How cosmopolitan should Germany be?

Here is one report:

There may be a crisis in the eurozone, but the shopkeepers and stallholders on German streets are expecting another bumper season. The financial markets are in disarray, but consumer confidence in Germany is up.

Total unemployment is at a 20-year low.  Here is another report:

…the Munich-based Ifo institute reported restrictions faced by German businesses in obtaining credit had relaxed this month – despite the weaknesses across much of the eurozone banking system.

The percentage of companies complaining about restrictive credit policies fell from 23.1 per cent in October to 22.4 per cent in November – one of the lowest figures recorded since the survey started in 2003, according to Ifo.

It’s fine to assert that a bigger and badder eurozone crisis will crush the German economy, and maybe it will, with reasonable probability I would say.  But a lot of the Germans don’t think so, and I see a lot of — I’ll call it moralizing rather than wishful thinking — unjustified claims about this topic, every day now.  Germany is selling more and more to developing nations.  And if the euro evolves into a northern European currency it will be stronger but that is unlikely to destroy German exports.  Switzerland is struggling in export markets, but for a long time they have succeeded with a strong safe haven currency.  Germany has had a stronger currency in the past and they did well before the eurozone, believe it or not.  Germany might rather have “the Swiss problem” than co-write loans to Italy.  They just need to survive the transition.  Keep in mind that, unlike with a TARP to U.S. banks, there are no realistic conditions under which Germany can simply foreclose on the fine nation of Garibaldi and Cavour.

Everyone is saying Germany should do the cosmopolitan thing and underwrite the weaker countries.  I am a cosmopolitan but I have questions.  Are those people consistent cosmopolitans?  What should the United States be doing today for other countries?  For Mexican immigrants (as opposed to American bondholders to Mexico)?  For China?  Are we doing it?  Are you advocating it?  I don’t see it.  What are we doing for Mali?  That’s real suffering, yet we ignore it without much guilt.  Should we feel worse, if we had written and ratified a treaty specifying that we are not obliged to bail out Mali?

Here is one recent report about the plan the EU has in mind; we will see soon enough.  Here is evidence that some kind of big plan — or at least a plan for a plan — is coming soon.

Comments

"Everyone is saying Germany should do the cosmopolitan thing and underwrite the weaker countries."

...everyone except the market monetarists, who are saying that the Germans need to give up their stranglehold on the ECB and allow it to return Eurozone NGDP to its pre-crisis track. For me that is the root of German moral inferiority; to the extent to which they demanded the ECB be mandated only to fix inflation, this is actually their fault. But of course, the ECB's policy has been as perfect for Germany as it has been awful for the rest of Europe, so their actions are fairly understandable. Comparison of German NGDP to rest of Europe here: http://macromarketmusings.blogspot.com/2011/11/if-germans-were-serious-about.html

Oooh this is timely:
http://www.bloomberg.com/news/2011-12-01/franco-german-push-for-budget-rules-snubs-investor-bid-for-ecb-crisis-role.html

Best line:
Merkel said policy makers have to assert “primacy” over the markets in “a kind of battle.”

In any case, I'm not pushing for them to make a bunch of transfer payments or something. I think it would be fine if Germany just, say, left the Euro. But their firm control over the ECB and their love of "battling" against markets has really got to go.

Tyler and y’all should have some faith. Germany spoke this morning.

Europe's leaders and technocrats are following the *ideal* and *necessary* crisis-induced policy sequence outlined in my book on capitalist developmental crisis.

In 9 days I may eat my words, but this is something worthy of optimism.

http://www.ft.com/cms/s/0/1da18096-1cc1-11e1-8daf-00144feabdc0.html
Michael G Heller | December 2 9:43am | Permalink

Wonderful. In 8 days the classic technocratic crisis-induced policy sequence of reform to legal institutions begins on a *cosmopolitan* scale. This move has the potential to be viewed as an epic event for humanity in the history of capitalism.

Being discussed here is a solution to problems that made Immanuel Kant (the international republic) and Max Weber (the impersonal state) anxious, and which remain with us today.

In 2011 there were in reality only the options of creative destruction (the informal market path of liquidation that Joseph Schumpeter would reasonably have been content with), or creative construction (the formal legal-institutional path that Germany is doggedly pursuing in the spirit of Kant or Weber).

Neither path would be wrong. Rather, ‘wrong’ was the crisis-suppressing action of being at a fork in the road, being afraid, and defeatist and cynical, and refusing to take either path. Onwards Europe!

Michael G Heller
Capitalism, Institutions, and Economic Development (Routledge 2011)

The collapse of the Euro might be catastrophically bad for Germany. Even if there's a good chance it might turn out OK, that's a risk they can't take. There's no way to know what would happen, and so no responsible leader would take that risk. It would be too big of a gamble, even if you believed the odds were good of a smooth transition.

That's exciting, but I have my doubts that your prescription is binding. Lot's of things that "can't" happen do.

The VAST majority of "can't happen" things don't happen.

Most things that can happen don't usually happen either.

But then, sometimes they do. I'd like to say none of us would be here if that didn't happen at times, but that isn't true. What is true is often people assume things can't happen, that certainly can happen.

We can speculate as much as the collapse of the Euro. The Germans are such things do not even think. Who of us is right - we'll see in a few months.

Bailing out the periphery is also a huge risk.

People will always go with the risk they think they understand rather than the abyss they cannot fathom.

So much hyperbole. The Euro didn't even exist before 1999 and Europe (and the world) somehow managed to function. It wouldn't be pretty and some banks would go down hard, but the Euro collapsing is very fathomable, and not the end of days.

Even if there are good reasons to think you are right, it is still a huge risk. Why would a political leader want to take such a risk, especially since she'd have to deal with the aftermath of such a decision and be blamed if it went badly? Who would take a path that "wouldn't be pretty" when there is an alternate path that had a reasonable chance of succeeding prettily?

It has nothing to do with a return to national currencies. The unknown risk is how to return to national currencies. I feel confident in the Euro for exactly KenF's reasoning. We can devise all kinds of mechanisms to make it as smooth a process as possible, but because all solutions will be amazingly complex, policy makers and bankers alike will never consider them.

How many Americans were worried about the state of the economy in 2007?

More and more every day. Like the amount of French participating in the resistance.

If I feel the impulse to give money due to my delta between my wealth and their poverty, I want to decrease that delta. Just reducing my wealth isn't the part I want to change.

The US already did it in 2008, when it bailed out a bunch of EU banks by bailing out AIG. It's kind of hidden from the electorate, and it can be argued whether it's good for the US, but US pays for its leadership and influence in the world.

What's Germany gonna do to justify its leadership position in the EU? Why should any country choose to follow them at this point?

Are you suggesting humans prefer the ugly responsible leader over the handsome irresponsible leader? You are mightily incorrect. Germany has it's economy in order and that means other countries want to stand as close to them as possible. Signaling is real and important.

At the level of countries in the EU, which do not have that much empathy for one another, and nominally have independent sovereignty, I disagree. It's like assembling a tribe in the early stages of civilization. The "big man" of the tribe has to give stuff away to get the tribe to stick together.

If Germany was a big military power, they might be able to keep followers (or drive them away) just on fear/respect. Being able to best practice austerity doesn't give them any leadership points.

Exactly, the Germans are not so far into it they can't quit. If the euro collapses, there will be a period of adjustment and it is over. If the Euro breaks apart, a period of adjustment and it's over. If they pour money into it the bleeding just goes on, they are no closer to the end of it and they are deeper in the hole. Cutting your losses in a commercial relationship is not the end of the world. As to political ramifications, just as Germany can't force Italy and Greece to pay up, none of these countries can do anything to Germany either.

'Germany is selling more and more to developing nations'
An American economist with suppose top 100 global great thinker status finally noticed there are profitable markets to be exploited? Maybe an American economist should next notice what the trend in German outsourcing has been over the last couple of years - or insourcing, if various information sources are to be trusted. Insourcing to a nation noted for its labor regulations and strict regulatory regime. Or possibly, noted for having a workforce where industrial companies can earn the highest profits, as gross wage costs are a distinctly inaccurate measure for profitability in various industrial sectors. (Yes, a number of profitable German companies have, based on empirical experience, decided that outsourcing is a moronic strategy which impoverishes the companies involved, at least if the companies use measures other the gross wage costs or adherence to various regulations - whether it be furniture makers or battery producers, for example.)

'Germany has had a stronger currency in the past and they did well before the eurozone, believe it or not.'
Historical awareness.

'or at least a plan for a plan'
Or not - is this willful? A number of people, attempting to chart the future path of the EU, foresaw a crisis involving the euro being the catalyst for greater European unity. Some hoped it would not be necessary, of course. Possibly, among that group, some hoped that the euro would not be the gamble that many of its other supporters recognized from the start.

No guarantees of success were ever provided, but the alternative to failure was seen as the same as the failure of making no attempt- an EU not continuing along a path of deeper integration would face a crisis it could not resolve with its current structures.

And it isn't as if talk about a 'core' eurozone and the rest of the EU is a new subject - after all, it existed before the euro was ever introduced.

Does anyone even remember when the last serious threat blew up the EMU, essentially a decade before the euro existed? - because I'm still fairly certain that Soros remembers, if no one else. Well, maybe the British government does - after all, they were the ones that provided him the cool billion plus profit.

Thanks for the unnecessary snide comments. I stopped reading after "American economist". So hard not to be jealous of a success eh.

Speaking as an Englishman, such a foreclosure is not without precedent.

http://en.wikipedia.org/wiki/Darien_scheme
http://en.wikipedia.org/wiki/Acts_of_Union_1707

Except of course for the fact that Scotland and England shared a sovereign.

A better example for an Englishman would be the period of Dual Control that led to the Anglo French occupation of Egypt in 1879. That went much worse than Scotland, though possibly not as badly as the 1800 Act of Union with Ireland.

Feels like we've been rotating versions of "a plan for a plan" for two months.

Yes, but this time it's different: we have a plan for a plan for a plan.

Tyler you sound like you've made up your mind and are now searching for arguments to justify it. First morality, now cosmopolitanism.

There is nothing wrong with German morality or with idiosyncratic but functioning economic policy. It was the desire to maintain the German exceptionalism combined with the creation of the Eurozone and the unrealistic belief that Italy would change dramatically while not bending on inflation or monetary expansion. That is the problem.

Of course, if the goal is a Euro wide government driven by crisis, maybe they're getting their wish.

Hmm, how different is that from libertarian open borders advocates who would welcome 50-100 million immigrants into the US yet assume that Anglo-Saxon derived rules, norms, and laws would remain unchanged?

I think the recent usage of the term anglo saxon is a derisive french construct of the english people. Anglo saxon gives me the impression of hardscrabble marauding tribes foraging for food in the 5th century in england. Maybe that's the intent.

The phrase "Anglo-Saxon" reminds me that illegal immigration can be a bitch for the locals. It also causes me to wonder how the Jutes' entertainment lawyers failed to win equal credit on the marquee.

The Angles knew all the Saxons, and the Saxons, who were clever people, knew all the Angles.

Careful, Steve, or your nuttier commenters will start banging on about all those bloody Jutes.

We're doing everything for Mexico and Mali that our currency union with them necessitates, and then some. Some of us thought that adopting the Amexicali was a bad idea absent a fiscal union and a truly unified labor market. But we lost that debate, and, I'm proud to say, we have not shirked our responsibilities now that the forseeable crisis has come and our Frankenstein currency is putting the entire world economy at risk.

I wish I could say the same for the Germans.

For the win.

Holiday cosmopolitans. It's the Christmas season in Germany!

Perhaps its useful to remember the genesis of this particular project. How cosmopolitan should Germany be? I'd argue Germany owes at least as much consideration to the rest of the Eurozone as say, New York owes Mississippi.

At least as much!?

Yet when Mississippi defaulted on its debt in the 1840s, New York did nothing to bail them out, and as far as I can tell even after the civil war, no state has an obligation to bail out any other. I believe Arkansas may have defaulted in the 1930s, they didn't get bailed out by New York, or anyone else for that matter, either.

The difference in productivity between NY and MS is much smaller than that between the Germans and Greeks (in fact, nearly every U.S. state has higher PPP GDP per capita that nearly every country in Europe).

But if NY was fiscally sound and MS bankrupt, would NYers vote to bail out MS? Seems unlikely.

The taxpayers of backwaters like Mississippi and North Dakota are going to end up financing the retirements of retired 56 year-old California firefighters.

Gosh, what a lovely sentiment! And yet that turns out not to be the case. I show Mississippi taking in $1.71 from the Federal government for every dollar in tax revenue it contributes. North Dakota, $1.73.

California receives only 79 cents back on every Federal tax dollar.

But you keep right on cherishing that myth of virtuous Red States paying for us coastal elites! It's charming!

And don't worry: we'll get someone out there to pave your county roads and maintain your power, water, phone and sewer systems as soon as we can!

That seems to be mostly a function of 1) retirees moving to more rural areas for the lower COL, 2) spending on public goods that go to rural states but also benefit CA and NY, like military bases and ag subsidies and 3) blue voters in red states being subsidized by red voters in blue states -- else it would be very odd that red voters want lower taxes and less spending.

Note that red Texas is a net contributor, while coastal Maine is a consumer. And D.C. is of course a massive outlier.

http://www.taxfoundation.org/research/show/266.html

One of the big reasons cost of living is lower in rural areas is precisely due to the intervention of the US Government--don't confuse cause and effect. Per capita spending on the transportation network, for instance, is substantially higher out in the back of beyond, while the public debate often calls on urban transit systems to "pay for themselves" in a way roads almost never do (toll roads excepted).

Citing ag subsudies as an benefit to the population at large...is a bold position. You can color me dubious. But in any event, isn't most Federal spending at least _intended_ to have broad benefit? So I don't know how much the point is good for, even if we grant it. For instance, Federal investment in a California seaport makes it cheaper to ship injection molded plastic whatevers to Wal-marts in Wyoming. I reject the whole notion of "rural spending benefits everyone, but urban spending just goes down a hole" that lets you claim second-order benefits for agriculture and military bases only.

Your notion that "red voters want lower taxes and less spending" is more of an overarching myth than a reality. Few of them want less spending on the programs that benefit them most--lots of seniors are red voters (confusing your point about retirees moving to the country). Talk to red voters in Iowa about ethanol. What red voters have is what you also seem to have: a notion of the good (people like them) and the bad (people not like them). This leads immediately to good spending and bad spending.

Roads are something like 1% of the budget. Rural COL is driven by the fact there are less people around and less gov't.

Seaports reflect geographic advantage; they are a huge net tax provider. That's actually a large part of the reason for the higher incomes in coastal areas, they've always been the centers of trade.

Like defense, ag subsidies are a public good. We subsidize farming (wisely or not) not because we like sending checks to rural areas but because people in the cities (who are, remember, dependent on a massive, neverending stream of food from rural areas) want food security, which means food needs to be produced within our national borders.

It's pretty silly to assert red voters don't favor less spending and less taxes overall relative to blue voters. Yes, there are things red voters prefer, but there has not been a Dem national budget in my lifetime that was smaller than its Republican counterpart, and likewise for overall taxation policy.

Regarding "the cosmopolitan thing", and how to put a fence around its obligations, I recommend the essay, The Moral Economy of Guilt by Wifred McClay.

@crenellations: thaks, thanks a lot. I'm reading now the book mentioned by McClay in the essay. This book is: "The tyranny of guilt" by Pascal Bruckner. Bruckner made an question "why all this guilt?". I may not be happy with his answer but it is great that somebody could formulate the question so short, simple and intelligently.

“why all this guilt?”: indeed - and why am I spared it?

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