Lowest Common Denominator

Germany still does not have a new government. The talks between Merkel's CDU/CSU Union and the social democrat SPD are stalling. In fact, the only real agreement seems to be on a a quota for women on corporate boards. But, the discussions about a minimum wage (the SPD wants €8.50);  mothers' pension (for mothers of children born before 1992); or the toll for foreigners on the Autobahn that the CSU wants are going nowhere. This weekend the CSU leader Horst Seehofer hinted at new election as an option. Only two things seem certain: this will be the longest time Germany has ever been without a new government; and the next government will likely be one based on the lowest common denominator.

More Surveillance In Germany?

Snowden's revelations have shown the world that the US and British governments cannot be trusted. Additionally, it is very likely that many if not all allied intelligence services aided the NSA and GCHQ; and also used similar methods though likely on a smaller scale, which is probably much more of a funding issue than anything else. Some believed that there would be a change in thinking now. The current coalition talks in Germany show that this is the case, sadly in a very different direction than many expected.

Using The Right Words When Criticising German Export Dependency

This weak both the European Commission and the US Treasury Department have criticised the German export dependency. The "Report to Congress on International Economic and Exchange Rate Policies" uses untypically clear language:

NSA, Merkel's Phone, And Hypocrisy

According to Spiegel, Angela Merkel's private phone "might have been tapped" "for years" by US intelligence. Of course, the Bundesregierung "unequivocally disapproves". When the revelations were still about the German citizens her Minister of the Interior Friedrich called the critics "anti-American", and "naive".

Minimum Wage In Germany

Coalition negotiations between Merkel's CDU/CSU Union and the SPD will begin shortly. One of the major issues was the minimum wage of €8.50 per hour, that the SPD wants. Many German economists fear that jobs will be lost. They are right that this might be the case in the short term but in the long run they are absolutely wrong.

What's Happening In German Politics

First up, Germany doesn't have a new Government yet, but the Greens will not be Merkel's next coalition partner. This isn't really news, a so called grand coalition with the SPD (new labor) was much more likely from the start.

Second, Merkel prevented a new EU compromise on car emissions. She wants higher Super Credits for environmental friendly cars, which basically just means counting these vehicles more than once when calculating the average fuel consumption of the whole automotive manufacturer's fleet. I have written  about super credits (counting electrical cars more than once against the CO2 emissions of the whole fleet) before; and described why I think they are important:

Super credits have the potential to increase the production capacity of zero emission vehicles, and also give companies an incentive to accept lower profit margins on these, therefore Merkel was right to stop the current proposal.

 So, again I completely agree with Merkel to stop an idiotic regulation based on fantasy assumptions of how much development potential is left concerning conventional engines. Also, we in the current form the regulation favors plug-in hybrids. Plug-in hybrid only produce less CO2 if one ignores the fact that more needs to be used in the production for the second engine and that the current German electricity comes in large parts from coal and lignite.

Still, CO2 regulation has become important for another reason. The CDU's biggest donor is the Quant family. The BMW shareholders gave €690,000 to Merkel's party this week. Of course, one would have to be an idiot to think that the Germany's biggest party can be bought with €690.000, still the timing is absolutely mind boggling.

Instead of a discussion about the size of super credits (should electrical vehicles be counted twice or thrice against the rest of the car fleet, for example), we now have a discussion about corruption. Super credits make sense since the buyers of large cars will cross finance zero-emission vehicles and thereby make them cheaper, but I have not seen a single article in the German media talking about this fact.

Other than that nothing will be happening until the coalition contract is written, which might take a while. Also there is a very small chance that we wont see a grand coalition in the end which would mean that there would be new elections, but that is extremely unlikely.

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.

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:

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.

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 FAZ.net 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.

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.