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Über Alles After All

Europe’s German future.

Feb 13, 2012, Vol. 17, No. 21 • By CHRISTOPHER CALDWELL
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Credit is frowned on. There are quite elegant restaurants that don’t take credit cards, and installment buying in general has been slow to take hold. Walmart tried to expand into Germany in recent years but had to close all 85 of its stores in 2006. Germans didn’t take to the faux-smiley demeanor of Walmart’s employees, and the company found it hard to keep prices low while complying with national labor laws. The car loan market is underdeveloped. Home equity loans are practically unknown. That is one reason why Germany had no mortgage bubble of the sort that upended so many Western economies over the last decade. Another is that Germany does not really have an investment banking sector as we would understand it.

Germans usually explain their eccentricities about credit by referring to the hyperinflation with which their leaders tried to mitigate the burden of reparations from World War I. Germany’s treasury printed so much money that, in 1923, prices were quoted in the trillions of marks, shoppers pushed their shopping money around in wheelbarrows, and restaurant menus were edited hourly. That inflation, and the austerity required to purge it, may have played a role in the rise of Hitler. Germans associate their emergence from the rubble of World War II, by contrast, with the deutsche mark, the currency set up under American military rule, and the Bundesbank, the conservative, incorruptible, and coldly competent institution established to preserve its value. Bundesbank presidents were revered figures, more often than not at loggerheads with the elected chancellors they served. And they cast their shadow over German democratic politics, according to Klaus-Dieter Frankenberger, foreign editor of the Frankfurter Allgemeine Zeitung. “You don’t advance your electoral prospects by loosening the tap of monetary policy,” Frankenberger said this fall. 

The German public was dragged into the euro reluctantly and would never have consented to it had they been consulted. “The euro has always been the ‘Golden Calf,’ so to speak,” says Barclays’s economist Thorsten Polleit. “It was forced upon Germans.” There is still a lot of debate about how it was forced upon Germans. The most common explanation is that French president François Mitterrand insisted on the euro as a condition of Germany’s reunification. A number of Germany’s top politicians and economists assured citizens that the new currency would hold prices stable. That turned out to be right. They also promised that this would not mean sharing wealth and bailing out laggards. That turned out to be wrong—and perhaps catastrophically, apocalyptically wrong. In the late nineties, “many chief economists did a lot of client presentations where they told people the euro would be as stable as the German mark,” says Jörg Krämer, chief economist at Commerzbank. “I am quite happy I was young enough not to have had to do this.” 

In Berlin, Germany’s political capital, one can still occasionally hear the argument that Germany is the “main beneficiary of the euro.” It is an export-dependent economy, after all. Without the euro, Germany’s money would appreciate against that of its neighbors. Those neighbors would therefore buy fewer German goods. But among the bankers of Frankfurt, the country’s finance capital, this argument cuts much less ice. In his office at the top of Deutsche Bank’s twin towers (known in town as Haben und Soll, or Profit and Loss), Thomas Mayer, the bank’s chief economist, warns against the view, common among nonspecialists, that a weak exchange rate makes an economy more competitive. “A weak exchange rate is good for old industry,” Mayer says. “They can sell outdated products at cheaper prices. A strong exchange rate forces you to continuously adapt to new technology and consumer tastes.” He gets no argument from Hans-Werner Sinn of the Ifo Institute for Economic Research in Munich, who says, “It is ridiculous to say Germany was the winner of the euro.” Sinn notes that from the mid-1990s—roughly the time when Europe’s interest rates began to converge on the euro—Germany has had the second-lowest growth rate (behind Italy) in Europe. If Germany is profiting now, Sinn thinks, it is partly because its savers no longer dare to take their money out of the country.

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