It’s Good To Be In A Crisis

Money is like water (or maybe like beer). It has to go somewhere. And 40 billion euros just made its way to Germany.

Crisis

While fear has driven money away from Greece and Spain and co, making the government cost of repaying debt in these countries seem prohibitive, in Germany it has been quite different. Fear has boosted Germany coffers…

One thing is for sure, putting it in Greek bonds is risky. Spanish, Italian and Portuguese bonds don’t seem much safer either. But German bonds, in contrast, feel as safe as a safe house in a land with no crime. In fact so safe are German government bonds or bunds, perceived to be, that there have been times when the yields on some of them have been negative.

So actually, Germany has done rather well out of fear created by the euro crisis – or should that be the other way around – a euro crisis created by fear?

Poor But Sexy But Inter-State Fiscally Adjusted

Berlin is.

Waste

Here’s a new German word for you: Länderfinanzausgleich. In a nutshell, this means that wealthy German states like Bavaria and Hesse (so-called donor states) are obligated to subsidize poor but sometimes sexy German states like Berlin and Bremen (so-called recipient states) because, well, hell if I know why.

This is also known as “inter-state fiscal adjustment” here. You know, good old fashioned Umverteilung (redistribution of somebody else’s money) or subsidies, if you prefer.

Anyways, Bavaria and Hesse, for one (or two), are mad as hell and aren’t going to take it (or give it) anymore and are bringing an action before the German Verfassungsgericht (Supreme Court) claiming that this type of thing is constitutionally imbalanced and needs to be done away with – at least when it comes to Berlin because the Berlin city/state government consists of a worthless bunch of lazy and wasteful bums who are completely out of control when it comes to spending and would never think of stopping their spending if they aren’t forced to, which is, well, a pretty accurate analysis of the situation here.

This will probably go nowhere, however, because Germans are big fans of something they like to call Solidarität (no English equivalent that I can find other than maybe “supporting lazy and wasteful and sometimes sexy bums”).

“Das Gesamtsystem leidet unter einer zu weitgehenden Nivellierung der Länderfinanzkraft, die den politisch Verantwortlichen eines Landes das Eigeninteresse nimmt, Maßnahmen zur Stärkung der originären Steuerkraft zu ergreifen.”

No Contradiction Here

Just move along, folks. Nothing to look at here.

Loans

While German dedication to saving the German environment by ridding the country of nuclear power is in full swing (sort of), the German government has absolutely no problem using public money to guarantee the construction of nuclear power plants in other countries at the same time.

It’s not a contradiction really, though. Honest. Environment Minister Peter Almaier’s current ministry slogan is “high time that something changed” and they are even trying to set up an international club of countries who have done/will do away with nuclear energy. And that’s the main thing. So something has changed, sort of. The countries Germany is helping to build atomic energy programs for just won’t be allowed to join their club, that’s all.

“It is a gross contradiction, that we are pushing forwards with the change in energy generation while supporting atomic energy abroad.”  

The Lesser Of Two Evils

“Finally, a rating agency showed a sense for good timing. The announcement could hardly have come at a better time: Moody’s casts doubts on Germany’s top rating. The rating agency provided its top grade “AAA” rating with a negative outlook. This is perfect timing for the debate which has taken place these past few days concerning additional help payments to Greece.”

“The agency gives two main arguments behind taking this step, and they should be clear to everyone.

First there is the danger that Greece would leave the euro: Then the danger of further contamination for other countries like Italy and Spain would be a threat.

But secondly there is another, far greater danger: If none of these countries leave the euro, then financially weak states would have to be supported indefinitely by the stronger ones.”

“Germany continues to find itself in a very solid economic and financial situation.”

The Great European Divide

There’s Germany, it seems. And then there’s (practically) everybody else in Europe.

The Economist notes: The hope is that Germany, which produces over a quarter of euro-zone output, can pull along the rest. But the worry is that the latest bout of euro sickness may sap confidence even in Germany, aborting a broader recovery.

With unemployment at 6% compared with a 15-year high of 11% across the euro zone and over 20% in Spain and Greece, Germans feel less pressure to save in case they lose their jobs. And a more confident Germany helps everyone by spending more on imports. German inflation at 2.2% is now below average.

German resilience reflects several strengths. Although growth in the first quarter was helped by exports, the usual mainstay, it has increasingly been backed by domestic demand, which accounted for three-quarters of GDP growth in 2011. This reorientation has happened because Germany avoided the debt excesses (? hmmm, relatively speaking perhaps, but I’ve seen some other numbers here), both private and public, that inhibit growth elsewhere. With relatively low debt, German households and firms can borrow more. What is more, they can do it at rock-bottom rates. Paradoxically, Germany is benefiting from the euro crisis, as investors seek a haven. Yields on ten-year German government bonds have fallen below 1.5%.

Paradoxically, Germany is benefiting from the euro crisis, as investors seek a haven. Yields on ten-year German government bonds have fallen below 1.5%.

And yet, after having read all these impressive figures up there, there’s another German paradox I keep running into here all the time: Germans on the street aren’t nearly as confident as this article wants to imply, at least not when it comes to the euro and the euro-zone. How else do you explain the fact that nearly every second German now thinks that the introduction of the euro was a big honking mistake in the first place?

Die Euro-Einführung war ein Fehler, glauben knapp die Hälfte der Deutschen.

Bank Bad But Accounting Worse

This is government regulation in action, folks. Nationalize the banks? You betcha. State-owned banks are clearly the way to go.

“Germany is €55bn richer than it previously thought because of an accounting error at state-owned bank Hypo Real Estate Holding.” You see? The government really can make money out of nothing (and the chicks for free).

To be fair though, what’s 55 billion euros these days? And this mistake could have happened to anybody: “Collateral for derivatives wasn’t netted between the asset and liability side.” In other words, a government expert mixed up the + with the -.

The finance spokesman didn’t directly comment on the accounting error.

Revolutionary Masses (Yearning To Be Seen)

Hampered by nice weather and apathetic compatriots who actually have to work for a living, a massive crowd of some 300 (three hundred) global democrats and worldwide social revolutionaries nevertheless managed to occupy the city of Berlin over the weekend again already.

Denouncing banking and financial industry practices and other unspeakable injustices of the new century – and possibly having been inspired by something called the “Occupy Wall Street” movement in New York (the weather there is less nice at the moment I’m told) – the German revolutionary masses doing the occupying this week were notably smaller than the already rather puny ones amassed at German protests a week ago, but still.

“Derweil will die OccupyBerlin-Bewegung nach eigenen Angaben ihre täglichen Mahnwachen vor dem Bundestag fortsetzen. Seit Sonntag vergangener Woche kämen zwischen 100 und 200 Teilnehmer.”

Speaking of taxes…

We have now reached the point where folks volunteer, plead to be taxed.

A group of 50 rich Germans has joined the ”tax me harder” movement by renewing their open call to Angela Merkel to ”stop the gap between rich and poor getting even bigger.”

Sure, these particular folks have money to burn. Unfortunately, the taxation never stops with them and does absolutely nothing to fill this “gap” they pretend to worry about. How does giving your money-to-burn to the state so it can burn it for you change anything?

”None of us are in Buffett’s or Bettencourt’s league, most of our wealth is inherited. But we have more money than we need.”

“Imagine that a genie magically appeared and offered to grant you one wish – and, being a decent sort, you wished that everyone’s income would be doubled. That could bring down on you the wrath of the political left, because it would mean that the gap between the rich and the poor had widened. That is basically their complaint against the American economy.”

Reality Bites Biting Again

Are we having a mutiny yet?

The seething discontent in Germany over Europe’s debt crisis has spread to all the key institutions of the state. “Hysteria is sweeping Germany.” Uh, hysteria is always sweeping Germany. So what’s the big deal this time?

It’s not all that big, really. On September 7, a 440 billion euro EU bail-out fund (EFSF) package (empowering the EFSF to buy bonds pre-emptively and recapitalize banks) goes to the Bundestag and to the country’s constitutional court for a ruling on it’s legality.

German media reported that the latest tally of votes in the Bundestag shows that 23 members from Mrs Merkel’s own coalition plan to vote against the package, including twelve of the 44 members of Bavaria’s Social Christians (CSU). This may force the Chancellor to rely on opposition votes, risking a government collapse.

So? It will pass, of course, because it doesn’t really matter what the man on the street thinks, hysteria or not. This is just another case of what happens when political dreams collide with reality. When the dreamers aren’t held accountable for what they dream, I mean. Happens all the time. No accountability, no problem. Let’s face it: Everybody’s living in the Matrix here and everybody loves it.

“Behind Winston ‘s back the voice from the telescreen was still babbling away about pig-iron and the over fulfilment of the Ninth Three-Year Plan.”

Seven Years Of Famine Or Something

No short-term pain, no long-term gain.

“There might well be seven lean years ahead for the world economy,” German Finance Minister Wolfgang Schaeuble said in a speech at a meeting of Nobel laureates at the University of St. Gallen in Switzerland.

What he really meant was seven years of fiscal consolidation (austerity measures) in Europe (and elsewhere?). This is the key to long-term growth, he says. My, how, uh, German or something.

Jiminy Crickets. As if the ten plagues of late hadn’t been bad enough already, now the Germans themselves (they own Europe, you see, and are recreating it in their own image) are going to inflict the Pharaohs of the EU with seven years of boils, hail, locusts and darkness. In the form of austerity measures, I mean. Or maybe they won’t. Hard to say for sure. Could be that monkeys will fly out of their butts instead.

Muddy Waters knew the deal:

On the seventh hour, of the seventh day,
on the seventh month, the seventh economic witch doctor say:
“He’s born for good luck, and I know you see;
Got seven hundred euros, and don’t you mess with me.

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