Some of the oddest things about Germany are the soundtracks you hear in its hotels. Not for the first time in the past two days, Enola Gay by OMD, Everybody Wants to Rule the World by Tears for Fears, and Guns N’ Roses covering Bob Dylan’s Knockin’ on Heaven’s Door have wafted out of the elevator.
These are songs I have not heard since the 1980s but, then again, there is a very 1980s – or, at least,1990s – feel to Germany. This feeling is most pronounced in Berlin – the capital not only of Germany, but also of the new Europe.
The place seems to have 1990s prices, for a start. We in Ireland should take note of these prices because Germany is, somewhat unexpectedly, the only country to have gone through a period of deflation stemming from its membership of the eurozone. This is unexpected because, 20 years ago, had you suggested that Germany would suffer economically from reunification and membership of a monetary union, many people would have thought you mad. Yet that is exactly what happened.
From 1995 to 2005,Germany suffered a decade of deflation, which was the only way it could recover from the excesses of reunification. Unemployment passed four million, and the price of all goods and services fell. It paid for the ‘unity boom’ with a long stagnation. However, its companies got stronger during this period and the country was, until the credit crunch, exporting more than ever.
As a result, it is now a highly competitive country, where exports lead economic dynamism and – while there are plenty of brands and posh shops around – there doesn’t appear to have been the mad consumer binge that characterised our own boom. An easy way to see how much more competitive Germany is than Ireland is to check the famous ‘Big Mac index’.
According to economic theory, the prices of Big Macs should be the same all over a monetary union. If they are more expensive in one place, prices must fall for that country to be competitive. Last Friday, in Berlin’s Zoo Station – which was made familiar to Irish ears by U2’s track on Achtung Baby, when the band captured the zeitgeist by recording the album in the city just after German reunification – a Big Mac cost €3.10.
In Dun Laoghaire – a place that has yet to capture the zeitgeist of anything – the same Big Mac cost €3.80.
Ireland’s Big Mac is 70 cent more expensive than Germany’s. Taking this as a percentage of the German Big Mac price implies that Irish prices are some 22 per cent above German prices. Therefore, taking the Big Mac index as our benchmark, if we want to become as competitive as Germany, our prices and wages have to fall by over 20 per cent.
On the weekend that we have to digest the financial disaster that is Anglo Irish Bank, consider what this rate of deflation would mean for our debt-ridden husk of an economy. If our wages have to fall by over 22 per cent but the interest on our debts remains positive – somewhere in the region of 3-5 per cent at very least – this means that the real cost of our debts will rise by 25 per cent.
This will drive the entire country into default as no one, no matter how well protected they are from the current downturn, can deal with these debt dynamics and this type of debt deflation.
With this in mind, let’s consider the Anglo debacle. The Anglo €4 billion-plus write-down announced last Friday effectively put an extra €4 billion onto the national debt, which is already rising rapidly (technically, the Anglo debt is not on the exchequer balance sheet, but it is the liability of the state).
The fact that the golden circle’s and the directors’ loans will also be written off just adds salt to the wounds. In economic terms, this announcement copper fastens Ireland’s pariah status throughout the rest of Europe.
Why buy Irish government bonds if the Irish game is simply to borrow as much money today to pay for debt that has already been written off? In financial terms, we are borrowing from tomorrow to pay for yesterday and, even more egregiously, poor people are being asked to bail out very rich people.
The major question that needs to be answered now is why we are keeping this pathetic ‘bank’ going at all? Cui bono?
There is no systemic interest in Anglo Irish Bank. It all smacks of banana republic stuff, with elites being saved simply because they are elites. This has not gone unnoticed in Germany. Last night, I spoke to someone who is very close to its government who said that the Germans were livid with the Irish.
They are angry with the Financial Regulator, which allowed delinquent bank Depfa to lend out trillions of dollars from its IFSC base without asking any questions. This bank, which was bought by another German bank, Hypo Real Estate, in 2007, nearly brought down the entire German financial system last October. Only a massive injection of cash from the German state kept the system afloat.
A Bundesbank auditors’ report, published last Thursday into the Depfa scandal, was damning of the Financial Regulator and, by extension, the whole operation of the IFSC.
There is also anger in Germany about the stance that the European Central Bank (ECB) is taking by lending cash to the delinquent Irish banks via its discount window (outlined in this column last week).Germans see this as away for the Irish government to finance its own deficits through the back door.
Finally, they see that the bonds the state will issue to cover the €80 billion financial hole that is the National Asset Management Agency (Nama) – itself the result of greed of Irish bankers and developers – will effectively be funded by the ECB, which will advance cash to the Irish banks on the basis of the Nama bonds as collateral.
Germans see this as the ECB – shorthand in Berlin for prudential German savers – bailing out the Irish and rewarding bad banks, bad bankers, bad regulators, bad loans and, ultimately, a bad government with a failed ideology.
But under this anger lies something more troublesome for Germany. The Germans know that they have waltzed up an economic cul-de-sac. In many ways, Germany is Europe’s China. It is the world’s biggest exporter; years of deflation have ensured this.
This means that Germany is totally dependent on the rest of the world to keep buying its exports. It knows that it needs us to keep buying its BMWs with borrowed money for it to prosper. Like China, although it might not like it, the German model of growth is as much based on a false premise as ours.
We felt we could continue borrowing their money to buy their goods, and they thought they could continue lending without a bubble building up. Now everything has come to a halt. The IMF has suggested that Germany will suffer a 6 per cent contraction this year. Its fiscal deficit will be €80 billion, twice the figure during the height of reunification. Maybe it is no wonder that Germany is angry. Anger is sometimes only a reflection of helplessness.
But sitting in Café Einstein on Unter den Linden, looking out at the tourists at the Brandenburg Gate, it’s fair to say that, compared with Ireland’s issues, I’d take Germany’s problems any day.
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I was in Germany for the first time a few weeks ago and was amazed at their society. A few things that caught my attention were. 1. Their public transport system worked. 2. They have a smoking ban, which is optional for pubs that don’t serve food. 3. The only people begging were punks. Very polite Punks I might add. 4. Any place that sold glass bottles gave a deposit back when returned. 5. Every beer they sold was amazing. 6. You can drink on the streets. 7. The Germans all wait for the green man before crossing the road.… Read more »
I spent the last 14 years working with Czech and Polish highly skilled workers and living in Poland and Ireland for the last few years I was always amazed at the difference in prices between the two extremes East and West. I attended the 2005 European of the Year award ceremony in Warsaw and watched Bertie be awarded Man of the Year from the Business Chamber of Commerce in Poland for his contribution to opening up Ireland to the Polish unemployed. And they left in their droves to the land of plenty. Having been on the ferry and train to… Read more »
What I do not understand is why the policy makers are so fixated with wage inflation. Do they not realize that all Cbama and the Fed Res has done is get up to speed. That trillion is not an injection it just covers what the Banks have created. What he has done is devalue the Dollar with the expectation that wage inflation will do the cleaning up. And this is what I do not get about the Irish banks, they are limited companies. Why not allow then to hit the wall. And systemic importance, to who and to what. All… Read more »
De’ Fault – many Irish Families will have to trade in their own names to be indetified for what they believe in so that the post Lisbon Vote era will condemn them to generations of Slavery and Indentured Slavery.Among those names will include :
Sean De’ Fault
Aoibhinn Credit a’ Binge
Maureen van Maxedout
Finbarr O’ Cocane
David said: “the German model of growth is as much based on a false premise as ours.”
An article in yesterday’s Guardian discusses Germany’s fall from economic grace in detail:
http://www.guardian.co.uk/business/2009/may/31/manufacturing-sector-automotive-industry
If their economy shrinks by 6% this year then Germany can be crossed of the list of possible emigration destinations..
I lived in Germany from 2001-2002 and was back in Berlin this February and 1) Apartments were not a commodity but a place where you and your family lived 2) Prices were fantastic, on the Unter Den Linden (Berlin’s main thoroughfair) I bought a coffee for 2.20, on the way home a sandwich from an attitude ridden air hostess was at the preposterous price of €5.00, needless to say I didn’t buy 3) On leaving Cork airport I was charged €18 because my bag ‘was over weight’ – on return in Berlin I was not charged, instead the charming lady… Read more »
Why has Sean Fitz never offered an apology?.I was in Reading last week and the amount of Irish people that have moved over in the past 6 months is incredible-professionals and manual workers alike.Emigration is helping the Irish economy right itself again.Don’ agree about the importance of Germany-their population is going to fall by 10 mill in the next 30 years.
Slimick – you have a lot to learn about Irish Banking and Crime .Apology is never a word that they use or will even think about no matter whatever .Banking Crime has been a real culture and legal in Ireland for years and years .Revisit my sumisission on 12 th Feb 2009 page 2 and read all of it ( search archives above under articles ) .
Wills / Tim – finally found it all . Actual Address to the National Crime Forum At Civil Hall, Limerick Wednesday 29th April 1998 Mr. Chairman, I would like to have the unique opportunity to make a brief contribution to your Forum on Crime Policy. I am a professional qualified accountant practicing in Limerick for twenty one years. I have been the victim of serious crime more than once in my quest when reporting my professional opinion on suspicions I encountered during my normal day to day activities and those that have shot the righteous messenger continue to enjoy the… Read more »
Slimick – This is your answer :
‘It seems informally difficult to get the bank management to utter the innocuous word “sorry”, but rather the course of going to law and telling lies and deceiving the public into thinking ‘bluff and bluster’ will prevail in the Courts, that oratorical powers will sway any jury and obscure any inconvenient fact.
The civic righteous victim is shown by the forces of law and order as a device shadowed by conviction and not as a person of conviction upholding State Public Policy or at stated by Aristotle “the field of public honour”.’
severelyltd, Fully agree. Was in Germany a couple of years ago for a couple of months and had a good taste of Germany. Everything works and mostly based on fairness. For example: While in Germany. I bought a camper van to go travelling through Europe. I discovered you simply can’t buy a dodgy and cheap vehicle from any of the dealers. If you discovered you were done by a dealer you can always report it, whihin a year of purchase, to the authorities and the dealer can loose his license. So no car dealer will take that risk. I even… Read more »
John ALLEN: I just showed my ‘better half’ your breath taking post and she is dumbstruck.
G, Severelyltd,rene: Fully agree with you guy’s on all points on Germany. I’ve lived and visited germany now for the last 20 years. Germany do not export the best of their foodstuffs. For example, most german wine growing regions keep the best for themselves. German bakeries are like something out of a hans christian anderson fairytale. Regions in germany deliver to the door bakery goodies every morning. First time i witnesses drivers at traffic lights turning engines off to prevent fumes, 1988….!! Germany was the first place i came upon whereby re-cycling options up and running in local towns and… Read more »
wills, I think every German family outside the big cities make their own jam and allotments are so common. We use to do that here in Ireland before or am I wrong. The Sunday markets are coming up in Ireland but unfortunately the prices of products are so high that it is not worthwhile for me and I am sure for many others to buy it in Lidl or Aldi. Can we copy that concept of the Germans? I think we can do that only with a new Gov. New thinking, new idealism, etc. On the other hand, Hmmm .… Read more »
David, “… it needs us to keep buying its BMWs with borrowed money for it to prosper.” We all know that this is flawed and has, actually, already stopped. This cycle is akin to our own one of selling houses to eachother, bought with borrowed money from the middle East, as well as Germany, while the developers got tax-breaks and the buyer paid stamp duty (tax) to the government. Many buyers then just flipped the house for a profit and the new buyer paid more stamp duty with more borrowed money. Sales of new cars have fallen over the cliff… Read more »
wills, take a look back at your post last night with the link to Harris article, when you get a chance.
I would find it amusing if it was not true that the German govt actually point the finger at the Irish regulator for DEPFA in the IFSC – ask anyone who knows the institution in Dublin. The first point is that DEPFA (or Deutsche Pfandbrief Bank) is about as Irish as the ‘frankfurter’. It moved its HQ to Dublin in 2002 which is where 90% of its activities were based and then became the responsibility of the Dublin regulator. This is a bank that only lent to top quality credits in the public sector (only); it was AA rated and… Read more »
David: excellent article as far as i am concerned. All point’s are spot on. Nail the facts for what the facts are and not what the spin doctors and bank robbers and cronies and hooches and greedy fumblers in the till want us all to swallow and believe.
Keep at it David, spread the word the truth and blow the whistle on the corruption now reaching it’s zenith in full blown pillage and plunder on this countries resources peoples and future.
[…] Borrowing from tomorrow to pay for yesterday “Ireland’s Big Mac is 70 cent more expensive than Germany’s. Taking this as a percentage of the German Big Mac price implies that Irish prices are some 22 per cent above German prices. Therefore, taking the Big Mac index as our benchmark, if we want to become as competitive as Germany, our prices and wages have to fall by over 20 per cent. […]
Sean: I agree with your point on system relevance for Anglo ‘interconnectivity’. The point is that it is difficult to sell the point that; to save ourselves we need to save the banks. It is stomach churning and rightly so to so many, but has to be done. The regulator that presided over this mess aswell as all of his winged monkeys should be fired for this! On Depfa you are spot on!! It suits the Germans to peddle this nonsense in election year. Depfa came here originally for tax reasons but then grew a large base out of the… Read more »
Wills aka Joe Higgins brigade: Despite your informed recommendation on ‘old ladies’, I think I’ll pass.
SeanOC: If the authorities properly investigated this ANIB fiasco in a systematic way one will find all sorts of monies showing up that should be used to compensate the worthy.
The overall system is not stacked up like a line of dominoes waiting to fall on ANIB’s liquidation.This is simply a rouse and a load of old cobblers been fed out to guess who, the taxpayer , to continue paying for a privately run business to hide all manner of things we will all find out in time,..
:-) JSpain: waste of time with this fellow, he is counting down to the socialist revolution.
Thanks again for your contribution Sean 100%. I’ll leave you and Mr Wills at it, but I’m off for a pint .
wills – always glad to oblige .Actually , I had the complete oral submission filmed by my own crew and it’s on dvd now .The documentary is called ‘the green deception’.My local Limerick Leader had been used to writing wonderful things about me in my earlier younger years in the past before that event and included …..saving 9 gardai drowning under sarsfield bridge that included a superintendent since …….making national headlines on farmers tax break through where revenue had been wrong understanding their finance act .But the simple truth is the Limerick Leader had a senior reporter attending the national… Read more »
“But sitting in Café Einstein on Unter den Linden, looking out at the tourists at the Brandenburg Gate, it’s fair to say that, compared with Ireland’s issues, I’d take Germany’s problems any day.” On an individual level, your average German is much better off than your average Paddy for the following reasons. 1) He didn`t get involved in a speculating boom, so doesn`t have a 30 year mortgage around his neck. 2) Only 10% of Germans play on the stock markets, so again very few have lost out there. 3) The decrease in oil prices have also put more money… Read more »
Tim: checked back on that. Also, noticed malcolm posted you yesterday, may 30, 11.03pm, vouchsafing max flynn.. he left a nice little link there too,,,
wills, I failed to find Malcolm’s link, but I found this above from G: “It is about who we have become as a race, as a people, maybe we were always like this, Yeats seemed to think so. Even so, there is the silent majority of Irish people who are not on the take, who have good souls by and large and who do their bit, day in and day out, without much financial reward (compared to M. Fingleton) or fanfare, now those people ARE worth fighting for.” G, I am with you all the way on this. Well said!… Read more »
Folks, “This is Ireland’s darkest period.” (Mannix Flynn) If Mannix is correct when he states that the Religious orders have insurance to cover any monies that they might pay in compensation/redress to their victims, then we are truly bunched. He made clear that the vast majority of the wealth that the congregations have was donated/contributed by the PEOPLE, over time. Whatever money is paid in compensation to victims will be paid by the insurance companies. Who will pay for this in the end? The PEOPLE, again! In increased insurance premium on cars, houses, etc., PEOPLE will pay it. Many people… Read more »
“The Emergency” here, covering Thornton Hall, Dunlop conviction and more:
http://83.138.170.50/podcasts/audio/The_Emergency_-_Series_1_Week_12.mp3
http://video.google.com/videosearch?hl=en&q=hyperinflation&rlz=1W1ADBF_en&um=1&ie=UTF-8&sa=N&tab=wv#
Great Article, I would totally agree with your main points. Ireland needs to get radical as did the Germans when people have no job. They work for there dole. Simple yet gives unemployed people motivation to work and also confidence and skills they need. We cant be paying for people to do courses while our streets are turning into Calcutta of Europe. Every night I go to sleep I hear cars driving a 100 mph down my estate, cars getting broken into and kids fooling around. This is frightening. I live in a normal lower middle class estate. Lawlessness is… Read more »
More of this David, the reality of Germany, by comparison with this scamocracy.
David, as you know well, it is not deflation, it is the quality of German manufactures that has brought them success in exports internationally, and that tradition did not start yesterday. You should also look at the differences in German financial and company organisation, including labour and government, by contrast with the Anglo-American systems. Compare CEO salaries as multiple of worker’s earnings in Germany with Britain, or Ireland. We are in the financial services industry as a sector generating disproportionate earnings for GDP by comparision with Germany who have a world-wide reputation for quality production in durable goods and production… Read more »
There are 2 stories going on here. The 2 issues damage one another when discussed together and cloud a lot of useful argument. 1) Ireland’s Economy and the Banks Objectively the economy is interlinked with the european and world systems. Banks are similarly interlinked. Governments are trying to maintain some level of continuity by preventing a collapse and maintaining a level of business as usual. Letting banks burn arguably causes a runaway collapse. Germany’s growth was dependant on Ireland’s and similar’s access to cheap credit and growing consumerism. But as DMcW points out, we are in a cul de sac.… Read more »
Seeing as the fraud squad have been studying Anglo’s books, why have no charges been brought?.Why have the director’s loans not been called in?.Has Mannix Flynn ever explained why his penniless parents decided to have 18 children!?.Was buying a pack of condoms (illicitly) out of the question?.No personal responsibility.
John ALLEN: when you get the time, check this link out,..
http://familyguardian.tax-tactics.com/Subjects/MoneyBanking/UCC/introduction-to-law-merchant.pdf
Philip – re : your question ; if you want learn then share the experience and go out into the real world and try to do real honest business .I dont think anyone can condense that in a few words .It means different things to different people .Re- read what I wrote above and pick your favourite three sentences and build on that . Oratorial skills are a wonderful Opera and can be fun but why should you have to pay exorbitant big bucks for it if you are the hero, that is a person of conviction who upholds State… Read more »
My experience shows the the transparency to the facts of what does happen to the ordinary self righteous in Irish banking business and can be a parallel to the abused child victims we now know in Irish Institutions of The State .
Irish Banking should never have come to this low level as we have seen in recent months and I can be absolutely convinced this cesspool made possible by Irish Politics and their elected public representatives will always remain the same for a long time to come.
Interesting article. Yes, we can learn a lot from Germany. Some points. Germany is actually three distinct regions. South, East(the old DDR), and North/Central. The South is extremely innovative, extremely scenic, has amazing universities, is very co-operative to the US, and is home to some extremely well run enterprises that are world names. The East is on life-support, there is a lack of private sector enterprise, even though the infrastructure is first class, and even though Ossis are very hardworking. The rest is the standard version of Germany. The main thing we could learn from the Germans is the emphasis… Read more »
Derivatives are now been traded in privately managed clearinghouses with next to zero disclosure obligations. The clearinghouse of choice for the main banks in US involved in this CDS consortium is ICE U.S Trust, which is in turn regulated by the federal reserve system, only. (Google it). A similar clearing house is been set up in the E.U (link below) http://www.bandbstructuredfinance.com/CDSConferenceCallTheFuture.htm Could it be that NAMA is a vehicle set up to deliver our banks toxic assets which are largely made up of securitized loans (kept secret) to ship into this clearinghouse, which will end up on the q.t merely… Read more »
Irish Banks have lost all their respect at home and abroad and are playing a remote fiddle from a bog where their world is weird as much as their policies are insane .Their power has waned on an eternal journey to the center of gravity of deceit and corruption with no return .Their Bord of Management has shown up Clowns that only circuses would love to employ and no doubt they would bring laughter to any ring of madness . Their Denials are as loud as thunder and their Whispers would deafen an Air Force 1 Jet Fighter .Their Credibility… Read more »
So Hypo Real Estate had another EGM today, so that the state could get a vote through which allows it to effectively nationalise the bank by issuing loads of shares which only it can buy, giving it 90% of the bank and thus the abilitiy to squeeze out all other shareholders. In the couple of articles and forums I have read, there is no mention of the Irish regulator. Rather, the anger is towards the German financial regulator. But I don`t think that absolves the Irish, I think it just means both failed in their duty. Munich Airport is run… Read more »
….and on and on and on and on……….and on…….Tim it’s Vortex….ur dead right ( was that a pun? ) .
wills – what are you studying for or should it be what is your discipline?
Someone’s nominated Malcolm my supervisor. Or perhaps he nominated himself,
I always believe there is nothing wrong about talking to yourself , as long as you don’t answer back.
tim – you are sounding like the scarlet pimpernel with velvet ears
What if,….. the Bond markets bubble is close to bursting.,
http://www.globalresearch.ca/index.php?context=va&aid=13826
..and the ‘vested interests are in a race against time to avert this outcome, by, switching credit back on, and this is down to eradicating the derivatives toxic waste a.s.a.p. but time is ahead of their pesky little plan.