Monday, September 30, 2013

Short Note: Switzerland Conducting Military Maneuver in Which the French Attack

All militaries undertake maneuvers. Typically, they want to train for a realistic scenario. In Germany it was "Red Land" attacks "Blue Land" in the past; and Germany being part of the latter was the first line of defence.

Switzerland, which has no enemies felt it had to get a bit more creative, according to Tages Anzeiger. Their scenario was that France breaks up due to the crisis in the eurozone. One of the new states thinks that Switzerland is responsible for their woes, so they try to acheive debt forgiveness by conducting terrorist attacks. [The simulated French "plan" sounds a bit mad, but so is shutting down a government to try to reach an unachievable goal, or breaking up a coalition to blackmail the president into giving amnesty to Berlusconi. Mad but not unrealistic, I'd say.]

A Swiss tank brigade had to fight off that enemy. Of course, France isn't happy with that scenario. Also, this isn't the first time that Switzerland has trained for a eurozone breakup. Last year, in a similar scenario the country simulated the army having to keep refugees out of Switzerland.

In my opinion, a euro breakup is the only realistic scenario in which Swiss troops would have to fight, since the country is strictly neutral and the army is used almost exclusively for defensive purposes, though they did participate in the KFOR mission in Kosovo. So, I don't understand the French criticism that Switzerland should rather train for "threats of the 21st century." They would have been right three years ago, but the utter incompetence of the leadership in the eurozone has turned such scenarios into possible "threats of the 21st century".

Bundesliga Matchday 7 Roundup

Roundup below the fold

Sunday, September 29, 2013

Siemens to cut 15,000 jobs

Siemens, the Munich based engineering and technology firm, is in the process of cutting 15,000 jobs worldwide 5,000 of these in Germany. The companies industrial sector with the fields automation, propulsion, and services is the most affected in Germany, according to a spokesperson.

First major victory for ICSIF

The International Conspiracy To Sap And Impurify Our Precious Bodily Fluids (ICSIF) has achieved its first major victory. (I wonder why almost nobody read that post) Italy probably does not have a government able to do its job anymore, now that Berlusconi has withdrawn his ministers from their post. Prime minister Letta will try to find a solution next week, but it seems unlikely that anything but new elections are possible. 

Beppe Grillo could be quite happy that the "establishment" is just as incompetent and unpatriotic as he always claimed.  His five star movement, which looked like it was getting weaker, will now be stronger than ever. He rightly wrote that "what has died is democracy" in his recounting of the events that led to this government, which was bound to fail from the beginning. 

How are the other fronts that ICSIF is fighting on looking?

  • Nothing new on the western front: the republicans will most likely force a shutdown of the US government. Stan Collender sees a 90 percent chance that it will happen.
  • Greece banned a protest march by special forces reservists, who seemed to be calling for a revolution. They are also arresting members of the neo-Fascist Golden Dawn party
  • In Germany the euro and Europe play absolutely no role at the moment. The after election talks are about if Germany should increase the top tax rate or not. All parties seem to think that we are some kind of island that cannot be affected by the chaos that we caused and which surrounds us. 
 Oktober will be a very interesting month. It is quite understandable that Greek citizens are extremely disenchanted by the German election result. Germans have likely voted for four more years of destruction in Greece.The ICSIF might just win if Greece becomes less stable and the German Constitutional Court decides that the Bundesbank cannot participate in the ECB's OMT program.

German Tea Party

I have written, that the CSU (sister party of Merkel's CDU - together they form a Union in the Bundestag) is completely void of any economic knowledge. Just in case somebody thinks that that was a hyperbole. I give you CSU party leader Horst Seehofer:

For possible talks about the forming of a coalition with the SPD or the Green there can only be one basis: the party program of CDU and CSU. In there you will find nothing about either tax increases or higher debt - quite the opposite! The foregoing of higher taxes and higher debt is a brand essence of the Union.

I think that for him higher taxes and higher debt are more than random phrases he knows little about, other than that both are bad. So, for him it makes sense to put them into a sentence. Of course, higher taxes would mean higher revenue and therefore lower debt, but Seehofer doesn't care.

Fun fact: he also ruled out a coalition with the Greens just a few days ago. He doesn't seem to do that anymore. 

Friday, September 27, 2013

Germany As Currency Manipulator

Paul Krugman today wrote about Germany as a currency manipulator.

"The general point is that if we imagine a euro breakup, I think everyone would agree that the new mark would soar in value, making German manufacturing much less competitive.
Well, I guess I am not everyone. A euro break up would wipe out most of the banking sector in Germany, so no I don't think that the new mark would soar at all. But the general point that Krugman seems to be making is that the euro is weak, much weaker than the mark would have been if the euro had never happened. But, I also disagree on that point.

  • Compared to the yen, the euro is today 33 percent stronger than it was one year ago.
  • Dollar 5 percent stronger
  • Pound sterling 5.8 percent stronger
  • Rouble 9.6 percent stronger
The euro is now relatively strong compared to other currencies. The German trade balance is below what it was in 2008. Non domestic new orders have been pretty much unchanged for two years now.

Add in inflation and the German trade surplus is actually becoming smaller. I think the picture we are seeing is that the euro is pretty close to the level that the Deutsche mark would be. Is this good or even acceptable? Hell no! This is an absolute disaster for all other eurozone countries. Germany needs higher inflation, much higher inflation. It is a pretty strange situation in Germany wages need to be higher and at the same time the ECB should try to weaken the euro to get all other countries more competitive.. But, the German media starts crying Weimar if we even get close to two percent. 

One more thing. Krugman shows a graphic of Target2 to support his point. But the German Target2 net position has been falling, without affecting the trade balance at all, since the announcement of the ECB OMT program in 2012.

So, yes Germany is a currency manipulator. It is keeping the euro stronger than it should be. Either Germany starts accepting high inflation, or it should leave the euro.

Thursday, September 26, 2013

International Conspiracy To Sap And Impurify Our Precious Bodily Fluids.

I mentioned several reasons yesterday, why it is possible that the new German government might have to fight a battle for the euro they cannot win. I included the Republicans and their most likely successful attempt to damage the reputation of the US. But we are seeing struggles against sanity for the purity of our bodily fluids elsewhere, too.

Merkel and Europe

Will Germany change course on austerity after the elections? The German news media is divided on the issue. But, Merkel's next coalition partner will either be the social democrat SPD or the Greens, both want a less austerity and both want eurobonds.

Monday, September 23, 2013

The Past Coalition Partners Of Merkel - Or Why It Seems Possible That Merkel Will Not Be Chancellor For The Whole Term

Merkel will clearly be the next chancellor of Germany. But the fate of the two former coalition parties the social democrat SPD and the liberal FDP should be a lesson for her next partner.

Election - Afterthoughts - Four More Years?

As expected Merkel will lead the next Bundesregierung (federal government). What came as quite a surprise is that she almost could have done it without a coalition partner, since neither the liberal FDP (her former coalition partner) nor the AfD, the euro-sceptical party, managed to jump the 5 percent hurdle to get into Bundestag, which reduced the percentage needed to get the absolute majority in the next Bundestag to around 42 percent. Merkel's CDU/CSU Union got 41.5 percent. An improvement of 7.7 percent over the result of 2009. A excellent result for the party, but overall the next Bundestag is definitely not what Merkel wanted.


Which coalition can be expected and what might happen in the next four years?

Friday, September 20, 2013

German Elections On Sunday Will Be A Very Close Call

On Sunday German citizens will decide who will govern the country for the next four years. The final polls are in and it looks possible that the current coalition of CDU/CSU and FDP will come to an end. The federal elections have become a very close race on the last few meters. So which are the possible coalitions and which parties will be in the next Bundestag?

Wednesday, September 18, 2013

Realpolitik in Syria And The Appeal To Incompetence

We know that Sarin was used (by whoever) to murder a high number (1400) of civilians. What we did not know until today is: who was the idiot who provided Assad with the chemicals needed to produce the nerve agent. Today we learned that last decade we - ze Germans - did not care as much about the lives endangered by the gas. So we exported 90,000 kg HF to the dictator. Hydrogen fluoride (HF) is essential in the production of Sarin. But fear not Merkel has stated that she has no evidence that it was our HF which was used to produce the gas.

This seems to be our newest general-purpose-government-self-defense. They say they don't know a thing therefore they are also not responsible for anything. It was used to great effect during the NSA scandal. It is a completely new propaganda technique. We shall call it appeal to incompetence. We have no knowledge that [enter random argument]:

  • Assad used a chemical needed for the production of Sarin in the production of Sarin.
  • The NSA spied on German citizens
Excellent. Merkel will get more than 40 % of the vote on Sunday, which shows just how well the appeal to incompetence works as a tactic.

The chemicals were exported during the time of both the first Merkel government and Schröder's red-green coalition (2002-2006). When it comes to exports in Germany it has always been: Erst kommt das Fressen; dann kommt die Moral (First comes the eating then come morals). Today it is Erst kommt das Fressen, then comes a claim that they don't know anything. No more morals. Realpolitik über alles.

Economics vs Engineering

I like reading Noah Smith's blog. But on Wednesday, he tried to compare economics to engineering. He wrote:

Just as some engineers study computers and others study nuclear reactors, some economists study taxes, other study financial markets, and still others study how psychological biases should change the design of policy. So to use the chaos in financial markets as a reason to discredit all of economics is analogous to discrediting all of engineering on the count of a Fukushima disaster.
There were two major nuclear catastrophes to choose from. He picked the wrong one. Not only that, engineering in general is nothing like economics at all. Let me try to explain:

Tuesday, September 17, 2013

So Schäuble Has Made A Fool Of Himself...

Schäuble just couldn't keep quiet after one single quarter of growth in the eurozone. He had to claim that:

What is happening turns out to be pretty much what the proponents of Europe’s cool-headed crisis management predicted.
No it isn't. Quite the opposite is true. It cannot be repeated enough. The country which saw the highest growth rate was Portugal. Portugal's Constitutional Court, ruled may of the austerity measures unconstitutional, and once the self defeating austerity was gone the country recovered at a pace of 1.1 percent in a single quarter. The other southern countries are still contracting.
Ambrose Evans-Pritchard wrote an excellent article explaining pretty well why Schäuble's claim is complete bogus. 

Just a few nitpicks:
  • The German Constitutional Court is in now way in the pocket of Schäuble. The laws that Merkel's government creates get mowed down faster than they can make their unconstitutional stuff they call laws up. In fact even the German voting law was unconstitutional and they barely managed to make a new one in time for the election on Sunday.
  • Schröder's "reforms" "achieved" a lot of things e.g: they created a gigantic low wage sector, in which the work is subsidised by the government so people can make ends meet. More than every fifth worker is in that sector (meaning they get payed less than 9 euros an hour). Germany does not have a minimum wage, which has lead to some - let's call them - creatively low wages. The country now has two labor markets, one with secure jobs and one to exploit everybody else. Two are always better than one. Pension reform has made many in finance obscenely rich; and the best part is the money one is "saving" isn't yours anymore (in the so called Riester pension); it cannot be inherited, once a single payment to the pensioner is made. It created a strong leech industry with negative productivity, since those people are nothing but a tax on anybody that now is trying to save up for retirement. 
  • He should have emphasised more that even if austerity had been a success, then the depreciation of the currencies of Brasil, Russia, and India in the last month completely negated any competitiveness improvements in the South. Three years of chaos and destruction and it all went down the drain in a single month. Germany now has trouble exporting since Abenomics is doing exactly what it was supposed to. This might very well be the finishing blow for the euro.

Monday, September 16, 2013

Mommy, The Mean Kids Are All Throwing Curveballs Again

So, the UN presented their findings on the use of chemical weapons in Syria. They did not provide any new insight on who fired those weapons still, the USA, Aistrip One formerly known as "Great" Britain, and France have all come out and out of thin air claimed that this is the case.

Bundesliga Matchday 5 Roundup

 Matchday 5 roundup below the fold.

Bavaria Deep Black Again

Bavaria held state and regional elections this Sunday, one week before the Bundestagswahl (federal elections). The CSU (party color: black) - the Bavarian only part of Merkel's CDU/CSU Union - recaptured the absolute majority. Five years ago, the CSU was forced to form a coalition with the liberal democrats, who captured 8 percent of the vote.

What can we learn from this result for the federal elections next week?

Thursday, September 12, 2013

Football, Violence and the Police

A debate about violence in football stadiums in Germany has been going on for some time, now. An police report stated that the number of people injured had increased significantly. At the same time a media campaign was launched to get rid of pyrotechnics at games. This included the burning clothes live on TV to illustrate the dangers, but to my knowledge no person that was actually injured by a flare in a stadium could be found. Then, few weeks ago, during the Champions League qualification game between Schalke 04 and PAOK, a police action against Schalke fans sparked an outcry, and now has escalated even further.

German Economists Against ECB Bond Buying on the Secondary Market

The Bundesverfassungsgericht (German Federal Constitutional Court) will rule within a month if and up to what scope the Bundesbank is allowed to participating in secondary market bond buying schemes like OMT. 136 German economics professors signed a plea letter claiming that these are against the law. Specifically, they mention Article 123 of the Lisbon Treaty which prohibits direct bond purchases by the ECB. So, buying bonds on the secondary market is allowed. The economists therefore had to undertake significant intellectual gymnastics to also pretend that these are illegal, too. It was an answer to a similar open letter by for the most part foreign economists.

Wednesday, September 11, 2013

State of the Union

Barroso held a "State of the Union" address today. If it weren't so sad one could be inclined to call it an excellent comedic performance, something an actor of SNL would say to make fun of the European Union.

Seriously, I do not want to live in this "Union" anymore. He started out by blaming the US for the unemployment crisis in Europe. It should be absolutely clear to anybody that unemployment started to get completely out of hand after our genius "leaders" came up with a plan to "restore confidence" through austerity. Countries like Iceland and Turkey are performing better than anybody who received "help" from the euro austeritians.
It is downhill from there:

Secundary Effects of Austerity are Coming Back to Haunt Us

The consensus of the austeritians about what was ailing the eurozone was the lack of competitiveness. More precisely, productivity did not increase in line with the wages in the crisis countries, therefore they became less competitive, which led to a negative trade balance. The only cure they saw was imposing harsh austerity on these countries, which resulted not in increasing competitiveness; but caused mass unemployment and outright destroyed industries. Of course, the imports completely collapsed in the program countries, which lead to fast "improvements" of the trade balance. But the policy has not only failed completely in the eurozone, since we are still not back to the level of 2008 and will not be until 2015, no it now also becomes quite clear that the secondary effects on especially Asian countries might even endanger the minimal signs of hope we have seen in the second quarter of 2013.

Monday, September 9, 2013

Economics is not Science - ECB Working Paper Edition

There is a ongoing discussion if economics should be considered science. I personally think that not being able to test any policy in a controlled environment without external influences keeps it from being and possibly ever becoming science. This brings me to a recent ECB working paper by Nickel and Tudyka titeld "Fiscal Stimulus in Times of High Debt"(pdf).
They argue that an increase of 1 percent in government consumption at a high debt to GDP ratio might cause a complete collapse in private investment, GDP, and significantly improves the trade balance a few years later; aka massive austerity.  Sorry, I am not buying that at all. Here is why:

Friday, September 6, 2013

Who Cares About Central Bank Independence?

In Germany politicians often talk about central bank independence, they profess that it is absolutely necessary in modern economics. But is that really true? A few examples: