TheBigPond - spotlight on what South African business and business people have been up to in Europe. Edited by South African journalist Christo Volschenk from Stuttgart, Germany. Note: This blog has migrated to a new home at www.thebigpond.eu.
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"HEUSCHRECK" FRANZ IS BACK!
Now that it seems as if "Heuschreck" Franz will be with us for many more years to come - as a vital cog in the new wheel (Germany's new coalition government) no less - it might be a good time to remind ourselves of the things he had said just 6 short months ago.....about unbridled capitalism and how unwanted it was in Germany.
If he's back (it's not sure, at this stage), then the "Heuschrecken debate" is also back. Or, am I just being (politically) naive again? That whole debate was just Franz electioneering. In other words, not to be taken seriously. Oder?
Probably, yes. Maybe, no. Fact is: we don't know for sure. We'll have to wait and see.
In the meantime, let's play naive and assume "Heuschreck" Franz still believes in the things he believed in 6 months ago.
Then foreign investors should be scared...very scared.
Here is why.....in the words of an observer slightly more authoritative than myself, namely The Economist.
This article appeared in The Economist of May 5, 2005.
Headline: Attacks by a leading German politician on investors have been hysterical and misguided
Body copy: The metaphor of the swarm of locusts devouring all in its path is as old as the Bible. But when politicians, particularly German ones, use it today to attack groups whose behaviour they don't like, it is hard not to be reminded of Nazi propaganda against ?social parasites? and ?blowflies?.
Such comparisons, even though they are by no means signs of anti-Semitic thinking, are especially regrettable when uttered so close to the anniversary of the end of the second world war.
Yet a lack of linguistic sensitivity is not the most unfortunate aspect of recent remarks by Franz M?ntefering, chairman of Germany's governing Social Democratic Party (SPD), in which he condemned certain financial investors as ?swarms of locusts that fall on companies, stripping them bare before moving on?.
By starting a heated ?capitalism debate?, he has triggered an anti-business and anti-reform backlash that might be hard to stop. That could be immensely damaging to both Germany and Europe.
Foreign observers are as bemused as they are alarmed by the debate and its fall-out.
After Mr M?ntefering's attack there were calls in Germany to boycott ?socially irresponsible? companies and to introduce legal limits on top executives' salaries. Last week, the press found an internal SPD memo listing a dozen ?locusts?, mostly (American) private-equity firms, which are said to have stripped bare German companies.
Much of the rhetoric can be discounted as electioneering of the most desperate kind.
The SPD is scared that it might lose regional elections in its heartland in North Rhine-Westphalia, Germany's most populous state, on May 22nd. Attacking capitalists may give it a chance to mobilise long-time SPD voters, who otherwise might stay at home or prefer a new left-wing party that will put up candidates for the first time.
And Mr M?ntefering's offensive firmly positions the SPD as an alternative to the Christian Democrats, who hope to win the next federal elections in September 2006 by embracing far-reaching economic reforms.
Yet the intensity of the debate shows that Mr M?ntefering has hit a chord with Germans. Never enthusiastic about Chancellor Gerhard Schr?der's Agenda 2010 package of economic reforms, many see recent slow growth and persistently high unemployment as proof that moves to a supposedly more Anglo-American-style, less-regulated economy are not working.
That many German companies are, for the moment, nicely profitable only adds to popular indignation. Germans also resist the idea that they will have to give up even more of their cherished social-market model, and the rules and government benefits that underpin it, if they want to stop jobs moving abroad and cheap labour from coming in.
Almost 60% agree with at least some of Mr M?ntefering's arguments.
The question now is whether the debate will have any lasting consequences. In Germany, such political fits typically die down as fast as they appear. But this time it could be different, thanks to the current situation.
If the SPD loses North Rhine-Westphalia, there could be a revolt within the party against Mr Schr?der and his reforms. If the party hangs on to power after all, Mr Schr?der might be tempted to add a dose of anti-free-market rhetoric to his bid for re-election in 2006.
In any case, some within the SPD are busy working on an alternative to Agenda 2010 which would reportedly include higher taxes on dividends and capital gains as well as on inheritance. Labour-market reform would be modified, for instance by relaxing conditions under which long-term unemployed have to accept jobs if they do not want to lose benefits.
Even if none of this comes to pass, the ?capitalism debate? has already done much damage to any faith that Germany is really willing to tackle its economic problems. It certainly has not made the country more attractive to investors, foreign or domestic.
Even a future CDU-led government might now be more careful when it comes to further economic reforms.
But there might just be a silver lining to this affair. It clearly shows how bad a job German leaders, in both government and opposition (and, it must be said, in business and finance as well) have done of explaining the need for reforms.
Just like France with its anti-European spasm ahead of the May 29th referendum on the EU constitution, Germany may have to go through such an episode to understand finally that its economic model is past its prime, and needs an overhaul.
The underlying truth is already clear: the country needs a freer, more flexible form of capitalism, not a hunt for scapegoats.
end of article
ACHTUNG! REVOLUTION ON THE HORIZON!
Of all the things I don't understand in this world (e.g. black holes, my wife, George Bush) the topic which perplexes me most is why the governments of member states of the EU haven't yet revolted against the straight-jacket which is the Maastricht Treaty - and specifically the fact that it robbed them of all their power to determine economic policy (here defined as fiscal policy and monetary policy).
(That was one sentence....very bad writing. I don't know where and when I lost it...let me try harder.)
But, I think a revolt is inevitable and it's getting closer.
(That was better...)
Yesterday the European Central Bank (ECB) warned an interest rate rise might not be far off.
That was reported in today's newspapers. Also reported was the fact that 10 of the 25 members of the EU currently run fiscal policies which are "to loose", i.e. they run with deficits bigger than the 3% ceiling set by the EU. Pressure is increasing on these countries to tighten their fiscal policies.
So, there you have it: the classical mix for a revolt.
In many big EU member states economic growth is almost non-existent. In this desperate environment the EU "controllers" of the monetary and fiscal policies now want to tighten both fiscal and monetary policy.
And the governments of the member states are helpless. Because the rules are the rules. If they were flexible, they would not be rules, oder?
(Short detour: This is how The Economist this week described the job of the central banker in an EU member country: "The central banker's job consists of 2 regulatory functions - he must supervise his country's banks and oversee competition policy in the banking sector. So, in effect, the central banker today is a glorified bank supervisor. Monetary policy is run by the ECB.")
So, governments of EU members have no tools left to steer their business cycles with. But, the voters don't care. They still want their governments to deliver the goods (in the form of growth and jobs).
No wonder Hans Eichel hasn't been seen smiling for more than a year now.
In this "almost-no-growth environment" the new German government will slip into the driving seat soon. Not exactly a favourable environment, especially when big and many reforms have to be pushed through fast...
The German consumer is likely to hold back on spending while reforms are implemented - which will also act as a brake on the economy. And another reason to be unhappy with the inflexibility of the "central steering mechanism" which is Maastricht.
So, expect critical words. Maybe even a revolt. And expect it to be fuelled from and orchestrated by Berlin. And soon.
WHY MERZ PISSED INTO THE TENT
So, now we understand why Friedrich Merz last week did the almost unthinkable - critisise Angela Merkel in public - just after she had "recalled" him to "play politics" again and just before she was (as it then still seemed) about to decide who her minister of finance should be.
For a short 2 weeks after the election it seemed clear that Merz would be Germany's next minister of finance.
Then he wrote "the article". His critical words in the WirtschaftsWoche looked to me (last week) like the classical "man-stands-outside-tent-and-pisses-in situation". In other words, strange behaviour. To put it mildly.
Now we know what had happened. Or, at least, we can draw our inferences.
Here we go: Merz had heard Merkel was about to give the ministry of finance to the SPD as one (of several, in fact, to many) concessions for getting Gerhard Schr?der to retire from politics.
So, Merz knew then that he was not going to become minister of finance. And he thought Merkel had only "used" him when she - in her last desperate days before the election - needed to get rid of the professor from Heidelberg and present a more acceptable face to the electorate. That Merkel couldn't know exactly how things would pan out (in other words, that she didn't plan to "use" Merz when she invited him back) was beside the point for Merz.
As far as he was concerned, he was "used". So he was frustrated and disappointed. (Quite understandably so....having just gotten used to the idea that he would be the next minister of finance!)
And so he hit back at Merkel in the hope that he would weaken her at the negotiation table - to the point where she would be unable to get "the big coalition" going.
It was his last (desperate) move to get to the post of minister of finance. Now, that would have been something. But, alas. It didn't work out like that. And now he sits out in the cold...and I think Merkel as well.
(But, why this coalition is going to be a weak government at a time when Germany needs a super-strong government, is the topic of another conversation.)
Another observation...it is big news today that Schr?der will retire from politics.
But, really. Did anyone think Schr?der could still hang around with someone else in the office of the chancellor? Certainly not. It's like in the corporate world: if a boss vacates the chair, he must leave...completely and as soon as possible. The last thing you want, is an ex-boss to hang around the corridors afterwards...and the same with Schr?der.
But, apart from that, Merkel gave away so much to get her hands on the big post, it would have been unbelievable if she couldn't even get, in turn, Schr?der's complete and total withdrawal. Now, that would have been a clear sign that Merkel is not able to compete with Schr?der around a negotiation table.
So, it didn't come as a surprise that Schr?der was going.
The only thing that came as a surprise, was how Merkel gave away all the important ministries and then, of course, the big surprise (no....disappointment) was to hear the SPD complain that they didn't get the important ministries.
These guys are so stupid, they don't even realise what Schr?der did for them. It really is a one-man show...this SPD. And with Schr?der gone, it will be a no-man show.
...and they are the effective rulers in the new coalition government. Well, that's a thought to chew on for a while!
WHY STEINBR?CK WAS A GOOD CHOICE
At last something positive to report on the German economy.
Just as I was getting a little uncomfortable with all my negative stories, something positive comes around...relief!
(But, believe me. There simply wasn't anything positive to say about the whole election thing, the result and the outcome of the Merkel/Schr?der negotiations. I also expect the stories to remain negative in the short term, while Frau Merkel finds her feet and finds out who she can trust - and who not.)
But, today I have a positive observation.
And it is: Peer Steinbr?ck is an excellent choice for the post of minister of finance. He'll do a better job than Hans Eichel has been doing, he will probably do better than Friedrich Merz would have done and he will definitely be much better than the professor from Heidelberg.
For 3 reasons.
But, before we get to them, first a short primer for the benefit of all readers quietly aspiring to be ministers of finance. The good news is...It's easy to be a minister of finance. You only have to fulfill 3 requirements.
Firstly, you must be technically equipped to handle the subject matter and have a bit of experience. Secondly, you must be a political animal with some weight amongst your buddies (e.g. if you say there is no room for tax relief, then the others must accept your word and not walk all over you) and thirdly you must be able to strike the right balance between being a technocrat (Fachexpert) and a politician (e.g. you must be willing to mull over a spreadsheet for hours, before going into a political party meeting).
See? Gar nicht so schwer.
Probably the best example of a minister of finance who excels on all 3 fronts and shines in the division "balance" between "subject knowledge" and "political savvy", is Gordon Brown in the UK.
Another very good example is South Africa's Trevor Manuel. He started out "overweight" in the category "political animal" and "underweight" in the category "technical knowledge", but has corrected that over the years and now seems to be running on a very good balance between the two.
OK, now back to why I thought Steinbr?ck will make it and why others didn't make it.
Steinbr?ck has the required subject knowledge and he's done this job before. Secondly, as ex-NRW president he is a political animal with some standing and (I guess) weight. Lastly, he has shown that he can strike the right balance between the two.
Not clear yet? Let me give more examples of this 3-point test of ministers of finance.
Hans Eichel, for instance, didn't make it, because he lacked in the area of "political savvy and political weight" (he was often taken in "Schlepptau" by colleagues like Clement). He was very good technically, but fell flat on his face when it came to the very important category of "balance".
The professor from Heidelberg, was even more extreme. He was absolutely excellent on the technical know-how front, but an absolute disaster on the political savvy front. In fact, worse than I think Angela Merkel thought (I'm sure she knew he was a political "analphabet", but was surprised by just how much of an.....)
And Merz. Well, here I'm not so sure...I think he would also have been sub-optimal in the "political weight" and the "balance" categories.
More examples...this time from the past. And we go back all the way into South Africa's apartheid past.
In the late eighties SA had a guy called Barend du Plessis as minister of finance. He was a political animal par excellence and....well, and nothing else. So, he fell on his face.
The next minister of finance (roughly from 1991 to 1994) was a guy called Derek Keys...an excellent technocrat, who lacked somewhat in the "political weight" category. The first Mandela minister of finance was Piet Liebenberg...an adequate technocrat, who had absolutely no political savvy, weight, or interest to be someone with political weight. Also not optimal....
Then came Trevor...and (thank heavens) he's still there.
And, now there's a Steinbr?ck in Germany. With lots of potential. If only the 8/8 constellation which Merkel has "negotiated" for herself, doesn't produce to many "deadlocks"!
Let's hope for the best, because it's nicer to write positive stories, than negative ones.
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THE "PEOPLE-ISATION" OF PORSCHE: PART II
And so the "de-luxuring" of the luxury brand which is Porsche goes ahead...
Today's Financial Times Deutschland (FTD) carried a story on the "public fued" between the Porsche public relations division and a senior (very senior) German economist over what is the actual percentage of value-added inside Germany for a Porsche Cayenne.
Simply put: How German is a Porsche Cayenne?
The economist alleges the Porsche Cayenne is not a German product, because only 38% of value is added inside Germany. The Porsche people say "rubbish", it is a German product, because a full 60% of the value is added inside Germany. And manufacturers are allowed by law to label their products "Made in Germany" with as little as 45% of value added inside Germany, they say.
The mere fact that this debate is raging in public is, of course, already very damaging to the luxury brand Porsche.
But, it doesn't take a "top observer" to guess who the liar in this debate is.
Yes, chances are: The Porsche PR people.
Why? Because economists can calculate. At the level this guy is on, you can be sure he didn't make a calculation mistake, as the PR department suggested.
The economist included his allegation in a new book, which makes it unlikely his 38% calculation was anything less than double-checked. More likely it was triple-checked.
Furthermore, the economist published his allegation after checking (and rejecting) how Porsche came to it's 60%.
He must have known that a small nuclear bomb would explode above his head. And that Porsche might hit below the belt, i.e. try to "assassinate his character". Despite all this, he still decided to publish.
Where there's smoke, there must be a fire.
And then...why would the economist tell a lie? He can't benefit from a lie. But, Porsche can.
How? Firstly, it would be rather embarrassing if it came out Porsche had been labelling its cars as being "made in Germany", when, in fact, they were not...
And, secondly, it would be extremely damaging to the luxury brand Porsche if it was confirmed that 62% of a Cayenne was made in a sweatshop somewhere in Eastern Europe and/or China (probably both).
(And I stress the word "luxury" here. Should it surface, for instance, that my Smart was built in Siberia, it would not damage the image of the brand.)
But, let's leave that "38% or 60%" argument aside for a while. And ask ourselves the more important question: Are the Porsche bosses deliberately playing with fire here, or do they think it's "egal" to their target market whether Porsche autos are German made, or not?
I think they understand the importance of the German connection. They probably thought they could get away with their way of calculating value added.
I won't be surprised if this "fued" ends in an official investigation. (If I was a competing car manufacturer I would certainly have pushed for such an investigation.)
The mere announcement of such an investigation would again damage the Porsche brand. Imagine the damage when it was found Porsche had been "manipulating" their value-added calculation all along and the Cayenne was not a German automobile!