Tag Archives: Europe

Maybe Germany needs to be kicked out of the Eurozone

From Foreign Policy

Last year, Germany racked up a record trade surplus of 217 billion euros ($246 billion), second only to China in global export dominance. To some, this made Germany a bright spot in an otherwise anemic eurozone economy — a “growth driver,” as the German finance minister, Wolfgang Schäuble, puts it. In fact, Germany’s chronic trade surpluses lie at the heart of Europe’s problems; far from boosting the global economy, they are dragging it down. The best way to end this perverse situation is for Germany to leave the eurozone.

Germans usually respond to such charges with a kind of hurt confusion. We run trade surpluses, they patiently explain, because we are simply much more competitive than most of our trading partners. Can you blame us, they ask, if the world prefers to buy superior German goods (and has nothing we want in return)? So goes the argument: The rest of the world just needs to up its game, get its house in order, and become a bit more like Germany. In the meantime, don’t hate us ‘cuz we’re beautiful….

Contrary to popular mythology, however, there’s absolutely no reason why being “competitive” should mean running a trade surplus. As far back as 1817, the economist David Ricardo pointed out that the optimal basis for trade is comparative, not absolute, advantage. In other words, even if a country is better at everything, it should export what it is best at and import what it is less better at. Having an across-the-board advantage does not imply that it makes good economic sense to produce everything yourself, much less to sell more than you want in return. Or, to put it a bit differently, there’s no inherent reason why earning more can’t mean spending more, on consuming both public and private goods, as well as investing in future productive capacity.

Trade surpluses take place when a country chooses to spend less than it produces — when it has excess savings, beyond its domestic need for credit. It lends that excess savings abroad, financing another country’s ability to spend more than it produces and, by running a trade deficit, purchase the lender’s excess production. It’s true that a highly productive country might have the wherewithal to conjure up excess savings, while a less productive country might be inclined to borrow rather than scrape up the savings it needs. But fundamentally, trade imbalances arise not from competitive advantage but from choices about how much to save and where that savings should be deployed — at home or abroad.

Does it ever make sense to run trade imbalances? Sure it does. In the 19th century, Britain’s Industrial Revolution enabled it to reap vast earnings from expanded output, some of which it invested in the United States. The money lent to a rapidly growing American economy generated higher returns than it would have back home, while creating a market for British-made goods. The potential productivity gains made it a win-win: It made sense for the Americans to borrow and for the British to lend. But the case also highlights something that’s easy to forget: Running a trade surplus means financing someone else’s trade deficit.

The eurozone crisis is often called a debt crisis. But, in fact, Europe as a whole did not have an external debt problem, but an internal one: German surpluses and mounting debt in Europe’s periphery were two sides of the same coin. Germans saved (a lot), and the single currency induced them — rather than save less or invest it at home — to lend it to their eurozone trading partners, which used the money to buy German goods. By 2007, Germany’s trade surplus had reached 195 billion euros, three-fifths of which came from inside the eurozone. Berlin might call this “thrift,” but it’s hard to argue that Germany’s excess savings, which its banks often struggled to put to use, were well invested. Instead, they gave Germans the illusion of prosperity, trading real work (reflected in GDP) for paper IOUs that might never be repaid.

The solution? 

So what should be done? The best solution — and the least likely to be adopted — is for Germany to leave the euro and let a reintroduced Deutsche mark appreciate.

It will never happen but it is a solution that makes sense.

Is Putin winning the confrontation with NATO?

The Guardian thinks he is

It’s different for dictators or authoritarian regimes. Flick a switch, pull a lever, and things happen, often instantly. Which is one reason why the Putin-versus-Europe contest in Ukraine is so one-sided; why one side acts and the other struggles to react; why one side is consistently ahead of the curve, the other behind it – in the short-term, at least.

Six months after the Kremlin stunned Europe with its land grab in Ukraine, a Nato summit in Wales unveiled its ideas for shoring up security in eastern Europe. For more than two decades, the alliance had been beset by self-doubt. Having won the cold war, what was the point any more?

Putin gave the military planners at Mons and the armies of bureaucrats in Brussels a new lease of life. Nato’s core purpose – facing down and containing Russia – was newly legitimised.

The summit decided to put a spearhead force at brigade strength, more than 5,000 men, into Poland and the Baltics at short notice: small units of special forces within hours, bigger reinforcements within days, at the first hint of trouble.

That was six months ago. But since the September summit, the plan has atrophied, bogged down in endless circular discussions of who does what, when and where. Who pays for it? Where is the kit coming from? Will the Americans step up to relieve the Europeans? Who will be in command?

First of all, NATO did not win the cold war, Ronald Reagan and Margaret Thatcher did for the exact reasons mentioned.  It won’t win this conflict unless the United States has a stronger foreign policy and from what we have seen from Barack Obama, it will have to come from the next President.

The Return of the Euro-Crisis

A coalition of radical leftist parties seem poised to take power in Greece. Could the troubled country really leave the euro zone?

SYRIZA has promised to cancel the austerity measures Greece adopted as part of the bailout package and renegotiate its debt obligations. This could trigger a confrontation with Athens’ lenders in Europe and the IMF, potentially resulting in a Greek exit (or “Grexit”) from the eurozone. Prime Minister Samaras is playing up this risk. “We shed blood to take the word ‘Grexit’ away from the mouths of foreigners, and SYRIZA is bringing this word back to their mouths,” he said in a speech late last year.

It seems Samaras is getting help in this campaign from Berlin. By 2012, Merkel had decided Greece must be kept in the eurozone to mitigate the risk of a “contagion” effect that could hasten the departure of other members and threaten the common European currency. This position implied Greece had some leverage, because its exit would hurt Germany and other eurozone members, as well. Now, according to the German news magazine Der Spiegel, Merkel appears willing to accept a Greek exit, and her government is preparing for that possibility. Officially, of course, Berlin’s policy hasn’t changed: It wants to keep the eurozone intact. But it’s hard to read the unnamed “German officials” who spoke to Der Spiegel and not conclude that Germany wanted to send a message to SYRIZA that Berlin will call its bluff if Athens demands onerous concessions or scuttles austerity.

Tsipras publicly scoffs at the possibility that Greece will be forced to leave the eurozone. “We are through with the possibility of a Grexit, and there is only a Samaras-exit,” he has said—a nifty bit of sloganeering that has failed to soothe the nerves of Greeks who worry a SYRIZA victory will result in tumult between Greece and its creditors. Tsipras has tried to lessen those fears. The closer he gets to power, the softer his rhetoric has become. Only six months ago, says Economides, it looked like a SYRIZA victory would result in a Grexit. “Now they’ve talked their way out of that corner, and they’re leaving it open that they’ll do their utmost to stay in the eurozone,” he says.

Germany 1945

I am reading Germany 1945: From War to Peace right now.  Here is a quick review from the New York Times

We have rarely felt sorry for what the Germans suffered at the end of World War II, in part because the Germans have done a superb job of feeling sorry for themselves. Most Germans in 1945 (and long afterward) believed that their own suffering freed them from any obligation to ponder what Germans had done unto others. Historians, therefore, have hesitated to exploit this material, for fear of seeming to endorse the repellent spectacle of German self-pity. The distinguished British historian Richard Bessel, however, understands the difference between suffering and atonement, and with “Germany 1945” he has produced a sober yet powerful account of the terrible year he calls the “hinge” of the 20th century in Europe.

The decisive blow came in January, when a Red Army invasion force, nearly four million strong, poured into eastern provinces that would soon cease forever to be German. (The Anglo-American invasion from the west paled by comparison.) They killed with dreadful efficiency. German military deaths that month exceeded the total wartime losses of either the United States or Britain. Millions of civilians fled in terror from what they had long been told were savage Slavic hordes. Hitler’s government, deep in denial, did little to ease the refugees’ distress. Nor did it permit the orderly surrender of lost territories. While some soldiers and civilians enthusiastically embraced orders to fight to the death, the rest were kept in line by roving SS death squads that hanged deserters from lampposts. But the formidable Wehrmacht was hopelessly outnumbered and outgunned.

Bessel leaves no doubt about who was to blame for the suffering: Hitler, who chose to destroy his country rather than surrender and face defeat. For the German people — many bombed or chased out of their homes, all at the mercy of the occupying armies — this was the legacy of the Third Reich: not conquest and glory, nor genocide and guilt, but betrayal and ruin, rubble and grief.

Although the Allies faced a tough job in imposing order, one thing they needlessly feared, as it turned out, was resistance from dead-enders. Rumors of a “Werewolf” underground proved groundless (contrary to the claims of those who argued a few years ago that postwar Germany was just as bad as postwar Iraq). The occupiers were surprised to find a docile people, preoccupied with finding shelter, food and missing family members.

With death all around, the invaders sought vengeance. Soviet soldiers pillaged and raped the most, but the French were not much better. The British and Americans, with fewer grievances, committed fewer atrocities. While Germans resented the inevitable injustices of Allied denazification programs, when the most prominent surviving Nazis went on trial in Nuremberg in November 1945, few could summon any sympathy for these pathetic men who had led their nation into the abyss.

If you have a chance and an inclination to look at a rarely looked at part of World War II, the book is worth reading.  If you don’t want to read the book, you may want to check out these photos posted to The Atlantic’s In Focus blog.

The Germans are losing patience

From the Economist

The Germans are not yet openly angry. That would be out of character in a people who have, since the second world war, been eager to atone for the past and be good European partners. In one recent poll, 34% of Germans even said they empathised with the wrath of the southern Europeans. But the mood is shifting. The southerners may see Germany as forcing excessive austerity on them and showing insufficient solidarity, but Germans have a different view.

First, they feel they have already shown solidarity. Almost a quarter of a century after the fall of the Berlin Wall they still pay a solidarity tax to eastern Germany. Some also transfer taxes to weaker German states such as Bremen. Many conclude that, once in place, solidarity ceases being voluntary and instead becomes a yoke. They also bear much of the risk of euro bail-outs, even though a study released this week by the European Central Bank showed that the average German household has less wealth than the average Spanish, Italian and Cypriot one (though this is partly because German households tend to contain fewer adults and are more likely to be in rented accommodation).

Second, they argue that Germany recognised a decade ago that it was not competitive and undertook painful reforms that are now paying off. The crisis countries should follow suit. And third, Germans think the euro crisis was largely caused by rule-breaking (even by Germany itself), which must not be repeated. As one diplomat puts it, “solidarity is important, but it should follow rules. It is not just ad hoc giving.”

The World is Running out of Topsoil

From Time Magazine

A rough calculation of current rates of soil degradation suggests we have about 60 years of topsoil left. Some 40% of soil used for agriculture around the world is classed as either degraded or seriously degraded – the latter means that 70% of the topsoil, the layer allowing plants to grow, is gone. Because of various farming methods that strip the soil of carbon and make it less robust as well as weaker in nutrients, soil is being lost at between 10 and 40 times the rate at which it can be naturally replenished. Even the well-maintained farming land in Europe, which may look idyllic, is being lost at unsustainable rates.

via

Five of the world’s most livable cities

Not a lot of these cities are designed around the automobile.  Here is what makes Vienna such a great place to live.

Austria’s most populous city – Vienna – has won the title of the world’s best city for quality of life since 2009. It is also one of eight European cities to make the top 10 list, showing the region’s dominance in the survey.

Vienna is the cultural, economic, and political center of the country. It has the highest per capita GDP among all Austrian cities at over $55,000. Vienna’s ability to transform old infrastructure into modern dwellings won the city the 2010 United Nations urban planning award for improving the living conditions of its residents. Under a multimillion-dollar program, the city refurbished more than 5,000 buildings with nearly 250,000 apartments. Vienna is also the world’s No. 1 destination for conferences, drawing five million tourists a year — equivalent to three tourists for every resident.

Defending Switzerland

In case you wonder how Switzerland has kept itself from being invaded over the years, here is how.

McPhee points to small moments of "fake stonework, concealing the artillery behind [them]," that dot Switzerland’s Alpine geology, little doors that will pop open to reveal internal cannons that will then blast the country’s roads to smithereens. Later, passing under a mountain bridge, McPhee notices "small steel doors in one pier" hinting that the bridge "was ready to blow. It had been superceded, however, by an even higher bridge, which leaped through the sky above—a part of the new road to Simplon. In an extreme emergency, the midspan of the new bridge would no doubt drop on the old one."

It’s a strange kind of national infrastructure, one that is at its most rigorously functional—one that truly fulfills its promises—when in a state of cascading self-imposed collapse.
I could easily over-quote my way to the end of my internet service here, but it’s a story worth reading. There are, for instance, hidden bomb shelters everywhere in an extraordinary application of dual-use construction. "All over Switzerland," according to McPhee, "in relatively spacious and quiet towns, are sophisticated underground parking garages with automatic machines that offer tickets like tongues and imply a level of commerce that is somewhere else. In a nuclear emergency, huge doors would slide closed with the town’s population inside."

Describing titanic underground fortresses—"networks of tunnels, caverns, bunkers, and surface installations, each spread through many tens of square miles"—McPhee briefly relates the story of a military reconnaissance mission on which he was able to tag along, involving a hydroelectric power station built inside a mountain, accessible by ladders and stairs; the battalion tasked with climbing down into it thus learns "that if a company of soldiers had to do it they could climb the mountain on the inside."

In any case, the book‘s vision of the Alps as a massively constructed—or, at least, geotechnically augmented and militarily amplified—terrain is quite heady, including the very idea that, in seeking to protect itself from outside invaders, Switzerland is prepared to dynamite, shell, bulldoze, and seal itself into a kind of self-protective oblivion, hiding out in artificially expanded rocky passes and concrete super-basements as all roads and bridges into and out of the country are instantly transformed into landslides and dust.