Southern Germany. Ireland has chosen a different path. Ireland has chosen neo-liberalism, Ponzi based consumption as the societal goal.

    Ireland needs to be compared with somewhere like Illinois, with all the economic activity concentrated in city, lots of control concentrated in a pliable bureaucracy, rampant nepotism, enormous pretence, and a corrupt clique in charge. Or maybe even Greece with a tight clique subservient to the needs of the imperial power centre in Brussels.

    The Germans will figure a way out of the current morass. They completely underestimated the disasters that would flow from the centralization of Europe. But so did everybody. With the greatest of irony, the EU has become a second Habsburg empire. Something which Germany tried to keep intact, 100 years ago (and they failed because of the fact that Wall Street loaned out massive sums to the British and the French, and Wall Street did not want to lose money). The first Habsburg Empire also went to war to stamp out nationalism. Perhaps if the Russians stayed out in 1914, the world might have been a better place.

    To be honest, Dublin’s biggest problem is it’s love of structurally imposed inefficiency. The housing market is a classical example.

    And Ireland’s biggest problem is that the political quislings in Kildare Street have decided a long time ago that political sovereignty is something that could be cashed in for a few crumbs from the master’s big table in Brussels.

    All we need now is some sort of green jersey spectacle to maintain the pretence that we are going somewhere.

    Roll out the “bread and circuses”.

  5. Bamboo

    Why is it that property prices in Ireland in particular are going up so ridiculous again while world stock market is in a panic again? The peak of property prices in Ireland was late 2007 – the time when world stock market got into a panic with a grand finale in 2008.

    • DB4545

      In relation to the stock markets in a panic. There was an article in the business section of the Sunday Times last week. The crux of the matter was that markets haven’t yet priced in the US now having energy security. The Saudis haven’t objected to oil heading towards $90 dollars a barrel. Some US analysts reckon that with fracking technology improving oil might head towards $50 dollars a barrel. It might explain why the US couldn’t give a rat’s ass about the Middle East as it probably doesn’t see it being critical to it’s security for the medium term. At those prices that has severe implications for funding social programs in the Middle East and containing unrest in the region. It also has severe implications for our next door neighbours in relation to their social and welfare programs funded partly by those North Sea oil revenues. The Scots may have played their cards well if those analysts are correct. If markets have priced ever increasing oil prices and oil is headed towards $50 an barrel we are about to start living in very interesting times.

      • Maybe the cart is before the horse.

        I have seen it stated that the cost of fracking oil from the ground requires the price of oil to be above $85 a barrel.

        It was suggested that the Saudis are now at odds with the US over policy differences re Iran and Syria and are now moving to the Chinese camp for security.

        To punish the US the Saudis are pumping oil to lower the world price in order to bankrupt all those highly leveraged oil companies happily, until last month, fracking away in the US.

        This means the US will be forced to import oil rather than export, as the domestic production will be curtailed due to losses rather than profits and so be financially squeezed harder yet again.

        Does this scenario have validity??

  6. Deco

    The euro has exposed the delusions, in contemporary times of many people in Europe.

    The Belgians, and French are up next. In fact Belgium is a country living on borrowed money well into borrowed time. The ECB might well bankrupt itself trying to save both.

    Then the Dutch, the Austrians, and the Finns.

    Then the Germans.

  7. Dorothy Jones

    David

    It’s a recurring theme; you’re right, in a way, but something about how you explain it…jars. Not quite sure why.

    der sparsame michel wird für sein eisernes sparen auch noch beschimpft, von denen, die ihr geld nicht zusammenhalten können /..dolche vita……

  8. Adelaide

    “Politics is the entertainment division of the military industrial complex.” Frank Zappa

    • Deco

      I am laughing at that term. It certainly seems to be true in many respects.

      Though in Irl we don’t have a military industrial complex.

      We do have a state bureaucracy complex, an beer industrial complex, and property racket complex. And all three are sacred cows.

  9. Wills

    …on top of which the banking elites of Germany coerced the Irish government into passing the buck of their criminal banks over lending into Irish economy cost the sick, the old and the next generation with their insane desire to become the world’d superpower.

    http://www.independent.ie/business/irish/irish-were-bullied-and-treated-outrageously-during-crisis-legrain-30250226.html

  10. Tull McAdoo

    “German mercantilist model is ruinous for Germany and deadly for Europe”

    is what this article puts forward and having read it, I agree, which is a bit unsettling to say the least.

    http://www.independent.ie/business/world/german-mercantilist-model-is-ruinous-for-germany-and-deadly-for-europe-30651089.html

    • Mike Lucey

      Yes Tull it is unsettling when we read,

      ‘A fifth of German children are raised in poverty.’

      and

      ‘Philippe Legrain, a former top economist at the European Commission, says Germany’s “beggar-thy-neighbour economic model” works by suppressing wages to subsidise exports, to the benefit of corporate elites. This is “dysfunctional”, and the more that EU officials try to extend the model across the eurozone, the more dangerous it becomes.’

      Politician facilitating the starvation of kids to fill the corporate elites bellies is a recipe for revolt sooner or later or even the rise of other Hitler type and the last Euro election results would appear to be going in this direction.

      The cozy politician / corporate elite clubs have to be broken up and replaced with ‘people power’. The first step has to be the education of the people about what is actually going on and it seems that this is just starting to happen here is Europe with movements like the STOP TTIP movement. I’ve put my signature to it, here, http://action.sumofus.org/a/stop-ttip-eci/?akid=7530.1810268.i6YBbh&rd=1&sub=fwd&t=1

      • Daniel Waxonov

        I too added my John Hancock,and equally as important is the Awareness effort of such an important campaign.The “beggar-thy-neighbour economic model”,which ‘we’,the PIIGS especially – have discovered is indeed the cannibalistic model Mike,[and not that anyone has forgotten that Ireland was bullied and FORCED into the heist of E65billion in odious foreign debt,suspiciously 'parked' in Ireland,is another acute example ]and if “free-energy” is where it’s really at,[and it is] this graph just speaks VOLUMES:

        http://schillerinstitute.org/strategic/2014/eir-brics-web-images/nuclear_power-percentage-graph.gif

        [ that is bar Germany having achieved cold fusion,or some anti-matter breakthrough?] is ,well, a graph that reminds me of the M*A*S*H intro -”suicide is dangerous,it brings on many changes….”

        While rhetorical,as all the evidence points to it,i still have to pinch myself and ask – have the zeocons truly ‘that’ level of control,that power,..to manipulate and force this hari-kari strategy – to suppress Germany’s potential of economic development, and by extension,the beggar-ing of all otherr European nations?

        • Daniel Waxonov

          And this *very* worrying THREAT of TTIP/TAFTA, as i see it,is a further ominous ‘stroke’/power play of centralising/galvanising even more POWER in the greedy paws of the 1%,and to rip to shreds even the memory of the principle of sovereignty[both individually and nation state] under a meme,an illusion,that ‘they’ wilfully propagate,that of of mar dhea free-trade and co-operation between USA and Europe(TAFTA)

          Cui bono?Well we know,dont we- The [apparently]above-the-law, power hungry elite,Oligarchy,Empire. TTIP enables the puppet masters,these MEGA corporations (with more ‘wealth’ than nations ffs !)to move their chess pieces in a bid to counter the BRICS nations progressive moves?

          This is the nature of the beast(s)we face,this is the shape ‘it’assumes,be it NATO, The World Bank, M.I.C, UN, Central Banks,IMF yada yada.

          18 months ago,i felt the use of the word ‘empire’ was OTT ?

          seems like a a thousand centuries ago

          • Daniel Waxonov

            speaking to this very topic of power;

            “The US is a bit of an outlier here, simply because it’s older.But the IMF, the World Bank, UN, NATO and the EU absolutely all fit the picture of organizations that have – happily – grown beyond our range of view, and that exhibit the exact same inverted pyramid characteristics we see on wealth inequality, only for these organizations it’s not wealth that floats and concentrates increasingly from the bottom to the top,it’s power.Wealth comes after that. And one shouldn’t confuse that order.Because power buys wealth infinitely faster than wealth buys power.”

            http://www.zerohedge.com/news/2014-10-18/wealth-inequality-not-problem-it%E2%80%99s-symptom?page=1

          • Daniel Waxonov

            If the motor of any productive economy is science and technology [and it is] and in turn,the motor of technology is ideas(ie fundamental scientific discoveries),then the deliberate fostering,in a wilful way,of our unique creativity by way of huge investment in education/investment in R&D projects,is key to making progress,and the failure to introduce such GROWTH strategies /policies,both culturally and economically,won’t the Irish Achilles Heel,but our death knell.

            “The Greek Prometheus,”Foresight,” must triumph over the wicked oligarchical families who rule Zeus’s Olympus.Ideas, and the foresight inhering in the metaphorical process by means of which ideas are developed and transmitted into practice of present and future generations,are the essence of that which distinguishes man,as Genesis and the New Testament define man and woman. That is,in larger degree than from anyone else in modern times,our heritage from Leibniz.That is the heritage of the science of physical economy”

            http://www.schillerinstitute.org/fid_91-96/963B_lieb_rieman.html

            - the Masterful, Lyndon LaRouche, July14,1996.

          • Daniel Waxonov

            It’s easy to make jokes of incompetence when referring to “it’s about 4 miles away,but if you hurry up,you can do it in two” Inda,but at what stage of his career did Inda stop caring?caring about the people,the citizens?Seriously.

            At what moment did he decide to take us all for fools?When exactly did he acquire that level of untouchable hubris ,as was the case by the banksters as on the Anglo tapes?

            Or are ‘the-powers-that-be’,in the shadows,maybe blackmailing him, threatening to expose some secrets of his?That’s me trying to give the f**ker the benefit of the doubt. I mean DMW wrote recently; “If these [muti-nationals]companies were even to deign to pay tax at the very low (by international standards) rate of 12.5 per cent, the exchequer would net €12 billion in corporation tax per year.

            a gob-smacking E12 thousand million

            ..where are the steps to close that gap?

            Yunno,i always think that it’s the slashing of Ireland’s social welfare to UK levels of support,or lower ,(dole for single person is £70ish/week ) will be the straw that breaks the proverbial camel’s back in Ireland and Inda and his cronies know this of course. I don’t have any supporting evidence, per se, but i’m supremely confident-due to the nature of the [manipulative and controlling] beast,that our Gov’t have their ‘people’ surfing social sites,just like this one, to assess the levels of disquiet among the serfs.Well,when the bow breaks,that fracture,be it in the shape of bail-ins or welfare disembowling, the cradle will fall and when that happens and we all know it will,i hope he and his ilk clearly understand that all the undeniable pent-up anger,fear, sorrow ,frustration and suffering in the People,WILL surface like a spewing volcano.

            I for one will have my hurley at the ready![And yunno,Bonbon couldn't be a pacifist could he,that'd be irrational]

  11. Tull McAdoo

    For those of you who wonder how an old digger like me sitting here in Perth, WA, keeps up to date with the Irish print media and all the “going’s on” around the emerald isle, here is a link I bet most of you never knew existed and yet I have been using it for year’s.

    http://www.egt.ie/misc/nuachtain.html

  12. michaelcoughlan

    Hi,

    “In the past week we have seen every piece of hard data out of the Federal Republic beginning to weaken dramatically and unexpectedly”

    Unexpectedly to who? The shit pile of debt is too big as it is.

    “This is a disaster for a country that bases its prosperity on the willingness of the rest of the world to spend”

    It doesn’t. It bases it’s prosperity on it’s own belief in manufacturing, frugality, savings and thrift.

    “And frugality is the flaw in the German model based on fiscal prudence and a current account surplus. Both of these attributes are merely the reflection of Germany not wanting to spend enough.

    Frugality is a flaw is it? From whose perspective? The Germans want to spend their savings and not their loans.

    “the sustainability of the debts of Europe’s periphery governments come back into focus”

    What sustainability? They are not sustainable. Only after debt is written down will growth recover.

    Michael.

  13. Tull McAdoo

    The questions for you Michael are
    1. What do you do when you have not got enough accumulated savings to fund the growth that you require?
    2.Do the likes of the Germans fund growth and improve their quality of live at a faster rate than the rest of Europe and finally
    3. How is economic convergence take place in Europe when investment is skewed in favor of the have’s as opposed to the have not’s?

  14. Tull McAdoo

    The questions for you Michael are
    1. What do you do when you have not got enough accumulated savings to fund the growth that you require?
    2.Do the likes of the Germans fund growth and improve their quality of live at a faster rate than the rest of Europe and finally
    3. How is economic convergence to take place in Europe when investment is skewed in favor of the have’s as opposed to the have not’s?

    • michaelcoughlan

      Hi,

      Thanks for your post.

      “What do you do when you have not got enough accumulated savings to fund the growth that you require?”

      McWilliams has been writing real heavyweight commentary around this very point in recent times. The answer is you make sure that a greater portion of the wealth created goes into the pockets of the staff through a greater share in the profits however you manage it rather than a return to capital through increasing profits and dividends. This will have a whole pile of positive knock on effects. More purchasing power for citizens, less money for the haves to gamble on the stock market, more capacity for citizens to save and pay down debts, less need for citizens to borrow but also facilitates the ordinary citizen to become wealth creators in their own right by allowing them to build up the capital to pursue their hobbies or start a small business etc.

      “Do the likes of the Germans fund growth and improve their quality of live at a faster rate than the rest of Europe and finally”

      I don’t understand the significance of this point.

      “How is economic convergence take place in Europe when investment is skewed in favour of the haves as opposed to the have nots?”

      The rest of Europe must get it’s ducks in a row and make their industries as competitive as Germany’s OR live within their means with a lower standard of living matching the real efficiency of production in their respective country.

      Thanks and regards,

      Michael.

      • Tull McAdoo

        Hi Michael, the points that I am making are that if you only have one currency i.e. the Euro and one central bank i.e. the ECB, then in order for economic convergence to take place within Europe, the less developed countries must have higher growth rates than Germany.

        In order to do this these less developed countries must borrow and invest more to fund technology; infrastructure etc, which over the course of time will increase efficiency and effectiveness and by extension will allow them to repay their borrowings.

        I am becoming sceptical about German intentions and whether they want other countries within the euro-zone to become competitive to the point where they pose a threat to German foreign earnings through exports (or their quasi mercantilist policies). Imposing austerity all around will do nothing to improve the lot of the less developed who are crying out for investment.

        Economies do NOT work like household budgets and balancing the family accounts. Sitting around waiting for savings to accumulate in order to fund development is lunacy for a country and would leave less developed countries moving at a snails pace to improve the quality of live for its people.

        I live in Western Australia and we have been producing surpluses for years through the mining boom etc. and these surpluses are shipped back to Canberra and then forwarded on to other regions to fund development like food and fruit etc. over in Queensland to the point where we are now self sufficient food-wise.

        All very civilised I would say, no beggar our neighbours in other states out here mate, anyway I am sure you catch my drift, Tull.

        So on that note Goodnight Ireland.Sleep Well and take it away Linkin Park who thinks you could be better becoming more like me and less like you….Numb..

        http://www.youtube.com/watch?v=I2REZSj4XnE

  15. Tull McAdoo

    OOps I appear to be posting in stereo, time for bed me thinks…

  16. “That’s what happens when you give away sovereignty: national politics becomes practically irrelevant.”

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/10/16_The_World_Is_Now_Set_Up_For_The_Mother_Of_All_Collapses.html

    Swiss people may be waking up to the reality that only by retaining control of their money system will they retain their sovereignty.

    “But on a more uplifting note, Switzerland is voting on a partly gold backed currency on November 30. If this goes through it will have major consequences for the gold market. The Swiss are already prepared to launch their campaign next week. IMPORTANT – On November 30, Switzerland has the unique opportunity to lead the world back to sound money and sounder economies. Donations have been pouring in from around the world. These funds will be fully spent on reaching some 80% of the Swiss population via social media. The national campaign, with door to door leaflets and road side billboards, will officially kick off next week with a press conference held by the Initiative committee. We will keep you posted of course and it will be well publicized in the independent media. In order to fight a successful campaign, we will need to raise additional funding for the Swiss Gold Initiative. Any contribution, large or small would be extremely helpful and welcome. This is a chance for readers around the globe to change the world, one country at a time. To donate please click on the button below.”

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