Posted by reader Heika:
Hi Ulrich, I just finished reading a review of Michael Lewis's book "Boomerang," which discusses the current financial crisis country to country. The reviewer made this comment, which for me rang very true, admittedly based on my very short stay of two years in the country:
“There was no credit boom in Germany,” an official told Lewis. “Real estate prices were completely flat. There was no borrowing for consumption. Because this behavior is totally unacceptable in Germany.”
I don't know if you can address the prices of real estate to verify the unnamed official's accuracy, but what do you think about the claim that "borrowing for consumption" is totally "unacceptable." My personal experience is that Lewis got this right, and this is one very good reason the Germans continue to do well while all around them are in despair.
Loved your latest drawing. Heika
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I did not post anything about the current Euro crisis b/c I do not understand the technicalities sufficiently enough to feel comfortable making any comments. But the "German national character" is another matter. So, @Heika, let me make a few comments regarding your question.
I have to take the the article's claim that there was no real estate bubble in Germany at its face value. I have no knowledge to the contrary, except that real estate prices have increased in Germany over the years--I do not know to which extent and what the consequences were. But why was there no bubble?
My take is that Germans are extremely risk-averse. I wanted to say that I know nobody who went personally bankrupt because of high-risk speculation, but that is not entirely true: I know of some people who fell victim to a Ponzi scheme, but they seem to be rare exceptions.
This aversion to risk has its benefits, as the crisis in other countries shows, but it also has a downside: a lack of initiative when it comes to planning your own life. It is far less common for Germans to found their own company than it is for instance in the US. In the overwhelming majority of cases, Germans expect to be employed by established enterprises, public or private. One of my brothers, who did found his own, now mid-sized and hugely successful, company is the exception. Imagine where Germany would be with just a little bit more daring and less fear of failure on the part of her citizens?
...and I am puzzled, to put it mildly, by the claim that Germans are obsessed with excrement (the reviewer seems to be puzzled, too). Yes, I have seen claims that Germans (and Japanese) are particularly fond of scatological jokes, but I can't even confirm this b/c I find these types of jokes tedious (unless I'm dealing with children, who seem to love them), and I forget them as soon as I hear them.
And here is a take on the same situation from the American right. I consider it an instant classic as an illustration of the big-government paranoia combined with an abysmal ignorance of what is going on in the rest of the world that is characteristic for those people. And do not miss the comments--they top the piece itself, difficult as it may seem!
Well I am not alone in my interest in the European situation as described by Michael Lewis, clearly this SNL skit was based on Lewis's "analysis," and again the Germans are described as being content with so little--is it half a cup of milk and a sausage? --that they never got caught up in the credit crisis. I hope you can see it here
Banal as Lewis's analysis sounds--it's a bunch of national stereotypes--I think he is on to something. I just read Ann Enright's The Forgotten Waltz and she describes in fiction the world Lewis also references, an Irish economic crisis not fueled by the kind of corrupt banking practices that fueled ours, but by the country's astonishment at suddenly being awash in money from buying and selling property. People just didn't know or forgot that even real estate booms end and suddenly there they were with property they couldn't sell and no liquidity.
From my perspective, given how disgusting I find the big banks' behavior in this mess and government's cooperation through deregulation, I prefer the explanation Lewis gives for the Irish-- greed, excess and stupidity-- as opposed to what fueled our current mess, a corrupt banking industry aided and abetted by a Congress that looked the other way, rather than alienate big contributors.
I get mad just thinking about it. On a happier note, I too loved your latest drawing.
If you have any German readers out there--someone used to be living there now I think--I would love to hear what they think about Lewis's explanation.
@Heika: A funny clip, yes. But I have to say that I never met a German who would be happy with "a carton of milk and a sausage"--a beer and a sausage would be more like it.
@Marlene: I'm not blaming the banks--they behave like banks behave--one cannot expect a lion to become a vegetarian on moral grounds. I'm mad about the politicians who allow bankers to call the shots or, as the Germans say, let themselves be chased through the village by bankers. "Too big to fail" is a recipe for disaster--it also flies in the face of everything the free-market apostles have been telling us--but no politician seems to dare to suggest cutting the banks down to size. Well, according to Lewis, Iceland is an exception--they did, in fact, let the banks go broke and are coming out of the crisis with the social fabric intact.
Here's another article that's relevant in the current context. It explains why Germans and other Europeans hardly ever borrow for consumption and why saving rates are so high (around 10% currently, as opposed to 4% in the US, which is in fact an improvement over the 0% prevalent before 2008). I, for one, always pay the full balance of my credit card at the end of the month, i.e. I do not allow the company to hit me with the usurious interest rates they charge for unpaid balances, which makes me a 'deadbeat' in the words of one credit card executive. Once in a while, I leave a balance for one month or so, but never for more than two months, never in my life! Acquired habits die hard...
@Ulrich
I thought you might be interested in an outspoken admirer of Germany, the Irish novelist, Colm Toibin, writing on the economic crisis in Ireland, specifically mentions the Germans as a model to imitate:
"The EU did not merely pay for roads and other necessary infrastructure in Ireland, it opened the country up to the world around it. The more I found out about contemporary Germany, for example, and the more I travelled there, the more I came to admire it and the more I came to hope that some of its best qualities could come to influence and affect Ireland."
Well, Marlene, our thread certainly bucks current trends. I spent a depressing portion of yesterday looking at one blog after another in which the Germans were bashed--in connection with the current Euro crisis. Even the Germans bash the Germans, or more accurately, their government.
Most of the comments are naive (when they assume that all the problems would be solved if only the Germans would go around and give money to everybody, no strings attached), or self-serving, if not outrageous (like when Greeks or Italians lambast the Germans for not being willing to pay for the mistakes their own governments created), or outright racist (when old stereotypes are being dug out). As I said before, I do not feel confident to go into technical details, which are far more complex than most commentators and bloggers acknowledge. I only know this: There is no 'good' solution--like in the case of the hiker whose hand was caught under a heavy stone in a remote canyon a few years ago: Since he could not call for help, his only options were starve to death or cut his hand off. That's the situation in the Euro zone right now: Whatever will be decided, it will unpalatable for a lot of people.
The Germans strongly believe that it is not fair to ask them to carry the biggest burden when, in fact, they are not at fault (yes, there are conspiracy theories out there that claim it's all a German plot to take over Europe--right: It was the Germans who made the Greeks and Italians live beyond their means--ridiculous). One could say, however, that the Germans are a bit too moralistic about it (I find it interesting in this connection that Merkel is the daughter of a Protestant pastor). Their case can be made on purely technical grounds; i.e. they want to make sure that the money they contribute will actually help solve the crisis and not disappear into a bottomless pit.
Enough for today!
@Ulrich: one thing I have heard is that the North/Western European countries' banks were too willing to lend money to Greece, Italy and Spain, thereby digging the hole deeper and deeper.
The Dutch are very similar to the Germans, and are also in better shape. They don't spend what they don't have. A good piece of news: my two sisters in Holland, who had lost quite a bit of money in a sort of Ponzi scheme, recently were reimbursed. The bank had been required to have insurance for this sort of situation!
mac: Your sisters are lucky that their insurance wasn't swapped with an outfit that became insolvent.
Actually, the Germans ARE living beyond their means, too: National debt now stands at 81% of GDP (it's 64% for the Netherlands) and the last time I checked (two years ago or so), interest payments on the debt was the second largest budget item at 16% (social services at 25% was the highest). Since only 18% of the debt is held inside Germany, those interest payments are for the largest part nothing but a capital export. Reduction of new debt (actually, a balanced budget, but that's just not in the cards right now) should be a top priority, and that is, I think, the reason many Germans (and German economists) are AGAINST the tax cuts decided upon by the governing coalition--imagine!
Just some numbers for comparison's sake: National debt as percentage of GDP: Greece 162%; Italy 120%; Ireland 108%; Portugal 101%; Belgium 97%...
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