Reliable Germans vs foxy Italians?

(MercatorNet) The received wisdom that depicts Germany as invariably thrifty, hardworking and reliable, as opposed to the lazy, irresponsible spendthrifts of the South of Europe, deserves closer scrutiny. Greece has received a total €340 billion in official loans. Of this sum, only about 15 billion have come directly from Germany. The rest is from the ECB, the EU and the IMF, which is to say: from all of us.

Do the Germans deserve to be credited as being the No.1 strong and reliable economy, fleeced by all the others, in Europe? Hardly.

I mean, I have nothing personal against the country or the people. I do have something against anyone quietly bending the rules in their own favour, while distracting investors’ attention with loud reprimands against the others.

In the interests of truth, allow me to share a few of the little-known sleights of hand accomplished by the Germans, usually along with the French, far from the footlights and the media.

(1) For the past 16 years Germany has avoided including in its public debt accounts the liabilities from its Kreditanstalt fur Wiederaufbau (KfW), a Savings and Loan Bank that belongs to the State. Last year these liabilities amounted to 428 billion Euros, spent on mortgages to local bodies and small-to-medium-size companies. Totally guaranteed by the Federal government, KfW bonds are the same as federal bonds, but they magically manage not to be counted in when adding up the country’s debt. If they were counted, Germany’s public debt, now shown at 80.7 percent of its GDP, would be closer to 100 percent.

(2) Investors are flocking to German bonds despite zero or even below-zero interest rates, because they are betting on the Deutschmark to emerge from under the debris if the Euro falls apart. But the low interest rates are not just the result of investor confidence. In a vicious circle, it is also the other way around: the bonds attract investors partly because they look reliable thanks to their low interest rate. So where does the low interest rate come from? From some more rule bending.

The Maastricht Treaty, whose rules are strangling Greece, forbid the Eurozone’s central banks from buying sovereign debt on the primary market. So what does the Deutsche Bundesbank do? It issues only a part of its bonds on the primary market, an amount calculated to avoid having to pursue buyers by raising the interest rates. The rest of the bonds are set aside for the Finanzagentur to discreetly place them on the secondary market, where the Bundesbank can buy them without being seen to betray the Maastricht rules.

(3)  German newspaper Handelsblatt, last September 23, contended that Germany is hiding debt to the tune of 5 trillion euros. Germany’s official debt for 2011 was 2 trillion, but according to Handelsblatt this figure does not include most of the budget expenditure foreseen for pensions, health care and assistance to the disabled. If all this were taken into account, German debt would reach 7 trillion, showing Germany to be indebted for 185 percent of its GDP, and not just the official 87 percent percent. By comparison, Greek debt is slated to reach 186 percent of its GDP, while Italy’s reaches 120 percent.

Since 2005, ie, since Angela Merkel has been at the helm of the country, Handelsblatt’s economics editor points out, she “has created more debt than al the Chancellors of the last forty years put together.” “These 7 thousand billion Euros represent a bad check that Germans have been made to sign,” he adds, “and that will have to be paid by our children and grandchildren”.20

(4) Bloomberg recently did truth a major service by letting the markets know that European taxpayers have bailed out Germany just as much, if not more so, as they have Greece. The editors point out that before the crisis, German banks had rashly lent out more than they could afford: some $704 billion, much more than the German banks’ entire aggregate capital. So when the European Union and the ECB stepped in to bail out the struggling countries, they made it possible for German banks to bring their money home, thereby bailing out Germany’s banks, as well as German taxpayers, who might otherwise have had to support those banks if the loans weren’t repaid.

(5) The German banks are full of toxic assets, mainly consisting in Greek bonds, which Germany had bought when it lent Greece the money it needed to buy… German military equipment. With unparalleled cynicism, Germany compelled Greece to confirm the purchase of German submarines as a condition for granting approval of the bailout (BTW: the submarines have been found to be unusable, as they tilt to one side; so much for German manufacturing precision).

Sorry, I take the back the “unparalleled”. France did the same thing with regard to the helicopters it had lent Greece the money to buy.

Italy alone did not make a fuss when Greece rescinded its order for 4 Italian warplanes, and Italian economy is the one that is supposed to be fighting for its life. One of Italy’s banks does have a large stash of Greek bonds, although in a smaller quantity than Germany’s and France’s.

(6) Italy’s banks not having toxic assets, Greek or otherwise, ought to have been Italy’s strong point with respect to Germany and France. So have we benefited from this in the international public’s esteem? Not on your life. Why not? Well, Deutsche Bank has a lot to do with it.

Last July, 2011, it dumped 8 billion Euros of Italian sovereign bonds on the market in one day. It did so not discreetly but loudly announcing it to the world as if to say they were insolvent, junk bonds. This had the logical effect of artificially depressing the price of Italian bonds and starting a market scare calculated to induce investors to dump other Italian bonds in turn.

Of course Deutsche Bank was careful to immediately buy swap options that bet on Italy’s bankruptcy. Since then Germany has had a vested interest in Italy’s failure.

(7) The upshot of the attack on the Italian bonds was that everyone blamed the incumbent government, which, already reeling under the weight of the ridicule from the “bunga-bunga” scandal, finally resigned. Now Italy is ruled by an unelected Prime Minister who is an ex-advisor to Goldman Sachs and to Moody’s, an ex-President of the Trilateral Commission for Europe and a member of the Bilderbergers. All this has been judged NOT to represent a conflict of interest, and Mario Monti has been confirmed Prime Minister. He is here to help.

According to statistics from the Bank of Italy, just four months after his arrival, Italy’s public debt had soared to 1.94 trillion, up from January’s 1.92 trillion and February’s 1.93 trillion. Almost ten billion a month. None of the previous governments of the last twenty years, whatever their color, ever reached a speed of debt-growth of this kind.

And now, after running the Italian economy into the ground and emptying taxpayers’ pockets by pushing up fiscal pressure up, Mr Monti has just announced that he will be selling off Italian state property. So guess who has the liquidity needed to snap up the bargains? Hint: probably not a lot of Italians.

(8) To add injury to injury, the European Banking Authority, based in Basel (and presided over by another Italian — besides Mario Draghi — named Andrea Enria), has forced the EU banks to rate the bonds they own not at their face value, which is the real amount they will be refunded at due date, but at market value. Because Italian banks, like all banks, invest in their own country’s bonds, registering them at the devalued market price depresses the capital reserves that banks can point to when showing investors their bill of health. Conversely, German and French banks are allowed to register the inflated market value for their bonds, thereby drowning out the weight of their toxic assets.

Since, in order to avoid panics and runs on banks, the EBA also compels EU banks to maintain a high reserve ratio, the Italian banks, whose reserves have artificially been compressed by the above-said rule, have to find much more capital to rake in than the German and French do. All of which increases the impression of Italian unreliability, as opposed to German solidity.

(9) Do Italians work less than the Germans? Decidedly not. Even before Mario Monti increased the minimum retirement age, it was already higher than the French age and equal to the Germans’. Average Italian pensions are lower and worker’s contributions higher. Moreover, according to a 2011 study by French bank Natixis, Germans worked on average for 1,390 hours per year, while Frenchmen worked 1,554 and Italians 1,773.

According to an economic bulletin I read recently, Italy’s cost of labor has increased in the past several years, while Germany’s has remained the same. Ok, but that’s just the increase. The figures released by OECD about a month ago show that Italian wages are lower than average: ranking only 26th out of the average wages of 34 European countries. And that’s after an increase.

How can Italian labor be so expensive then? The answer is in the bureaucracy and taxes, certainly not in Italians living in the lap of luxury, or “above their means”.

(10) What about unemployment? For two years now the Germans have been commenting sarcastically on the way the Greeks, with the help of Goldman Sachs, dishonestly spruced up their accounts in order to get into the Eurozone.

Last September, however, a German Parliamentary group, Bündnis 90/Die Grünen, pointed out that a regulation made by the German government allows them to embellish Germany’s unemployment rate. According to this rule, those over 58 who have been on the Hartz IV dole for at least 12 months without ever getting offered a job are not to be included in the number of unemployed. That makes 100,000 people, who for about three and a half years had not been included in official German unemployment rates, but just in the “under-employed”. Without this little sleight of hand, the unemployment rate of older workers (between 55 and 64 years of age) would rise from 8 percent to 9.7 percent (in September 2011 the total Italian unemployment rate was 8.3 percent, lower than the Euro-zone average (10.2 percent) and even the US average (9.1 percent).

(11) Germany is indeed the major contributor to the EU, with 5.9 billion Euros, ahead of France with 5.2 billion and Italy with 4.6 billion. But that’s only counting countries as a whole. Per capita, these sums show that the people of France and Italy are far ahead of Germany in net contributions within the EU. So the idea that Germany is the leader in payments is wrong, both according to numbers and according to the spirit claimed as “European”.

Moreover, by all accounts, Germany is the country that has benefited most from the EU. Before 1992 it had never been able to muster a trade surplus. It was termed “the sick man of Europe”, having just absorbed the backward economy of the ex-Communist DDR.  The incorporation of East Germany a year after the Berlin Wall came down, according to estimates made by the Freie Universitat Berlin, cost 1,500 billion Euros. Even today Berlin funds the Länder of the former East Germany with 100 billion Euros annually for “reconstruction” costs. Halfway through this decade they will have spent the equivalent of their entire GDP on the recovery of what used to be communist East Germany, which is, by the way, the homeland of both Kanzlerin Angela Merkel and of the current President of the Republic. It stands to reason that even as recently as 2009 Germany was among of the countries “admonished” by the EU for its deficit.

Nonetheless, thanks to the monetary union created in Maastricht, which shackles together economies with different growth rates and no autonomy to adjust the monetary flow, German exports have soared. Unhampered by differences in currency strength, in 2011 German exports set a record of a trillion Euros, registering a trade surplus of 158 billion Euros. With 70 percent of its exports sent to other Eurozone countries, these have, of course, registered a consequential mirror-image deficit. France alone reported a trade deficit last year of almost 70 billion Euros.

(12) Today’s inflexible and self-righteous Germany forgets the bailout it got from its creditors in the world, at the end of the second world war, with the Marshall Plan. And as everyone remembers, at the end of World War I Germany was subjected to extremely harsh conditions, which triggered the reaction that led to the rise of Hitler. Yet even these conditions were more favourable than the ones that have torn Greece to pieces.

(13) Let us ask ourselves: where does Germany’s supposed superiority lie? Not in information technology or telecommunications, not in national sources of energy, not in finance. Their strength is in the auto business, but automobiles are mature products, whose prospects for growth are limited. This is a stark contrast with the Italian companies that are constantly being snapped up by foreign buyers.

(14) Berlin is supposedly today’s most fashionable city to live in. Tourists find it laid back and transportation works. Among the celebrities reported to have invested there are Brad Pitt and Angelina Jolie. But on closer scrutiny one finds that it to be poverty-stricken, with one child out of three on the poverty threshold, and 20 percent of its 3.5 million residents on the dole. Berlin has accumulated more debt than all of Poland and it is the only capital city whose citizens have an average income lower than the rest of the country. There are no big industries here and not enough jobs. The Germans have a nickname for it: “Tunis”, the name of the capital of Tunisia, which in German sounds like “tue nichts”, “do-nothing”.

(15) All of which perhaps explains why they have set their eyes on Italy. Now, besides buying up whatever is available, at bargain prices, they have set their eyes on Italy’s state-owned property and companies, the “family jewels”, which Mario Monti has announced he is preparing to sell off. The American minority shareholders of Eni have managed at last to force it to separate from Snam, which of course makes it buyable. Then what? Finmeccanica, Impregilo, Fincantieri, Ansaldo …. Companies that are in the red, someone might comment. Companies accused of corruption. Yes, they stand accused, as mountains of companies and politicians have been accused in the past 20 years. It would be a bitter vindication to see judicial and union troubles melt away as soon as the companies were to trade hands, as so many many, many, have already done, and migrate to other shores.

(16) Italy was doing well. It was doing better than the other countries, bar Germany. If left alone, it would have reduced its one negative factor, the public debt. Having stemmed the tide of illegal immigration starting in 2009, we were set and committed to paying it off.

But public debt is not the only factor that must be taken into account. A country’s bill of health is made up of its’ private debts as well. And the private debts of Italy’s citizens, before Mr Monti arrived, was minimal. His taxes, coupled with the refusal of State-run bureaux to pay their debts to the citizens, have driven dozens of Italian businessmen to commit suicide in the early months of the year.

Alessandra Nucci is an Italian writer and freelance journalist. In 2007 she won the Golden Florin in the essay sector of  the Premio Firenze [Florence Award] for her book on gender feminism as an instrument of class warfare, La donna a una dimensione [One-Dimensional Woman], published by Marietti 1820.

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