capitalist roader

Merkel in Balance

2011-11-22T20:52:00.000-08:00

Profiles of German Chancellor Angela Merkel seem to be everywhere these days but I cannot recall seeing one better than this profile in The Guardian. It seems to be too much to expect most commentators to not resort to the standard cliches when it comes to dealing with any German subject. In this article we are not only spared the cliches but offered contrasting perspectives on the woman who may be the most important person in Europe today.

The standard criticism of Merkel contends she is too cautious and lacks the boldness Europe needs at this challenging time. She "leads from behind", which, though it may be an effective tactic for political survival, has caused the crisis to be drawn out and grow far larger than necessary. There seems to be a school of thought, particularly at the FT, that the whole Eurozone crisis could have been avoided if only leaders, Merkel in particular, had gotten ahead of the game. Perhaps some of the issues could have been dealt with more efficiently, but I have my doubts resolving all the debts, bank insolvencies and post-2008 crisis problems could have been accomplished without substantial political and market drama and conflict.

It should be obvious to all that the Germans are reluctant to play the role the markets and the nations of southern Europe, plus the US and UK, would prefer: which is to open the financial spigots in some form. I would not be surprised if Germany eventually comes around to a much more stimulative economic approach - possibly with a domestic stimulus program - but it will only be after gaining greater confidence the south is actually reforming. One can despair that confidence will be gained at a very high price, but then others -not least German conservatives - would despair if that confidence were not gained.

I expect the crisis to endure for quite some time and the pressure on nations, markets and leaders to grow. And I expect the most important woman in Europe will remain at the centre of it for a while longer.

Why the Bundesbank Charm Offensive?

2011-11-15T22:00:00.000-08:00

Interesting isn't it that on the heels of interviews splashed over the front of FT we now have Jens Weidmann, President of Germany's Bundesbank, prominent in Spiegel. I suspect they are trying to tell us something but I am not quite sure what it is or who they are trying to convince.

Like many people today I am an admirer of the Bundesbank and wished it had had more influence over the past decade. But while I admire its prescriptions for living a healthy life, I am less convinced it has the cure for what is currently ailing Europe. German and especially Bundesbank reticence about backing Eurobonds or other potentially costly solutions to the crisis without confidence that Greece, Italy and others will sufficiently reform is understandable. But the apparent Bundesbank alternative of enduring austerity is neither convincing as a solution or palatable.

It should be obvious to all the Eurozone drama has now come down to how much Germany will pay and how much will, and can, the debtor nations reform and how much do they want to listen to the Germans. Of course the continent wide drama has many sub-dramas being played out on national stages to determine how much to pay, how much to reform and how much to integrate into Europe. Expect it to be a long drama, with many twists and turns along the way.

Political Perpetual Motion Machine No Place for Technocrats

2011-11-09T13:36:00.000-08:00

It seems there is a movement to have technocrats as the new Prime Ministers in Greece and Italy. This is, I presume, being pushed by the ECB, IMF, large market players, probably the Germans and those who generally believe in the infallibility of markets.   Not surprisingly, I just heard Jeffrey Frankel of the Kennedy School of Government at Harvard sound supportive of the idea, which means one of his colleagues would become PM of Greece.   I fear this is a naive and dangerous movement which puts too little value on the importance of politics. If they fail, they could unleash political forces which will not be easy to contain.

I know little of Greek politics and most of what I know of Italian politics is bunga bunga. But I also know Berlusconi brought stability to Italian politics. As is observed in Spiegel: "Berlusconi is a joke, behind him is a void."   Similarly, George Papandreou did not survive the past few years without being highly skilled at political survival.   What makes the promoters of technocrats believe their candidates possess similar survival skills?

One way of looking at politics, which many participants would agree with, is as an endless succession of overlapping conspiracies. The conspiracies are of varying size, importance, duration and impact. They can be motivated by ideology, self-interest, ambition, greed, envy, lust, pettiness and many other things. The overlapping succession of conspiracies never stops because politics is a social perpetual motion machine.   Those who survive and prosper have the energy to engage so many conspiracies and the patience to endure them.

Importantly for the technocrat, the conspiracies are not informed by rational analysis, or even self-interest. They are as likely to be informed by preconceived interpretations, tradition, reputation, status, ignorance, bigotry, gossip and fabrications. Participants in conspiracies can choose what to believe, but often they just believe what they are told. In any case, neither the motivation or the sources of information necessarily makes any conspiracy or conspirator less of a threat.

Politics also abhors a vacuum of conspiracies. If there is a void of conspiracies, then new conspiracies are initiated. Successful political operatives conspire to fill the time available with conspiracies.

Greek and Italian political operatives will not give a technocrat a free ride just because he gets along with bankers and looks good in a suit. There are suspicions he is there to do only what the markets and the Germans want. He will not be spared those suspicions and prejudices, among many others.   Will he be able to survive them?

Reconstructing Spain

2011-11-06T07:49:00.000-08:00

How can we know where we are going when we did not know where we were? A little over a year ago my wife and I took the train from San Sebastian to Madrid. The trip began on the Atlantic coast near the French border, working across northern Spain to the central plateau. As the train pulled into one city after another we kept seeing the same sight: half-finished high rise apartments buildings, cranes still in place, but no work being done and no signs of recent activity. It was not uncommon to see a half-dozen abandoned sites in one area, often dwarfing the surrounding community. Then, seemingly in the middle of nowhere, we would see abandoned half-built communities with roads, lights, a few structures, even the beginnings of flyovers, but no signs of life.

I was reminded of this today when I read Spanish banks and cajas currently hold E86 billion of foreclosed property on their books. At one end of the calle our apartment overlooked was a quiet intersection with closed cajas on three of four corners. There were more signs of life at the other end of the calle where prostitutes displayed themselves to the foot traffic. Most of the prostitutes appeared to have seen better days but there were a couple I could not help but give a fleeting admiring glance. It is, of course, their business to be aware of those glances to which they would turn, bend over and flex, so that I might more fully appreciate what was available for my pleasure.

Go left past the flexing prostitutes, along the plaza past still more prostitutes and hawkers for shops trading in gold and you arrive at the Puerta del Sol, since May 15 of this year the symbolic home of Los Indignados. The inspiration of the Occupy Wall Street campaign, Los Indignados are a collection of the mostly youthful disenchanted, though leaning heavily toward the hippie and romantic anarchist side. While seemingly a movement of the left, Los Indignados contributed to widespread defeats for the socialist Spanish Socialist Workers’ Party (PSOE) in local elections earlier this year and the anticipated defeat of the PSOE national government on November 20.

Although the financial crisis in Spain was primarily produced by the irresponsible and, frankly, idiotic practises of private banks and cajas, the corruption endemic in government does not appear to have helped. As socialists frequently are, the PSOE have been held up at various times as a new model for the world to follow. In reality they developed a “third way” of embracing crony capitalism so enthusiastically it would make Bill Clinton and Tony Blair blush, if that were possible.

So, later this month the conservative Popular Party (PP) is likely to take over under the leadership of the evasive Mariano Rajoy. My knowledge of Spanish politics is limited but the PP strike me as having a Wall Street Journal free-market jingoism laid on top of a pre-Enlightenment aristocratic foundation. As the likely winners, the PP is vague about their plans for austerity. Unemployment is now 22.6% and youth unemployment an astounding 48%, which should worry anyone but the most hardcore austerian. Don’t expect Los Indignados to go away any time soon.