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Berlin has the same old new plan. But this time it’s “special”

There was some pos­i­tive sound­ing sig­nals com­ing from Merkel’s gov­ern­ment recently: Berlin was open to more “pro-growth” poli­cies for the euro­zone, yield­ing to the grow­ing calls for a duel pol­icy of “struc­tural reform” (i.e. aus­ter­ity mad­ness) and some form of stim­u­lus. Unfor­tu­nately, that seems to come with the con­straint of no addi­tional spend­ing. Hmm­m­m­m­mmm:

Ger­man oppo­si­tion leader says Merkel embraces idea of EU growth pact along­side fis­cal treaty

By Asso­ci­ated Press, Pub­lished: May 24

BERLIN — Germany’s oppo­si­tion leader said Thurs­day that Chan­cel­lor Angela Merkel has accepted the need to add a sep­a­rate set of mea­sures pro­mot­ing growth to the Euro­pean Union’s treaty enshrin­ing fis­cal dis­ci­pline.

Sig­mar Gabriel told reporters after a two-hour closed-door meet­ing between Merkel and top law­mak­ers that the gov­ern­ment has “sig­nif­i­cantly moved toward accept­ing a pact for growth and investment.”


Hollande’s elec­tion this month shifted the polit­i­cal tide in Europe away from talk about aus­ter­ity mea­sures toward ways of fos­ter­ing growth as Europe is on the brink of a reces­sion, with south­ern Euro­pean nations such as Greece, Por­tu­gal or Spain par­tic­u­larly hard hit.

Merkel recently also started talk­ing about spurring growth, although she strictly opposes the idea of fos­ter­ing growth through more spend­ing, say­ing it would only make Europe’s debt woes worse. Instead, she main­tains that growth can be fos­tered through a more effec­tive use of exist­ing EU funds and imple­men­ta­tion of struc­tural reforms.

Pre­vi­ously, the con­ser­v­a­tive chan­cel­lor also refused to link the rat­i­fi­ca­tion of the fis­cal pact to growth-promoting measures.

“The gov­ern­ment has real­ized today that it can only win France’s approval and a two-thirds major­ity in Par­lia­ment through chang­ing its posi­tion,” said par­lia­men­tary cau­cus leader Juer­gen Trit­tin of the oppo­si­tion Greens.

How­ever, it remained unclear Thurs­day what exactly a growth pact would entail, and whether Merkel has accepted that more spend­ing might be nec­es­sary.


So did Merkel “accept that more spend­ing might be nec­es­sary”? Ummmmmmmmmmmm...no. At least, not if Berlin is co-signing and it lacks a ‘relin­quish­ment of national sovere­ingty’ clause:

NY Times
As Euro Bond Wins Sup­port­ers, Details Remain Vague
Pub­lished: May 27, 2012

FRANKFURT — To euro zone coun­tries in need, euro bonds would be a noble expres­sion of Euro­pean sol­i­dar­ity and a cru­cial instru­ment for pre­serv­ing the com­mon currency.

To Ger­mans and quite a few oth­ers, though, euro bonds would be a lot like co-signing a loan for a dead­beat brother-in-law.

Those car­i­ca­tures have dom­i­nated a debate that has left Euro­peans deeply divided on a cen­tral ques­tion: Should euro zone coun­tries cre­ate com­mon bonds to reduce bor­row­ing costs for mem­bers that can­not get afford­able credit on their own?

But despite the inten­sity of the debate, even as polit­i­cal upheaval in Greece and bad bank loans in Spain mush­room into exis­ten­tial threats to the cur­rency union, the euro bond remains only the vaguest of concepts.

About the only thing clear is that Ger­many and some other cred­it­wor­thy north­ern coun­tries oppose adopt­ing such bonds any­time soon. Mean­while, François Hol­lande, the new French pres­i­dent, seems keen on speed­ing things up — even if he has not quite artic­u­lated how his idea would work.

“You don’t know what François Hol­lande is talk­ing about when he talks about euro bonds,” said Jacques Delpla, a mem­ber of the French Coun­cil of Eco­nomic Analy­sis, a panel that advises the gov­ern­ment. “An open bar with Ger­man money for Greece and Spain? That doesn’t work.”

At their meet­ing in Brus­sels last week, Euro­pean Union lead­ers agreed only that euro bonds deserved fur­ther study.

Mr. Delpla is the co-author, along with a Ger­man econ­o­mist, Jakob von Weizsäcker, of one of the few detailed pro­pos­als so far. They out­lined how euro bonds might be used to ease finan­cial pres­sure on coun­tries like Greece, Spain or Italy while address­ing Ger­man con­cerns by encour­ag­ing more pru­dent gov­ern­ment spending.

The basic idea of euro bonds does enjoy wide sup­port among econ­o­mists. Pro­po­nents also include Chris­tine Lagarde, man­ag­ing direc­tor of the Inter­na­tional Mon­e­tary Fund. And last week the Orga­ni­za­tion for Eco­nomic Coop­er­a­tion and Devel­op­ment in Paris called for some vari­a­tion of euro bonds.

The var­i­ous mod­els share a basic idea: In addi­tion to each country’s rais­ing money by issu­ing its own bonds, as is now the prac­tice, they would put at least some of the debt into a com­mon pool. These pooled bonds would be issued by some kind of joint Euro­pean debt agency, with all mem­bers assum­ing shared respon­si­bil­ity for repayment.


The prob­lem is that talk of euro bonds inevitably raises fun­da­men­tal ques­tions about the nature of the Euro­pean Union. Such bonds would require Euro­pean coun­tries to watch one another’s spend­ing much more closely, and each coun­try would have to cede some con­trol over its own budget.

For euro bonds to work the way U.S. Trea­sury secu­ri­ties do, investors would need assur­ances that they are backed by a cen­tral trea­sury, or at least an agency with direct access to tax rev­enue from each mem­ber state.

“This needs a very strong insti­tu­tional setup,” said Gun­tram B. Wolff, deputy direc­tor at Bruegel, a research orga­ni­za­tion in Brus­sels. “If you are going to sell them to a Sin­ga­porean investor, the Sin­ga­porean investor needs to know who is going to pay that bond.”

Once Euro­pean gov­ern­ments began financ­ing one another on a large scale, they would cer­tainly also want more say over one another’s bud­gets and big-ticket items like mil­i­tary spend­ing or pen­sion sys­tems. For those who advo­cate a more pow­er­ful “United States of Europe,” these changes would be good. But they would rep­re­sent a huge trans­for­ma­tion of the decen­tral­ized Europe that exists today.

“Imme­di­ately behind the euro bond pro­posal lurks polit­i­cal union,” said Uri Dadush, a direc­tor at the Inter­na­tional Eco­nom­ics Pro­gram at the Carnegie Endow­ment for Inter­na­tional Peace in Washington.

“The moment you start say­ing, ‘Give me half your tax receipts,’ we are talk­ing seri­ous stuff,” Mr. Dadush said. “We are talk­ing about giv­ing up major sovereignty.”

The Euro­pean Cen­tral Bank prob­a­bly has the cred­i­bil­ity to play the role of a euro bond debt-issuing agency. But the bank would almost cer­tainly refuse to do so, see­ing it as a threat to its polit­i­cal inde­pen­dence — and a vio­la­tion of the pro­hi­bi­tion on using the bank to finance governments.

But even if the E.C.B. did not issue the debt itself, euro bonds would need at least the cen­tral bank’s tacit sup­port, Mr. Dadush said.

A big rea­son U.S. Trea­sury secu­ri­ties have retained cred­i­bil­ity with investors, for exam­ple, is that despite offi­cial denials of com­plic­ity, there is an assump­tion that the Fed­eral Reserve would not let the U.S. gov­ern­ment go bank­rupt. The E.C.B. would prob­a­bly be much less likely to accede to such an implicit guarantee.

The Ger­man chan­cel­lor, Angela Merkel, made an argu­ment sim­i­lar to Mr. Dadush’s at last week’s meet­ing in Brus­sels, say­ing Europe must become more eco­nom­i­cally and polit­i­cally inte­grated before it could issue com­mon debt. But the fed­eral Europe she seems to have in mind could take years to build, by which time the euro could lay in ruins.

Ger­many also fears that lower inter­est rates would sim­ply rein­force irre­spon­si­ble spend­ing habits by coun­tries like Italy. To Ger­man eyes, Italy, Greece and oth­ers did not take advan­tage of the low inter­est rates avail­able in past years to make their economies func­tion better.

In a short state­ment to the news media after the Brus­sels meet­ing, Ms. Merkel said “sev­eral par­tic­i­pants noted that the com­mon inter­est rates with the intro­duc­tion of the euro really didn’t lead to improve­ments in the eco­nomic com­pet­i­tive­ness of all the euro countries.”


One Euro­pean diplo­mat, speak­ing on con­di­tion of anonymity, said even a step toward euro bonds could reas­sure investors who have been watch­ing Greece teeter and fear a bank run in Spain — and won­der­ing what hap­pens next. “The fun­da­men­tal issue,” he said, “is who or what stands behind the euro.”

Ok, so Merkel seems to acknowl­edge that the grow­ing call for eurobonds is fueled by a desire to quell the self-reinforcing cri­sis dynamic where con­cerns over a country’s credit leads to a spike in bor­row­ing costs and an even greater cri­sis. That self-reinforcing death spi­ral is hap­pen­ing right now and Merkel appears to agree that eurobonds would be an effec­tive solu­tion for pre­vent­ing this. And that’s why she opposes it. The debt crises are appar­ently an unpleas­ant neces­sity needed to “avoid rein­forc­ing irre­spon­si­ble behav­ior”. And this eurobond oppo­si­tion in Berlin exists even when the “pro-growth” sides are appar­ently open to the idea of a “United States of Europe” model where budget-making author­ity is handed over in exchange for pooled eurobonds. That’s pretty much a sovere­ingty fire-sale and it’s still not acceptable.

Now why on earth would Berlin be unwill­ing to accept hav­ing their neigh­bors basi­cally hand them­selves over for cash? That’s pretty much the dream, right? Wrong. Get ready for mini euro-Chinas:

Six-Point Growth Plan Merkel Pre­pares to Strike Back Against Hol­lande

Trans­lated from the Ger­man by Christo­pher Sultan

The more Euro­pean lead­ers talked at a din­ner last Wednes­day, the grim­mer Angela Merkel looked. One after another, they spoke out in favor of the joint assump­tion of debt and against the strict aus­ter­ity course Berlin is call­ing for. The chan­cel­lor stared silently at the man who was respon­si­ble for this change of mood — France’s new pres­i­dent, François Hol­lande, who noted with sat­is­fac­tion that there was “an out­look for euro bonds in Europe.”

Merkel dis­agreed, say­ing that euro bonds are not the right tool, but to no avail. Only a minor­ity stood behind the Ger­man leader. Even Euro­pean Coun­cil Pres­i­dent Her­man Van Rompuy said, at the end of the din­ner, that there should be “no taboos,” and that he would exam­ine the idea of euro bonds. “Her­man,” Merkel blurted out, “you should at least say that some at this table are of a dif­fer­ent opinion.”

Merkel’s world had been turned upside down. For the first time in years, the chan­cel­lor did not set the tone at an EU sum­mit, nor did she and the French pres­i­dent agree on joint posi­tions in a back­room before the meeting.


A Judo Attack

But Merkel is an expe­ri­enced oppo­nent. She knows that she is now on the defen­sive in Europe, and she is plan­ning her counter-attack. She believes that euro bonds would enable the crisis-ridden coun­tries to lower their bor­row­ing costs, and that the nec­es­sary struc­tural reforms would be post­poned. This is why she now wants to counter Hollande’s pro­pos­als with a prin­ci­ple famil­iar to judo fight­ers: using your opponent’s momen­tum for your own attack.


When it comes to energy projects, the Euro­pean Com­mis­sion places spe­cial empha­sis on projects such as con­nect­ing the wind farms in the North Sea and the cross-border power and gas lines among the Baltic coun­tries, between North­ern and South­ern Europe and to North Africa. It also wants to pro­mote inter­na­tional nat­ural gas pipelines like Nabucco and expand­ing effi­cient inter­net con­nec­tions. While Ger­many and France agree on the impor­tance of these projects, their dif­fer­ences lie else­where. To stim­u­late growth through­out Europe, Merkel’s advi­sors don’t just want to imple­ment mea­sures that cost money. The Ger­mans are con­vinced that growth can also be gen­er­ated less expen­sively, using struc­tural reforms that require noth­ing more than liv­ing with hardships.

Six-Point Plan

Accord­ing to an inter­nal doc­u­ment mak­ing the rounds at the Chan­cellery, Ger­man gov­ern­ment experts have devel­oped a six-point plan that is rem­i­nis­cent of for­mer Chan­cel­lor Ger­hard Schröder’s Agenda 2010 eco­nomic reforms, and seeks to har­mo­nize aus­ter­ity and growth in Europe once again. The doc­u­ment defines the posi­tion with which Merkel intends to enter into nego­ti­a­tions with Hol­lande and the other EU partners.

In the plan, the Ger­mans focus pri­mar­ily on mea­sures that have been suc­cess­ful in Ger­many in the past, and that placed the coun­try in the role of Europe’s engine for growth. Accord­ingly, Merkel wants to launch Europe-wide pro­grams to pro­mote start-ups and small and mid-sized busi­ness, like the pro­grams offered by the KfW devel­op­ment bank in Ger­many. Under the Ger­man pro­grams, gov­ern­ment agen­cies have to approve invest­ments within a fixed time period, and the appli­ca­tions are con­sid­ered auto­mat­i­cally approved if they are not denied within that time period.

Merkel also wants EU coun­tries with high unem­ploy­ment to use Ger­many as a model in reform­ing their labor mar­kets. This would mean relax­ing pro­tec­tions against wrong­ful dis­missal and intro­duc­ing more lim­ited employ­ment cir­cum­stances, called “mini-jobs” in Ger­many, with lower tax and con­tri­bu­tion bur­dens. And like Ger­many, these coun­tries would also be expected to develop a dual edu­ca­tion sys­tem, which com­bines a stan­dard­ized prac­ti­cal edu­ca­tion at a voca­tional school with an appren­tice­ship in the same field at a com­pany in order to com­bat high youth unemployment.

Merkel’s advi­sors have also noticed that south­ern EU coun­tries still own many com­pa­nies that enjoy spe­cial pro­tec­tions. Under their plan, pri­va­ti­za­tion agen­cies or spe­cial funds would be estab­lished in these coun­tries to pri­va­tize the state-owned busi­nesses. For­eign investors could be attracted with tax ben­e­fits and less strin­gent regulations.

The advi­sors also rec­om­mend the estab­lish­ment of so-called spe­cial eco­nomic zones, like the ones that once ush­ered in China’s eco­nomic ascent. Finally, the Ger­mans want Europe’s south­ern coun­tries to invest more in renew­able energy, reduce tax bar­ri­ers and pro­mote worker mobil­ity. All of this, they rea­son, strength­ens Europe’s competitiveness.


So the new six-point plan that’s sup­posed to counter the grow­ing calls for more pro-growth eco­nomic poli­cies is going to include cre­at­ing mini-Chinas. Well, at least that might explain the appar­ent desire of Berlin’s policy-makers to per­ma­nently impov­er­ish its neighbors...you can’t mimic China with­out a seem­ingly inex­haustible sup­ply of poor migrant work­ers. And the best part of the whole plan? It’s cheap! Not only is there going to be a bunch of state-asset fire-sales but the main cost for these types of “struc­tural reforms” is appar­ently just “liv­ing with hard­ships”. And since you can’t mon­e­tize hard­ship that means it’s free! Sweet! Isn’t it awe­some how money = karma. It really sim­pli­fies things.

So how did Berlin’s policy-makers arrive at these wise and mer­ci­ful pol­icy (and cost effec­tive!) solu­tions for their ail­ing neigh­bors? By learn­ing a few lessons from their own expe­ri­ence with reuni­fi­ca­tion. It was long, painful, and expen­sive:

NY Times
Ger­many Looks to Its Own Costly Reuni­fi­ca­tion in Resist­ing Stim­u­lus for Greece

Pub­lished: May 25, 2012

MUNICH — When Ger­many wants to under­stand Greece and the cri­sis afflict­ing Europe it not only looks south to the Continent’s periph­ery but also turns inward, to the for­mer East Ger­many, still strug­gling more than two decades after Ger­man reunification.

To an extent not often appre­ci­ated by out­siders, the lessons pro­vided by that expe­ri­ence — with the nation pour­ing $2 tril­lion or more into the east, by some esti­mates, to lit­tle imme­di­ate ben­e­fit — color the out­look and deci­sions of pol­icy mak­ers and the atti­tudes of vot­ers, a major­ity of whom would like to see Greece leave the euro zone, polls show.

Most econ­o­mists agree that Ger­many could do more to help revive growth through­out the euro zone, and there are reports that Chan­cel­lor Angela Merkel is prepar­ing to pro­pose a major Euro­pean Union plan to accom­plish that. But the Ger­man reluc­tance to under­write the economies of Greece and other strug­gling coun­tries is not just a mat­ter of the par­si­mo­nious Ger­mans hoard­ing their funds, as it is so often por­trayed, but a sense that sub­si­dies do not breed suc­cess­ful economies.

“Money alone doesn’t help,” said Simon Huber, 44, out for a stroll recently near Sendlinger Gate here. “You’re only saved when you save yourself.”

Though reg­u­larly lec­tured by their col­leagues across the Atlantic about the need for stim­u­lus mea­sures to reverse the sag­ging for­tunes of coun­tries like Greece and Por­tu­gal, Ger­man experts believe they have a lot more expe­ri­ence try­ing to revive uncom­pet­i­tive economies locked in cur­rency regimes after nearly 23 years of deal­ing with the for­mer East Germany.

“We per­formed a real-life exper­i­ment,” said Hans-Werner Sinn, pres­i­dent of the Ifo Insti­tute for Eco­nomic Research here.

While unem­ploy­ment in the for­mer West Ger­many is 6 per­cent, it remains stub­bornly higher, at 11.2 per­cent, in the east. In 2010 gross domes­tic prod­uct per capita was more than $40,000 in the for­mer West and just under $30,000 in the for­mer East, com­pared with 1991 fig­ures of $27,500 in the West and about $12,000 in the East. But much of the nar­row­ing in the gaps between east and west, experts say, is attrib­uted to the migra­tion of job seek­ers west­ward as much as to any sig­nif­i­cant improve­ment in the east.

There have been suc­cess sto­ries in the revival of cities like Dres­den and Leipzig, and some regions, espe­cially on the south­ern edge of the for­mer East Ger­many, are doing bet­ter. But the east­ern part of the coun­try today is known for per­fectly rebuilt town squares that sit empty for much of the day and new stretches of auto­bahn with few dri­vers on them.

“Ger­many made huge invest­ments in infra­struc­ture in East Ger­many,” said Klaus Adam, a pro­fes­sor of eco­nom­ics at the Uni­ver­sity of Mannheim. “The hope that the rest would fol­low has not been ful­filled. You need to get the pro­duc­tiv­ity fig­ures up.”


The mag­a­zine Der Spiegel reported that a six-point plan is in the works that includes incen­tives for mid­size com­pa­nies, a loos­en­ing of pro­tec­tions against fir­ing for work­ers, spe­cial eco­nomic zones and even a ver­sion of Germany’s sys­tem of dual train­ing divided between voca­tional school and hands-on work at com­pa­nies. State-owned enter­prises would be sold in a process sim­i­lar to that of the Treu­hand, the agency that helped pri­va­tize East Germany.

“The Mediter­ranean area should become like the Fed­eral Repub­lic, only with bet­ter weather,” the mag­a­zine said.

Yet the one-dimensional por­trayal of Ger­mans as heart­less aus­ter­ity taskmas­ters is only part of the story. A basic sense of thrifti­ness is also cou­pled with a strong belief in social safety nets; this is not unchecked cap­i­tal­ism, but a model known here as the social mar­ket economy.


“The limit of Ger­man broth­er­hood extended to East Ger­many, and they saw what hap­pened with two tril­lion euros over the past 20 years,” said Michael C. Burda, an eco­nom­ics pro­fes­sor at Hum­boldt Uni­ver­sity in Berlin. “And these are peo­ple they love. They don’t con­sider the Greeks their brothers.“

Great, so the lessons from Germany’s decades of deal­ing with the chal­lenges of reuni­fi­ca­tion appear to be:

1. Pri­va­ti­za­tion, declin­ing wages, dereg­u­la­tion, and mini-Chinas = good.
2. Invest­ments in infra­struc­ture and social well-being = bad.

So I guess the arti­cle below is what we get to look for­ward to, but with­out all that awful waste­ful social wel­fare spend­ing. Inter­na­tional ‘tough love’, inter­est­ingly, some­times resem­bles an intra­na­tional tran­sre­gional shake­down:

NY Times
East Ger­many Counts the Cost Of Pri­va­ti­za­tion
By Bran­don Mitch­ener
Pub­lished: July 12, 1993

DRESDEN — One of the last­ing lessons of East Germany’s costly con­ver­sion from a com­mand to a social mar­ket econ­omy is that pri­va­ti­za­tion sel­dom means auto­matic salvation.

First, an ill-conceived cur­rency union with West Ger­many, com­bined with noto­ri­ously low pro­duc­tiv­ity, ren­dered most of the region’s man­u­fac­tured goods vastly over­priced. Then its tra­di­tional cus­tomers in East­ern Europe van­ished as old trade ties were severed.

Now, with West­ern Ger­many and much of Europe lan­guish­ing in reces­sion, even pri­va­tized East Ger­man com­pa­nies that have slashed costs and pro­duce com­pet­i­tive prod­ucts sud­denly find their sur­vival at stake again.

“We’re get­ting more and more com­pa­nies that weren’t ready for the free econ­omy when they were pri­va­tized by the Treu­hand,” said Michael Sagurna, chief spokesman for the south­east­ern state of Sax­ony. He was speak­ing of the gov­ern­ment agency charged with sell­ing off East Germany’s state-owned assets.

More and more com­pa­nies want to have a new crack at the process, said Alexan­der von Klaudy, head of acqui­si­tions for Deutsche Industrie-Holding GmbH, part of Deutsche Bank. “We think we’ll get a lot of busi­ness from com­pa­nies that aren’t entirely happy with their pri­va­ti­za­tion,” he said.

The reces­sion, and a series of seri­ous mis­takes, are also ren­der­ing sale of the Treuhand’s remain­ing 700 pri­va­ti­za­tion can­di­dates more dif­fi­cult and expen­sive and increas­ing the like­li­hood that the agency will be around for years rather than close at the end of 1993 as orig­i­nally planned.

One of the agency’s most com­pli­cated and con­tro­ver­sial tasks in com­ing years will be polic­ing the ful­fill­ment of investors’ con­trac­tual promises. As a rule, the Treu­hand refuses to take back com­pa­nies that it has already pri­va­tized, although in a few cases it has made excep­tions. Eighty per­cent of investors meet their oblig­a­tions, in fact, but with evi­dence of abuses accu­mu­lat­ing, the Treu­hand recently announced an expan­sion of its audit staff to 550 from 350 by the end of the year.

In recent weeks, at least three cases have come to light involv­ing unscrupu­lous investors who plun­dered their East­ern pur­chases for per­sonal profit.


Many entre­pre­neurs in the East, includ­ing those no longer directly involved with the Treu­hand, describe an almost con­spir­a­to­r­ial alliance of regional bureau­cra­cies, banks and com­peti­tors mak­ing it impos­si­ble for them to stay afloat. The IWH eco­nom­ics research insti­tute in Halle, in a June report, said there was rea­son to fear a “dein­dus­tri­al­iza­tion of the East Ger­man land­scape.”

The con­struc­tion mafia in West Berlin barely lets us breathe,” said Dieter Hasler, direc­tor of Eletro-Anlagen-Bau Klein­mach­now GmbH, an elec­tri­cal equip­ment maker based in Brandenburg.


Peter Dit­trich, a con­sul­tant to Atlas, a mini-Treuhand set up by the state of Sax­ony to sal­vage 140 unsold Treu­hand com­pa­nies, defended gov­ern­ment inter­ven­tion as a grow­ing polit­i­cal neces­sity. “There are some areas that would have 70 per­cent unem­ploy­ment if these com­pa­nies died,” he said.

Mr. Sagurna cited MuZ as an exam­ple of state sup­port with a pur­pose. “If you com­pared a Trabi with a Golf,” he said, refer­ring to East Germany’s failed attempt to copy the Volk­swa­gen people’s car, “it was safe to say the Trabi wouldn’t sur­vive com­pe­ti­tion. But if you com­pare an MuZ with a west­ern motor­cy­cle, you would prob­a­bly con­clude that it’s a good motor­cy­cle that’s worth building.”

But Mr. Späth, of Jenop­tik, ridiculed the government’s plans to sal­vage “indus­trial cores” in the East. He said it was a sop to East Ger­mans “to call every­thing that’s left an indus­trial core.”

Rather than nur­ture unpri­va­tized East Ger­man indus­tries back to com­pet­i­tive health, which is no guar­an­tee of mar­ket suc­cess, the Treu­hand should stick to its orig­i­nal mis­sion of sell­ing off com­pa­nies at any cost, crit­ics say.

Yes, inter­na­tional ‘tough love’ does some­times resem­bles an intra­na­tional tran­sre­gional shake­down, but it doesn’t have to be so expen­sive. Les­son learned.

Ok, so the six-point plan for ail­ing economy’s appears to be:
1. De-industrialization at any cost
2. Re-industrialization at any cost (China-style!)
3. Rinse and repeat at any cost
4. Rinse and repeat at any cost
5. Rinse and repeat at any cost
6. Eutopia (China-style!)

Oh wait! But what is this new news I see? Is the Frank­furt Group hav­ing a change of heart? Per­haps it’s been rec­og­nized that the eurobonds-for-sovereingty swap was one of the most amaz­ingly cheap forms vic­to­ri­ous eco­nomic con­quest ever achieved? Naaahh...think ‘eurobonds turned into an aus­ter­ity straight-jacket’...or some­thing like that:

Ger­many Seeks Finan­cial ‘Redemp­tion’ for Europe
By Peter Coy on May 28, 2012

Ger­mans hate the idea of cov­er­ing the debts of the big spenders of South­ern Europe, but the hottest new idea for shar­ing Europe’s debt bur­den comes from ... Germany.

Sur­pris­ing but true: Germany’s oppo­si­tion par­ties have got­ten Chan­cel­lor Angela Merkel to recon­sider an idea floated last win­ter that involves joint Euro­pean lia­bil­ity for nations’ sov­er­eign debt.

The idea comes from the Ger­man Coun­cil of Eco­nomic Experts, also known as the “wise men.” It’s called the Euro­pean Redemp­tion Pact (PDF), which sounds a bit reli­gious to the Amer­i­can ear but isn’t intended to be.

Since fresh think­ing on the Euro­pean debt cri­sis is badly needed, it’s worth tak­ing a look at what the wise men advise. Here’s the plan in a nutshell:

The debt of the 17 coun­tries belong­ing to the single-currency euro zone is split into two parts. The por­tion up to 60 per­cent of each nation’s gross domes­tic prod­uct stays on the books, unchanged.

The por­tion of nations’ debt exceed­ing 60 per­cent of GDP is trans­ferred into some­thing called the Euro­pean Redemp­tion Fund.

The 17 coun­tries are still liable for the por­tion of their debt that’s trans­ferred in the fund. They have 20 or 25 years to pay it off.

Legally, how­ever, all 17 nations are jointly liable for the debt placed in the fund. This is a way for low-debt nations such as Ger­many to back­stop high-debt nations like Greece, giv­ing peace of mind to their cred­i­tors and low­er­ing inter­est rates.

To make sure coun­tries pay off their debt in the Euro­pean Redemp­tion Fund, some of their national tax rev­enue would be ear­marked for repay­ments. They would also have to com­mit to fix­ing national finances to free up money for debt service.

Hav­ing got­ten the rest of their debt down to 60 per­cent of GDP, coun­tries wouldn’t be allowed to run it back up. There would be auto­matic “debt brakes,” as Ger­many and Switzer­land already have.

The respon­si­bil­ity of Ger­many and other cred­i­tor nations is strictly lim­ited to the amount of money that’s put into the redemp­tion fund. That makes this plan dif­fer­ent from “euro bonds,” which some coun­tries are push­ing. Euro bonds would be new bonds for which all the euro zone coun­tries would be jointly liable. There would be no cap on the size of bor­row­ing via euro bonds.


Befit­ting a plan orig­i­nat­ing in Ger­many, the pro­posal is not exactly gen­er­ous. It’s hard to imag­ine how a coun­try like Greece could imme­di­ately begin repay­ing the Euro­pean Redemp­tion Fund while keep­ing the debt remain­ing on its books at a mere 60 per­cent of GDP.

But at least it’s some­thing. Estab­lish­ing the prin­ci­ple of joint lia­bil­ity for debt could open the door to a more for­giv­ing (read: real­is­tic) plan in the future.


Is any­one else feel­ing like they’ve seen this movie before?


8 comments for “Berlin has the same old new plan. But this time it’s “special””

  1. its the old Ger­many seek­ing alter­na­tive meth­ods of bind­ing nations together under her con­trol in closer sub­servience under long term debt, fully aware that some will never repay and suf­fer the con­se­quen­cies to relin­quish full sov­er­eignty to Ger­man dictatorship

    Posted by Harry Beckhough | May 29, 2012, 12:43 am
  2. It seems so much eas­ier now, this once ardu­ous task of bring­ing all of Europe to heel. And what else can we name the sub-units of this “mini-China syn­drome” but Can­tons?

    Posted by Rob Coogan | May 29, 2012, 3:41 am
  3. @Harry Beck­hough–

    Wel­come to the web­site, once again. I con­tinue to be some­what sur­prised that more peo­ple haven’t fig­ured out the German/Underground Reich plan by now.

    At your con­ve­nience, note the excerpt pub­lished by Dorothy Thomp­son in 1940, high­lighted in the “Memo­r­ial Day Post” on the front page of this website.

    The machi­na­tions now being real­ized are long in the making,and a fool­ish, myopic world is ignor­ing the man­dates of his­tory and squan­der­ing the sac­ri­fice of World War II heroes, such as yourself.


    Dave Emory

    Posted by Dave Emory | May 29, 2012, 4:37 pm
  4. Europe’s strange mix of imme­di­ate finan­cial union cou­pled with only a seem­ingly par­tial attri­tion of sov­er­eignty for the mem­bers is lead­ing to these bizarre con­di­tions. Does the entity known as the ‘Greek gov­ern­ment’ any longer have any mean­ing except as a legal device to indebt the peo­ple on that penin­sula to a transna­tional cabal?
    Watch for para­dox­i­cal devel­op­ments as des­per­ate (moti­vated) labor seeks to move across bor­ders to regain an income. Ger­man pop­u­lar chau­vanism is already caus­ing a reac­tion against the process of eras­ing bor­ders, at least when it comes to retain­ing Ger­man iden­tity. The EU process is guar­an­teed chaos.

    Posted by Dwight | May 30, 2012, 5:00 am
  5. One more advan­tage of turn­ing your neigh­bors’ economies into a frothy mess: skim­ming off the cream:

    Greeks Flock to Ger­many Even as They Crit­i­cize It
    Pub­lished: Wednes­day, 30 May 2012 | 5:51 AM ET
    By: Andy Eckardt and Carlo Angerer, NBC News

    Thou­sands of well-educated work­ers are flee­ing Greece as the euro zone cri­sis bat­ters their homeland.

    Ger­many, Europe’s eco­nomic pow­er­house and a coun­try that has been crit­i­cized by many Greeks over its harsh demands for aus­ter­ity cuts in return for bailout cash, has expe­ri­enced an influx of young skilled immigrants.

    Der Spiegel mag­a­zine noted that while Greek news­pa­pers “printed car­toons depict­ing the Ger­mans as Nazis, con­cen­tra­tion camp guards, and euro zone impe­ri­al­ists who allow their debtors to bleed to death,” the Greeks have kept arriv­ing — bring­ing an “any­thing is bet­ter than Athens” atti­tude with them.

    With more than 50 per­cent of young Greeks out of work, it’s not sur­pris­ing that offi­cial sta­tis­tics show the num­ber of Greeks who moved to Ger­many increased 90 per­cent dur­ing 2011.

    Unem­ploy­ment rates have con­sis­tently been shrink­ing in Ger­many in recent years and the econ­omy is thriv­ing, despite Europe’s ongo­ing finan­cial cri­sis. Relaxed cross-border employ­ment reg­u­la­tions for mem­ber states of the Euro­pean Union also make Ger­many an attrac­tive choice for job seek­ers. While Ger­many is in need of spe­cial­ized work­ers, how­ever, the Greek labor mar­ket has lit­tle to offer.

    Warn­ing of ‘Cold War’ Over Cuts

    “It is vir­tu­ally impos­si­ble to find a job in Greece at the moment,” says Chris­tos Chris­toglou, an inspec­tion engi­neer who took a job at Ger­man chem­i­cal and phar­ma­ceu­ti­cal giant Bayer at the start of the finan­cial cri­sis in June 2010. “It is not that there are only very few jobs for young grad­u­ates to seek, no, there are none, zero, there is nothing.”


    There was also a sig­nif­i­cant spike in the num­ber of immi­grants relo­cat­ing to Ger­many from other eco­nom­i­cally depressed south­ern Euro­pean coun­tries last year, with offi­cial sta­tis­tics show­ing an increase of 52 per­cent from Spain, 28 per­cent from Por­tu­gal and 23 per­cent from Italy.


    Posted by Pterrafractyl | May 31, 2012, 8:27 pm
  6. Oh boy, this will really calm things down:

    Ger­man Court Won’t Rule on Bailout Fund for 8 Weeks
    By Patrick Don­ahue — Jul 16, 2012 6:37 AM CT

    Germany’s top court will take more than eight weeks to decide whether to sus­pend the euro-area’s per­ma­nent bailout fund, leav­ing Europe’s anti-crisis cof­fer less than half full to respond to the debt cri­sis.

    The Fed­eral Con­sti­tu­tional Court in Karl­sruhe will issue a rul­ing on bids to halt Germany’s par­tic­i­pa­tion in the Euro­pean Sta­bil­ity Mech­a­nism and the fis­cal pact on Sept. 12, it said today in an e-mailed state­ment. That’s more than two months after it held a hear­ing on the measures.

    “The court has held a com­pre­hen­sive hear­ing on the issue and will now take the time it needs to reach a deci­sion,” Ger­man gov­ern­ment spokesman Stef­fen Seib­ert told reporters in Berlin today. Finance Min­is­ter Wolf­gang Schaeu­ble warned the hear­ing last week that a delay in acti­vat­ing the ESM “could lead to a sig­nif­i­cant wors­en­ing” of the crisis.

    The delay could com­pli­cate efforts to resolve the 2 1/2– year-old cri­sis as Euro­pean lead­ers squab­ble over the details of bailout con­di­tions, bank res­cues and bur­den shar­ing. In an inter­view yes­ter­day, Chan­cel­lor Angela Merkel gave no ground on Ger­man demands for more cen­tral­ized con­trol over euro mem­ber states in return for joint liabilities.

    Chid­ing states which sought to slow moves toward more cen­tral con­trol, Merkel told broad­caster ZDF that a so-called bank­ing union involv­ing a bloc-wide finan­cial over­seer will have to include joint over­sight on a “new level.” She said efforts to advance on “sol­i­dar­ity” with­out super­vi­sion will fail.


    The com­plaints tar­get­ing the ESM and fis­cal pact were brought by a group of law­mak­ers, aca­d­e­mics and polit­i­cal groups fil­ing sep­a­rate suits seek­ing an injunc­tion. They argued that the leg­is­la­tion designed to over­come the three-year-old debt cri­sis trans­fers con­sti­tu­tion­ally man­dated author­ity from Ger­man law­mak­ers to Brus­sels and under­mines demo­c­ra­tic rule.

    Vosskuhle at one point in the hear­ing last week asked Rolf Strauch, a board mem­ber for the EFSF, what the effects would be if the court took longer to decide.


    Ger­man Bun­des­bank Pres­i­dent Jens Wei­d­mann said euro lead­ers had caused dam­age by fail­ing to define more clearly their con­clu­sions at the sum­mit. He told Dutch news­pa­per Het Finan­cieele Dag­blad on July 14 that euro nations “should dis­cuss giv­ing up sov­er­eignty with the same open­ness as the ques­tion of how to resolve the debt prob­lem collectively.”

    As gov­ern­ments in Spain and Italy strug­gle under the bur­den of higher bor­row­ing costs, Wei­d­mann, Germany’s chief cen­tral banker and a Euro­pean Cen­tral Bank Gov­ern­ing Coun­cil mem­ber, told Boersen-Zeitung that Italy’s higher yields don’t jus­tify a request for bailout assis­tance. Euro bailout fund­ing should be deployed only as a last resort, he said.

    “If Italy stays the course on reforms, it’s on a good path,” Wei­d­mann told the news­pa­per in an inter­view. Asked whether the euro area’s third-largest econ­omy needs to tap the fund, he said, “No, I don’t see Italy in that sit­u­a­tion.”

    That’s right Italy, just stay the “austerity”-course. Things are going great.

    Posted by Pterrafractyl | July 16, 2012, 8:23 pm
  7. The ECB has a new super awe­some plan for quelling the ongo­ing panic in the dis­tressed euro­zone bond mar­kets. The plan con­tains the kind of super awe­some­ness that’s pretty much what we should expect by now:

    The Euro­pean Cen­tral Bank’s Ongo­ing Power Grab

    By Matthew Yglesias

    Posted Wednes­day, Sept. 5, 2012, at 10:14 AM ET

    Mario Draghi is out with a new Euro­pean Cen­tral Bank plan that, on its face, doesn’t make sense.

    For the loose money crowd, he’s offer­ing poten­tially “unlim­ited” ECB pur­chases of periph­eral gov­ern­ment bonds. But on the other hand, he’s promis­ing that these pur­chases will be “ster­il­ized” (which I don’t believe can actu­ally be done in unlim­ited quan­ti­ties) He’s also say­ing that the bond pur­chases will be lim­ited to gov­ern­ment bonds, which turns it into a kind of sub­sidy for periph­eral gov­ern­ments rather than a gen­eral mon­e­tary eas­ing. Last but by no means least, there’s no firm tar­get for what the bond pur­chases are sup­posed to accom­plish and the pur­chases are stip­u­lated to be “conditional.”

    The last point is the most impor­tant one. As mon­e­tary pol­icy, this doesn’t make sense. But as power pol­i­tics it makes a ton of sense.

    What the ECB is doing, in essence, is set­ting itself up as the shadow gov­ern­ment of Italy, Spain, Por­tu­gal, and per­haps Ire­land. If the gov­ern­ments of those coun­tries do what Draghi wants, Draghi will pro­vide them with gen­er­ous sub­sidy. If the gov­ern­ments of those coun­tries don’t do what Draghi wants, he’ll use a mon­e­tary laser to destroy their bud­gets. Fear will keep the periph­eral states in line.


    Unlim­ited “ster­il­ized” bond pur­chases, eh? That sounds like the kind of mea­sure intended to pla­cate the Ger­man gov­ern­ment and Bun­des­bank over the infla­tion­ary fears of “unlim­ited” ECB bond pur­chases. Not that it will help:

    Merkel Ally Fuchs Says Ger­many Backs Draghi With Con­di­tions
    By Patrick Don­ahue and Francine Lac­qua — Sep 5, 2012 8:24 AM CT

    Ger­many will back Euro­pean Cen­tral Bank bond pur­chases to help over­come the euro-area debt cri­sis only if such an oper­a­tion is lim­ited and recip­i­ent coun­tries agree to strict con­di­tions, said a senior ally of Chan­cel­lor Angela Merkel.

    Michael Fuchs, a deputy par­lia­men­tary cau­cus leader in Merkel’s Chris­t­ian Demo­c­ra­tic Union, said that Ger­many would oppose any ECB plan that fore­saw “too much” bond buy­ing with­out ensur­ing coun­tries in need of help com­mit to over­haul their economies.

    “Ger­many is a coun­try which is very much afraid about infla­tion,” Fuchs told Bloomberg Tele­vi­sion today, speak­ing in Eng­lish. “We don’t want to have the ECB just buy on the mar­ket, either in the pri­mary or sec­ondary mar­ket,” he said. “The ECB can do it only if there are cer­tain con­di­tion­al­i­ties, if the coun­tries are really doing their homework.”

    The remarks are fur­ther evi­dence that Ger­many will sup­port ECB Pres­i­dent Mario Draghi’s plan to buy sov­er­eign debt as a way to ease bond yields in coun­tries such as Italy and Spain so long as gov­ern­ments sign up to strict con­di­tions in return and the euro-area’s res­cue funds enter bond mar­kets first. Merkel, speak­ing in Ottawa last month, said the ECB was “count­ing on polit­i­cal action in the form of con­di­tion­al­ity as the pre­con­di­tion for a pos­i­tive devel­op­ment of the euro.”

    Unlim­ited Purchases

    Draghi’s pro­posal involves unlim­ited pur­chases that will be ster­il­ized to assuage con­cerns about print­ing money, accord­ing to two cen­tral bank offi­cials briefed on the oper­a­tion. The ECB chief is due to give a press con­fer­ence in Frank­furt tomorrow.


    Ah yes, the irra­tional infla­tion con­cerns in the midst of a near depres­sion and “strict con­di­tions” (it’s not “aus­ter­ity”, it’s just “strict con­di­tions”). Well, ok, the infla­tion con­cerns might not be entirely irrational...even Spain is expe­ri­enc­ing higher infla­tion. At least all of that aus­ter­ity strict con­di­tion­al­ity on all of its aide has prob­a­bly put a damper of Spain’s infla­tion rate. You know, use­ful stuff like VAT tax increases, which not only helps curb Spain’s deficit but also should help reduce infla­tion. That’s how it works, right?

    UPDATE 1-Inflation adds to Span­ish woes with jump to 2.7 pct

    Thu Aug 30, 2012 1:31pm IST

    * Spain con­sumer prices rise 2.7 pct in Aug, up from 2.2 pct July

    * Fuel prices behind rise, says Sta­tis­tics Institute

    * Nasty mix for Spain of ris­ing prices and declin­ing eco­nomic output

    * Prices likely to rise in after Sept. 1 VAT hike

    MADRID, Aug 30 (Reuters) — Span­ish con­sumer prices surged in August dri­ven by higher fuel costs and a value-added tax hike in Sep­tem­ber could drive another jump, com­pli­cat­ing Spain’s efforts to get out of reces­sion and gen­er­ate the growth needed to reduce its debts.

    EU-harmonised con­sumer prices rose by 2.7 per­cent year-on-year in August, flash data from the National Sta­tis­tics Insti­tute (INE) showed on Thurs­day, up from 2.2 per­cent in July and much higher than a mar­ket con­sen­sus for an unchanged reading.

    Prices could well rise fur­ther from Sep­tem­ber 1 when value-added tax rises to 21 per­cent from 18 per­cent, rais­ing prices for con­sumers already strug­gling under the weight of falling wages and unem­ploy­ment of almost 25 per­cent.

    Spain also depends on imports for some 70 per­cent of its energy needs, mean­ing higher fuel prices raise costs for businesses.

    “We can see an energy cost effect here, but it might also be that some busi­nesses have raised prices on prod­ucts before the Sep­tem­ber VAT hike, so they can then say they haven’t raised prices when it hap­pens,” said Nico­las Lopez, econ­o­mist at M&G Valores.

    He said infla­tion could rise as high as 3.7 per­cent in September.

    Spain’s infla­tion fig­ures come before those for the wider euro zone on Fri­day, which should show infla­tion at 2.5 per­cent in August, faster than the 2.4 per­cent rate seen in July.

    That would be some way above the Euro­pean Cen­tral Bank’s infla­tion tar­get of close to 2 percent.

    INE data also showed Spain’s national con­sumer price index rose by 2.7 per­cent in August on an annual basis, up from 2.2 per­cent in July.

    Huh, so Spain’s tax hike was actu­ally fuel­ing infla­tion? Well, that’s unfor­tu­nate con­sid­er­ing the eurozone’s new infla­tion obses­sion. Oh well, at least that VAT tax hike should at least help with the Span­ish deficit:

    Spain: ris­ing job­less rate off­sets VAT tax increase
    Gov’t to dip into reserves to cover pensions

    05 Sep­tem­ber, 19:06

    (ANSAmed) — MADRID — The rise in unem­ploy­ment costs in Spain has off­set income from the newly increased VAT tax, from 18% to 21% as of Sep­tem­ber 1, accord­ing to data pub­lished by El Mundo news­pa­per on Wednesday.

    The cost of unem­ploy­ment ben­e­fits is ris­ing by 2.6 bil­lion euros a month, against the 2.3 bil­lion euros pro­jected in the state bud­get. Unem­ploy­ment ben­e­fit pay­ments through July cost 1 bil­lion euros more than in the pre­vi­ous year. They equaled 18.456 bil­lion euros in seven months, almost two thirds of the 28.503 slated in the bud­get for the entire year. The gov­ern­ment went 2 bil­lion euros over bud­get, equal to the income from the new VAT tax increase, El Mundo wrote. New unem­ploy­ment ben­e­fit requests totaled 200,000 as of July, and the gov­ern­ment paid out 174,000, accord­ing to national sta­tis­ti­cal insti­tute data pub­lished on Tues­day. There were 137,000 jobs lost in August, and an addi­tional 38,179 unem­ployed joined the line, bring­ing the total to 4,625,634 peo­ple out of work. There were 604,541 jobs lost in the past 12 months, against the 215,947 lost in the pre­vi­ous year, and the num­ber of peo­ple pay­ing into the social secu­rity fund dropped to 16,895,977. In July, the cash-strapped gov­ern­ment dipped into a busi­ness work­place com­pen­sa­tion fund to pay 15 bil­lion euros in pensions.

    Mar­i­ano Rajoy’s admin­is­tra­tion has aired the pos­si­bil­ity of using the 68 bil­lion euro national pen­sion reserve fund to cover future pen­sions, year-end wage bonuses, and inflation-indexed com­pen­sa­tions. (ANSAmed).

    Hmmmm, well...at least there will no doubt be many valu­able lessons learned dur­ing this excit­ing period.

    Posted by Pterrafractyl | September 5, 2012, 9:37 am
  8. Ah, it looks like Merkel is now call­ing for a “com­pet­i­tive­ness pact” that will exist to enforce the new “fis­cal treaty”:

    Merkel Says Europe Must Per­sist With Reforms

    Pub­lished: Thurs­day, 24 Jan 2013 | 9:40 AM ET
    By: Anto­nia van de Velde

    Deputy News Editor

    Ger­man Chan­cel­lor Angela Merkel urged Euro­pean nations to con­tinue the eco­nomic reforms they have begun and argued that the debt cri­sis offered an oppor­tu­nity for the bloc to become more competitive.


    Through­out the euro zone debt cri­sis, Merkel has placed sig­nif­i­cant empha­sis on aus­ter­ity mea­sures in response to soar­ing debt and widen­ing bud­get deficits.

    Oth­ers, includ­ing French Pres­i­dent Fran­cois Hol­lande believe those mea­sures need to be bal­anced with ini­tia­tives to spur growth. They fear aus­ter­ity alone will not get the econ­omy mov­ing again.

    “Con­sol­i­da­tion and growth basi­cally are two sides of the same coin,” Merkel said.

    Merkel called for the cre­ation of a “com­pet­i­tive­ness pact” which would exist along­side the exist­ing fis­cal pact, which is aimed at ensur­ing EU mem­ber states stick to their bud­get com­mit­ments.

    “In 2013 we must see to it that over the next few years we also have a con­ver­gence in com­pet­i­tive­ness within the com­mon euro area.”

    Here we go again.

    Posted by Pterrafractyl | January 28, 2013, 9:42 am

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