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June 04, 2018

German discourse out of control

Over the last week we have a growing amount of evidence that the political discourse in Germany about the eurozone is getting out of control. People rightly took offence at the latest cover in Der Spiegel. This is a news magazine that started in the new-democratic spirit of the late 1940s, but its current editors seem to be rooted in the xenophobia and the self-delusions of the 1930s. It's not just this cover that is offensive. The accompanying editorial is even worse. 

The editorial by Jan Fleischbauer titled "the moochers of Rome" is seething with contempt. He wonders how to call those who finance their dolce far niente lifestyle with the money of others. No prizes for guessing whom he had in mind. And for good measure he writes that the beggar at least says thank you if you fill his bag. He concludes no respectable nation should asks for help if it can help itself. No respectable nation wants to be known as a moocher. Italians have long passed this stage he concludes.

The French media are showing very little interest in Angela Merkel's eurozone counter-proposals. But they have noticed this. The French magazine Marianne notes that the Spiegel cover displays arrogance, stereotypes and authoritarianism consitent with their coverage of the political crisis in Italy. It is not an example of solidarity. 

After the injudicious comments by Günther Oettinger last week, other German politicians continued in a similar spirit. CDU MP Eckhardt Rehberg warned that Italy is playing with fire and putting the eurozone in danger. And Markus Ferber, a CSU MEP, told the ZDF that in the worst case scenario of insolvency the troika (IMF, ECB and Commission) should march towards Rome and take over control of the Italian finance ministry.

Andreas Kluth wrote in Handelsblatt that Germany represents the opposite of the ideas that unite the southern euro area. Kluth says these two sides cannot be reconciled in the long run, no matter how much Merkel fudges a solution in the short run. Instead the divide gives rise to cultural narratives that use the worst stereotypes. It is this chasm that dooms Emmanuel Macron's eurozone reform proposals, which Kluth refers to as southern-flavoured. He calls for the proponents to accept a shrinking of the union rather than jeopardising the whole eurozone. Of course, there was no reflection at all about Germany's own contribution to this crisis.

And finally we note another comment, by Georg Blome, in Spiegel, who gave an interesting historical perspective of the forces behind German exceptionalism. He notes one of the consequences of the Vienna Congress 200 years ago was German provincialism, both political and economic, with consequences that are still prevalent today. The failure to agree on a reform of the eurozone now could have a similarly important long-term political impact, by making permanent the rupture between the working classes and globalisation. 

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June 04, 2018

Wait for European disunity on US tariffs

The first signs are there of a crumbling EU position in response to Donald Trump's tariffs on steel and aluminium. Superficially the EU acts united, but France and Germany are at the opposite ends of the scale in this debate. Whereas Bruno Le Maire talks about a pending trade war with the US during the G7 finance minister's meeting in Canada, Olaf Scholz emphasises the need to find a compromise. 

FAZ notes the Germans are willing to maintain EU unity, but there is a bottom line. The Germans do not want Trump to slap tariffs on German cars. That will be the point at which Germany will assert its national interest. We agree, and would add that such a moment is very likely to arrive given Trump's repeated promise to rid the Fifth Avenue of Mercedes cars. 

As we have pointed out before, Germany's 8% current account surplus will eventually make it impossible for the EU to formulate a tough joint position on trade. That's one of the many toxic side effects of accepting internal imbalances. 

The EU's efforts to safeguard its interests in Iran are also in trouble. As FAZ reports, one option under discussion has been to use the central banks as the main payment channel in business with Iran - which would circumvent the problem of individual banks becoming subject to secondary US sanctions. This option was seen as being in the interest of the countries which receive large amounts of Iranian oil: Italy, Greece, France and the Netherlands. 

But the EU is hitting a self-imposed constraint: the independence of the central banks. The national central banks could, in theory, create an account through which they transact oil business with Iran. The issue had been discussed in the ECB, but not yet at the level of the governing council. While the ECB itself cannot do so, a decision by individual central banks to transact with Iran would have to be coordinated - and the Bundesbank is apparently not enthusiastic about the whole idea.

Another proposal is to use the European Investment Bank. But the EIB refinances itself in the US markets and is afraid it, too, might be subject to US sanctions.

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