One of my previous postings encouraged one of our friends, a long-term resident in Germany, to get in touch: he felt that we would benefit from the Berlin perspective. His thoughts are interesting, so I have, with his permission, paraphrased them here...
The Germans are playing a complex political end game in order to ensure that they are able to push through a restructuring of Europe’s economic machinery, based on German principles. They feel that they made a compromise when the foundations of the Euro were laid during the 1990’s in the interests of political expediency (common interest rate setting, despite the lack of common fiscal or debt mechanisms – the Bundesbank definitely “knew better”).
They clearly hoped – wrongly as it has turned out – that the Euro would run for longer without meeting with a structural crisis. Now that it has happened, they don’t want to make this type of compromise again in which expediency, rather than logic, drives policy.
The political manoeuvring which seems endemic within the current structure of the EU is very complex and often seems both chaotic and smacking of incompetence and indecision.
However, the German elite has a very clear idea where it wants Europe to go: towards fiscal union for an appropriate set of countries (my italics).
Having now successfully absorbed a defunct country – East Germany – with 25 million people, produced a DAX which is well represented by world leading companies, and developed a unique breadth of mid-sized, export orientated companies in many industries (the famous Mittelstand), DAX listed companies are some of the most globalised in the world, and look both to Asia and the US for their continued growth.
All this manufacturing success has engendered a new sense of self-confidence in Berlin, leading to the explicit belief that they actually do know something about business and economics, and don't need any lessons from the Brits or the Americans.
It is clear, however, that German leaders do not feel comfortable with overt displays of such confidence, given sensitivities to the "Don’t mention the war…" creed. Basil Fawlty would be proud.
Despite this, there is a clear view that the German business model, as opposed to the debt fuelled Anglo-Saxon one, needs no further apology. But nor does that mean that Germany should act as the banker for everyone else in Europe.
When Cameron visited Berlin in mid-November, he told his German counterpart that as much firepower as possible had to be used to combat the euro crisis. To which the Chancellor responded coolly: "One shouldn't pretend to have power that one doesn't actually have”.
From the German perspective, the only way to remain relevant in a world economy dominated by the USA & China is for Europe to make a rapid dash for size via full fiscal union.
Chancellor Merkel is a quantum chemist by training and spent the first 12 years of her professional life in a Physical Chemistry institute in the DDR. She might not be as strong on media and communication skills as many of her contemporaries, but it’s doubtful that many of them can match her in the analysis of complex problems.
Her preferred approach to politics can be compared to experimental particle physics. She engineers collisions between other particles and sees what happens. After the experiment, she moves in to fill the vacuum.
Poor particles.
Thus all of her contemporary competitors for leadership in the CDU/CSU were masterfully able to discredit themselves in the maelstrom of personal rivalries and their subsequent disputes. These direct competitors for leadership ten years ago have long since left politics for business, leaving the field clear for Frau Merkel.
And now she is applying the same tactics in the EU.
Let Berlusconi discredit himself. Let Sarkozy hog the limelight in public disputes with Cameron. Frau Merkel will watch from the sidelines whilst engineering the desired end result. Very Machiavellian (if one is allowed to reference the work of a 16th century Italian).
So – you have a major player in the EU crisis playing a long-term strategy, whilst everyone else is focused on short-term tactics: hence the friction, and hence the appearance of indecision in the face of huge challenges. The Germans are playing the long game.
Note also that German politicians don't care what the stock market does - due to limited share ownership, it is electorally irrelevant. This provides us with an interesting contrast to the US: Ben Bernanke has frequently emphasized that he uses the stockmarket as a key indicator for the success or otherwise of his Quantitive Easing and other policies.
With many thanks to our friend in Berlin.
It remains to be seen whether or not the German Chancellor's long game will pay off, or, in the words of another British prime minister, be sidetracked by the challenges posed by "events".
Steve
e-mail: steve.davies@javelinwealth.com
contact: +65 65577186
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