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Jim O’Neill on Germany’s weaknesses

Jim O'NeillGreat piece by Jim O’Neill in Saturday’s Telegraph about the challenges facing Germany and her new government.

Jim argues that a number of factors make Germany’s future look less certain than many might think given the way her world-beating manufacturing industry has exploited growing demand in the growth markets of Asia, the Middle East and Africa, and the country’s current economic and political dominance in Europe.

Jim cites Germany’s poor demographics, unexceptional productivity levels, her reliance upon exports to Asia and the Eurozone conundrum facing Berlin’s political elite as reasons to question whether the country’s outlook is as bright as some think.

You can read the full article here: http://www.telegraph.co.uk/finance/economics/10356737/Germanys-economy-like-its-football-teams-does-have-some-weaknesses.html

Some thoughts on the 2013 German elections

I spent much of the last week in Berlin attending NEXT13, where Harper Reed delivered the (brilliant) closing keynote on day 1.

While I was over there, I took the opportunity to meet with a number of interesting figures in business, politics and journalism, and it was illuminating to hear what they think will happen in the German election in September. Of course not everyone had the same views, but there were a few things that kept coming up in my meetings, and that they all seemed to agree on. It’ll be interesting to see whether Sir Michael Arthur, Gisela Stuart MP and Jon Snow, who are discussing the German elections at ATG|Chartwell’s next Breakfast Discussion on May 8th, agree…

 

Merkel’s popularity doesn’t mean she’ll win

In British politics there is usually a correlation between a leader’s popularity and his/her party’s electoral success. Therefore many of us on this side of the Channel assume Angela Merkel’s 68% domestic approval rating (as of April 2013) will translate into a thumping great victory come the September election. However, in Germany party loyalty is the strongest determinant of voting patterns, not leadership approval. Merkel’s popularity does not, therefore, imply CDU/CSU dominance at the polls. As a result the election is still finely balanced, and no one is prepared at this stage to predict who will be able to form a governing coalition.

Whatever the outcome, there will be a general policy shift to the left, with implications for Anglo-German relations

A country with already strong social democratic instincts, the German electorate is increasingly sensitive to issues of inequality post-financial crisis. As a result, whoever wins, we are likely to see a policy shift to the left involving (i) higher income tax rates, and (ii) a push for some form of financial transaction tax. The latter is likely to stoke tensions with Britain, which is anxious to maintain the competitiveness of the City.

The German drive for austerity in the Eurozone periphery will continue

As unemployment continues to soar in the Eurozone periphery and the chorus against austerity grows more deafening by the day, many say Germany must be prepared to let its wages rise relative to production if the currency bloc is to stay intact.  Eurozone imbalances can only be solved, they say, by a combination of austerity in the periphery and German reflation of demand, not by austerity alone.

Perhaps, but this is unlikely to happen. The feeling among German workers, business owners and politicians is that they did their homework under Schröder, and now it’s others’ turn to do theirs. This frustration with the South is reflected in increased bailout fatigue and the recent ­­­rise of Die Alternative, a political party dedicated to getting Germany out of the Euro.

Gideon Rachman on the dangers of diminishing democracy

A perceptive piece in the FT today from one of our favourite International Affairs commentators, Gideon Rachman: Mario Monti’s commitment to an unlimited bond-buying programme to preserve to Euro may appear to have calmed markets, but there is a danger it will come at a high political cost.

The German parliament and courts are unable to challenge the ECB decision because the bank is an EU institution. The result is that German taxpayers find themselves potentially on the hook for billions, without being able to reverse the decision at the ballot box.

On the other side, countries whose bonds are bought would have to have their budgets supervised by the IMF and directed from Frankfurt or Brussels. This would deal a rather nasty double blow of national humiliation and recession, a potentially toxic cocktail that could lead to the rise of political extremism (indeed, in Greece it already has).

An angry and isolated Germany on one side, southern European countries mired in recession and political extremism on the other. How can that possibly end well?

To find out more about Gideon Rachman, or to book him as a speaker or moderator for your conference or event, please contact Leo von Bülow-Quirk at leo@chartwellspeakers.com or call 0044 (0) 20 7792 8000.

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