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Germany the Vampire Squid of Europe

RobertBrusca's picture





 

Herr VAMPIRE SQUID revisited and affirmed-

Germany is in it for Germany, not for united Europe. When you look at Europe and see that Germay is a success and no one else is, there is a reason for that.

Germany, after 'trapping' many countries in the e-Zone ignored their situation while Germany continues to post increasingly lower-than-required rates of inflation as many in EMU ahve run higher rates. As a result of this, there is a huge competitiveness conundrum in the Zone. It seems to have been engineered by Germany-and they are great engineers.

see http://robertbrusca.blogspot.com/ for a previous discussion of this toipic.

How are we to view Germany's actions?

Now I do not 'blame' Germany alone but as you know in our financial system the low inflation Balance-of-payments-surplus countries rule. The others are forced to adjust. Germany has persisted in growing slowly, running a high rate of unemployment while others wanted to grow faster. Germany helped them to do that by lending to them. Germany was not mindful of the consequences of their excesses but there were consequences as they all were/are in the Zone together. the Zone was not a Bento box divided into various walled-off compartments; it was like bowl of soup and poison one place circulates to another place.

As the 'adult,' or fiscal conservative, Germany did nothing constructive. It held back and watched until the others were in trouble then it dropped the hammer. Am I supposed to view Germany kindly for this sort of behavior? Did Germany really 'behave' any better or did it simply spring its trap?

Why did it neglect the growing imbalances in the Zone? Not just the fiscal ones that might have been hidden, but the inflation differences that were reported month after month after month. I have been haranguing about EMU inflation differences in the zone for years.

Did Germany smirk and know that it was gaining competitiveness? Did it not realize this disparity would benefit its exporters but come back to haunt it politically and financially?

Now that it has... does Germany disavow itself of any responsibility?

What allows the US to to maintain a union that has areas of vastly different real income, property values, etc, is its fiscal transfer system. Germany instead of dealing with today's issues, and assisting with development (instead of just bail-out bucks) wants to roll the clock back and set up what I have called a Bento-box view of Europe in which GERMANS will be made safe as each member of EMU will have its own mandated balanced budget and will be put in a Germanic-like straight jacket of fiscal responsibility. Hey that sounds like fun!

The Euro zone is NOT the German Zone. It was not formed and does not exist for the benefits of Germans. But as Germany is in a position of power it is now trying to bend every EMU nation to its way of doing things. This widespread use of austerity is foolishness. You may denigrate 'Keynesianism' a term that is such a cartoon and straw-man that it has no meaning, but austerity in the midst of recession is tomfoolery!

Germany waited until other EMU members got in trouble then, as I said, sprung THE TRAP. While the Germans think they have been virtuous they are among the TWO COUNTRIES that are the farthest out of equilibrium with respect to the Euro-average.

Look at the EU Commission indices and everyone else is weak and only Germany still has strong readings. I can understand wanting to glorify Germany for this success. But if we view Europe as a team, then Germany is not a team player. It is a high scorer on a team that is losing all its games! Germany has created a game of 'economy' and set the rules of EMU to benefit itself and to impoverish everyone else.

I know this is not a popular way to look at it. We should glorify the best performing economy but why is it best performing? Because it has the fiscal policy and national work ethic and social policy that works with the monetary policy that is being run.

Suppose the US were to play Germany in 'Football.' Suppose the US sent NFL guys in their pads and the Germans sent their 'soccer' team. Now if they played soccer instead of NFL football and the Germans wiped us out would that really make them 'the best?" Suppose we played NFL football instead?

What I am trying to do is to suggest that Germany wins at this game because it is a German game. Germany did not have to change anything to join EMU. Everyone else SHOULD HAVE been made to change a lot but they did not. Yet the game continued under 'German rules' NO WONDER THEY DO BEST... and there has been no one out there 'blowing the whistle' on those counties that have been building excesses; they have been left alone until WHAM! Crisis time.

The Germans have not swerved one iota to help their neighbors nor has this idea of what macro policy should be been broached. The 'Mass-Trick' was supposed to be a constraint on that policy that was never agreed to but the Germans and French broke the rule first and ruined it. Macro policy cannot be every man for himself with a fixed currency.

So here is a restatement of the Zone and a new accounting of who is most out of whack:

Currently Germany is the low inflation country in the Zone since it was formed. It has done this by averaging inflation of 1.7% per year while the GDP-weighted EMU average was 2.12% per year. Only FOUR EMU nations among the first 12-members average inflation at the EMU average or less (Germany, France, Finland, & Austria). They are the strong countries and they are the outliers -too. Of course Germany and friends are closer to the EMU average because Germany is such a large country and it carries a large weight in making up the EMU average. If we look at the simple unweighted average for inflation for the EMU first-12 members, average inflation among these countries goes up to 2.35%. Viewed that way the most normal country since EMU was formed is Italy in terms of inflation followed by Ireland. Next most normal is Belgium. Germany ranks 11th out of 12, and guess what? Greece ranks 12th! Germany and Greece rank right next to each other as outliers- on different ends of the spectrum, of course. .

Isn't that amazing?

If policy were geared for the average EMU country the Zone would be quite different. But it is not; it is geared for Germany making everyone else much worse off relative to Germany. Instead of having a zone with most members tightly clustered around the average with Germany and Greece as outliers we have a policy that is being run for one extreme of the Zone - Germany!

Typically the Germans think everyone else is wrong.

...and before you side with Germans let me note here that the US has had a good inflation performance over this period averaging a CPI of 2.5% (PCE even lower) . So before you go, "Ugh! Italy's the the average - are you crazy!!!" remember that US inflation has been relatively well contained during this period and Italy has done BETTER than us. But Italy is stuck in Zone with Germany and policy is being run for German inflation at 1.7% not for Italian inflation.

Yes, the Germans are extremely successful in EMU especially compared to everyone else. They know how to work, how to engineer - there is no doubt about that. But they do not know how to share; they know how to dominate militarily, economically etc. Now they want to dominate EMU by by setting macro policy and social policy as well as having a German monetary policy.

If Germany is going to be in a single economic zone with everyone else, it must fit as well as they must fit. Germany and France were the first to break the Mass-Trick rules and once that was gone they could not expect discipline from others.

Germany wants every other nation to sacrifice a generation's worth of growth to get their competitiveness back in line to and to defend Herr Euro. Why should any of those countries do that to perpetuate a game where the Germans win?

The two important questions to ask are (1) how did this happen so we (Europe) can stop it from continuing and (2) what do we (Europe) do about the huge competitiveness gaps that each EMU member -EACH MEMBER- took part in letting develop? NOT What does GERMANY want to do...

Can EMU be saved? Should everyone devalue and re-form a new currency unit? Should the new unit be renamed? What are the new rules? Who makes compromise in the next system? Say it UP FRONT.

Certainly you can't expect whole countries to sacrifice a generation of growth to protect a currency!

That puts economics backwards. Currencies are there to serve economic efficiency, to replace barter and to augment growth not to enslave a nation..

...unless you are German of course.

In that case it works for you and you can enslave everyone else.

ergo,

Germany, the VAMPIRE SQUID of Europe

 


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Mon, 04/02/2012 - 10:01 | Link to Comment fuu
fuu's picture

We are being trolled.

Sun, 04/01/2012 - 19:10 | Link to Comment ekm
ekm's picture

http://www.telegraph.co.uk/finance/financialcrisis/9174661/Germany-launches-strategy-to-counter-ECB-largesse.html

I got downed and drowned by most of people for saying that Mr. Brusca is totally correct. Now this is the proof, independent proof.

Conclusion: Germany does not give a fuck about the rest of Europe. Ambrose Evans Pritchard for you, girls.

Mon, 04/02/2012 - 03:01 | Link to Comment Ghordius
Ghordius's picture

independent proof from Ambrose Evans Pritchard? are you kidding me? his argument is the same lame neo-keynesian one: hey fella, you produce more than I do, gimme some... hey fella, let's twist the FX rates so that I produce more for a while...

following this logic, the UK after it's devaluation should be all hanky-dory, every state in the US should have it's own currency, a gold standard would be the worst that could ever happen to the world and so on.

"Germany does not give a fuck about the rest of Europe?" please tell me who does, then

please read more Ambrose Evans Pritchard and you might recognize some little patterns of propaganda

meanwhile, nobody looks at the trade patterns: Germany is not the huge exporter to other eurozone members, Germany is the huge exporter to countries outside the eurozone, including Russia, China and the USA - with products containing many parts made by other eurozone members

Mon, 04/02/2012 - 09:59 | Link to Comment ekm
ekm's picture

Thx for feedback. When I have time I am going to verify what you are saying which contradicts what I knew so far. Things change.

Sun, 04/01/2012 - 14:37 | Link to Comment kurt
kurt's picture

You paint Germans as bad guys. They are not. They have never been portrayed as such in media or history. Note current cinematic bad guys: British, Australian, Russian, vaguely Eastern European. German bad guys went out with Rutgar Hauer's Robot in Bladerunner. No I have nothing against Germans and I have a lasting admiration for an American Cigarett!

Sun, 04/01/2012 - 21:15 | Link to Comment palmereldritch
palmereldritch's picture

I always thought that it was particularly telling (and in 20/20 hindsight curiously insightful) that Hollywood had a regular habit of having the Nazi bad guys cast with British actors possessing a very formal English accent.

If the City of London has its own dialect it would be spoken as such.

Sun, 04/01/2012 - 19:15 | Link to Comment ekm
ekm's picture

You have a point and I agree with you. Germans are not bad guys, germans are too, too good in one thing, which is they are too, too efficient and that's it. However, germans do not live in a vacuum. Super efficiency leads to over-production. As I wrote further down, two options with over-production after nobody has any money to buy your stuff (which is right now):

- Give it for free

- Stop producing - This will lead to huge increase in german unemployment.

Sun, 04/01/2012 - 14:02 | Link to Comment Laddie
Laddie's picture

If Germany is a "VAMPIRE" what is Israel to the US in particular, and also to Germany, as you know Germany funds Israel and gives them nuclear attack submarines by the bushel.

As of June 2003 Israel has cost the US taxpayers over $3 Trillion. Probably double that by now. And for what?
http://www.wrmea.com/archives/june2003/0306020.html

Sun, 04/01/2012 - 18:18 | Link to Comment Zeusman1
Zeusman1's picture

The REASON WE FUND ISREAL IS THAT WE HAVE NO OTHER ALLIES WE CAN TRUST UNDER ANY CIRCUMSTANCES IN THE REGION.  IT IS IN OUR BEST INTEREST TO MAKE SURE ISREAL SURVIVES.

Sun, 04/01/2012 - 13:56 | Link to Comment GCT
GCT's picture

Blaming Germany for another countrie's woes baffles my mind.  I happen to follow your blogs Bruce and at one time they made alot of sense.  Now we are like alot of others blaming someone else for our woes.   Some of the commenters here are upset with this blog and I think ZH is all for free thought and there are times I do not agree with an article, but that is part of what freedom is all about.  Bruce is presenting his thoughts the best way he can and yes I disagree.  Everyone these days seems to want to blame others for their problems.  We want a scapegoat instead of looking into the mirror and being objective.   

Bruce your fellow country men and women played the game and now it is time to pay the piper. While Greece was giving out raises to the tune of 27% Germany kept their's to 7% and alot of Germans actually took pay cuts to remain in their current jobs.  The only way for the EU to work in my small mind is for a complete fiscal and governemental union.  I do not see this as going to happen as Europe is not the United States.  Europes culture and history goes back alot further then ours does.  I do see something more sinister coming and that is the Dictatorship of Europe without a shot being fired.  I hope I am wrong on this. 

The one thing I do not understand and maybe someone can help me here is why not just call it quits on the Euro and take change of your own destiny.  Yes it will be almost unbearable for some time but this charade of bailouts is solving nothing and coupled with austerity to satisfy the banksters and IMF is just nuts to me.

Sun, 04/01/2012 - 15:14 | Link to Comment RobertBrusca
RobertBrusca's picture

Agree with the last paragraph.

What most people cannot stomach is being critical of the highly successful Germans. There are no shortages of comments below upbraiding me for allegedly wanting Germans to be as lazy, unskilled etc as the worst of Europe.

That's not really the point or argument.

So let me try this again with a different image.

The Zone is a SYSTEM. as you point out its incomplete and flawed- no fiscal union. But because it now has huge competitiveness disparities what can it do?

To use economist-speak fiscal union is a necessary but not a sufficient condition for remedy.

Austerity could not close the gap because it is not possible for these nations to commit a generation to the sort of austerity it would take to bring prices in line with those in Germany.

So 'what to do?' is a good 64trillion euro question.

When everyone joined the euro they each gave up part of the economy's adjustment system. They each agreed to fix currency rates. Once you do that it becomes harder to bridge economic differences between nations. No longer can higher inflation be offset with a weaker currency.

So let me skip to an example.

Suppose you have two lifeboats and you tie them together. Then one gets a leak. People in the dry boat should be concerned and help to bail since the boats are tied together. But if they do not help to bail we suspect that they have a sharp knife and plan to cut the ties if the flooding gets bad.

Now back to EMU.

This example explains why I DO blame Germany for its failure to raise red flags or to try in any way to do something about the ongoing higher inflation in most other Zone nations. Germany has never acted like the Zone was important or like it had a stake in it.

Germany knew that the rest of the zone was sinking and Germany was actually getting stronger because of it ( unlike our boat example). Germany has not acted as though the Zone has meant anything to it. It is ready to cut ties itself or to let others do it. It has never showed any commitment to make the Zone work --unless it is to have the rest of the Zone agree to act exactly like Germans. So far there is no language requirement...but I wonder.

Other countries did not join the Zone to become German. Yes Greece made its own troubles as did Spain and Portugal and others. But if you share a Zone everyone should be unhappy about these sorts of mistake and the pressures they inevitably will lead to. Germany has quietly waited for the inevitable.

I have had experience at the NY Fed seeing how the Germans play the forex game . And all I can say in public is that they play hard ball. They have played the Euro-Zone game that way. They have played for keeps and are trying to create a European Zone where they would have even more power, they want absolute power. Germans are good at being dominant. They are not good at sharing.

A functioning Euro-zone requires power-sharing and compromise. The German idea of compromise is that we do it the German way. They got the ECB in Frankfurt. They got the Price inflation single mandate. They set it a 2% as a ceiling. Now they want everyone to balance their budgets to make the Zone safe for Germans. Meanwhile other Zone countries have developed extreme competitiveness problems. No solution. Not even offers of assistance. These countries are in recession and are being forced to undergo austerity- unrelenting austerity.

Why would any non German want to be in this, one of Dante's rings of Hell?

Why?

I agree it's a really good question...

Mon, 04/02/2012 - 02:19 | Link to Comment Greyhat
Greyhat's picture

"The Zone is a SYSTEM." No, there ist only one system, the globalized world market.

 

"Suppose you have two lifeboats and you tie them together. Then one gets a leak."

Suppose you have two liveboats, both are leak and one team pulls the plug and stops moving water out of it and has an end time party... This is what happened.

Sun, 04/01/2012 - 22:01 | Link to Comment GCT
GCT's picture

Robert I agree that Germany prospered from the Euro.  As did other nations.  As you stated above you have a system, I call it a dysfunctional system.  The problem with the system there are no checks and balances and I agree Germany and some of the other northern european countries should share the burden with keeping the system balanced.  Therein lies the problem you do not want to be German anymore then the Germans want to be Greeks.  Nor do the Italians want to be portugese and I could go on and on. 

The USA system is different for example California the federal government collected 43 billion and 8.2 billion from Arkansas.  Both states did received 40 billion and 6.2 billion back from the federal government.  Other states got the money Mississippi, Texas and others get more from the Fed then the fed collected.  This is a system to help the less fortunate states out.  Do I agree with it is a different story.  But the system does help debtor states.  But to do this we have one government to do this and I do not think your country or for that matter most soverign countries want to answer to one governement for the whole continent.  This union was formed to prevernt war, a noble cause by the way. 

I also see this as a no win for Germany as if they had stopped supporting the loans they made they would have been the bad guys and now they are the bad guys for not wanting to dump more money into the debtor countries.    If the European continent continues to contract with their austerity Germany and the other Northern European countries are going to feel the pinch as well.  You cannot produce and sell if there are broke consumers all over the continent.  They too will contract but theirs will take longer.   Truth be known I think Germany is alot worse off then they portray.  

By the way I enjoyed Europe for the five years I lived there.  I hope to visit there again when I retire in the next year or two.    

Sun, 04/01/2012 - 13:38 | Link to Comment masterinchancery
masterinchancery's picture

So Germany should strive for lazy incompetent workers and high inflation? So it can be like the rest of Europe? Absurd.

Sun, 04/01/2012 - 13:29 | Link to Comment nah
nah's picture

money and power

.

the curse

Sun, 04/01/2012 - 13:50 | Link to Comment AldousHuxley
AldousHuxley's picture

Germany is the vampire? defeated country owing money to other empires cannot afford to be vampires.....

 

German elites were forced to be productive unlike UK or US overlords because they were paying world war one debt.

Germany paid off world war 1 debt in 2010 by working smart while allies got spoiled.

 

 

 

Sun, 04/01/2012 - 12:58 | Link to Comment zippy_uk
zippy_uk's picture

I think this is a good article. When the UK exited the ERM (i.e. was booted out by the markets) there was considerable appeals made to Germany to lower their interest rates to allow growth in the UK / rest of Europe - but no German interests had to come first. So the UK, and eventually all the other EU nations got bombed out of the ERM.

As we were one of the first to exit, we change policy - reduced interest rates and followed a tax competative policy for corporation tax which enticed a number of German companies to re-locate to the UK.

This also explains why we would not touch the Euro with a barge pole and why Germany is likely to be angry at us again as we now (sensibly) follow again the same polices as we did in the mid 1990s

Sun, 04/01/2012 - 12:58 | Link to Comment dogbreath
dogbreath's picture

Bob,     Shut up and Fuck off

Sun, 04/01/2012 - 12:45 | Link to Comment pussum207
pussum207's picture

Nonsense, I'm afraid.

Sun, 04/01/2012 - 13:29 | Link to Comment Greyhat
Greyhat's picture

For little Bobby the EU ist "the global market", wich is utter nonsens.

Germany has optimized her economic policy for WORLD market competition and we were not in a position to dictate other EU states any policy. German polititians were not in a position to forbid german banks to invest in other EU states, this was EU free market policy.

The EU party people are looking for someone to pay their bill, now that their markets are broken. They are the real vampire Squids, they want to suck our german blood now. We didnt have a party and shall pay their bills now? F... off EU suckers, read the treaty, the no bailout rules are pretty clear! :)

 

 

Sun, 04/01/2012 - 12:24 | Link to Comment fearsomepirate
fearsomepirate's picture

What is it exactly that Greece and France are producing so much of that Germany is stealing?  Last time I checked, Germany, not the PIIGS, was the manufacturing titan of Europe.

The author does have one point, though.  Germany does play by different rules.  That rule is "don't fucking bankrupt yourself, you stupid fucking twit," a rule that the PIIGS have ignored.

Sun, 04/01/2012 - 12:12 | Link to Comment JenCr
JenCr's picture

Well said Mr.Brusca!
The fairy tale of the german paymaster....http://www.youtube.com/watch?v=NLvkeqRbS34&list=UUhOsMRUhDjp1sU9oIfOPRaQ...

Sun, 04/01/2012 - 13:00 | Link to Comment JenCr
JenCr's picture

@Humpty Dumpty muppets...with love from PIIGS  http://www.youtube.com/watch?v=pA2ShWcqkds <3

Sun, 04/01/2012 - 12:16 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I couldn't get through the article (I read about halfway), there was too much scapegoating with no facts involved:  how did Germany pull a fast one?  Is the goal of the EU to do away with Nation-States?  Where does the EU derive it's power?  Are the EU members only Germans?  I think what is important here is to remember the individuality of people knowing what is best in their region of the world, if that is defined by a city/society/or State.

I understand, the EU is doomed to fail for reasons such as, 'Germany used X policy, while other States used Y, therefor Germany grew slower, etc', but this is a reason why the EU won't work, not why Germany is the "Squid".

Also, scapegoating one State over another is more than foolish, it is dangerous.  For the same reason that Greeks should take control of their State, so should Germany.  This instead of blaming each other.  These antics are childlike.

The problems lie not in the sovergn states of Europe, it lies in the system in use.  The system is catering towards private Banking Houses that have no allegience to any State or person.  If it is in the best interest for Germany to slow growth, that should be their decision; let the people of Germany make decisions for Germany, and let the people of iother States make their own choices too.  Then we will not need to scapegoat any State and cherrypick arguements.

Sun, 04/01/2012 - 21:18 | Link to Comment palmereldritch
palmereldritch's picture

Don't hate the patsies, hate the scam.

Sun, 04/01/2012 - 11:57 | Link to Comment JenCr
JenCr's picture

Well said Mr.Brusca!
The fairy tale of the u????? paymaster...http://www.youtube.com/watch?v=NLvkeqRbS34&list=UUhOsMRUhDjp1sU9oIfOPRaQ...

Sun, 04/01/2012 - 12:06 | Link to Comment JenCr
JenCr's picture

 

 

 

 

 

Sun, 04/01/2012 - 11:56 | Link to Comment Fred Hayek
Fred Hayek's picture

I've been very critical of this author's previous pieces on ZH but I thought this was good. This point is not being made often enough. The configuration of the EU was good for Germany and no one else. Germany got currency cover for its export industry. Southern europe got loaded with debt and now that debt is coming due. But why should we all forget the massive benefits that Germany got from this arrangement?

Sun, 04/01/2012 - 12:27 | Link to Comment fearsomepirate
fearsomepirate's picture

The configuration of reality is bad for countries with governments that promise unlimited, neverending benefits and early retirement to the population.  This fairy tale that the Greek government could get away with its asinine antics if only it could print money is absurd, and I'm surprised how often I see it pop up on ZH, given how so many people here can see through the US government's failure to rescue itself through the magic of paper.

Sun, 04/01/2012 - 15:13 | Link to Comment Fred Hayek
Fred Hayek's picture

What you say is correct. But the ridiculous flow of investment money into the periphery countries wouldn't have happened if they hadn't been taken into the EU. The pumping up of those economies helped allow their ridiculous gov't spending and the german and french banks also felt more free to buy their gov't debt. They're part of the EU now, what could go wrong? Meanwhile, german industry was destroying any remaining competing industries in those nations as they couldn't compete when unfairly forced into the same currency as Siemens and Mercedes Benz et al. It really was a sort of package deal. I think the author of this piece is right to point out now, while everyone is wailing on behalf of the germans paying for it falling apart that they got some tremendous benefit out of it, too.

Sun, 04/01/2012 - 10:04 | Link to Comment Stuck on Zero
Stuck on Zero's picture

Germany, Korea, Taiwan, China, Japan  ...  all mercantilists.  Nuff said.

Sun, 04/01/2012 - 14:46 | Link to Comment goforgin
goforgin's picture

All National Socialists

Sun, 04/01/2012 - 09:20 | Link to Comment connda
connda's picture

Is this poorly written or do I need to get my glasses adjusted.

Sun, 04/01/2012 - 10:04 | Link to Comment Gavrikon
Gavrikon's picture

No, your glasses are fine.  This moron is a fucktard.  As in, only a fucktard believes the official inflation numbers.

Sun, 04/01/2012 - 12:02 | Link to Comment gangland
gangland's picture

There is extensive work in literature pointing out that single market dynamics lead to concentration of economic growth , not diffusion.

By locating production closer to final markets, it becomes possible in a single market system to concentrate production,  in order to optimize vertically and horizontally integrated economies of scale.

This leads to an uneven spread of productivity growth causing asymmetric shock; a situation which competitive austerity or austerity arbitrage can make worse.

For example, integrating European economies into a single market has resulted in Europe's "blue banana" : Concentrated regional clusters of high-value added production centers with one end in Tuscany and Romagna, up the Rhine and continued into south east England, also including cities like Paris and Hamburg, at the expense of periphery countries.

These are centers of R&D intensive, capital intensive, process innovative and financial industries, but in so far as economic diffusion happens at all to the periphery, it is restricted to low value-added commodities where labor arbitrage is crucial.

(with the linear Fordist production supply-side model now in crisis, Kaldor-Verdoon affects can be useful in this new context)

For example, in the 1990s,

The Netherlands was able to boost both employment growth and achieve fiscal balance by engaging in a limited form of welfare state retrenchment based on the Podler model of concession bargaining and wage segmentation along with the creation of a 2 tiered social insurance system and the adaptation of active labor-market policies achieved via corporate consensus,

all of this was done while The Netherlands adhered strictly to a highly orthodox stance on the SEM, EMU and the GSP.

But this represents a niche strategy which would not be possible had it not been for Dutch access to independent energy from North Sea gas, The Netherlands' comparative advantaged position as a transport hub and its location in relation to Germany which allowed it to undercut German social costs in wage competition (Denmark was even more successful at balancing neoliberalism and welfare-state protectionism).

But what about Germany?

From the 1970s on the Bundesbank has been, via the EMS, the linchpin of an integrated Europe while having one of the most advanced welfare states on the planet.

This was possible exactly because of the particular configuration of its export sector (as mentioned above).

At the same time, Germany's monetary policy and participation in the EMS formed the basis of its welfare-state social contract , especially after the oil crises and the Bretton Woods collapse.

Non-inflationary, "hard mark" policy reduced German energy costs for exporters and at the same time facilitated the redistribution or "rents" to organized labor (this also had the knock on effect of lowering import prices somewhat).

But in the German case it is becoming evident that competitive austerity and neoliberal restructuring are contradictory to the past German model  and have exposed it to austerity based disinflation and instability in its traditional social market.

In 2005 Europe entered what the OECD called a cyclical recovery. 

This was seen as vindication of the policies of the Bundebank and the ECB, but more over, it was validation of the Lisbon process leading to its bolstering at least by Euopean elites committed to copying the neoliberal Atlanticist economic model ( if you get a chance read Lisbon, it's a piece of work).

However, the nature of the recovery in Europe was very modest and higly uneven by historical standards, which actually illustrate the limits of monetarism and structural labor reforms.

The recovery was largely centered on a German recovery and apart from temporary boosts from events like the Olympics or the world cup, the recovery in Europe has been heavily dependent on export-led growth, coupled with structural reforms based on the German model.

During this phase, Germany's return to a classic export-driven stance combined with deepening neoliberalism ( supply  side free trade ) is key to understanding Europe today.

Within the Eurozone Germany registers substantial surpluses with all of its trading partners. 

A large part of this is due to German led policies of competitive austerity which in effect represent a competitive devaluation.

To be sure, Germany's size and recovery did translate to a more general recovery throughout the EZ, but the results have been uneven and deeply destabilizing for other members precisely because Germany has imposed massive fiscal and destabilizing social pressures on member states.

As Paul de Grauwe has stated, Germany is following beggar thy neighbor policies of the past and other nations are going to react.

In the context of the EMU, other nations are able to retaliate  via further competitive austerity , which decreases demand pull for German exporters paradoxically, wage cuts, reducing agg demand, and competitive fiscal dumping.

Germany has embarked essentially on a merchantalist strategy which benefits mainly its exporters situated in Italy, France and the UK leading to very weak recoveries .

It remains doubtful whether Germany's two tired approach to labor reform , characterized by a growing number of unprotected, precarious workers can provide a sustained domestic demand led growth.

Germany thus remains highly dependent on the US  and remains vulnerable to global macro turbulence.

 

- excerpts from Europe at Bay: In The Shadow of US Hegemony by Cafruny & Ryner

Sun, 04/01/2012 - 15:19 | Link to Comment RobertBrusca
RobertBrusca's picture

thank you

Sun, 04/01/2012 - 09:08 | Link to Comment Arnold Ziffel
Arnold Ziffel's picture

I alwaya felt the opposite...the UK banks and France deadbeats suck the life out of Europe....I see the Germans (and the Dutch for that matter) a powerhouse of energy and creativity. Very productive also.

Sun, 04/01/2012 - 08:55 | Link to Comment jayman21
jayman21's picture

Germany is unique due to its low PDI (Power Distance Index)  If you really think Germany is a parasite, then define this term for me.  After you given this some thought, visit the country and learn the language.  You will see your error in your reasoning.  They are not parasites, they value transactions that benefit the community much more than transactional gains on zero sum transactions. 

Just is case you do not know about PDI:

http://www.clearlycultural.com/geert-hofstede-cultural-dimensions/power-...

In my mind the real question is the typical items of debate (nature vs. nature, correlation vs. causation,etc).  Can this number change over time for the same group of people or is it pretty static.  After we have set the framework for this discussion, then go for trying to prove Germany is a parasite.

For the record, the average working Joe in Europe or the USSA is busy and more worried about running the small business and/or taking care of their families and they are getting robbed.

Sun, 04/01/2012 - 15:24 | Link to Comment RobertBrusca
RobertBrusca's picture

In the sense of their export-led growth which sucks the life blood (domestic demand) out of its trading partners. Germany runs widespread trade surpluses impoverishing its neighbors who are trapped in the Zone with it can cannot devalue to restore competitiveness. It is a Bad Parasite because it is killing its host (EMU).

Just because the Germans do not see themselves this way does not make it false.

Sun, 04/01/2012 - 17:40 | Link to Comment jayman21
jayman21's picture

I find that more in line with a chicken and egg argument, meaning was it the bad loans made by German Bankers without requesting collateral that caused this imbalance or was it the person/country who requested the loan knowing that they would never pay it back.  Credit is not being priced correctly by banks.  I do not agree with the context you present a parasite as your argument on this post.  The common Joe is not involved but he gets the bill when it is due.  Germany is made of common Joes.

Another stream of thought is one could even say it is a Keynesian vs. Austrian type view of the world that is the bases of these arguments.  If loans are always backed by savings/capital/gold/whatever then these loans would never have been created and the unbalanced nature of the EU might not exist.  This is speculation on my part since the Austrian view is a minority except here at ZH and only proven when SHTF.  I pointed out that the parasite is a force somewhere between the banker and the counterparty and it could very well be the fractal reserve system that is in place that I am trying to measure.  I am still thinking about it.  I will say I do not agree with you and challenge you to give your position additional thought.  Yes, you have correctly pointed out Germans export more and are more productive that Greece.  What you have not articulated is what is the cause of this imbalance.  You have stirred the pot on ZH and that is always a good thing.

 

Is cheap credit killing the host?

Sun, 04/01/2012 - 11:28 | Link to Comment jayman21
jayman21's picture

I had not looked at the table in awhile.  Israel also has a low PDI, in fact, lower than Germany.  Tyler and Jon Sterwart have been talking about how the folks of Israel are also against attacking Iran in various polls.  It tells me the average Joe in Israel is also dealing with a parasite that cannot be defined.  I am still trying to figure out how to measure/define what is commonly referred to as bankers, IMF, parasites, 1%, .001%,etc on ZH and other media outlets.  What I am sure about is the wealthy and powerful thrive in a bear market environment.  They think that they are privileged and they are morally flexible which is a bad combination.  Unfortunately, I think they (this group that I cannot define or measure) has taken the USA and turned it into USSA and I think the same is true for Israel.  I cannot prove it of course and this is pure speculation on my part but I do believe we have lost our democracies.  The regular Joe is waking up and being confused due to shit like this article being written.  What is even worse is Harvard, Nobel Prizes, and University of Chicago research is so flawed that I wish I could ask for a refund.  For the reality that nature has built for us, I thank Nassim Taleb and John Perkins for offering up red pills and I hope we can educate the average Joe one at a time.  The shit I learned in the US business schools is total blue pill bullshit guaranteed to have one large loss every 8.6 years that will wipe out real mark to market profits and then some over the same period.  The average Joe is stuck with the loss.  It is called a tax or some other clever word, but it is truly the parasite you have written about.

 

I have not visited Israel or nor do I speak the language, but I suspect that they have similar values as do the common Joes working in Germany.  They work for the better good of their community and families.  The privilege/political class are the ones who have lost their minds.  In a bear market, they are able to grab power by using the teaching of Edward Bernays and others like him.  The process is truly based on a zero sum gain transaction.  I can thank Tyler and others who comment here who see reality from made up reality.  It truly is a blue vs. red pill.

 

For the record, I speak German and have lived in Germany and I currently reside in NYC.

Sun, 04/01/2012 - 08:25 | Link to Comment Schmuck Raker
Schmuck Raker's picture

Ah, finger-pointing. So rare these days.

Thank you Dr. Brusca for reviving this lost art.

Sun, 04/01/2012 - 08:13 | Link to Comment The Alarmist
The Alarmist's picture

Let's see if we have this right: you work hard and sacrifice and save for decades and you build up and then defend a vital industrial base by further up scaling it to compete in higher level markets rather than de-industrializing and outsourcing your industrial base. Like your neighbors, you maintain some degree of social-welfare spending to help the less fortunate, but you do not let being a state-dependent become a lifetime occupation. Your people take almost nothing in pay rises over a decade, while over the same period they are asked to transfer ever greater amounts of their wealth and savings to neighboring countries that have never been responsible and to this day would rather riot for handouts rather than work for bread. And so that makes you evil.

Mr. Brusca, you are at best an idiot, at worst a demagogue.

Sun, 04/01/2012 - 15:28 | Link to Comment RobertBrusca
RobertBrusca's picture

Thank you. Thoughtfully said. and you clearly have really considered my points.

Sun, 04/01/2012 - 08:17 | Link to Comment The Alarmist
The Alarmist's picture

And as to that US inflation thingy, why don't you show a little more diligence in analysis before declaring a la Krugman what a great success story is going on there. I went shopping in Europe recently, and realized I was paying considerably less for a lot of things than I did for comparable goods and groceries in the US.

Sun, 04/01/2012 - 08:09 | Link to Comment GPW
GPW's picture

This is a joke.  Isn't it?  Tell me that it is.  No!  Now I get it:  it's April Fools Day.  No!  Sorry.  That woud be April 1, not March 31. 

Now, I think I get it:  " Germany, after 'trapping' many countries in the e-Zone ignored their situation while Germany continues to post increasingly lower-than-required rates of inflation as many in EMU havd run higher rates".

 

Translated:  The Germans are screwing their citizens through inflation less than the other members. Not a good thing.

 

 

Sun, 04/01/2012 - 07:42 | Link to Comment wolfsonite
wolfsonite's picture

Big surprise (see author's linkedin profile):
- author has a PhD in Economocs
- author has worked for the NY Fed

That should explain this stupid, intentionally misguided post.

Sun, 04/01/2012 - 15:29 | Link to Comment RobertBrusca
RobertBrusca's picture

Dang, got me figure out. Should I just wave a white flag?

...or should I spray you with Black Flag?

Sun, 04/01/2012 - 09:14 | Link to Comment GeneMarchbanks
GeneMarchbanks's picture

Correct. There are two ways to interpret this: either a clumsy Neo-classical over-reaching or a perfectly placed propaganda piece. Although naivete is at an all-time high(see S&P for more details) I safely lean toward the latter.

Sun, 04/01/2012 - 07:16 | Link to Comment DavidC
DavidC's picture

"...and before you side with Germans let me note here that the US has had a good inflation performance over this period averaging a CPI of 2.5%".

Sorry, who says inflation-good, deflation-bad?

We NEED a period of deflation to bring things back into balance, it's a DIRECT result of trying to maintain inflation (and some!) that we continue to be in a mess that it getting worse by the month.

DavidC

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