Monday, August 26, 2013

A German Tale - How Not Reforming Stabilised Public Debt

The German chancellor Merkel likes to call the austerity policy in southern Europe "necessary and in part painful reforms". She claims that the policies are "without any alternative". Merkel has had big plans for reforms in Germany itself after the last election, but non of those became law. Still the country has achieved a budget surplus in the first half of 2013.

Thursday, August 22, 2013

Output Gap

I was watching a discussion (German) between Berndt Lucke of the euro sceptical AfD with some CDU person, who kept asking how much Lucke's plan will cost. Lucke at least has a plan. I don't like it, but his party is the only one which actually has one. So, I asked myself just how much has the incompetence of our leadership cost us already, through policies which kept GDP growth below potential.

Success in Greece

Some might still believe, that Germany will be willing to do what it takes to solve the crisis in the eurozone. I do not think that is or will be the case. Merkel said in an interview with SAT.1, yesterday, that her approach - "to only help if the country is willing to reform" - has been proven correct; "and there is no argument about it anymore."

Wednesday, August 21, 2013

A few interesting stories

Jeff Jarvis compares the reporting of British and US media outlets with that of German ones on the eavesdropping scandal and the destruction of hard drives at the Guardian. One caveat: the demonstrations were rather small in Germany. Google streetview caused a much bigger uproar. This might have to do with vacations, but since it also does not seem to make any difference in polls it does not - at this moment - seem like a story the public really cares about. (English) via
Der Spiegel's take on the above story. (English)
Deutsche Welle on the prescription data scandal in Germany. Prescription data is being sold but it is not properly anonymised, making it easy to identify the patient. (English)
Deutsche Welle discussing some problems the German Bundeswehr is encountering in its attempt to move away from a conscription army concept to a professional army. (English) My take: there is no way back. In the last years of the draft it had become blatantly unconstitutional. It was a lottery scheme. Most of my male friends, the same age weren't drafted, so, they needed to reform the military service to avoid a ruling by the Federal Constitutional Court.

A few google translate links:

SZ talks about the truth about additional aid for Greece coming out in slices.
Zeit has a good article on the immigration to Germany from Romania and Bulgaria, which are among the poorest EU countries.
Wolfgang Münchau on the party program of the Greens. He says that the Greens are the only party which was able to make an apt analysis of the causes of the eurozone problems. I looked at the CDU "Government Program" earlier month. It was an absolutely horrible read. They want a lot of thing; and that is it.

Electoral Campaign

Next month, Germany will elect a new Bundestag. I have written an article on possible coalitions a few weeks ago (click). Today let's look at what is happening in the electoral campaigns.

Tuesday, August 20, 2013

Neoliberals are destroying Europe on Purpose

The German plan for Europe is to ensure sustainable growth through structural reforms. Reforms, similar to the ones undertaken by the country in the last decade, will help the rest of the eurozone, but the southern states are not willing to do what is necessary on their own, therefore reform pressure is needed. But, this idea rooted in neoliberal thinking is deeply flawed.

Monday, August 19, 2013

Spain doubtful loans

In June the percentage of non-performing loans in Spain has hit a new high. Doubtful loans reached 11.6 percent of total assets. In November of last year Spain tried a bad bank scheme to reduce the pressure on the balance sheets. It only helped for a few months. The Banco de Espana released the June numbers on Monday, a total of € 176 billion loans was non-performing, which is lower than the € 192 billion in November of last year, due to the bad bank, but in relative terms "only" 11.4 percent of loans did not perform back when. In November and January non-performing loans were taken of the bank balance sheets, which can be seen in the following graph.
Bad, but sadly expected news. The problem will not be solved until the Spanish unemployment rate falls significantly, which will not happen until the bank balance sheets are back in order. Unless Germany after the the election decides that it should suddenly actually try to safe this union, I don't see how this can continue much longer.

Bundesbank Now a Fan of Abenomics?

The Bundesbank really has not been a fan of Abenomics. Jens Weidmann the president of the Bundesbank assessed in an interview with Deutschlandfunk in April, for example, that the causes for "the deflationary development and the restrained growth [in Japan] are not lacking liquidity, but are of a structural nature, a demographic nature, but also are due to the high public debt." Therefore a sound government policy should tackle these issues, he said. Jens Weidmann the president of the Bundesbank disagrees. In a speech at the end of last year he assessed:

Escalating public debt inevitably drives prices higher. But growing government debt can still pose a threat to price stability even before it begins to spiral out of control.
The Bundesbank(German pdf) now modeled the effect of Abenomics on growth and inflation to end the fight Weidmann v. Weidmann on the effect of public debt on inflation.

Short Note on terror "threats"

There was supposedly a terror act against US embassies imminent a few days ago, but nothing happened. Today we learn that al Qaeda might be planning to attack express trains in Europe. At least bild alleges that the NSA claims that some unnamed terrorists supposedly talked on the phone about such a plan, after everybody who is able to turn on the TV anywhere knew that the NSA is probably listening in. Well, trains have been attacked in Europe, still the timing is very strange. I am almost as scared as I was when I learned that there was a "credible" "breast implant suicide bomb threat" at Heathrow airport.

I think there are three possible explanations, I will start with the most likely one:

German Bundesliga

I will add a few posts about football/soccer in Germany, each weekend. Currently, I plan provide the following:

  • Matchday Round-up on Sundays
  • Two Game Reports (One Saturday and one either Friday or Sunday)
  • One in depth report about a team each month.
  • A short look at the changes compared to last season and where I expect the teams this season
 First up Bayern and Dortmund:

Sunday, August 18, 2013


I did not like the template I chose in the beginning, anymore. I felt that I really had to change something; and I am actually quite happy with how the blog looks now. Not much to add. Hope you like it, too.

Saturday, August 17, 2013

Finance and Engineering

Reuters looked at the Netherlands economy a country unlike Germany actually engaged in austerity.  Guess what? Contractionary policy is contractionary. What is more, the Dutch debt to GDP is not improving. Can we now just stop making this a meta story about what seems to be a technicality? This just should not be a story about multipliers, as people like Daniel Gros seem to be suggesting. This is a tale of bad economic policy based on bad economic analysis. Do not hide behind something that the average reader has not heard about.

Nobody would accept that an engineer did something like that. "Hey guys I am sorry that the crane could not handle the load; and injured the workers. I chose a multiplier (for safety) that was a tad low." In fact, when looking at the the "rescues" from an engineering perspective, we see that not only was a safety chosen which was below one. The whole system was not designed safe fail or fail safe. The only reason why the whole construction has not fallen to pieces yet is that the ECB stepped in, and wrapped the whole thing in duct tape.  And now we are again supposed to trust the economists, who

  • Underestimated the rescue funds needed
  • Claimed that austerity would be expansionary
  • Thought the euro area was a good idea in the first place
  • Did not see the financial crisis
  • Did not think that the housing boom in Spain and Ireland was in fact a bubble
  • Came up with a stress test that failed to put any stress on bank balance sheets
  • Did that again 
  • Are trying to tear of the ECB duct tape
to come up with a workable solution. Would anybody want that the engineer who designed a bridge that collapsed to design another one? No. It can only end in another disaster, especially, when we also see a reluctance to admitting mistakes. Instead, the blame is assigned to the drivers Greece.

Here's a structural reform that might actually put Europe on a path of sustainable growth in the future. Every single economist, who got at least two of the above points wrong, needs to be fired. That safes money and reduces the risk that we will see an unnecessarily prolonged downturn in the future. Of course, that is not possible, because these "scientists" for the most part call for the most predatory and completely failed form of capitalism from the safe socialist utopia, that European universities are for professors.

Can we, after five years of complete failure, at least stop listening to the people who have gotten everything wrong. Please.

Friday, August 16, 2013

Germany Poster Child for Austerity?

Daniel Gros wrote an op-ed in the Cyrpus Mail which asked: Has austerity failed in Europe? He is German, the director for CEPS an EU funded think tank, and got his PhD in Chicago. What caught my eye was this bid:

In fact, austerity has worked as advertised in some cases. Germany’s fiscal deficit temporarily increased by about 2.5 percentage points of GDP during the global recession of 2009; subsequent rapid deficit reduction had no significant negative impact on growth. So it is possible to reduce deficits and keep the debt/GDP ratio in check – provided that the economy does not start out with large imbalances, and that the financial system is working properly.
Sadly, I am not even surprised anymore.It is just annoying to see that German economists believe that austerity works; and therefore assume that it must be the reason for any positive development, which makes checking their numbers not a task they engage in. The actual story, of course has nothing to do with what Daniel Gros says. The current government has largely given up on, well, governing after about one year. At no point has Merkel increased taxes significantly, she never wanted to anyways, also expenditures weren't lowered at all. The increased tax revenue we are seeing comes from the increased employment numbers. In real terms general government expenditure has fallen, but this is due to inflation and not reforms. Here's the nominal values. (destatis)

2010 2011 2012
Total revenue 1087.38 1154.89 1193.63
Total expenditure 1190.97 1174.54 1191.28

So, he likes to tell stories that fit his believes, where numbers are not all that relevant, if they do not fit. But has austerity worked?

Austerity should thus always be beneficial for solvency in the long run, even if the debt/GDP ratio deteriorates in the short run. For this reason, the current increase in debt/GDP ratios in southern Europe should not be interpreted as proof that austerity does not work.
Right. Austerity not only not being expansionary, but also damaging the debt to GDP ratio should not be regarded as total failure. Spain and the USA both saw a housing bubble before the crisis and both countries imported more than they exported. The main differences being that Spain had a lower debt to GDP ratio to begin with, had to engage in austerity, and does not have her own currency. So what happened with GDP, the main indicator to judge the success of an economic policy, in these two countries?

This is what happens when the advisers know less than the politicians. Austerity is nnn absolutely catastrophic policy during a downturn, which is called a success on nothing but incompetence: Five years of absolute failure.

It is fitting that Germany now has become the poster child for austerity, even though the country has not engaged in any such policy.

Thursday, August 15, 2013

New Rule - Recoveries Begin After Two Consecutive Quarters of Growth

So we have seen one quarter of growth in the euro zone, now. People already start claiming that the recession has ended. Don't get me wrong, even the smallest improvement is good, but one quarter of overall extremely mediocre growth (0.3 percent) in the whole of the euro zone, average increases in France (0.5 percent) and pretty good German numbers (0.7 percent) does not mean that the recession has ended at all.

Good news: yes! End of the recession: no!

One just has to look at the at the change compared to the second quarter of 2012 to see that calling this the end of the recession is beyond ridiculous. Euro area GDP is still 0.7 % below last years number. Of course, decent growth in the two biggest economies and low average growth should get journalists thinking, that maybe articles about Spain and recovery might just be uncalled for. Bloomberg´s (via) journalists mention that:

[..] the legion of unemployed across Europe’s southern periphery [..] are seeing little benefit from an economic recovery that pulled the euro region out of its longest-ever recession in the second quarter.
 Really? Might I suggest looking at GDP for southern Europe? Spanish GDP fell by 0.1 percent, Italy´s contracted 0.2 percent. There just is no recovery in these countries. Only Portugal grew significantly. (1.1 percent); and Greece´s numbers were eaten by the dog, I guess.

Do not get fooled by people proclaiming that the recession has ended. It is a single positive quarter, driven primarily by good growth in Germany, but Germany did not have an unemployment problem to begin with.

I suggest that 1) We only call this a beginning recovery if the third quarter is also positive and 2) the end of the recession may not be proclaimed before GDP is clearly above pre crisis levels and euro area unemployment significantly below 8 %. So if what you call a "recovery" and it looks like this (see the tiny 0.3 percent at the end?):

Then, you are doing it wrong! (it is still good news, though)

Krugman not happy about good news

Krugman is not happy about the reaction by European leaders to finally seeing some growth again:

It really is kind of pathetic to see European leaders claiming vindication after one whole quarter of positive growth, at the thrilling annual rate of 1.2 percent.
Agreed, still finally seeing some growth again is actually good news. The problem there is, is that the same politicians, who failed us miserably for three straight years now pretend that they are somehow responsible for only this first actual green shoot. The German government is by far the worst offender here. Official press release:

Germany - the locomotive in the euro area 
Yeah, Germany is a locomotive alright, it is a fitting picture for a industrial country; problem is that it wasn't going all that fast since 2011. What is more is that now economy minister Rösler claims to be the only responsible party here:

Federal economic minister Philipp Rösler attributed this development to "the reduction of taxes and social insurance contributions, which were enacted at the beginning of the year."

Oh goody, let's check this:

2012 2013
health insurance 15.5 15.5
nursing care insurance 1.95 2.05
pension insurance 19.6 18.9
unemployment insurance 3 3

 Philipp Rösler is living in some fantasy land where decreasing the pension insurance, through basically keeping the pensions in the West at the level of last year and therefore below inflation, aka taking from one hand and giving the other, somehow creates growth; and the German government is responsible.  Saying something like that should make one feel really embarrassed.
He seems to actually believe this stuff. See? Pension insurance payments fell by 0.7 percent and now we have growth of 0.7 percent - coincidence?! seems to be what he is saying. This one quarter will reassure them that all steps taken were correct. If only Greece were to reduce their pension insurance by 0.7 percent...

On to four years of growth through shifting money around. The euro zone finally seeing some growth is probably the worst thing that could have happened in the second quarter, when looking at who will be reelected because of this.

Renewable Energy in Germany

Germany is trying to transition to a more sustainable energy mix in the future. You might have read one of two stories about the effort, or even both depending on your personal filter bubble.
  1. The switch away from nuclear power and fossil fuels is not going so well in Germany. The consumer prices are increasing massively. In July 2013 the inflation of electricity prices reached a whopping 11.9 %. In 2013 consumers have to pay more than €0.28 per kWh; ten years ago the price was around €0.17/kWh. Also, the contribution of lignite, black coal and natural gas to the energy mix has not changed much at all in the last ten years. Only the share of nuclear power has fallen significantly, so the CO2 production of power plants was not reduced all that much.
  2. The energy transition in Germany is happening at a faster rate than expected. In 2011 renewable energy made up 20.5 % of electricity produced; and in 2012 it was up to 22 %. This development has caused the prices at the energy exchange to fall significantly. In the first 2013 the price per MWh fell by 20 % compared to 2012. It is expected to decline some more. Of course, some of this development was caused by falling coal prices, but for example on the  June 16th this year the average price at the exchange was minus €3.33 per MWh. It fell to minus €100 per MWh for an hour and trading had to be stopped, so it is safe to assume that the huge amount of electricity produced does play a significant role in the much lower prices.
It might come as a surprise, but both stories are correct. The prices at the energy exchange are falling fast, while consumers have to pay ever more for electricity. This is due to the way renewable energy is subsidised. The owner of a renewable energy plant is guarantied a certain price for twenty years after the plant goes on line. Also, the firm is guarantied that all energy it is able to produce will be fed into the power grid (or be paid even if that cannot be the case). Especially solar energy, which was not competitive at all in 2000, when the Erneuerbare-Energien-Gesetz (EEG renewable energy law) was introduced, profited from massive subsidies. In 2004, the guarantied price was at least 54 ct/kWh for installed power on top of buildings. eight years later the price has fallen to between 18.3 ct/kWh and 24.4 ct/kWh. The resulting difference between exchange and guarantied price has to be paid by the consumers and companies (not energy-intensive ones, though).  At the moment the so called EEG reallocation charge is at 5.28 ct/kWh or over 18 percent of the total electricity price. In 2003 it was only responsible for 2.4 percent of the consumer price.

The above graphic shows the composition of the electricity prices for consumers. Today, fees and taxes make up over 50 % of the total price. The increase compared to 2003 is primarily due to the EEG allocation fee. 

The increase from around 17.2 ct/kWh to 28.7 ct/kWh in 2013 has three main sources. 
  1. Production costs, transport and especially profits have gone up due to higher resource prices, shutting down highly subsidised nuclear power plants, and to a smaller share CO2 trading.
  2. The EEG allocation fee has increased significantly, since the prices are guaranteed for 20 years additional renewable energy power plants will keep pushing the fee up, while decreasing the exchange price.
  3. The VAT (value added tax) was increased from 16 % to 19 %; of course when the price increases there is always an automatically higher absolute price for VAT to pay.
It is important to note that the EEG allocation fee is not a good indicator for the cost of the energy transition. Large parts of the the increase from 2012 to 2013 were due to underestimation of the expansion of the renewable energy sector, which caused the account responsible for the payments fall into negative territory which now has to be rebalanced. As mentioned, falling exchange prices due to the increased amount of electricity available cause the fee to increase since the difference to the guaranteed price becomes higher. Additionally, an ever larger share of industry does not have to pay the fee (28 % at the moment) which leads to a higher burden for everybody else. So it is a very distorted value, and should not be used as a "warning for other countries".
Productivity increases have pushed the price for the installation of renewable energy down, which in turn allowed the guaranteed prices to fall, therefore the future increases through the continuing expansion of the sector lead to smaller EEG allocation fee increases. The mistakes of the past (far too high subsidies for solar energy guaranteed for 20 years), will remain with the country for the whole decade though; and will make it all but impossible for the consumer prices to fall significantly.

Prices for consumers in Germany are high compared to other countries, this is due to Germany being one of the first countries to attempt a large scale energy transition. The share of renewable energy is now over 20 % and is still increasing, but additional capacity is costing significantly less than ten years ago. Eight nuclear power plants have been shut down and everybody that believed that this would lead to medium term shortages in supply has been proven wrong, completely and utterly wrong. Germany is a net exporter of electricity. Any country which now chooses to go a similar path will not face the same costs as Germany has and will be for some time. The transition does not come free, but the know-how gained in Germany will push down costs for every other country choosing a similar path.

Wednesday, August 14, 2013

GDP rose 0.7% in Q2 beating expectations

German GDP rose price, seasonally and calendar adjusted 0.7 percent in the second quarter of 2013 according to Destatis, higher than the expected 0.6 percent. Drivers were household and public consumption expenditure and to some extend exports. Price adjusted GDP is up 0.9 % compared to last year. The long winter played a role as it delayed building investment.

France also beat expectations and grew by 0.5 percent in the second quarter. Good news.

Not much more to add before the detailed report is out on the 23rd.

Tuesday, August 13, 2013

Strange Inflation Scare

The inflation rate in Germany was at 1.9 % in July, according to destatis, the primary reason seems to be bad weather which has caused less overall harvest, which in turn has driven up the prices for food by 5.7 %. So, nothing to worry about? Wrong! One, Germans are always worried, we are somewhat famous for that, and two the media just discovered that the interest rate of savings accounts is below inflation; and therefore old people and kids are actually losing money. They have just found the real interest rate, I guess, since savings accounts have actually never been a good investment. In fact "savers" have been most likely losing money since 2003, if they chose this non-form of investment. Even in the most favorable of circumstances savings account interest barely reaches the inflation rate.

But, why should that stop the media from reporting that the "Normalbürger" normal citizen is losing money; and thereby somehow paying for the South? Zeit thinks the development is "dramatic" and the inflation rate is at the ECB target "significant". "It is the threshold at which the ECB sees price stability ENDANGERED". According to n-tv there is "talk about creeping confiscation", by the evil weather god, I guess. Spiegel's heading is:

Inflation in Germany: the prices for groceries are increasing massively.
Yeah, they do mention the weather (the others do, too), as a possible cause somewhere in the middle of the article, but since nobody actually seems to read more than the title and the first few sentences, they made their forum users, who typically aren't the smartest on a good day, go ballistic.

1.9 % inflation driven primarily by food and energy. Come on! There are reasons why core inflation does not include these, the ECB is neither a weather god nor does it own a power plant able to produce an infinite amount of electricity. But, inflation panic sells better than sex in Germany: more clicks, more likes, more moneyz!

Update: "prices in supermarkets are exploding" acoording to Bild. There is "INFLATION-DANGER" they say, I is sooo scared. Luckily, there seems to be - on any given topic - at least one sane newspaper left in Germany: TAZ actually explains the causes calmly.

Monday, August 12, 2013

Excellent Article About German Leadership in the EU

Spiegel International has an excellent article about the euro area crisis by Jügen Habermas, not much to add:

Merkel's European Failure: Germany Dozes on a Volcano

Angela Merkel's government is forcing Southern Europe to undertake profound reforms while at the same time denying its own responsibility for the consequences of its crisis policies. Germany is risking a historic failure with its shortsighted wrangling.

Over 9 Percent of Germans Working Have Side Job

More and more Germans are working side jobs in addition to their normal job. According to Freie Presse,  a total of 2.66 million workers, whose primary job is subject to social insurance contributions, now are also working so called mini-job (€400 -  €450). The share of workers who in addition to a normal job work a side job more than doubled from 4.3 percent in 2003 to 9.1 percent at the end of 2012.

The Ministry of Labor conveniently neglected to investigate reasons for this development, and could therefore speculate that one possible reason for the strong increase might be "Konsumlust" ("wish to consume",  German "Lust" is not the English "lust"). Spiegel assumes that this might have been a slip, but I disagree. The government changed the Poverty and Prosperity report, in order to get rid of inconvenient facts like "private wealth is spread very unequally"; in 2003 the poorer half of the German population had 3 % of all wealth, much more than in 2008; the share of wealth actually dropped 2/3 to 1% for the less wealthy half. The government thinks that the structural reforms should have a positive impact therefore data which suggest otherwise cannot be relevant. It is building its on Potemkin wonderland, where everything is fine and dandy and the poor are living in late Roman decadence (yeah I know it's a while back, but our Foreign Minister said what was and still actually is on the governments mind).

Of course, reforms, that force people to accept low paying side jobs in order to make ends meet, should not be considered a success; and could be used by the opposition in the election campaign. Well, sadly the formerly social party SPD and the Greens are responsible for these reforms to increase poverty in addition to making the German society less equal. Merkel has nothing to fear, but our euro zone friends should. These countries have to engage in similar, but much harsher reforms, which even if they should, some day, probably in the next decade, turn out to be growth friendly, will have created a society in which the working poor have the great opportunity to become even poorer, while working twice as hard.

Deutsche Bahn Experiencing Problems with Signalling Control

Deutsche Bahn (DB), the German, state owned railway provider is experiencing massive problems due to a lack of train dispatchers. The high number of people calling in sick forced Deutsche Bahn to reduce the amount of trains stopping in Mainz. What began with less trains at night in Mainz, the capital of Rhineland-Palatinate, has now also affected railway traffic during the day, which also now is beginning to hit at least one more state.

According to DB, all of the Rhine-Main arrea and southern parts of Hessonia are affected. But, it is possible that the situation could worsen all over Germany, since train dispatchers are in short supply. DB is now planning to train 600 new employees for the job. The company believes that it will be able to solve the issues next month, in part by trying to call  back workers currently on vacation.

If one thinks that this is a story of the state being less efficient that private corporation, one is dead wrong. The Company is still completely state owned, but it was planned to privatise it in 2008, which had to be called off due to the financial crisis. The firm is acting like a private company, and the current CEO Grube was, before joining DB responsible for Daimler in Northeast Asia (China, Korea) and development. There has been a strong push towards higher efficiency through reducing the number of workers especially in DB Netz, which is responsible for the infrastructure and therefore signalling control.

In fact, even though DB is not privatised, yet, one can already see that the critics, who feared, worse service, a lack in infrastructure investment especially in smaller train stations, and reduced number of trains stopping in smaller towns, were right. The public sector still has to finance large parts of the railway infrastructure projects, which was also an expected result of the attempted privatisation. Most critics called for keeping the infrastructure public, to not only prevent these issues, but also make a functional market possible, where smaller railway companies would not have to pay fees to the current monopolist, for using railways paid for with public funds.

Thursday, August 8, 2013

US Online Services Are No Option - When Looking for Privacy

Via Fefe. I have written about the economic impact of the NSA revelations. I concluded that new US services are no option, when looking for privacy, therefore new US tech firms were at a significant disadvantage (NATO countries as a whole should be off the table) compared to ones from neutral states. Lavabit, the e-mail service that Snowden used, had to shut down, because the owner obviously did not want to be part of what he calls crimes against the American people:

I have been forced to make a difficult decision: to become complicit in crimes against the American people or walk away from nearly ten years of hard work by shutting down Lavabit. After significant soul searching, I have decided to suspend operations. I wish that I could legally share with you the events that led to my decision. I cannot.
So everybody who thinks that using DuckDuckGo and other new seemingly private US services will keep the US government out of his/her search history/e-mail account/cloud service is wrong. Swiss services are the best option until those are available one can basically just use Google and Facebook (looking for trustworthy search engines while being logged into my google account probably wasn't the smartest thing to do...). Ixquick and start page (same Nehterlands based company) seem to be both located in the US partly, therefore probably also no real option. Metager2 is German, but I don't see that that is any better for any foreigner (oh and it is slow).

Since there are no real options available, most people will stick with the big and comfortable ones. People in the US choosing VK over Facebook and therefore the FSB (which is probably desperately trying to close dat 1984 gap) over the NSA would be awesome, though. But back to the Lavabit owner, who concluded:

This experience has taught me one very important lesson: without congressional action or a strong judicial precedent, I would _strongly_ recommend against anyone trusting their private data to a company with physical ties to the United States.

The Conservative Disinformation Campaign Begins

It took a while but now the conservative newspapers in Germany think the moment has come to start the inevitable disinformation campaign on the eavesdropping of the NSA. On the one hand, Bild thinks scare tactics are the way to go and wrote about Terror 3.0, or al Qiada as a franchise, which isn't even worthwhile to write about. FAZ, on the other hand, just, well, lies doesn't understand the story.
The "magnitude is is staggering", [Peer Steinbrück SPD] wrote in an op-ed. "Half a billion German meta-data were vacuumed"[..]. Staggering is in this context probably only the extent of the fallacy wich the chancellor candidate of the SPD fell for. Because the data, which this was about, had nothing to with German telephones or computers.
Well, really? He goes no to write that Steinbrück claimed that Merkel broke her oath"on the basis of unverified statistical information and allegations of a former secret service employee". This is how deceit in the modern media functions. This is about Boundless Informant. The Guardian has a info graphic, which the NSA (not Snowden) put into a presentation, which clearly shows that Germany is the most spied on country in Europe. The graphic shows according to the NSA (via the Guardian):

"The tool allows users to select a country on a map and view the metadata volume and select details about the collections against that country."
So we know for a fact, that the spying on German citizens is massive, we are talking China levels here.So what makes the FAZ pretend otherwise? They mixed up the whole story. There was a claim a few days ago (Spiegel wrote about it and I picked it up) that the BND (Federal Intelligence Service) was the source of the the vast amounts of meta-data, the NSA collects on Germans. This and only this seems to be not the case. I wrote:

Update: According to Zeit the BND supposedly removes German phone numbers and e-mails with the German top-level domain.  If that is true, the intelligence service "only" gives away personal data of Germans with a .net, .com, .org or any other TLD that isn't .de; additionally "only" Germans, who live abroad, are affected by the BND giving the NSA their IP addresses.
So, it might be true that the source of the data on Germans is not the BND, but this does not change the fact that the NSA does collect an enormous amount. In fact, if the Zeit information is correct, then in the BND worldview, then Peter Carstens, who wrote the FAZ article, is not German. For FAZ chose .net instead of .de. So, he is actually one of many Germans which could be sold out by the  intelligence service, if what we know about the filters is correct. But the BND not only possibly - for all we know - selling out reporters, like Mr. Carstens, but also every other German would have been quite the icing on the cake.

The NSA operates the - strangely named - Dagger complex (let's not talk about Ramstein) within Germany, but on US soil (yeah German laws don't matter at all in some parts of Germany), probably not as a vacation destination for stressed out operators. So, it is fully capable of collecting the relevant data all on their own.

The reporter seems quite triumphant that the SPD also sold out to the US, but actually, we know that every single government (thank God for Süeddeutsche) since the 50ies has done so. So, the BND working together with the NSA in Bad Aibling (small town- former NSA facility), on orders of the SPD government in 2002 does not come as a surprise.

It is not only one reporter. The whole newspaper does not understand the story. First they report that, NSA data helped finding German terrorists and now their story is that there was no data. Daniel Deckers, who wrote  the comment above, also wrote an article TEN DAYS AGO, in which the German Minister of the Interior clearly admitted that the NSA has access to some German meta-data. 
 "The authorities have to know about those who, from Berlin, communicates with those phone numbers (sic!) [from other African, Asian like Somalia, Pakistan countries] ."
Of course, the claim that it is only Germans who talk with people from Mali, Somalia and Pakistan is obviously nonsense (look at the boundless informant map). The whole point of the, let's call it, NATO spy network was that each country would uphold the liberties of their citizens, while they spied on the citizens of their friends. So nobody has a right to privacy anymore, but at the same time the governments can pretend to not be responsible.They are gutting the constitutions of all countries, and the FAZ has nothing better to do than to jump on what is nothing more than a misunderstanding; and now they pretend as if nothing ever happened. This is disgraceful.

Merkel's "Government Program" for the Next Four Years

Next month there will be elections in Germany, and every party has a program, which nobody will read, and no one in the party will care about after the elections anyways. So, up until now I had not checked the CDU government program (German pdf) for the next four years out. But, Wolfgang Münchau did take a look; and finds it that is  "shocking, because it shows no ambition". He concludes that this "program is not suitable for governing." So, I also had to take a look. It is actually, well, worse than Münchau says.

The program basically only consists of wants. The CDU wants: competitive corporate taxes, sustainable growth, research and development, a curious country, a good climate in firms, a stable currency, an independent ECB, full employment, prosperity for everybody and the euro in its current form(no euro bonds or other means of debt sharing). So, how do they want to achieve prosperity for everybody for example (page 17)?

Prosperity for all through opportunity for success and promotion for everybody
This is neither a sentence (ok it's behind a colon) nor does it make any sense, whatsoever. But fear not the next paragraph has "detail". They call this a "opportunity-society":

In a fast changing world we need a curious and imaginative Germany for a opportunity-society. Unlike red-green [SPD and the Green party], we believe in new technology and want to keep researching [in those fields]. We believe humans are capable to use the chances of new technology; and are able to handle risks responsibly. We are open for new [products], not fundamentally opposed.
This could be about genetically modified crops, if it is not, it a blatant lie about the opposition. Also,  they could have just written "me want research, it good, it produce prosperity", and that would have made more sense. The primary method of reaching the wants seems to be starring at stuff. Another example? Good climate in firms: good! How do they want to improve it? Page 23 has the answer:

Overall, we are convinced that the responsibility for a good climate between employers and employees rests primarily on the social partners [employer and unions] and in the firm.
 Good climate. yes. Doing something: no, that is not the CDU's task. In fact, they only seem to care about lower public debt, unnamed structural reforms in other countries, and R&D. On the latter they actually seem to have a plan involving corporate taxes, but they keep any specifics their secret. In fact, almost all numbers seem to be confidential. The program mentions 25 billion for infrastructure and 500 million for teachers, but there is nothing on the time frame. So, these numbers are utterly worthless.

Münchau is right this program is not suitable for governing a country. What makes it even worse is the total lack of understanding of the economy. Let's look at the "full employment" want, and pretend that starring  at unemployment will be all that is needed. So it is 2016, the CDU has looked at unemployment ("diligence, new ideas and technical progress" will achieve full employment [page 7]) for two and a half years and it has gone down to 4 percent and is close to zero in the R&D relevant fields (this last part is already true in some parts of Bavaria). Significant wage increases start to show and prices are going up. Monetary policy is not available, since it is not the ECB's job to only watch out for Germany (euro are inflation below 2 percent). What now? Higher taxes on higher income could help, or the state could reduce R&D subsidies, or much more immigration (which is mentioned elsewhere, another one of those problems they plan to gaze at) is needed, or more likely. they will blame the ECB; and do nothing.

Should we reach full employment, fiscal policy (strong tightening) will probably have to substitute monetary policy. They say they are able to achieve it then they should give at least some thought to where they want to tighten once they have reached their goal (yes they talk about sound finances all the time, but that wont be enough).

If one asks any random kid, what it would do if he/she were chancellor the second answer behind free candy, will most definitely be: "I would make sure everybody has a well-paying job." Then "taxes should not go up"; and "I want everybody to be happy." This is exactly what the CDU program is. It is the wants of a small kid. There is no substance, and "actions" (starring at stuff) have no (or only positive) consequences in a CDU world. On matters European, unspecified structural reforms will make the boo-boo go away; and then each country can be export world champion, and we can all live happily ever after.

The whole program is an absolutely horrible read, lacking any substance. Of course, the last CDU program was pro nuclear power; and Merkel had no problem to get rid of this former core of conservative policy in an instant. The election is about people, not topics; and Merkel will almost certainly lead her party to victory, which could be part of the reason for this non-program. Also, to be fair their program seems to have more substance than that of the 30%-unemployment-hell-yeah, the science-sucks and also the slave-labor-is-awesome parties.

Next, I will torture myself by reading the SPD program.

Tuesday, August 6, 2013

Economic Impact of NSA revelations Part 2

 In part 1 I wrote, that I expect Microsoft to suffer a slow hit, on both their operating system and  voice over IP business, because of the revelations, but suggested that Google and Facebook are not in danger of suffering immediately, unless there is a significant change in user sentiment, which I do not see, yet. There is one industry though that is bound to experience less revenue pretty much immediately: US cloud computing

US firms are the dominant force in providing cloud services world wide. The corporation between the companies and the NSA threatens their business model, which is based on three pillars:

  • Price
  • Availability and speed
  • Trust and security
They pretty much have through their corporation with the US government demolished what is likely the most important of the pillars, and damaged it for all similar services, no matter where they are located, because of the danger that the data are intercepted, if no adequate encryption (backdoors might be in any US based solutions) is used. Also in addition to the NSA effort, the British GCHQ stated that it wants both to dominate the Internet, and to help UK economic interest, which puts any data at risk that moves through the country, so basically everything that is sent outside of Europe (and much of the data sent within the continent), will likely be intercepted.

German managers, IT and security professionals see the US (26 %) now closely behind China (28 %) [makes me wonder if the study only allowed to choose one country] as "a high risk place for industrial espionage", according to FT. The German Chambers of Commerce and Industry expert Treier expects that the focus will move "more to European [cloud] service providers" and that companies will be in general more careful when choosing cloud or other IT services. ITIF (pdf) expects a 10 to 20 per cent drop (up to $35 billion in revenue until 2016) in foreign markets for US firms. In fact 10 per cent of non US Cloud Service alliance members have according to a study already cancelled projects with US service providers. 56 % said they would be less likely to choose an US services. The VDMA (one of the largest industry associations in Europe) is worried that the espionage is "also purposefully" targeting the South and West of Germany to conduct industrial espionage. So, it seems quite clear that the industry will significantly reduce their exposure to US cloud and therefore intelligence services.

Private Internet users in Germany are also starting to become suspicious. 19 per cent want to forgo cloud services, according to BITKOM (Federal Association for Information Technology, Telecommunications and New Media). But the organisation says that, "it does not seem likely that the behavior of people online will change". I agree with that assumption for the most part at least at the moment. The study also shows a significant decrease in trust towards states and companies, when it comes to data security. So I reckon that, if one picks a new service it will less likely be one located in the US or Britain. A much better choice is clearly Switzerland, due to its neutrality, which makes the country less likely to sell out legitimate users. There is one exception though: online office solutions like google docs might put sensitive material at risk, so there might be a drop in user numbers in that field. Something one does not have to fear when it comes to things like music online, for it is unlikely that the NSA cares if one likes Hans Zimmer or Two Steps from Hell better. So private customers will likely be more careful what data they store online and possibly look towards services in safer countries. 

German firms trust the US about as much as China, when it comes to industrial espionage and will therefore move away from US cloud services towards either internal solutions (presumably not the best option) or European (not Airstrip One) providers. It seems unlikely that private customers will also reduce the use of US cloud service to the same extend, since the data they store is typically not sensitive. Switzerland could profit strongly from their neutrality, which could in fact turn the small country into the next Silicon Valley, because any service they provide is from now on inherently better than anything any NATO country based firm has to offer (French and German governments are very much participating in the effort to dominate the Internet).

Monday, August 5, 2013

SPD Rules Out Grand Coalition Under Merkel's Leadership

The SPD is the second biggest party in Germany behind Merkel's Union of CDU and CSU. The party's chancellor candidate Steinbrück ruled out a grand coalition (CDU/CSU + SPD) under Merkel this weekend. He said that "the SPD does not want to be the stirrup holders of Merkel in a grand coalition." Basically this would mean that he ruled out a government of Union and SPD all together since it is unimaginable that the CDU would actually choose a different chancellor.

He also said that he will not enter a three party coalition of SPD, Greens and the left wing Die Linke. This means that he has ruled out the only likely coalition, in which he would be chancellor. Let's look at the parties and their current poll results. SZ has an excellent info graphic with five different polls.

  • CDU/CSU (Union - black): the centre-right parties have been above 40 % for most of 2013. Merkel is by far the most liked politician in Germany. She will probably be chancellor for four more years. CSU is a Bavarian party, and could be considered a right wing arm of the CDU, which can be elected in the 15 other Bundesländer (states).
  • SPD (red): the centre-slightly-left leaning party is the second strongest force in the political spectrum; they are currently trending at around 26-27 % (with one poll seeing them considerably worse off). Chancellor candidate Steinbrück is only preferred over Merkel by 27 % of the Germans.
  • Grüne (actually Bündnis 90/Die Grünen - green [obviously]): the centre-slightly-left leaning party with a strong emphasis on sustainability and civil liberties is currently being favored by around 13 % of the electorate.
  • Die Linke (purple): the left wing party reaches poll results of around 7-8 %. It was founded in 2007 in a merger of the east German PDS and former SPD members (WASG), who left the party due to the Agenda 2010.
  • FDP (yellow): the liberal party is in danger of falling below the 5 % hurdle in polls. There is a chance that the party will receive "borrowed votes" from CDU voters to prevent a grand coalition (less than half of the electorate favor such a government), so it is likely that they will be in the next Bundestag. 
These are the parties that will most likely be in the next Bundestag. There are two more which have a chance, but will under no circumstances be part of the next German government.

  • The Pirates: the party (currently at 3 % - orange) - concerned mostly with freedom online - will profit from Snowdens revelations. It is likely that it will attract many protest voters, so there is a considerable chance that it will be in the next Bundestag
  • AfD: the liberal, euro-skeptical, newly founded party will profit from the never ending euro disaster, and might also enter the next Bundestag. 
What are the likely coalition governments that could be formed:
  • Union/FDP: Merkel claims that she favors the current coalition. It seems rather unlikely that she really believes internally that it was a success, since constant fights between CSU and FDP, basically forced the government to stop governing in 2010 (one year in).  Next to nothing has been achieved(yeah Merkel is only big on reforms - elsewhere). Still, it is quite likely that we will see four more years of this. If we believed what politicians say before elections, then it would be the only possible coalition at this time. The electorate seems to favor ungovernments stability.
  •  Union/SPD: no matter what politicians claim before an election, I think this is still a probable coalition. The SPD is likely scared that a grand coalition will damage their brand (which the last grand coalition did), which is already very similar to the Union's . Still, when push comes to shove, it is more likely that Steinbrück will step back, and thereby make a coalition with Merkel as chancellor possible. Another problem, that has the SPD hesitating, is that several countries within the euro area might have to get hair cuts in order to prevent a break up. It is absolutely certain that no matter if Greece stays in the euro or leaves, the country will not be able to carry on without a reduction of its debt burden. The blame might fall on the SPD.
  • Union /Greens: neither the Greens nor the Union like the idea very much. Merkel called it a "figment". But there are more similarities than differences; especially after Merkel changed course in the question of nuclear power. So, even though it is not the most probable coalition it is possible.
  • SPD/Greens: wishful thinking on part of both parties. Very unlikely they will have enough seats.
  • SPD/Greens/Linke: this might be possible, but, big but, the SPD considers the Linke traitors (many left the SPD) dissenters, who are not fit to govern. On state level this coalition is not unheard of. Still, this is one of the few times, where I actually believe, that politicians tell the truth. So, even if it would be a possible coalition it seems very unlikely.
  • SPD/Greens/FDP: would be the stupidest idea ever.
So, at this time there are only three likely coalitions. Merkel will be the next chancellor, if nothing extraordinary happens. The SPD should in my opinion stay in the opposition, or risk being the scapegoat once the debt burden for Greece is reduced. Which will probably be the first thing the next government has to work on.

Sunday, August 4, 2013

Quelle Surprise

Update: According to Zeit the BND supposedly removes German phone numbers and e-mails with the German top-level domain.  If that is true, the intelligence service "only" gives away personal data of Germans with a .net, .com, .org or any other TLD that isn't .de; additionally "only" Germans, who live abroad, are affected by the BND giving the NSA their IP addresses. So the BND is through negligence selling out Germans, who live abroad, use an e-mail that does not have the German TLD - either private or by working for any German firm that has chosen .com over .de. The BND just doesn't seem to care about those people, if they could be trusted to be telling the truth, that is. I have written that the might sell out Germans in Germany directly, but let's give them the benefit of the doubt, so I changed that part of the post.

Spiegel reports that the BND (federal intelligence service) is, in fact, one of the sources of German meta data gathered by the NSA. Of course, like any good intelligence service they told parliament that they only gave two data of German citizens sets  to the US service in 2012, to save people that had been abducted. GOOD BOYS! Another great example of how good parliamentary control functions if government officiall tell blatant lies, half truths, random, totally irrelevant stuff.

The former NSA facility in Bad Aibling, which is now run by the BND, is, according to the intelligence service, one of two facilities mentioned in documents obtained by Snowden. The BND also claimed that personal information of Germans is removed from the meta data.

The BND said, that it has "no indications that the NSA is gathering personal data of German citizens in Germany." This must be considered part of an ongoing operation of the intelligence service to sound utterly incompetent; and make terrorists feel save, only to strike out of nowhere.

This is just depressing. Let's read something about a German SWAT team storming the wrong apartment. That's at least a bearable, somewhat understandable level of incompetence.

Friday, August 2, 2013

Economic Impact of NSA Revelations? Part I

The NSA eavesdropping revelations could have an impact on the Internet economy. Currently US corporations dominate many areas like operation systems, search engines, shopping, social communities, cloud servers and voice over IP. Will there be an impact on companies like Google, Facebook, Microsoft, Amazon and Apple? What about the Internet economy as a whole?

Part I

Microsoft basically has a world wide monopoly on desktop computer operating systems (OS). Most of the non-Windows OS used are Apple's (and some Linux). It seems to be the case that the NSA is informed by Microsoft about bugs before a security relevant bugs before those are patched. No government besides the US government should be using operation systems designed in the US on any of their computers and cell phones for that matter, any more. So, there should be some direct impact on Windows sales, but backdoors in the OS to help NSA spying have been known for a long time (don't believe me? Here's an article from 1999 - in English for once). That did not stop governments and companies from using Microsoft's products, in fact, Microsoft kept on growing after the year 2000.

I think this time could be different, though. the information does not "trickle-down" slowly through small media outlets. It is force fed through the main stream media, at least in Germany. Kudos to Glenn Greenwald, he found the perfect way, time and especially speed at which the revelations should be delivered. The governments are given time to make fools of themselves deny before new information comes to prove that they are not being truthful.

Of course, it is impossible for a large firm or a government to switch to a new OS within a few months, but I expect that in some countries there will be a gradual move towards locally developed Linux (or Unix) versions, which will in turn lead to more programs being compatible with Linux and therefore make it more appealing to private customers. Let's also not forget that it is typically cheaper for private consumers. Games, which drove many consumers to Windows, are today mostly played on consoles or even cell phones and Valve, the biggest online seller (and occasional producer) of PC games, has already announced a Linux based console, which will reduce the incentive to keep using a NSA more easily virus infected system.

So on the OS side of things one can expect that Microsoft will take a slow motion hit. What about Skype? You should not be using it. It's that simple. All https links one posts into the chat will be (or at least did get) visited a short time thereafter by a NSA Microsoft bot. Of course, Microsoft told Heise, who made it public, that this is about phishing, but that makes no sense whatsoever since the same does not happen to http links. Also, this is done a few hours after the link is sent, which makes it less likely that this is an attempt to help users and more likely done to mask the spying. So, Microsoft does (or did) actively spy on all their Skype users looking specifically for https links and is very much in bed with the NSA, so why don't we see the user numbers drop now? Well, I see three reasons 1) such information wasn't of much interest to the main stream media, therefore most people did not know about it, 2) it is unlikely that the people who stop using Skype delete their account, they just uninstall the software, and 3) customers did not care, since at the time Microsofts claim, that the bot is there to help, was somewhat believable.

All this might have changed now. The public especially in Germany is  more interested than before, therefore a story about obvious spying by any company will create more clicks. More clicks equals more money, so the mains stream media will become much more interested in investigating these matters. The customers will automatically connect the acts of US firms to the NSA which could lead to some users to stop using for example Facebook or Skype. This can become a death-spiral for  a service that is based on trying to get as many people involved through real name registration as possible, since the more of your friends are using Facebook/Skype the more likely it is you are spending a significant amount of time there. Once the numbers start falling even the friends will automatically spend less time online, which will reduce the add revenue. There are just less people to talk to, pictures to look at, and links to click. If you spent less time on a specific service other friends will in turn see less new information, when they log in, reducing their online time. The might even see some social pressure, since some people might start looking at Facebook users funny.

But, big but, people have spent time to create their online image on Facebook, some on google+, most of their friends are there, parties are organized and documented (not always good for one's career I guess) on the platform. Surfing does not have to be a lonely activity anymore because interesting links can be shared. We as a species are slow to change habits. Facebook, Google and Skype are comfortable. Heck, I am thinking about leaving blogger, but haven't done so. Size matters very much, the more friends are on some service the more likely it becomes that I use it, too. Also there has to be a service available which offers at least similar functions, without the risk of getting spied upon. That more often than not just isn't the case. So, I do not expect Facebook to take a significant hit. In fact, unless a comparable service emerges in a neutral country like Switzerland, I think not much will change for Facebook. Sentiment would have to change significantly before people start abandoning services they have come to like. The sheer numbers will keep attracting new costumers to Facebook, while some may be leaving it, but there are far more "nothing-to-hiders" out there than people who care about their privacy. Still,Tox has potential to damage Skype in the near future, since it offers very similar functionality.

But, I see much bigger problems for US start ups. They will have a hard time to convince their users that they will not become part of the spy-complex at some point in the future. What good would it do to switch to another US service if they have to at some point let the NSA in anyways, because of a secret court order? So, DuckDuckGo just isn't an option because it is based in the US. Yes, they seem to genuinely care about privacy, but at any point they could be forced to accept that the NSA records search data anyways.

Currently, I expect that especially Microsoft, who not only have a pretty bad image already, will see some damage to their business, through reduced orders of their OS, this wil also impact office sales, and dropping Skype user numbers. Other firms like Facebook or even Google will see some impact, but for it to become significant, we will first have to see competition, which is based in a neutral country, and consumer sentiment would have to change. Currently, customers are interested in news about the eavesdropping, but only a small minority is alarmed. This could change, depending on further revelations, but at the moment there is no reason to believe that the other US behemoths will be hit hard. Consumer sentiment might change once it has become clear that NSA is not really about preventing 50, 54, 12 (or less) terror attacks.