Precision German Engineering

Heaven is where the cooks are French, the police are British, the mechanics are German, the lovers are Italian and everything is organized by the Swiss. Hell is where the cooks are British, the police are German, the mechanics are French, the lovers are Swiss, and everything is organized by the Italians.

And the Czechs are ironic. They have to be, because of the Germans. The Germans are precise and punctual and unforgiving, and they don’t think much of those who aren’t. Some see them as cruel, intentionally so, but they might counter that they’re merely logical, and if logic is sometimes cruel, so be it. Others say they have no compassions, but they might counter that’s simply not true. When compassion serves a purpose, compassion is fine – but otherwise, what’s the point? The point is to get things done, precisely the way they should be done – mercilessly. There’s an ultimate sort of mercy in cutting out all the emotional crap – you get to where you should be a lot faster. It’s a matter of efficiency – and in 1938 the playful and ironic Czechs didn’t stand a chance. The Germans were given the Sudetenland to keep them from grabbing everything else in sight. They said the Sudetenland was logically theirs – a questionable notion but not worth arguing about at the time – and then they grabbed the rest of Czechoslovakia and headed for Poland. They were efficient, and they weren’t sentimental. They got rid of six million European Jews – dead – gone – done. They were only sentimental about heroic German national myths. Wagner provided the soundtrack. The Czechs hunkered down and rode out the war. Smetana and Dvorak were a whole lot more pleasant.

Perhaps that’s unfair – some of us grew up in the fifties in Czech-American communities where anything even vaguely German was despised – but in popular culture there are few cuddly German heroes. There may be none – and of course the Greeks now have the same problem with the Germans. As mentioned previously, probably too many times, that’s what that 1964 movie Zorba the Greek was about – the earthy and impulsive and direct Zorba, played by Anthony Quinn, a Mexican by the way, finally gets the uptight prissy Brit, played by Alan Bates, to loosen up and live life, damn it! But one can imagine the mirror-opposite movie. That would be the movie where the Brit, a man of discretion and honor, gets the free-spirited Greek to get a grip, and get a job, and get serious about one’s responsibilities in this hard and cruel world – kind of like what the Germans are now trying with the Greeks on economic issues. That was never going to go well.

This had to happen. After the war, the Germans channeled all their unforgiving merciless precision into making amazing cars – your Benz or BMW is fast and comfortable and as solid as a bank vault. Nothing ever breaks – or if it does, it’s your fault. A Ferrari or Lamborghini will break all the time – that’s part of the charm – the rich expect that. The fit and finish of America cars is as casual as old jeans and a t-shirt on Saturday morning – Americans aren’t that particular – but German cars are precisely engineered, or amazingly over-engineered.

This was good. Everything that had appalled the world about Germans before 1945 had been reapplied in a useful way – but as Germany eventually became an economic powerhouse again, the unforgiving merciless precision that gives the world the Ultimate Driving Machine, as the folks at BMW say, seems to be offering the world the Ultimate Governing Machine. They know how to get things done – mercilessly – cutting out all that compassion-crap. It’s a matter of being precise and logical. That may seem cold, but so be it. Things will get done. Zorba will just have to get his shit together.

Zorba just did:

Europe moved to re-open funding to Greece’s stricken economy on Thursday after the parliament in Athens approved a new bailout program in a fractious vote that left the government without a majority. The European Central Bank increased emergency funding for Greek lenders, although capital controls will have to remain in place to avoid a run on the banks when they reopen on Monday.

European Union finance ministers also approved 7 billion euros ($7.6 billion) in bridge loans to keep Greece afloat, allowing it to make a bond payment to the ECB next Monday and clear its arrears with the International Monetary Fund.

All Zorba had to do was to concede German superiority:

The twin lifelines were a reward for Greek Prime Minister Alexis Tsipras after he won the backing of parliament in the early hours of Thursday for the tough reform measures demanded by creditors led by Germany. Tsipras was left weakened by a revolt in his left-wing Syriza party, who voted against the measures, forcing him to rely on opposition votes to pass the package. He is expected to reshuffle his cabinet to replace four ministers and deputy ministers who rebelled. The 40 year-old prime minister told aides the rebels had created an “open trauma” in the party but that he was committed to sticking to the deal, a government official said.

He’s toast. Greek voters may love him. The Germans want him gone:

German Finance Minister Wolfgang Schaeuble, one of Greece’s sternest critics, questioned whether Athens would ever get a third bailout, even after the parliamentary vote. He suggested its financing needs were spiraling and a debt “haircut” or write-off – outside the euro zone – might be a better solution.

“We will now see in the negotiations whether there is even a way to get a new program, taking into account financing needs, which have risen incredibly,” Schaeuble told Deutschlandfunk radio.

After meeting with politicians in Berlin, Eurogroup President Jeroen Dijsselbloem said he would like discussions about a possible Greek exit from the euro zone to stop and he hoped German lawmakers would support opening talks on further Greek aid in the parliamentary vote on Friday.

They won’t. No mercy. Things are as they are:

Tsipras told lawmakers he had accepted a package he did not believe in and which would harm Greece, but the alternative was a disorderly bankruptcy that would be catastrophic. “I acknowledge the fiscal measures are harsh, that they won’t benefit the Greek economy, but I’m forced to accept them,” he said before the vote.

However his position as prime minister faces no serious internal challenge and there has been little pressure to form a national unity government from the pro-European opposition parties that voted for the bailout. How long the government will remain in office is unclear.

Perhaps the Germans will get the Greek government they want, but Anthony Faiola and Stephanie Kirchner add some perspective from Berlin:

A divided Germany rose from the ashes of the Nazi defeat in World War II, weathering the Cold War to transform into one of the good guys. Modern Germany quickly molded itself into the standard-bearer of global pacifism, a hotbed of youth culture and the tree-hugging Lorax of nations in the fight against climate change.

But, just like that, the image of the “cruel German” is back.

Germany – more specifically, its chancellor, Angela Merkel – has faced years of derision for driving a hard bargain with financially broken Greece, which has received billions in bailouts since 2010. But for both Germany and Merkel, the concessions extracted this week from Athens appear to have struck a global nerve. By insisting on years more of tough cuts and making other demands that critics have billed as humiliating, Berlin is wiping out decades of hard-won goodwill.

That’s gone now:

In the aftermath of the deal with Greece, the hashtag #Boycottgermany – calling on users not to buy German products – has started trending on Twitter. Evoking Hannibal Lecter, the cannibal from “The Silence of the Lambs,” some are sharing caricatures depicting Merkel as an EU-eating “Angela Lecter.” A cartoon portraying Wolfgang Schäuble – Merkel’s even-harder-line finance minister – as a knife-wielding killer from the Islamic State militant group has gone viral.

Germany was one of more than a dozen nations that insisted on a tough deal with Greece. But Britain’s Daily Mail singled out Germany, saying Greece had surrendered to austerity “with a German gun at his head.”

No one is discussing their amazing cars:

In Greece, those actively supporting the austerity deal are being heckled by their countrymen as “Nazi collaborators.” Another image making the rounds on social media shows a doctored version of the European Union flag, its circle of gold stars against a blue background reshaped into a swastika.

French daily Le Figaro declared that “conditions were imposed on a small member state that would have previously required arms.” In a commentary that sneered at Merkel’s “half smile” after the deal was reached, Britain’s Guardian newspaper argued that rather than being cruel to be kind, the terms of the bailout were simply “cruel to be cruel.”

In its online edition, even Germany’s own Der Spiegel magazine decried the Berlin-led demands as “the catalogue of cruelties.”

Maybe that doesn’t matter:

Much of the nation seems to be taking the latest round of German-bashing in stride. Indeed, many here see it as simply further evidence that no matter what they do, theirs is always going to be the country that others love to hate. This is a nation where rules will not be broken, where pedestrians wait for a green signal at empty intersections before they cross. And that is the way the Germans like it.

That mind-set, many here insist, has helped Germany rebuild into an efficient, competitive and modern economy that is the envy of Europe. As the largest economy and de facto leader of the 19-member euro zone, Germany has rules that many here believe must be respected.

And that’s that, or not:

Others here believe Germany is being shortsighted and heading down a dangerous path of disunity with the rest of the continent. Martin Glaser, a 51-year old Berliner who works in public relations, said: “I think it is a scandal. To humiliate a country in this way is not acceptable.”

“Even though the polls show that there is widespread support for Merkel and Schäuble, I think that many Germans would say that they don’t want this kind of Europe,” he said. “A Europe which is ruled by Germany in this way is not the democratic Europe that I would like to have.”

Many feel that way, not that it matters now. Germany has had its way, or maybe not:

The International Monetary Fund threatened to withdraw support for Greece’s bailout on Tuesday unless European leaders agree to substantial debt relief, an immediate challenge to the region’s plan to rescue the country. The aggressive stance sets up a standoff with Germany and other Eurozone creditors, which have been reluctant to provide additional debt relief.

Greece owes money to the European Union, the European Central Bank, and the IMF – the Troika – and the IMF knows it won’t get all its money back. Some of it will have to be written off, and Kevin Drum suggests this:

It will be a cold day in hell before Angela Merkel agrees to any debt relief for Greece. In any case, there’s a weird kabuki-like character to this whole thing. Everybody agrees that Greece will never pay back all the debt it owes. Just not gonna happen. So why don’t Greece’s creditors bite the bullet and face reality? It’s not because the Germans and others are stupid and don’t realize they’re never getting all their money back. It’s because…

Well, it’s not entirely clear why. Officially, Germany says that under EU treaties it’s illegal to forgive debt. I’m not sure anyone really believes that, though. Unofficially, no one wants to write down the debt because it’s the thing that keeps Greece under the EU lash. The only reason Europe can demand draconian austerity measures from Greece is because they can threaten to withhold the loans Greece needs to keep servicing its massive debt. This would throw Greece into default and economic chaos – which is precisely the threat that forced Greece to accept the European terms for a new bailout a few days ago.

Drum isn’t sure what Germany is up to:

Why not write down a big chunk of the debt? There would still be enough left to keep Greece under control. This is where things get even fuzzier. One answer is that it sets an uncomfortable precedent. If Greece gets a big debt write-down, why shouldn’t Portugal and Spain and Italy? Another answer is that the size of the Greek debt really does matter, if only cosmetically. Europe wants Greece to cut its spending and run a balanced budget. The bigger Greece’s debt service, the more it has to cut spending to achieve balance.

Does any of this make sense? Sure, from a certain point of view – namely that of a European public that’s fed up with Greece and doesn’t want its leaders using their tax dollars to pull Greece’s fat out of the fire. But the IMF doesn’t have to worry about European public opinion. It wants to face reality and just admit what everyone already knows. And here’s the reality. First, even with a big write-down, Greece will still be safely under the Troika’s thumb. Second, from an economist’s perspective all that matters about Greece’s finances is that it achieves primary budget balance – that is, balance not counting debt payments. So the IMF doesn’t care about squeezing the Greek budget beyond all reason based on an artificial debt number.

In any case, the IMF has supported debt relief for some time, but has only now decided to go public as a way of exerting pressure on Europe. Will it work? No telling. … The soap opera never ends.

And in Foreign Policy, Daniel Altman further complicates things:

Let the country that is without economic sin throw the first stone. Polls and media accounts, as well as reports from expert forums, suggest that Germans see a moral argument for subjecting Greece to greater austerity and withholding forgiveness of its debts. It’s a simple sentiment: Greece behaved badly, lived beyond its means, and must now pay. But here’s the secret hiding in plain sight: Germany did exactly the same thing.

I’m not talking about Germany’s inability to pay its debts and reparations after the two World Wars. I’m talking about the euro itself, which has allowed Germans to enjoy standards of living which they would not otherwise have been entitled – with the rest of the Eurozone footing the bill.

This is a structural matter:

Germany’s success as an exporter in recent years has relied on two enormous changes. One is reunification, which instantly brought millions of low-wage workers into its economy – the equivalent of the United States annexing Mexico, if all Mexicans already spoke English and shared American customs at work and at home. The other is the euro, which took perhaps the world’s strongest currency, the deutschemark, and diluted it with the weaker currencies of the rest of the Eurozone.

Low wages and a devalued currency can turn any economy, especially one with tariff-free access to hundreds of millions of consumers, into an exporting powerhouse. And let me be clear – this only happened because of the weakness of other members of the Eurozone. Moreover, none of it was any surprise to anyone, least of all Germany; experts had been predicting the dilution of the deutschemark by weaker currencies from southern Europe for years before the launch of the euro.

Countries have weak currencies when no one wants to buy their products and securities, which often happens when economic uncertainty is rife, or when expectations for inflation are high. Greece was one of the countries that brought these potential negatives into the Eurozone. By doing so, it pulled down the value of the euro. If Greece’s economy and its counterparts had all been as stable as Germany’s, then the euro would have remained just as strong as the deutschemark. But they weren’t, and it didn’t.

Just as Germany got a weaker currency, other countries in the Eurozone got a stronger one. That helped many of them to raise their living standards by buying more imports, building their savings, and, yes, using capital markets to raise money for both businesses and government spending. Yet their ability to export was also curtailed. Not only did their new currency make their products more expensive to foreigners; they would also have to compete with Germany, the continent’s biggest economy, which had suddenly become more competitive than ever.

I’m not the first commentator to identify these “beggar-thy-neighbor” aspects of the euro for Germany. But I do question whether exploiting smaller and generally poorer nations for the sake of economic growth is any better, from a moral perspective, than failing to pay one’s debts.

Something is wrong here:

I’d argue that morality obliges Germany, more than any other member of the Eurozone, to shoulder the burden of Greece’s unpayable debts. Who benefited the most from Greece’s membership in the Eurozone? Germany, the currency union’s biggest exporter… And who is now insisting that Greece pay up, just to obey the system that created this crisis in the first place? I think you know the answer.

And Seumas Milne sees things this way:

In exchange for what is called a bailout, but is in reality the imposition of new debts to pay existing creditors, the Greeks must hand over €50bn (£35bn) of public assets to an “independent” privatization fund. On top of that, they have to inject more austerity into a shrinking economy and reverse any legislation deemed unsuitable by the Eurozone’s overlords – in other words, the opposite of everything Tsipras and his Syriza party were elected to do.

That’s why European officials were so keen to let it be known that Tsipras had been “crucified” and “mentally waterboarded”. Greece would be turned into an economic “protectorate”, one purred, where all key decisions would be taken by foreign governments and unelected EU bureaucrats. No wonder Greek leaders declared that they had been subjected to a coup, while the ex-finance minister Yanis Varoufakis compared the “deal” to the Versailles treaty.

The New Yorker’s John Cassidy says that’s not so farfetched:

After the First World War ended, France and the other victorious powers demanded about twelve and a half billion dollars in reparations, which was a bit more than Germany’s GDP at the time. Since Germany clearly couldn’t pay that sum all at once, the Allies asked for annual payments of five hundred million dollars a year, or about four per cent of GDP. In 1923, after Germany fell behind on its payments, the Allies occupied the Ruhr, but that didn’t improve matters. The next year, and again in 1928, under the Dawes Plan and the Young Plan, the country’s debts were revised and extended, but this didn’t work either. Eventually, in 1932, most of the reparations were cancelled.

And now:

Currently, Greece’s debts amount to about a hundred and seventy-five per cent of its GDP, and, unlike Weimar Germany, it doesn’t have powerful export industries that could theoretically generate the funds to pay them off. Going forward, there is little doubt that some of Greece’s obligations, which have already been revised once, in 2012, will have to be written down. Twice in the past couple of weeks, the International Monetary Fund has said as much, and even Wolfgang Schäuble, Germany’s finance minister, appears to agree. In Schäuble’s view, however, which he took public on Thursday, such write-offs violate the rules and spirit of the Eurozone – and so, he said, leaving the currency zone and negotiating a new debt agreement from the outside “would perhaps be the better way for Greece.”

So this is what we have:

It is now patently clear that Schäuble and many of his countrymen would like to get rid of their pesky southern neighbors, leaving unchallenged the German vision of the Eurozone as a modern-day gold standard. The Greeks, however, have no intention of leaving, and therein lies a glimmer of hope. For all of their U-turns and failures, Tsipras, Varoufakis, and their colleagues did succeed in highlighting the illogic of endless austerity policies, and they also succeeded in putting debt restructuring on the table. (On Thursday, Mario Draghi, the chairman of the European Central Bank, became the latest expert to say that debt relief is necessary.) For those who viewed the last five months as not just a dispute about the finances of a small country but as part of a much larger battle about the future of Europe, these are important developments. And they will affect not only Greece but other heavily indebted countries, such as Ireland, Portugal, Italy, and France.

From this perspective, this week’s agreement with the creditors isn’t the end: it is the beginning of a movement to wrench Europe away from technocracy, debt deflation, and Teutonic fiscal orthodoxy. This was the vision that Varoufakis spoke about in a speech he gave in Berlin last month, when he called for an end to the vicious cycle of austerity and depression and for a new Europe. And it is the vision that motivates Tsipras and other members of Syriza.

The curious thing is, that has nothing to do with the Treaty of Versailles:

In the Marxist intellectual tradition, from which many senior members of Syriza hail, progress comes about gradually. To overthrow the existing order, you have to first mobilize the masses by stripping back the democratic veil and showing the real workings of the system: only then will the “objective conditions” be ripe for revolutionary change. Tsipras and Syriza didn’t create the conditions for change. But in bringing Greece to the brink, and demonstrating that its creditors were willing to see it collapse if it didn’t buckle to their demands, they did, arguably, succeed in showing up the Eurozone as a deflationary straightjacket dominated by creditors. And they did this with all of the world watching. …

Under this analysis, Syriza’s surrender wasn’t necessarily an ignominious one. As Lenin commented of the failed 1905 revolution in Russia, it was a retreat for a new attack, which ultimately proved successful. “I’m not going to sugarcoat this and pass it off as a success story,” Tsipras said to parliament on Wednesday, prior to the vote, acknowledging that the spending cuts and tax increases contained in the agreement would deal another blow to the Greek economy. However, that wasn’t the full story, Tsipras insisted. “We have left a heritage of dignity and democracy to Europe,” he said. “This fight will bear fruit.”

The Germans might have something to say about that. They are who they are. And they’re back.

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About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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One Response to Precision German Engineering

  1. Rick says:

    I like the way that 51-year old Berliner, Martin Glaser, thinks:

    “A Europe which is ruled by Germany in this way is not the democratic Europe that I would like to have.”

    Back when Europeans, partly in hopes of heading off the tendency of European nations to go to war with one another, first considered uniting them under a huge trade agreement, they explained to outsiders that this new European Union would be sort of a “United States of Europe”.

    But first of all, as Glaser points out, this “United States of Europe” seems to be dominated by Germany, whereas in the “United States of America“, there is no entity analogous to Germany that dominates. If Louisiana gets hit by a hurricane, the rest of the country comes to its aid, without a lot of fuss and bother. While the state of Delaware gets back less than a dollar for every dollar they pay in federal taxes, you never hear them complain about South Carolina, which gets close to $8.00 for the same dollar.

    One reason for this? Unlike the United States of America, the European Union is not a nation-state, it’s what Wikipedia calls a “politico-economic union of 28 member states“.

    And by “member states”, they don’t mean “states” like Delaware and South Carolina, they really mean “nation-states” like Germany and Greece, so forgive me if I’ve said this before (which I have), but while the European Union may think of itself as the United States of Europe, in reality, it’s more like the so-called “United States” as we existed under our Articles of Confederation — a loose union of sovereign nations, which included actual nation-states like Connecticut and Rhode Island — but that was before we wised up and nipped that foolishness in the bud by turning the whole kit and caboodle into a proper country of its own — and, probably not coincidentally, granted it the exclusive right to print its own money which replaced money printed by the states themselves. Most of us probably don’t realize this, but in ratifying the Constitution, we were taking nationhood away from its individual states and granting it to the whole group of them.

    In truth, any member nation using the Euro, a currency it does not control, is doing something similar to what Argentina was doing as it fought its way out of a weak economy in the early 1990s when it came up with the brilliant idea of setting the absolute value of its peso to one U.S. dollar, a foreign currency that it didn’t control. That worked well for a while, with the economy bounding back and kids stopped starving to death, but within the decade, after next-door neighbor Brazil devalued it’s own currency against that dollar, the whole Argentine economy fell apart again and didn’t right itself until it let the peso start floating again in 2002.

    The moral? A country needs its own currency, and one that, when the situation demands it, the country can take absolute control over. No linking it to someone else’s currency, and no joining with other countries to share a currency. You need your own, period.

    But given that Greece is not about to leave the Euro this week, we’re still faced with the problem of how to get its economy humming again. Let’s start with what Kevin Drum says:

    Europe wants Greece to cut its spending and run a balanced budget.

    Which is like demanding that they eat their cake and have it to. We know by now that it doesn’t work that way.

    First, we need to remember the equation that defines a national economy:

    Economy = C + I + G + (X – M)

    Or you can put it this way:

    A “National Economy” equals “Consumer Spending” plus “Business Investment” plus “Government Spending” plus (“Exports” minus “Imports”).

    What most people forget about — in particular, Republicans like Carly Fiorina, who insists she’s the only candidate who understands the economy — is the existence of that “G”. Yes, our government’s spending is an important ingredient in the recipe that makes up our economy.

    So now we see that it’s sort of like that “If you give a mouse a cookie…” story:

    * When we cut government spending, then we’re cutting spending out of the economy

    * When the economy is cut, then so is its income

    * When incomes are cut, then so are income tax revenues

    * A loss of a government’s revenues, by definition, increases the deficit

    * And whenever the deficit is increased, some cluster of brain cells somewhere concludes that what we really need to do right now is cut government spending

    … and the whole race to the bottom begins all over again. And so, if Angela Merkel and her gang of German Princelings were only to look closely at Greece and apply some of that famous Teutonic logic, they will see that that’s exactly what’s been happening there.

    If the countries of Europe really want to help make Greece strong, they should give it short- and long-term interest-free loans, but only on the condition that they increase government spending, and not reduce it.

    Rick

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