Social Finances
July 2008
The German Social Democrats (SPD), the oldest political party in Germany, have been undergoing change and losing members for years. Other parties are in a similar situation, but the SPD has been hit the hardest. Recent polls show its adherents are increasingly turning further to the Left, willing to vote for the radical Die Linke (“Left”) party. This emerged in 2007 from a merger of Linkspartei PDS, the renamed successor of the Communist SED, and WASG (“Labour and Social Justice – The Electoral Alternative”), founded by disenchanted Social Democrats in 2005. “Die Linke” has polled record scores of around 30 per cent in the Eastern German states.
No-one can deny the success of the economic reforms launched by former Chancellor Gerhard Schröder. His policies on labour markets and social benefits, combined with corporate restructuring, helped prompt the economic upturn and lowered unemployment. Both coalition partners are benefiting from these successes, leading to a relatively stable period of the Grand Coalition of the Conservative CDU with the SPD. Meanwhile, Social Democratic Finance Minister Peer Steinbrück can bask in the achievement of proclaiming a balanced budget for the first time in 40 years. This is the best way of sparing coming generations more debt and taxes.
However, now that the elections of 2009 are starting to loom, the reform process has ground to a halt. While CDU and SPD are struggling with PR-slogans in education and social justice, everyone is shying away from any more fundamental ideas of how to reorganise the education and social systems to tackle the ticking demographic time bomb. The best way forward would be fundamentally to reform the benefit system, so as to start building up capital stock and reorganise education, especially in schools. This could best be done now, at a propitious time for politics and the SPD-led Finance Ministry. But, instead of this, most politicians speak out against any further fundamental reform for whatever reason.
So the Germans will simply have to wait for another election before anything can change. The outcome may be either more Socialism or more Conservatism, unless another Grand Coalition emerges. If, on the other hand, the SPD revise their promise never to collaborate with “Die Linke”, a Red-Red coalition might become reality, supported by the Greens. Down that road would lie perdition for Germany.
The German Left's late triumph
March 2008
When East Germany was dissolved in 1989-90, the Communist Socialist Unity Party (SED) continued its existence. Despite attempts to dismantle the organisation, some persistent die-hards were able to save it and, most important, the party’s bank accounts. They first formed the PDS (Party of Democratic Socialism) as the successor of the SED, and later renamed themselves “Die Linke” (The Left), bringing in frustrated former SPD members who had formed their own party after the successful labour and social reforms of Chancellor Schröder and the Greens. The money, much of it from dubious sources, was never used to pay the East German citizens who had suffered under previous one-party rule. The SED and its direct successor were able to keep it.
The well-filled bank accounts of the former East Germany Communist party left it with full coffers for future elections, especially in the West. The personnel, well-trained in the East by former governmental institutions, were expert at peddling populism to the leftwards fringes of German society.
Now the SPD, lacking in profile and success among its traditional followers, is toying with the idea of joining forces with the former East German state party. The recent Hamburg and Hesse elections left both larger parties in those states with too little power to form a new government by themselves. The SPD leader in Hesse Andrea Ypsilanti has been forced to turn to the Left to gain votes for her own election as State Premier. This would be the first instance of co-operation between the SPD and the Left in a west German state, after a similar coalition in Berlin. The grubby political manoeuvring keeps the headline writers happy. But it is not good news for German democracy.
European foreign policy - American elections
January 2008
Primary Elections are pointing towards an unusually high turnout in America. What can Europe expect?
Let us imagine that the new US President proclaims in January 2009 a “New Energy Policy Program” consisting of a 50% reduction in US oil imports by 2020. This would have a similarly impact to John. F. Kennedy’s announcement at the beginning of his presidency of the ambition to land a man on the Moon.
Such an energy programme would commit an initial $ 100 billion research expenditure within the presidential tenure for transportation, energy alternatives, new resources, infrastructure and innovation. The recipients of the funding and tax incentives would be selected by a team of energy companies, technological experts from the transportation and building industries, high-ranking research and university representatives, and some politicians. Implementation on the consumer level would be supported by tax incentives for energy saving or innovative energy products.
At the same time the US President would invite oil importing nations from Europe and Japan to join his initiative. The emerging economies - India, China and so on – would also be asked to join on equal terms. All this would be a surprise for Europe but it would have no choice but to join in.
Let us imagine, too, the likely results of such a US initiative. If followed up jointly by the US and Europe, these could entail a substantially lower oil price, a boom in research and energy technology innovation, the replacement of outdated equipment and other major changes. Infrastructure innovation such as a potential “H2O Highway” (as announced by Linde recently) may start to become reality.
With lower oil prices, we should experience a substantial change for the better in industrial performance, bringing a new economic boom – wrestling back international technological leadership into the hands of the industrialised countries, but also enabling a new partnership with the developing world. All this has geopolitical implications. International security problems with some of the oil producing nations might diminish over time, if the world’s dependency on oil is actually reduced substantially.
These may be far-reaching visions. Let us hope they are not impossible dreams, but are capable of realisation!
Social Democrats abandon Schröder's reforms
October 2007
"Once upon a time" started many fairytales and likewise one could interpret the new socialism in Germany looming upon the horizon. The SPD, governing with the conservative CDU successfully in the recent two years, has not followed its leaders. Opposition within the party has grown and a power-struggle between SPD representatives in the Government and those only in party posts has flamed up. The current party leader, Mr Beck, has long suffered a low image rating by all weekly representative polls and voter support of his party has remained around 25%-27%. The CDU, however, lead by a strong and equally low-profile Mrs Merkel, has good ratings all along, around 36%-39%. Both parties have yet to overcome their historically low voter turnout at the last federal election. With state and regional elections looming in the beginning of 2008 and the next federal election in 2009 at the latest, Beck has now taken a leap at the Hamburg party congress last Friday: take back part of the SPD-driven reforms that led to the German job market dividend, the lowest jobless rate with workers of the age of 50 and above in the last 10 years!
The SPD party congress has followed Beck with 95% of votes, thereby reflecting the predominant German sentiment (and part of the conservatives’). However, other party decisions were even more in the old socialist’s dreamland, e.g. limited privatisation for the German railway (who will buy non-voting preferred stock?), speed limits on the German Autobahn (who will buy slow German cars?) and the use of coal power-plants only permitted when the heat generated is also used completely (who will pay for it?). These and a few other decisions, taken without regard for their consequences, lead the Germans to believe that the SPD is back to the 60´s and 70´s ideas, when the saved up koffers of the German state made it possible to pour out social services for all, leading eventually to the largest deficit ever in German history. Combined with a new laissez-faire approach about inflation (the French approach), Germany may be on a different route just after two years of positive job-market and economic trends, were it not for the grand coalition of conservatives and socialists. However, how much longer will this coalition last? The squabbling may have contributed to the upcoming regional elections where SPD Social Democrats and CDU Conservatives are likely to have to gain each others voters. However, voters do not like and want endless quarrelling.
The grinning dark-red PDS, the manpower and financial inheritor of the East German SED, is glad about this overall development, as it brings it nearer (back) to power (like in the Berlin regional government). Those who were winners of the system in the former GDR may now win again – very much to the demise of those who were glad to finally get rid of them eighteen years ago on Nov. 9, 1989, when the wall came down. Is history repeating itself?
German banking sector is changing
July 2007
Trade relations have been great between Germany and the Anglo Saxon countries, especially Great Britain, the US, and Canada. British-German trade alone makes for more than € 95 billion in total. Manufacturers export heavily to the UK and financial services play a major role where expertise is mostly concentrated in the financial centre of London.
The German banking sector has been changing. First, the German mortgage financer, DEPFA Bank plc., operating out of Ireland, was sold to Hypo Real Estate Holding AG. In turn, Hypo Real Estate just sold a portfolio of individual mortgage loans thereby concentrating more on the industrial sector.
IKB, the industrial SME – bank, has incurred a major loss by financing a part of US real estate loan portfolios. It is now being supported by KfW, the state-run export finance bank, and a consortium of private banks. While this is being looked at by the EU commission, other market players are looking at mergers. IKB may become a candidate for merger in order to survive in the long term.
WestLB, also having lost through speculative investments, is now run by the former head of NordLB, and a possible merger seems on the horizon with other public banks. The savings bank system has been a public domain and it is unlikely to change in the near future. This was recently shown in Berlin, where the successful bid for the regional bank Landesbank Berlin went to the organisation of savings banks, the DSGV, fending off other private bidders.
The banking sector remains a mix of state and private banks. However, the recent developments have shown some of the shortcomings of the German banking sector where increasing competition and foreign investors might initiate a welcome change.
Consumers will welcome further changes in personal banking, especially in mortgage and real estate financing. Here changes are needed mostly in order to make financial products more flexible and consumers more likely to increase turnover.
A new mood in Berlin
June 2007
The German Grand Coalition of the Christian Democratic and Social Democratic parties has been in power now for about one-and-a-half years. After a short period of financial market worries, Germany has seen a strong upturn in the stock market, in economic activity, and - as latest figures tell - a strong upturn in employment with over 900.000 new jobs. While Chancellor Angela Merkel and her cabinet are struggling with the term “Soziale Gerechtigkeit” (social justice), resulting in a rather badly managed health reform act, other reforms have been more quietly and easily introduced. One of them was the implementation of stronger restrictions for unemployment benefits making it worthwhile for thousands to seek jobs. Others, like the refugee status for hundreds of thousands of “geduldete Ausländer”, resulting in a first step towards a new immigration policy, and more recently the latest corporate tax reform draft, show that Germany is finally seizing the opportunity to become a much more competitive country. This is crucial for the balance of growth between eastern and western Europe. The latest figures indicate that 2007 will be another boom year with over 2.8% growth, resulting in an even lower budget deficit. The leading figures in the coalition, Angela Merkel and Finance Minister Peer Steinbrück, are portraying a new relaxed spirit in Berlin. Even local politicians such as Berlin City Finance Senator Thilo Sarrazin have announced a budget surplus plan for the state of Berlin by 2011, something unheard of in this city for decades. Let us hope he is right.
Automotive sector moves to fore
April 2007
With signs of German economic revival multiplying, attention is focusing on the buoyant state of Germany’s manufacturing sector. Industry has been streamlining production and personnel efficiency and productivity has improved substantially in the last decade. Employment is up, unemployment is rapidly declining and growth forecasts have once again moved upwards to over 2.8% for this year. Restructuring is paying off with improved results.
Automotive production is playing a role at the leading edge of recovery. Volkswagen, being taken over slowly but surely by Porsche (some years ago a struggling company) and DaimlerChrysler are benefiting from corporate reorganisation and are playing down optimistic plans for the future. Volkswagen wants to become the leading manufacturer in Europe.
Daimler, coming to terms with its mistaken investment decisions of the past, is now finally biting the bullet by preparing to sell Chrysler. Daimler CEO Dr. Zetsche (a.k.a. “Dr. Z”) will announce in the next few weeks a deal that will probably show more profit than expected. Without Chrysler, Daimler-Benz will once again be the premium brand in the automotive industry, much to the joy of many traditionalists who warned against the switch to mass production.
Led by BMW, VW and Daimler, the industry is seriously looking at alternative energy for its cars of the future. Renewed concentration and creativity will improve the status and shareholder value of the German automotive industry.
