As Germany Sinks, Its Economic System Is Questioned - By John Vinocur

<blockquote>'The issues are essentially political because both mainstream parties spoke for months with a single voice in offering Germans and the world a fib (kind hearts might call it a misleading misjudgment): the idea that the German economy and its banking system were robust, oblivious to the implosion of American-led speculative schemes and a model of regulated, state-supervised capitalism that Chancellor Angela Merkel said the planet should follow.


To acknowledge that failure before European parliamentary voting in June and national elections in September would be novel, but politically whacko. It would (quite legitimately) call into question the functionality of the German model — based in part on the involvement of state institutions and the particularly intimate role of banks in company management — that neither big party is ready to challenge as creed.

So, there is a double problem. Questions on how to proceed as a nation are being raised and getting small-bore, wrong-end-of-the-telescope answers from a governing cartel whose comfort zone for dispute is confined to picking over the minutiae of raising or lowering taxes.

Last week, Günter Verheugen, a German Social Democrat fixture on the European Commission since 1999 and Brussels’ commissioner for industry, said Germany was “the world champion in risky bank business. Nowhere else in the world, not even in America, were banks, especially the Landesbanken” — regional banks partially owned by the German federal states — “so ready to plunge into incalculable risks.”

He went on: “Other European countries’ banks are better off. Italy is an example.”

Italy’s banks more solid than Germany’s? That’s Mr. Verheugen standing Germany’s notion of itself on its head.

...

In terms of real politics in the midst of a banking crisis where politics and the institutions flee from responsibility, I’d call a notion to diminish the financial prerogatives of the German states — perhaps the most powerful interest group — a don’t-go-there issue for the parties of the coalition.

...

Joschka Fischer, the former foreign minister, described Germany’s circumstances interestingly in a conversation. He said, “I think we’re in a kind of tape delay, cushioned by our welfare state” between circumstances without a real government strategy and “the pain” he sees in the winter to come.

Mr. Steinbrück, avoiding self-incriminating explanations for what went so wrong, or convincing plans for the future, has been reduced to pleading his good faith.

“I don’t know how this crisis ends. I don’t know,” he said Sunday, “if ghosts are still waiting around the corner.” '</blockquote>


As Germany Sinks, Its Economic System Is Questioned

By JOHN VINOCUR
May 26, 2009
Source
Politicus

MUNICH — Give the Germans credit for this: they’re doubting the anesthetizing, Tweedledum, Tweedledee explanations of their two-headed Grand Coalition government, and asking questions that hurt about where their deeply wounded economy goes from here.

In the short term, signposts are fairly clear: to a fall in gross domestic product — the measure of national economic activity — that could come to a withering 14 percent or 15 percent in 2009 if the pace of the first quarter’s decline is maintained.

To the highest level of new debt in the Federal Republic of Germany’s history, according to the government’s new budget.

And, in line with the projections of the European Commission, to deficits next year that surpass in percentage terms those of Greece or Italy.

These are scary concepts when it concerns Europe’s leading economy, whose deep pockets and probity have been a pillar of the global economy for decades.

Good but scary questions come with them. They are entering informed discussion via writers, economists and a few, disparate political voices rather than through the governing coalition of notional right/left opposites — the Christian Democrats and Social Democrats — that seems shaken by their magnitude.

The questions go to Germany’s future. Simplified, they ask: Can its economic model, the so-called social market economy, survive a crisis in which some of its assumptions and conceits have been devastated? Or: What does the country do about re-establishing or refashioning its dependence on exports, which are imploding as the Great Recession drags on?

The issues are essentially political because both mainstream parties spoke for months with a single voice in offering Germans and the world a fib (kind hearts might call it a misleading misjudgment): the idea that the German economy and its banking system were robust, oblivious to the implosion of American-led speculative schemes and a model of regulated, state-supervised capitalism that Chancellor Angela Merkel said the planet should follow.

To acknowledge that failure before European parliamentary voting in June and national elections in September would be novel, but politically whacko. It would (quite legitimately) call into question the functionality of the German model — based in part on the involvement of state institutions and the particularly intimate role of banks in company management — that neither big party is ready to challenge as creed.

So, there is a double problem. Questions on how to proceed as a nation are being raised and getting small-bore, wrong-end-of-the-telescope answers from a governing cartel whose comfort zone for dispute is confined to picking over the minutiae of raising or lowering taxes.

At the same time, there is almost daily reinforcement of the idea that Germany faces problems of exceptional depth that the government suggests are not really its or the system’s responsibility.

Last week, Günter Verheugen, a German Social Democrat fixture on the European Commission since 1999 and Brussels’ commissioner for industry, said Germany was “the world champion in risky bank business. Nowhere else in the world, not even in America, were banks, especially the Landesbanken” — regional banks partially owned by the German federal states — “so ready to plunge into incalculable risks.”

He went on: “Other European countries’ banks are better off. Italy is an example.”

Italy’s banks more solid than Germany’s? That’s Mr. Verheugen standing Germany’s notion of itself on its head.

But when the veteran pol was asked specifically by the newspaper Süddeutsche Zeitung about the political responsibility for not intervening held by Peer Steinbrück, the Social Democratic finance minister and once finance minister of the state of North Rhine Westphalia, or by the Christian Democratic state politicians who sit on the supervisory boards of the Landesbanken, Mr. Verheugen said the task was not theirs!

If it was the job of the federal agency for bank supervision — which holds a key share of the institutional oversight role in the social market economy formula — then it was not taking the hit either. Its president, Jochen Sanio, warned instead that there was “a very clear danger” that German banks (now holding about 816 billion euros in toxic assets, or the equivalent of one-third of German G.D.P.) would be further downgraded by ratings agencies.

And Mr. Sanio offered this bit of non-cheer: whatever the present glimmers of a leveling-off in the economic slide, in a few months, he said, the banks would feel “the full pressure” of the recession on their credit portfolios, with a consequent effect on their lending capacity.

How did the German model stand up here?

The social market economy was an empty shell, Wolfgang Münchau wrote in The Financial Times Deutschland, referring to it as a “discontinued, one-off model.”

Its network of social protections is sanctified. But trade-offs among its interest groups, he said, have taken over the system’s fulcrum of power.

In terms of real politics in the midst of a banking crisis where politics and the institutions flee from responsibility, I’d call a notion to diminish the financial prerogatives of the German states — perhaps the most powerful interest group — a don’t-go-there issue for the parties of the coalition.

As for Germany’s role as world export leader, according to Kurt Lauk, head of Christian Democrats’ economic council, the country’s current weakness suggested that over the next decade it could probably sink to a middling place in the global top 10.

There might be a good response to the problem by encouraging more imports from the weaker European countries, which, in turn, could result in a greater market for German goods.

But, again, the question is essentially one of managing a retreat or, more specifically, finding a manageable, lower level than Germany’s traditionally grand trade surpluses.

But at whose expense domestically? Once more, this isn’t a political area where the Grand Coalition can want to tread.

Joschka Fischer, the former foreign minister, described Germany’s circumstances interestingly in a conversation. He said, “I think we’re in a kind of tape delay, cushioned by our welfare state” between circumstances without a real government strategy and “the pain” he sees in the winter to come.

Mr. Steinbrück, avoiding self-incriminating explanations for what went so wrong, or convincing plans for the future, has been reduced to pleading his good faith.

“I don’t know how this crisis ends. I don’t know,” he said Sunday, “if ghosts are still waiting around the corner.”