Archive for category Germany

Why the Euro will Survive – and Thrive

American and British commentators are often surprised, annoyed or dismayed by the fact the Euro trudges on, as both the European Central Bank (ECB) and the core states of Europe do what is necessary to protect the currency and avoid contraction of the Euro zone.   Why are German taxpayers willing to pay so much to protect banks in Ireland, or government debt in Greece, Portugal and Spain?   Why do Greeks accept an austerity program that put them into depression – and in 2012 elect a new government that favors that very program?

First, what is the Euro crisis?    On the surface it’s a sovereign debt crisis – southern European states have so much debt that investors are doubting they can pay it back.  This means that to sell bonds states have to offer a higher interest rate, since the risk is higher.  However, it’s not just a debt crisis.   Consider these bond rates:

bonds

Note how Germany and the UK’s rate has been dipping, meaning it’s easier for them to sell bonds, while Spain and Italy’s cost more – though historically near the average.  Only Ireland and Greece had an extreme crisis.   Those two were caused by very different factors.  Ireland’s deregulation of the financial sector was patterned on American practices, and thus they got hit hard by the bubble bursting.

The problem for Greece is not just debt, but structural weakness in their entire economic system (that’s why it’s always a false comparison when politicians try to compare the US or even California to Greece).

debt explosiondebtgdp

 

The first is telling – there has been a debt explosion throughout the Eurozone, including Germany.   This makes clear that one of the structural aspects of this crisis is a need to reduce debt.    Debt always goes up in a recession since revenues are down and claims for aid increase – yet with the bursting of the bubble it has become crystal clear that debt to GDP ratios above 60% are unsustainable.

The second chart shows that there is wide variation of debt growth since 2008 – but Ireland, Greece, Spain and Portugal have had the greatest debt increase, and are four of the problem states.  Italy’s debt growth is less, but while Italy hasn’t had a debt explosion, they’ve had consistently high debt.

spainitalydebt

 

Italy’s actually made significant structural reforms and was not hit as hard by the recession as others in terms of new debt – yet it’s debt level is one of the highest in the Eurozone.

The problem in Europe is that there is a core set of countries with strong economies that simply have to find a way to reduce debt and a set of weaker economies that have managed to hide their structural problems with debt or financial gimmicks.  The recession laid that structural weakness bear.

Many Americans want to blame European social welfare programs for the crisis, but that’s’ also easily disproven.  The chart showing debt to GDP ratio growth since 2008 shows Sweden actually reducing debt, and the Scandinavian countries faring well.   Germany is running a 7% current account surplus and remains the engine of Europe.   Countries with the best social welfare systems are faring very well, even better than the US.

germany

This is evident in bond rates.   Germany’s 10 year note now has a yield of 1.3 %.  That means that despite high debt levels, investors have faith in German bonds thanks to the strength of the German economy.    The US, UK, Sweden, and France all have yields of about 1.8% – still very cheap.   Ireland’s yield is now under 4%, thanks the EU and IMF recapitalizing Irish banks.   The worst of their crisis seems over – Ireland’s was a banking crisis caused by financial deregulation and that’s easier to solve than structural debt crises.

Ever since the ECB, EU and IMF made clear they’d do whatever it takes to protect the Euro, Spanish and Italian yields have gotten down around 4.5%  – historically a common yield.    Portugal is over 6%, and Greece still over 11%, meaning that markets still aren’t confident about Greece despite the EU bailouts.  Clearly, though the sense of crisis is passing, the smart money is now on the Euro.

So why – why has the Euro proven so resilient and gotten so much support?   Simply, the Europeans realize that if the continent fractured between the wealthy core and poor fringe, it would harm everyone.  Greece, Spain and Portugal, late joiners of the then European Community  (EC), would see their progress towards modernizing their economies punctured.   The core countries would also suffer.  They’d lose markets in the fringe countries, and their currency — perhaps a contracted Euro – would appreciate so much that their exports would suffer.

If the Euro were to break up, the poor countries would do like Iceland did – allow a depreciation of the currency to effectively cut everyone’s pay by 50%.    But defaulting and inflating on the fringe would do severe damage to the core’s banking system, as they are heavily exposed to that debt.   So it’s in the core’s interest to make sure that doesn’t happen.

Some of called Merkel the "Abraham Lincoln" of Europe, keeping the EU together

Some of called Merkel the “Abraham Lincoln” of Europe, keeping the EU together

German Chancellor Angela Merkel, in demanding countries undertake austerity programs and reform their economic structures in exchange for bail outs, has been criticized as wanting to force everyone to have the German model economy.   Germany’s gaining control of Europe!   But the German model works – and it’s what Sweden and other northern European countries follow.  You base your economy on supporting production and having sound fiscal and monetary policies.

If Italy, Greece, Spain and Portugal aren’t forced to structurally adjust to the realities of 21st Century globalization, they’ll fall behind and might never recover.  If they do – as hard as the next few years will be – they could emerge with new economic structures in place to allow them to grow and have sustainable, productive economies.   That will be good for everyone.

What the skeptical commentators don’t get is that the European Union has developed a different notion of sovereignty, one that sees the destinies of the European states as linked.  That’s a different way of thinking, people aren’t just German or French, but also European.   Such a re-conception of sovereignty is incomplete and has pockets of opposition.  But as Merkel pushes the EU towards a model of fiscal union, with other states recognizing it is in their self-interest to follow, the European Union might once again defy skeptics and prove itself stronger than ever.

 

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European Union as a Model

For three years I have been running in place in terms of my research.   It’s not that I haven’t worked.  I’ve delved into new literature and even did some writing.    I’ve blogged about it here and here.   Yet somehow, despite lots of notes, books read and false starts, I’m left where I started – lots of ideas and ambitions, but no clear research strategy.

How do I restart my research?   My last publication was in 2009, when I shifted to this “new project.”   The final draft of my last major work, German Foreign Policy: Navigating a New Era, was sent to the publisher on April 3, 2003, the day my first son was born.     With young kids I purposefully cut back on research, but now I have a desire to write and produce but progress is elusive.

The problem is that I lacked a clear center.   The themes have been shifting- the changing nature of sovereignty, the impact of the communications revolution and social media, the profound challenge created by energy and environmental crises, the dysfunctional nature of economic policy throughout the industrialized world and the shift of power and influence from the West towards countries like China, India, and Brazil – whew!    How do I come up with a clear framework?   At times I think I have a track and then somehow it goes astray.

So I started to think.   What is the point of my research, why am I motivated to move away from examining German foreign policy?    The answer is because I feel myself lucky and intrigued to be living in an era of real crisis and transformation (the theme of this blog).   As a social scientist I find it fascinating to be on the planet at this time, watching as one era folds into another, bringing about profound change.

Watching the political discourse, its clear in the attacks on Obama that many people are lost in the 21st Century, trying to understand it through a 20th Century anachronistic lens

A motive of mine is to focus on what I see as the biggest barrier to successful navigation of this period of transition – old thinking.   Old thinking is everywhere!   When I see someone call Obama a “socialist” or a “Marxist,” I shake my head in amazement — can’t they see how obsolete looking at the world in those terms has become?   When people argue against globalization, talk as if a fossil fuel based economy is sustainable or speak of American power as if it still has the force it did in the last century, I realize “old thinking” dominates much of the political discourse.

That’s true in the US, but not so much in Europe.   I’m surprised by how Americans dismiss the European Union.   When the Eurocrisis started a couple years ago bloggers said things like ‘bye bye Euro’ and a few dismissed the possibility that the EU could survive.   I realized they were imagining people in the EU to be thinking about politics just like they were – with ‘old thinking.’  This is especially true from Great Britain and the US, the two former hegemonic powers where old thinking remains strongest.

E pluribus unum?

Yet within the EU, new thinking has already become entrenched.   The EU achieved the goals set by the Kyoto accords without harming their economy and are cutting ambitiously moving forward.   Germany plans to be off fossil fuels by 2050.   Military power is considered best used for humanitarian interventions sanctioned by the UN and not raw pursuit of national interest.  Sovereignty has already been replaced by subsidiarity, and globalization is taken as a matter of course.

That’s it – the European Union needs to be the center of the research.   All policies and issues connect, and it takes me back to a literature I know well and have been studying since the 80s – European integration!   Moreover, I think there needs to be some work done really stressing the revolutionary, positive and sustainable aspects of the EU at a time when people want to prematurely embrace its demise.   The fact the EU won the Nobel Peace Prize this year only adds to its relevance.

The Euro crisis opens the door to analyze the global economic crisis, its causes and the way out.  The EU’s strong focus on human rights, the environment and energy opens the door to address those issues, including the diversity between France’s embrace of nuclear energy to Germany’s (apparent) rejection of the same.    The diverging paths of the US and EU since the Iraq war, including questions about the future of NATO, open the door to discussing terrorism and the nature of war/conflict in this new era.   Issues involving Islam and the West are profound in Europe.   The whole package requires a new theoretical approach to politics, building on the neo-liberalism and identity theories of the 20th Century.

That necessarily includes the impact of the information revolution ranging from the internet to social media and beyond.  But with the EU as the core, I can now envision how it will fall into place, including how all the work I did the last three years is not for naught — I simply needed something to center it.   To find that I went back to my roots as an academic, a focus on Europe and the EU.   In fact, my concluding chapter in the book on German foreign policy has those very arguments which I can build upon.

Of course!  The answer has been in front of me all the time.   I thought I had to venture away from my specialization to look at media and change.   The key is to integrate these ideas into what I’ve already been doing.   Time to get writing!

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An unforgettable train conversation

Some of my most memorable conversations have taken place on trains in Europe

It was January 25, 1992 and I had just spent a few days with students from St. Olaf College, helping out on a “global semester” course run by Professor Rod Grubb.   I was living in Bonn, working on my dissertation, and had been hired by Professor Grubb to come help out as he led 15 students around the world, with a January stop in Berlin.   The students were great as we explored old East Berlin, not yet rebuilt or remodeled — a Berlin that is now gone.

I had to take the train back to Bonn, buying the German newsweekly Der Spiegel and finding a compartment that was empty.   Nowadays European trains tend to have open seating, much like airplanes.  In those days they were generally divided in compartments of six seats, three people facing three others.

Those compartments yielded some of the most memorable conversations of my life.  I recall once spending a night in deep conversation with four others on an overnight train from Bologna to Munich.    I chatted with a girl from Austria who got pulled from the train by the police when we crossed over into Germany.   Seems she had a striking resemblance to a female terrorist – she said she got pulled aside almost every time she crossed from Austria to Germany.   I developed a crush on her, got her address, but never saw or heard from her again.

Three seats like this were across from three other seats, often fostering conversation between strangers, and even lasting friendships

On this January day I was anticipating an uneventful trip.   However, soon my compartment was invaded by three talkative elderly women.    I had a window seat and buried myself in Der Spiegel as the train zoomed westward.    At some point one of the women was having trouble putting a bag onto the luggage rack above.   I stood up and offered to help, and she was very thankful.    She asked where I was heading, and I told her Bonn.   I think she could tell my accent was not German so she asked if I lived there.   Yes, I said, but only for this year, as I was actually a student from Minnesota studying in Germany.

She started asking me about Minnesota and my impressions of Germany.   It was a pleasant conversation, and the other women joined in.   At some point I mentioned Germany history, and the false impressions Americans had of Germany because of war movies and images of Hitler and the Nazis.

“I…” one woman said, looking at her colleagues, “we lived through that.”   She paused.

“What was it like?”   It was probably not a politically correct question, as Germans tend to be very sensitive about that era of history.   Yet I was curious.   My German Professor in college, Gerhard Schumutterer, had been in the Germany army in WWII.    We would ask him what he had thought about Hitler and what it was like to be in the German army.   I don’t think we realized how sensitive such inquiries were.   He’d answer patiently, noting that while he believed at the time Germany was right, he had been living in New Zealand with his missionary parents when he was called to the army.

My old German Prof, Gerhard Schmutterer (1919 – 2005), who I thank for getting me to fall in love with the German language and culture.

His father had connections in the Lutheran church and arranged to have him come study at Augustana College in Sioux Falls (where he would later teach until he retired) right after the war.    He said the first night he arrived he was tired and taken to his new dorm room.  Turns out the next day was a big football game with South Dakota State University.   The tradition then was that SDSU students would come and try to break into dorm rooms and paint the faces of students red (SDSU’s colors were red and white).    He hadn’t locked his door, heard screaming, leapt up remembering his time fighting on the Russian front, and when they broke into his room and painted his face red he was sure the Russians had invaded.   What a way to wake up in a new country!

So I wanted to hear the experiences of these women as we traveled across Germany on a non-descript winter day.   The most engaging and insightful woman told me how she was born in Lotsch, Germany and her parents had been supporters of the Catholic party and not too enthused about Hitler.   Yet, she recounted how under the Nazis the economy boomed and pretty soon Germans felt proud be German again.

Raised to be patriotic and proud of their country, most Germans thought it self-evident they were on the side of good in World War II

The others agreed — the newsreels at the cinemas would compare Germany’s economic growth in the mid-thirties with the depression in the West, and many Germans felt that they were unified and moving forward.   Other voices were silenced.    One woman recounted how her brother became an enthusiastic member of the Hitler youth, and though he was young wanted to fight to the very end when the war was finally over.   “He never fully recovered,” she said, “he still deep down is a Nazi.”

They started talking with each other, stories about that era – rationing, what happened in the schools, what their parents were doing, friends they lost and how convinced they were that the war had been forced on Germany because others were jealous of their economic success.   One talked about a priest who was genuinely conflicted, believing in Germany and disliking the war and censorship.

They told me of how hard it was after the war, how one who lived in the East hid in a haystack from Russian soldiers who were raping German women and girls.   They talked about how unreal it seemed.   Propaganda had convinced them of their superiority, but now allied troops occupied their towns.

I asked about the holocaust.   One woman insisted it was a shock to her and if she had known she never would have supported the war.  Another woman was more sober.  “I didn’t know about it,” she said, “but I knew Jewish people were disappearing.   People said they were immigrating, not wanting to be part of the National Socialist state.   I think we believed that because we wanted to.  But we could have known.   All the signs were there.   We closed our eyes.”

The first woman disagreed, but the other nodded her head.   They were clearly uncomfortable.   I realized that their war experiences were not that much different than those of the French or British — citizens are brought along for the ride, manipulated and used by leaders with their own agendas.

Now high speed trains are comfortable and open. I miss the old compartments.

They exited in Dortmund.   As they got off the train one of them grabbed my arm.  “I have never talked about this in this way or in so much detail.   Not even with my children or grandchildren.”    I nodded, unsure what to say.   “Thanks, I’ve enjoyed the conversation,” I responded.  She smiled.   “Enjoyed?”   She smiled again, shaking her head, “have a wonderful time in Germany, I’m so glad we had a chance to talk.”

I watched them get off the train and walk away as the train left the station.   I thought about my German professor, and how thankful I was that he inspired me to learn the German language.   Without that, I could never have had that kind of conversation.    I also realized that history looks clear in hindsight, but while it unfolds there are numerous shades of gray.    I can’t blame them for not seeing the evil that Hitler represented, nor can I be confident any of us won’t be fooled by someone who promises prosperity and claims war is being forced on us.

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Greece Steps Back from the Abyss

New Democracy leader Antonis Samaras became Premier on Wednesday, heading a three party pro-European government.

Last weekend the Greek people faced a decision on their future with their second election in as many months.   The first election, held May 6th, was a shocker.   Greek austerity, forced upon the country by the European Union, led to a massive deepening of the Greek recession and a significant drop in the standard of living and quality of life in Greece.   Few countries have seen such a dramatic and unexpected decline as Greece has.

The people felt humiliated.   They realized that their leaders had been lying and gambling with their country’s future, putting the country in tremendous debt, fostering corruption, and then leaving the Greek people holding the bag when everything fell apart.    On top of that the Germans and the rest of the EU needed to bail them out, helping not average Greeks, but the politicians and banks that created the mess.   That anger came out in the election results.

New Democracy, the conservative party, had the most votes with 18.85%.  That won them 108 seats, thanks to the bonus of the largest party getting 50 more seats than the percentage should earn them.   That was down from 33% in the previous election, though they gained 17 seats since in 2009 they were not the largest party.

The ruling party, PASOK (left of center) fell from 43% to 13.18%, losing 119 seat (and ending with 41).    The surprise winner was the radical left wing party Syriza, led by Alexis Tsipras.   Tsipras tapped into the anger and humiliation to rise from 4% to 16.8%, passing PASOK.   The result took Europe by surprise.   In a 300 seat parliament, even PASOK and New Democracy together couldn’t form a ruling coalition, as they controlled only 149 seats.   Talks with other parties made it clear that any government that they formed would be shaky and could easily fall, which is not a good thing when the country has to make very difficult decisions.

37 year old Tsipras signals a left wing challenge to Euro-orthodoxy. If the main parties can’t show real progress, he could emerge stronger in the next election.

In the uncertainty of the moment they decided that the most prudent course of action was to ask the voters if they really meant it.   A new election was planned for June 18.   As the campaigning grew it was clear that Greeks were reading the election as a referendum on the Euro and to some extent the EU.    Should Greece remain in the Eurozone?

Tsipras made a confident, powerful and emotional argument that they should not, unless they get real concessions from the EU.   Do the Greeks really want to have their sovereign decisions made according to German dictates?   Should the Greeks accept an austerity that requires them to see the recession cascading inward and causing more pain for average folk?   Shouldn’t the politicians of PASOK and ND (New Democracy) be punished for their corruption and willingness to drive up such debt with horrific fiscal policies? Shouldn’t the Greeks be in charge of their own destiny?   After all, the Europeans want to “save” Greece to save their own banks — doesn’t that mean Greece has more bargaining power than they realize?

As Tsipras’ popularity grew many assumed Syriza would end up on top in the June election, perhaps with enough votes to form a stable coalition.   The result would dramatically increase the odds of a Greek departure from the Eurozone, even though Tsipras coyly claimed he simply wanted to negotiate “fair” terms.

After early reports had Syriza as narrowly winning as the largest party, the actual results gave that honor to ND.  ND earned nearly 30%, up over 10% from a month before, now with 129 seats.  Syriza also increased its share to 27%, gaining 19 seats.   That means that compared to 2009 it rose in popularity by 23%.    Although they didn’t come out on top, it was still a remarkable performance for a radical party once seen as too extreme to be taken seriously.    PASOK fell further, losing 8 more seats and down to 12.3% of the vote.     The former ruling party was clearly being punished.

Yet PASOK and ND could combine for 162 seats for a clear majority in government.   To provide added stability they added the pro-EU Democratic Left, whose 17 seats gives the coalition 179 out of 300.

The first recorded moves towards democracy came in Athens; it was messy but voters show democracy still works.

So what does this mean?  The Greeks took a hard look at what Syriza represented and found it scary.   The party is Euro-communist, and its radicalism would put it in opposition to the rest of Europe.  Many fear that it would drift towards dictatorship, like past Communist parties did.   That seems unlikely, but many Greeks angry about the situation didn’t want to leap to the far left or the far right — those ideologies have a poor track record.

They also had time to digest what would happen if they brought back the drachma.   First, they’d see the value of their currency plummet, which would force them to default on loans.   Second, they’d not be able to get new loans, people would trust neither the Drachma nor Greece’s ability to pay them back.    That would either mean a fall into near third world status or, should Greece try to use monetary policy to stimulate the economy, a risk of hyper-inflation.

More importantly, they wouldn’t be part of Europe any more, at least not the civilized united and progressive Europe that the EU represents.   The Greeks know that a small backwards troubled economy south of the Balkans could drift farther from the prosperity and stability that northern Europe represents.   Independence and sovereignty sound good in theory but in practice they represent a fading era.  Greece without Europe would be a Greek failure.

The problems have not been solved.   The austerity program as currently structured is too harsh and has no growth aspect designed to help Greece truly restructure its economy.    With the rise of French President Francois Hollande as a foil and potential partner to Germany’s Angela Merkel, the EU has the hard task of formulating a new approach that isn’t so harsh on Greece in exchange for stricter monetary policy controls.    The banks are going to have to take loses – the problem can’t be solved by governments alone.

Tsipras (center) has allies in Germany in “die Linke” (the left), a party to the left of the Social Democrats. Here is talks with Klaus Ernst and Gregor Gysi in Berlin.

But some of the urgency has gone away.   They have time, and in Germany, Greece and elsewhere there is growing recognition that a contraction of the Euro to an inner core of wealthy countries would damage everyone.  And the longer this drags out, the less likely it is that things will fall apart.  The EU and the Euro are revolutionary, they are redefining what a “state” is, what “sovereignty” means and how economies are structured.   Such transformations are never easy, but most Europeans realize there is no turning back.

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More Europe for the Euro

The duo to not only save but also strengthen the Euro

The European Union has a history of turning crisis into opportunity.    At many times during its existence people thought that the project went too far, and that sovereignty would trump interdependence.   There was the ’empty chair’ crisis in 1966 when De Gaulle threatened to leave the EEC (then a group of six states) if they didn’t agree that all decisions have to be unanimous.

It was for many proof that sovereignty would always win.   Yet while they did let DeGaulle have his way on the issue he was angry about, the Luxembourg compromise that brought France back did not embrace DeGaulle’s principle of sovereignty first.   He accepted that because he was facing a revolt from below – the French people and French business thought DeGaulle was endangering France with his brinksmanship.   Already the eight year old organization had altered national interest.

Giscard and Schmidt ignited the “Franco-German engine” of European integration

In the seventies it appeared that the loss of the Bretton Woods system fixed exchange rates doomed the EC (now 9 states) to having no coherent monetary cooperation.   That could undermine the whole project, it was argued.   However, right when so-called Eurosclerosis was at its worst two people turned the situation around completely.   Former Finance Ministers and now leaders Helmut Schmidt of Germany and Valery Giscard d’Estaing of France developed the European Monetary System, the precursor to the common monetary policy.   Then when the Cold War ended many people thought the EC had run its course, that Germany would look eastward, and the organization might perish.

Instead German Chancellor Helmut Kohl and French President Francois Mitterrand forged the treaties that created the European Union, introducing a common currency and ultimately embracing rather than fearing the states of eastern Europe.    Now the EU has 27 members, 17 of them part of the Eurozone (states using the Euro as their currency).

In that backdrop the current crisis should be seen as a precursor to another step forward in bringing Europe together.   However, commentators in the US and Great Britain seem eager to declare the Euro dead or something that should have never been tried.   They are wrong.

The current crisis is serious, and shows some fundamental problems with Eurozone policy up until this point.   When it was originally planned, leaders knew that states could only support a common currency if they had similar fiscal policies.   That led to strict criteria demanding convergence on interest rates, inflation rates, budget deficits and total debt to GDP ratios.  If those criteria had been strictly enforced, there would be no crisis today.    Unfortunately, those criteria were loosened, often for political grounds.   In order to speed the spread of the Euro, economic dangers were discarded.

The problems began when the cost of unifying Germany turned out to be immense, causing Germany to violate the original criteria.    France also had an economic slowdown leading to a similar loosening of the rules.    They were the ones who needed to enforce discipline, and once they broke the rules it was hard to keep others in line.

They might have tried, but the bubble economy of the first decade of the 20th Century created an illusion that all was well.    Debt may be high, but the world economy was growing and investments were yielding considerable profit.  In that deluded atmosphere countries like Greece, Italy, Ireland, Spain and Portugal ignored the warning signs — and their problems were ignored by those in the EU who should have known better.

Even if France and Germany lead, Greece may not follow. Populist Alexis Tsipras could lead Greece a different direction should he emerge victorious on the 17th – but even he has to understand the consequences.

The southern states bring to the EU a different ethos than the northern European states.    Greece is a prime example.   The level of corruption and public sector employment is immense while the actual productive economy is small.   Getting into government is a way to make money and gain perks.   As their public sector boomed, it was funded via debt and risky investment schemes.    When the bubble burst in 2008, the problems were laid bare.

Yet its not just a problem for the south.   Someone had to finance that massive debt, after all — and those someones were predominately northern European banks and investors.     So a default on debt or economic collapse in the south would quickly spread all through the EU, bringing down German banks as quickly as Spanish ones.   The economic contraction could yield a depression that might spread far beyond Europe.   In short, the bubble delusion led northern Europeans to finance the southern European excesses, making them just as vulnerable.

The map is slightly out of date – Estonia joined the Eurozone last year (2011)

The problem is that the creators of the Euro were right at the start:  you can’t have monetary union without strict rules forcing fiscal policy coordination.   They were wrong that just setting criteria would be enough — criteria can be ditched, after all.

The solution is clear:  1)  Find ways to eliminate and/or pool the debt from the southern European states.   While this is often correctly decried in countries like Germany as a bailout of states with incompetent economic policies, not doing so could also bring down the financial sector of the big, rich, northern states.    Therefore, Germany and others have to bite the bullet and help pay for the corrupt folly from the south.   However, that also leads to 2) there needs to be a tighter set of rules and institutions to force rational fiscal policies on the southern European states.    Often decried as an ‘austerity’ that simply deepens the recession in the south, it’s a necessary step to a sustainable economy.   Adding to debt and spending more without restructuring those economies will simply make the problem worse.

So if Germany and states in the north have to pay more, states in the south have to give up a kind of easy money life style that allowed them to live excessively beyond their means for so long.  Tax evasion, early retirements, massively large public sectors and the like will have to give way to an economy built on productivity and work.

If it works, the restructuring will be good for everyone.   Southern states will start to have real rather than faux prosperity and develop their productive capacity.   Not only will this save banks in the north from massive loses due to defaults, but will also be an engine of eurozone growth.

The poor/corrupt/unproductive south is unsustainable in a 21st Century European Union.    The difficult but necessary transition they’re going through will ultimately end the rich/poor dichotomy between northern and southern Europe.    The Euro will emerge stronger, and a Europe with much better coordinated fiscal and banking policies (overseen by real institutions not just vague rules) would be a far better bet than leaving the national economies to follow their own idiosyncratic paths.

Merkel and Hollande know the stakes.   They know that they can join past Franco-German duos in turning a crisis that many thing will tear the EU apart to one that strengthens it and brings it together.   The negotiations won’t be easy, but given the history of the EU and the recognition that the era of fully sovereign independent states is over in Europe, I’m confident they will be able to accomplish the task and make the EU a model of how political economy in the era of globalizationn can be structured.

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Berlin Bunker

The “Berlin Story” Museum traces the history of Berlin since its grounding in the 1200s to the present. It includes a tour of one of the remaining bunkers.

One fascinating museum in Berlin is the “Berlin Story” Museum on the Ku’damm.   It traces Berlin’s history back to the 1200s, sketching out how the city became one of the most open and tolerant cities in Europe — a rather ironic distinction given the reputation it has for being the capital of Nazi Germany.   But even the Nazis never really had Berlin under their control until the war started and they could impose martial law.  It’s a fascinating story, and the descent into the Nazi era is symbolized by climbing down four flights of stairs into a cellar with a dark atmosphere as we follow the Nazi seizure of power.

That quickly morphs into the Cold War and the divided city, looking at everyday life in each “side” of Berlin as well as politics and culture.    This includes stories of how East German agents managed to sneak into the West, whether through a secret “hole” in the wall or a hidden entrance to the Friedrichstrasse train station.    A highlight is a tour of of one of the four remaining bunkers designed to protect Berliners in case of nuclear war.

During the Cold War Berliners knew that they’d be at risk if war broke out.   Recognizing that neither side would likely bomb the city directly, they worried primarily about fallout and radiation.    They decided to set up a series of bunkers to house as much of the population as possible for two weeks, betting (hoping) that after the initial launch people would find a way to quickly end the war.   Almost all of those bunkers have been decommissioned, only four remain.

When I first visited Germany NATO was divided by the decision to modernize NATO’s nuclear force — installing Cruise and Pershing II intermediate range missiles in Europe to counter the Soviet introduction of the SS-20 in the late seventies.  This led to the rise of the Green party in Germany and a massive peace movement with protests sometimes in the hundreds of thousands against the missile plan.

Although supported by the German government, the modernization was opposed by average Germans across the political spectrum.    The reason was obvious.   In the US the Reagan Administration was talking about a “winnable” nuclear war, one that could be limited to the European continent.   US Defense Secretary Casper Weinberger stated the US was no longer in a post-war era but a “pre-war era.”

The rationale for this was to make extended deterrence credible.   In order to provide a nuclear deterrent against a Soviet attack on Western Europe the Soviets had to believe the US would actually escalate to a nuclear war to defend Europe.   Since a nuclear war meant the destruction of the entire planet, the rational US response would have been to let Europe go.   As Charles DeGaulle asked, would the US sacrifice Chicago for Paris?

To convince the Soviets that was not the case the US had to act as though it believed a war could be both won and limited in scope.   Even in the US almost nobody believed that was the case.    But it was a bluff the Soviets couldn’t call since if they were wrong, it would lead to their destruction.   So under this Damocles sword the Cold War balance of power was maintained.

A Trabi – the main automobile of East Germany – on display at the Berlin Story Museum

The problem with that is if you were European it seemed the US was saying “we can limit the nuclear holocaust to Europe” and come out on top.   The Germans saw Ronald Reagan as an anti-Communist Cowboy who wanted to destroy the Soviets and feared that the US could drag them into a war that would assure the destruction of Germany.  The crisis could have torn apart NATO, had not Gorbachev come to power in 1985 and then negotiate with Ronald Reagan a removal of both the SS-20s and the new NATO missiles with the 1987 INF Treaty.

Once numerous bunkers dotted West Berlin; now only four remain

The bunker we visited was below ground and the first 3600 to arrive after the war broke out would be admitted.  They’d each have a bunk and would eat dry food, barely enough to survive.   Water was stored, but there would also be a pump.   Air filters would keep the air breathable, but would be less than 1/20th as fresh as air in a modern office building.  It would be damp and stale — but would sustain life.

The lack of privacy would be immense, there would be no showers, little water for personal hygiene, and toilets had curtains instead of doors to prevent people from seeking refuge in the toilet — a bit of space all alone.     There would only be 8 people who “worked” there, they would rely on self-governance.   Any medical help would be provided voluntarily by doctors who happened to be among the 3600 admitted.   They’d have minimal medical supplies on hand — the most plentiful drug would be valium.

To be kept constantly dark, the bunker seems roomy until one considers sharing it with 3600 people!

Their fear was that if people got aggressive and panicked it would be over — mass hysteria could lead to violence and horror.    They even had tasks, some unnecessary, to try to provide a sense of community.   Although it wasn’t necessary to pump up water from the well, people would be assigned to do that — or if someone was starting to panic, that activity might give them a release.   The goal would be to strive for a sense of community to trump fear and panic.

After two weeks the supplies would be gone and they’d be forced to leave the bunker, hoping that radiation levels had gone down and that those on top would have a plan to save the population.

Besides a water pump and storage, the bunker had air filters and its own generator for electricity.

Leaving the bunker and breathing the fresh, open, tolerant atmosphere of Berlin today, it’s easy to forget how different things were before 1989.   It was a divided city and travel from West Berlin to anywhere else was difficult — though the city compensated with lots of immense parks to give its population an escape.   To keep West Berlin populated required incentives, including the fact that males in West Berlin could avoid mandatory conscription.

The Berlin story is one that meanders from Prussian militarism, enlightenment rationality, the interwar Cabaret scene and the post-war division.   The Berlin Story museum is worth a visit – it captures the essence of that story with fun and informative displays.   The bunker tour reminds us that during the Cold War West Berlin was the front line – a piece of the West 300 kilometers behind the Iron Curtain.

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An Excursion into Poland

No border checks crossing from Germany into Sublice, Poland

It’s becoming increasingly clear that the world is going through an economic event that is more like the Great Depression than any other economic downturn since WWII.   The system has become unsustainable and there will never be a return to “normalcy” as it was defined before 2007.    Yet glimpses of a solution can be seen in thinking about the changes of the last twenty years, including a Polish border town named Sublice.

On the Frankfurt an der Oder side, ready to cross into Poland

I first visited Sublice in January 1992, accompanying a group of students from St. Olaf College who came to Berlin as part of their “Global Semester” led by Dr. Rod Grubb.   A bus took us to the border, and we crossed the Oder river into Poland. We had to get our passports stamped, answer questions, and then pass through a narrow passageway into Poland.   Along the east bank of the Oder tents spread out for as far as we could see — Poles came to the border, waiting for the chance to swim across and evade the overstretched German security forces.

In Berlin East Europeans were selling cigarettes below market value in every piazza.  Berlin had become the auto theft capital of the world, as cars would be taken the short distance to Poland, repainted and resold on the German market.   Right wing violence was rising in Germany as well.

Article 16 of the German constitution vowed that no one claiming to be fleeing political persecution would be sent back until an investigation of that claim was completed.   This was a response to how Jews were often sent back from countries they escaped to before WWII, only to be killed in the holocaust.   With the fall of the iron curtain East Europeans were rushing to rich Germany in droves, and when caught they claimed political persecution.     That required that the German government give them food and shelter until a hearing on their case could be held.   With the massive influx, the courts were years behind schedule with former East German bases converted to hold all the refugees claiming persecution.

To many East Germans this was absurd — money was spent to feed and house foreigners while East Germans were unemployed and losing out.    Ultimately they changed the law to limit the countries where political persecution existed, but in early 1992 the situation was tense.   The situation in Eastern Europe was dire; Germany was the gateway to the West.

Modern supermarkets and even a shopping mall now define Sublice, which still obviously targets Germans coming over with Euros (Poland still uses the Zloty)

In Sublice  we saw horse drawn carriages and poverty was extreme.    Our Deutschmarks could go far, but there was nothing to buy.   Even the meal we had tasted as if the meat wasn’t exactly fresh.   The roads were potted or unpaved, the houses in disrepair.   When we crossed back to Frankfort an der Oder (not to be confused with the huge western city of Frankfurt am Main) it felt like we were going back to the first world.

This year Frankfort an der Oder was almost indistinguishable from the West.  I could recognize and point out the East German architectural, city layout, and the like, but to the students it was a clean modern little city — nicer than many in the US.

Heading to the “Bazar” – the town’s flea market which has grown from a chaotic mess to a lively, orderly market

Sublice is a step below Frankfurt/Oder still, but so much different than twenty years ago.   It is clearly a border down, with signs in German.   20 years ago when we went to the town flea market it was punctuated by people selling off their possessions in a chaotic maze of stands and sellers.    It’s still there, now with a nice sign labeling it the “Bazar” and clearly defined rows of shops selling quality items and, of course, Spargel.   Spargel (white asperagus) is in season and being sold everywhere during the trip.    As we walked by the people running the stands switched into German to try to get us to purchase fresh ‘just picked’ Spargel.

Although the orderly market place denotes increased prosperity and development, part of me misses the romantic chaos of the market I visited in 1992!

Poland is still obviously behind Germany, and towns far from the border lack the influx of German Euros.   But the success since 1992 hints at the solution to our economic woes today.   After the nationalist reaction to the East European “invasion” after the end of the Cold War, Germany and the EU chose to embrace the East and welcome them into the EU.   To succeed we need to resist knee jerk nationalist reactions and recognize the power of integration and cooperation.

The reason Europe grew after World War II and the reason Poland is growing now is because of openness to trade and cross border investment.   Simply, when humans cooperate peacefully and work together, we succeed.  When we close ourselves off, fear losing what we have and see life as a zero sum game, we end up with war and stagnation.

The EU, despite current problems, is an undeniable success story as countries once at war with each other have achieved new levels of prosperity thanks to trade and integration.   Indeed, Americans skeptical of the EU often don’t get how integrated these economies are; there is no turning back to the obsolete order of fully separate and sovereign independent states.

For all the particulars of the current economic crisis, the big issue is that we have a globalized economy that has outgrown the institutions, rules and norms of a system based on sovereign states.   Big money can evade regulations, democracy is weakened by how the global economy forces states to make particular choices – whether it’s Greek austerity or German tax payers bailing out failing economies.    This is true for China and the US, as interdependence enforces harsh limits on government efficacy, even as people expect governments to provide solutions.

The Oder river, with Germany on the left, Poland on the right

Standing at the Oder river, thinking about the past and trying to glimpse into the future, one thing was clear: we need to look beyond the political institutions of the past era.   Sovereignty based on independent states and the Westphalian order has become obsolete.   Humans need community but they don’t need the state.    Governance is essential, but can come in many forms.    Just as Berlin and Sublice are changing, so is the whole planet.   We need to let go of old thinking and use imagination and logic to think of a way to come together and reconceptualize politics for the future.

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Berlin Miracle

Hardly recognizable, this is where I emerged from two hours of waiting to get through customs on July 29, 1989 and enter East Berlin at Friedrichstrasse

I remember the first time I visited Berlin.  It was late July 1989.   The talk in Germany was of change in the USSR, Poland and Hungary.    I had spent the summer interviewing politicians and academics about inter-German relations, and they all agreed: unification would not come soon if at all, and that East Germany would not reform.   Thus when I made my first and only venture into East Berlin, there was no sense that within a month East Germany would be in crisis, and in just over three months the wall would come down.

Unter den Linden is still the sight of massive construction, but one site I remember from 1989 is Aeroflot – the Russian airline still has its building there!

Americans sometimes like to take credit for what happened, but the fall of Communism was driven by internal economics — the system couldn’t work and was in collapse all over the eastern bloc.   It ended the way it did because East Germans and then other East Europeans took to the streets.   You can’t credit Gorbachev, Reagan or Bush — if anything their ability to cooperate made it so the big powers did nothing to halt the collapse.

While traveling Germany that summer I bought a Sony Discman at Kaufhof in Munich for 290 DM.  The CDs I bought to accompany me were Billy Joel Live in the USSR, Jackson Browne’s World in Motion, and Udo Lindenberg’s Gänsehaut.  I had become a fan of Lindenberg since getting his album Odysee the first time I was in Europe, and remember sitting in a West Berlin hotel room and listening to Mädchen aus Ostberlin the night after I visited the east side of the city.   I had never really felt what the division of Germany meant.

Pariser Platz, the east side of the Brandenburg gate. The first time I was here guards were there and a dirty unkept gate was obstructed by the eastern wall. Now it is the symbol of united Berlin!

But on that day, July 29, 1989, I realized how absurd the situation was.  I got off the train at Friedrichstrasse, walked to Unter den Linden and went down to the Brandenburg Gate.   It was blocked by the east side of the wall, unapproachable.  I could see people on a platform in the West looking over into the east the same way I had done the day before.   I turned around and walked to Alexanderplatz, going by the Marx-Engels statue, the television tower and city hall.   A couple of guys tried to convince me to exchange money, offering me a great rate (compared to the official 1 DM = 1 Ostmark), but there was nothing to buy.

On July 28th on the West side I stood at Potsdamer Platz. There was a snack stand, I had followed the wall from the Brandenburg gate. It was quiet. None of the buildings in this picture were there, they were all built after the wall fell.

At Alexanderplatz I got lunch at a cafeteria, bought some ice cream and then went in the central store.   It was the main store of East Berlin meaning it had the best consumer goods East Germany could muster.  It had nothing worth buying.   I roamed the city all day, covering probably 12 to 15 miles on foot, taking in all I could about this “other world” of Communism.   I was awed by the beauty of the historic center of East Berlin, and realized that while it wasn’t a torturous hell hole, it was clearly dying.   “Das kann nicht so weiter gehen,” I thought — it can’t go on like this.   This is absurd.

Lindenberg’s song was about a love affair between a West German and a “girl from East Berlin.”   It was also a metaphor for a country.   “We simply want to be together,” was the plea as the couple — and the German people — were separated due to political machinations beyond their control.   The song was poignant to me having been in the East that day, at some point listening to it a third or forth time and thinking about the division I suddenly had tears running down my cheeks.  Now I felt the division.

The video below has some (very poorly translated) English subtitles, but gives an inside look at the moment the wall opened, how East Berliners pressured the guards who finally gave in – it is a moment where history was made.   It’s ten minutes, but it captures the moment communism broke and freedom expanded:

Walking around Berlin in 2012 is surreal in some ways.   I’ve been back here many times in the last twenty years, watching the city transform itself dramatically.   On this trip students kept asking if they were in the East or West, and wondered how different it had been.    Lacking a camera in 1989 I only have the photos in my head of how things looked, but I walked many of those same stretches and compared now and then, as best I could.

When I was in Berlin for four months in late 1991 it was still obvious who was from the East and who was from the West, the wall’s location was clear, and the early difficulties of bringing the two sides together had become undeniable.   Now the city is whole.   Construction continues, but former West Berlin is getting a facelift, as the Ku’damm pales in comparison to Friedrichstrasse and Potsdamer Platz.

As I thought about the changes and my time there in 1989 I came across this:

Udo Lindenberg.   A musical built on his songs tells the story of the the division of Berlin and the coming together of the city in terms of a love affair.     I thought of myself in that hotel room in late July 1989 and wished I could go to the musical.   Alas, the demands of teaching the course and working with the students kept me busy.   I tried to create an image for them of what I experienced in 1989 and even 1991.   But now the everyday of that era is captured in museums like the DDR Museum (a great hands on experience) and the “Berlin Story Museum.”   Still, knowing that Udo Lindenberg’s music is now used to tell that story is satisfying.   Someday I will see that musical.

I have been to Berlin in 1989, 1991, 1992, 1995, 1996, 1998, 1999, 2004, 2010 and now 2012.   Though I am a foreigner there, the city means a lot to me, it fascinates me, its tradition of tolerance/openness dating back to Friedrich the Great intrigues me, and no visit there seems long enough.   Ich hab noch einen Koffer in Berlin.

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Berlin Hauptbahnhof (Central Train Station)

Berlin’s new Hauptbahnhof symbolizes the change this city has experienced.

In 1991 while living briefly in Berlin I received a message to pick up a package at the post office located at “Gelehrter Stadtbahnhof,” the final S-Bahn (light rail transit) in West Berlin before crossing to the East.   I went there and found an old sleepy station with two tracks in a quiet neighborhood.   Alas, all the pictures I took that year, including many rolls of film from old East Berlin (still mostly unchanged a year after unification) were lost when I stupidly shipped home 27 rolls of film because I wanted to develop them more cheaply in the US.   The box went missing and never arrived.   However, I found a photo online of that old station:

That sight is now the home of the Hauptbahnhof.   Lehrter Bahnhof has gone from an old sleep S-Bahn station to a modern marvel.   Most train stations in Europe have a similar design, coming out of the late 19th and early 20th Century.   Because train stations are necessary and can’t be easily relocated like airports (due to track layout), they get refurbished or upgraded, but keep the same basic design.    In Berlin the new territory gained from the wall (which in most places was two walls with a good chunk of space between them) allowed them to design a completely modern train station, with multiple levels, shopping and an open glass theme.

Inside the train station you are in a glass cathedral

The design of the train station is as unique as the city.   Regional traffic departs from the lowest level, while S-bahn trains serving the Berlin area and high speed trains going to destinations all over Europe and Germany depart from the upper level.   Inbetween are three levels of shops, food and services.

Below a regional train gets ready to depart, the station is served by numerous escalators and glass elevators

The Lehrter Stadtbahnhof served the city from 1871 on, originally as a terminal station for traffic from Hamburg and Lehrte, then after World War II simply as an S-bahn stop.     Renaming it Hauptbahnhof was controversial.   There had been a Hauptbahnhof in East Berlin, but that station had no historical claim to the name.  It had only been called that since 1987 and had gone by a number of previous names.   It is now called Ostbahnhof (East train station), the name it during most of the Cold War and is the third largest station in the city.

Most people wanted to keep Lehrter as part of the name, but fearing that would confuse people, it gets referred to simply as the main train station – though the signs do give homage to the past.

The station is perfectly located; it is within a short walk of the Reichstag building and Brandenburg Gate.

A view of the Hauptbahnhof from the Reichstag dome

The area was sparsely populated because of the wall, and thus building new track connections and expanding the station was no problem.   It is now part of a stretch running to the Potsdamer Platz that demonstrates the core of new Berlin – the Chancellery, Bundestag, Brandenburg gate, and Unter den Linden.

Over the coming days or weeks I’ll be blogging about my recently finished Germany trip, including reflections on other ways Berlin has changed, my view that the sovereign state is becoming obsolete, and how the Euro crisis is going to get solved — and create a stronger, more united Europe.   But to start, I think the Berlin Hauptbahnhof is a real symbol of how the city has changed — and the process of transformation continues!

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Deutsches Museum: the history of technology

The magnificant Deutsches Museum!

Tuesday was a rainy day in Munich, so we took in the Deutsches Museum, an awesome monument to technology and the role of Germany in creating the world we live in now. When we arrived the students went into the first room and I went to use the toilet. I didn’t see any of them again until our arranged meeting time three and a half hours later. None of us were hiding, the museum is that immense!

Visiting the museum really helped me put into context the age we are living in, and how it marks the transition of one kind of society to another. We are leaving the machine age and entering the digital age!

I’ve never been to a museum with so many parts and sometimes full airplanes and cars on display, including jet engines, models of different types of planes, smaller plans parked or hanging from a ceiling. They also had a full display of wooden ships, both models and a full size fishing ship.

Yet more interesting to me is getting a sense of how technology has changed lives. There was an entire display on the printing press, including a replica of Gutenberg’s original, how it was improved on over the years, different styles, linotype machines, up to modern digital methods. There was an exhibit on film and camera, with hundreds of cameras up to modern digital cameras there. Kitchen equipment, electric generators, motors of all sorts, musical instruments, metallurgy, mining, tunnel building, toys, nano and bio technology, oil and gas, energy in general, space flight, glass blowing, genetic research, industrial machinery, tools, optics, atomic physics, pharmaceuticals, ceramics, astronomy, telecommunications, agricultural technology, radios…and more (even Zeppelins!)

I thought I was perhaps pushing it when I told the students to meet back in three and a half hours – I’ve seen students “do” the Uffizi in Florence in 20 minutes. Yet this was so massive you couldn’t do it properly spending the whole day.

Each of these eras had its own cultural and political structure. From the cottage textile weavers to the first factories, both politics and every day life changed dramatically as technology improved. I imagined the huge factories of the mechanical era. Or accountants working with mechanical calculators, so large and complex. The era of machines!

There was a model of the DC Douglas plane that formed the first fleet of Pan Am jets, which could go from New York to Frankfurt in 13 hours.

Looking at the first cars — some really attractive models were produced by auto companies in the 1920s — innovative, often strange, showing that there was not yet a standard design for cars.

A 1925 aluminum car was innovative!

Now we’re in the digital era, even the electronic equipment (record players, radios, etc.) was obviously from a different time. In fact, one can put a date on it. For most (but not all) the exhibits the 1980s marked the start of a shift to technology driven by our vastly expanding computer and information technology.

We’re at the start of a change that will have as dramatic an impact on our lives as the rise of industrial era had. It will change politics, culture and life in ways we can only imagine (and much is outside what we now are likely to imagine!)

And that’s probably a good thing. The era of the machine needed vast quantities of power to reshape the world. With oil running low and concerns about global warming, how we get the energy to run whatever world will emerge will have to be different. But seeing the range of innovations of the past, created often as solutions to problems of their times, I end up optimistic that the era just beginning will be better than the one just ending.

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