The Emerging Market Syndrome that is Germany
In economic terms, post-war Germany has never quite grown up. The country has the economic structure of a middle-income emerging market, with an over-sized manufacturing sector and a financial system that is still an instrument of industrial policy. The Landesbanken were clearly an excess but not atypical. The economics is supported by a political-economic settlement that makes the country behave as if it were still in the phase of industrialization and catch-up growth. Whenever the country’s current account surplus goes close to balance or, horror of horrors, becomes negative, be assured that trade unions will be reminded of their national duty of wage moderation, some eminent academic economist will come forward and warn of the decline into a ‘bazaar economy’ (Hans-Werner Sinn, not any old nutter), and a respectable politician at the top will give a ‘Ruck-Rede’ − a speech that tells Germans that the country has to be reformed from top to bottom, from education to pensions. Given all this national chest-beating, the decisive forces will then fall into line, tie their belts and make sure that machine tools and cars made in Germany are more profitable to sell abroad. The rest of the world thus becomes ever more indebted to Germany. Like all exporting nations, Germans prefer to think that they consume little and save more, not that they simply export a lot and cannot help but get richer in the process.
One implication of this emerging market syndrome is that the country’s elites, economic as well as political, have a limited understanding of financial market dynamics. Industry and monetary prudence have always dominated the country’s conception of itself as an economic powerhouse. These elites approach the turmoil of the last two years with a normative and legalistic mindset, along these lines: The financial industry shall, and therefore does, serve the real economy. If only we can force some of its main customers, i.e. sovereign debtors, to comply with (fiscal) rules, then all will be fine.
Nice try. To paraphrase Niklas Luhmann, the brilliant sociologist, ‘strong norms mean the empirics are weak.’ This normative legal approach has failed over the last two years. Finance is not a servant in capitalist economies but the gate-keeper of productive investments; and it has arguably become a rather self-centred and incompetent gate-keeper that needs to mend its ways. But this will not be achieved by blaming the victims; yes, indeed, government finances are the victims of the financial crisis that preceded the Euro area crisis. Legally decreeing that everybody should just obey principles of prudence and follow the Swabian housewife maxim will not do.
Another manifestation of the emerging market syndrome is heavy-handedness in its political leadership. It is not of the hegemonic sort− self-confident, willing to be generous as long as it stabilizes the hegemonic system in the long run − accepting that the supreme power must grant those of a lesser status a stake in the system. Germany is a regionally dominant country with an emerging market syndrome that has neither the self-confidence of a hegemon, nor the power to maintain the system. It is full of mistrust in others, partly because it suspects that others have no loyalty and just succumb to its power, partly because it tends to take recourse to parochialism and believes only in its own way of doing things.
A case in point is the manoeuvring of the German government and its official organ, the business section of the FAZ, when it comes to the European Central Bank. Ever since its inception, it seems that only a German can have the post of the central bank’s chief economist. But it isn’t in the Treaty that German civil servants with no credentials as eminent economists, like Jürgen Stark or now Jörg Asmussen, have to become chief economists and Vice Presidents of this supposedly independent central bank. Nothing but their German citizenship got them into the discussion of plausible candidates. Seen from outside, German insistence on their man in the bank amounts to little else than self-interested bending of the rules− all the more infuriating, given that the German government likes to insist on the letter of the Treaty when it rejects Eurobonds, the ECB’s role as a lender of last resort and everything else that could help to overcome the crisis. This heavy-handedness betrays a dominant power with a chip on its shoulder.
All this could be amusing, at least for the cynics among us, if it were not so destabilizing for the Euro area and the world economy at large. Permanent export surpluses mean, to put it simply, that the country does not allow foreigners to pay off their debt. So some foreigners are bound to get into a debt crisis. The Germans, Dutch and the Finns, all permanent surplus countries, now cry foul and accuse all of the countries in difficulties of having somehow defrauded the system. With the exception of Greece, none of them has, not even Italy under its shambolic Berlusconi administration.
The simple truth is this: if you do not let the debtors pay, you are bound to pay their debts. Germany cannot quite face this truth yet and it is hard for any Chancellor to go against the convenient myth that Germans have created for themselves. But at some point, all adolescents have to grow up and face the fact that they must take responsibility for what they do to others. Let’s just hope it is not too late for the Euro and the stability of the world economy.