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What Schadenfreude?

German Bundesbankers expect a gradual slowdown of the economy as a result of weaker global growth, higher oil prices and a stronger euro. They are not concerned about any direct fallout from the US mortgage crisis, writes Ralph Atkins in the Financial Times.

The article's headline is "Schadenfreude stirs in resilient Germany," but Atkins only claims once that "across Germany, a sense of schadenfreude has even started to emerge." His only indication is that "Peer Steinbrück, finance minister, has long maintained that a run on a bank, as seen with Northern Rock in the UK, would not happen in Germany." Well, many Germans are scared about their jobs and worry about poverty in their later retirement. Many are so concerned about the financial markets that they do not invest their savings, but keep them on a bank account with low interest, which is bad for retirement plans and for the economy. That's why the finance minister tries to reassure the public. That's not Schadenfreude. Perhaps the folks at the Financial Times felt compelled to use a German word in their headline. Next time write "Blitzkrieg" or "Kindergarten" or address people as "Herr Steinbrück" rather than "Mr. Steinbrück" (a weird habit of some).

Otherwise the article is good and describes what has been going on:

Germany's recent economic history has been the mirror image of the US's. Instead of enjoying a consumer and housing boom over the past decade, Germany has experienced a period of painful adjustment to the costs of reunification in the early 1990s and the effects of globalisation on a high-wage economy. By the time the global financial crisis struck, extensive private-sector restructuring had restored cost competitiveness, while consumers had retrenched financially - with house prices flat or even falling. The result was an economy driven not by consumer spending but by its powerful export motor, with industry producing high-quality goods that appear relatively insensitive to the higher exchange rate. 

Atkins ends with an FT typical conclusion:

But that is not the same as saying Germany has the better long-term prospects. Whereas the US's financial system and more flexible labour markets appear to booms and busts, Germany's economic growth rates traditionally remain steadier - but lower.

I believe "steadier but lower" is the very much preferred model in economic (and political) matters over here.

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Joe Noory on :

I agree - "steady but slow" is certainly the approach, and part of that may be the decision to take a low risk approach to wealth creation/poverty elimination, the relatively high number of individual investors in Germany notwithstanding. The question is: was this past positive phase to permit people to, say, be 1) more likely to have bought their home, or 2) been able to dispose of debt or save ...because those determine the shallowness of the depth of the low point in the growth curve, and the length of time the economy spends at the bottom of that curve. Bearing in mind that governments and central banks can only ease fears (at great cost), temporarily relieve individual economic losses(also at great cost), or address the collapse (but not guarantee the behaviour and health) of banking or exchange systems - this becomes a critical matter for those at the bottom end of the scale. What the bottom 20% gain and lose in an economic cycle is more critical to social well-being, but NONE of it can improve without the success of the top 20%. After all, no-one works for a poor person. Creating jobs requires either stability or confidence, and it requires wealth to have first been created.

David on :

Germany has some key competitive advantages in a world of much higher fuel prices. I get most anywhere in Germany without owning a car, and the public transportation systems in most German cities is pretty good. In the US, aside from NY City, the public transportation by and large sucks. I think a lot of Americans are beginning to regret that they bought mcmansions in the exurbs and are now getting killed with higher home heating/cooling and gas expense.

Pamela on :

' In the US, aside from NY City, the public transportation by and large sucks.' Washington, D.C.; Chicago; San Francisco. Just off the top of my head, they have great local transport systems. Taking the train from D.C. to NYC is a quick 4 hr trip - especially on the Acela - and is the standard operationg procedure around here. Your comment also fails to recognize the considerable differences in scale between the U.S. and Europe. Germany = approx. 357,021 sq. km. U.S. = 8,080,464 sq. km. Germany is smaller than Montana. "I think a lot of Americans are beginning to regret that they bought mcmansions in the exurbs and are now getting killed with higher home heating/cooling and gas expense." And I think you have seriously misunderstood the nature of what has happened in the financial sector. The migration to the 'exurbs' began decades ago, when land closer-in became scarce and therefore more expensive. As for the 'mcmansion' theme, very few of those were even eligible for 'sub-primes'. As for the hullabaloo about gas prices, I'm a tad fed up. Honey costs more per unit than gas. If you are, e.g., a trucker, yes, you are hurting a bit more than you used to. If you're driving an SUV - well, trade it in for a minivan if you've got kids and groceries to haul. There was a grotesque article in the Wasinhgton Post the other day about how people around the area are economizing. Things like not buying invidual juice packs for the kiddies. Sending yourself on reminder on your blackberry to buy bottled water when it's on sale. Some people just need to be slapped silly. And I have not seen my electric bill or my natural gas bill climb one iota over last year's $$. Food is another issue. We haven't seen the last of that because producers have really gone to the mat to try to eat their increased production costs. That can't last. Pray Bush signs the Farm Bill that just came out of conference. We worked for months to raise some payment triggers. If he doesn't sign it, in 6-9 months $4/gal milk is going to look like a fire sale.

Pat Patterson on :

O/T-Pamela, would the increasing Wall Street and industrial backlash against ethanol cause any major changes to the Farm Bill? My reading of it suggests that most of the changes concerning CREP will increase acreage and thus subsidy costs even more than the current payments to farmers to keep land unplanted? Plus is the change in how the rental tax computed only for farmers in CREP or will it affect all farmers?

Don S on :

dfavid is right on about this, at least in my experience. I worked in Stuttgart during 2000, and the S-Bahn (regional transit trains out to about 20 miles from the centre, and U-Bahn (trams on steroids) were fantastic. Clean, comfortable, punctual - not much left to ask for. D-Bahn (long distance trains) were less reliable but better than UK service - Switzerland beats Germany hollow in long-distance services. David, if you consider LIRR/jersey transit 'torture' perhap you might try to ride on Brit trains on Sundays. I ride a route which has been out for maintenance work in one stretch or another for more than a year. During that time they have run through services (on Sunday) precisely 3 times. No service at all over the Christmas holidays (for 10 days) and then they could not resume after New Years for a couple of days. They typically replace one or more segments of the route with hired buses, usually the most clapped-out examples of retired municipal buses available. I rode one in November which caught fire and offloaded us all by the side of the motorway to await the next 'scheduled' service - in 30 minutes! You want to talk about hell. AND it's expensive, probably 300% of what you pay in Germany for that stellar level of reliablilty and service. So if NJT is 'torture' travel on Brit trains on weekends and it goes beyond torture. Not to mention the lame excuses about 'wrong kind of snow' or 'wrong kind of leaves' they trot out every year when the autumn delays occur. Have they never heard of planning for the actual in lieu of the ideal?

Pamela on :

I have a question: The author writes: "with house prices flat or even falling. " There have been significant housing bubbles in the U.S., the U.K., and Spain. Not in Germany, tho? Why are housing prices flat or falling if there wasn't at least a bit of a bubble? I'm sorry, I don't understand what he's trying to say.

Joe Noory on :

There has been very little growth, but that low level of growth that Germany did experience was steady, and as predicted is tied to local employment. It's why Berlin is a good buy right now, and Munich is pricey because of the southern high-tech boom. The joke used ot go that in Berlin you could get any job you want, but couldn't find an affordable place to live. 5 years later now the opposite seems to be the case. So as far as that goes, I think it's quite equivalent to a housing bubble: the buyers are few in number and the profitablility of resale isn't what it could be. Abscent the fact that people have to change plans and get disappointed in a bubble, that's an awful lot like the problems associated a post-bubble market. As for the UK and US going to hell in a handbasket, I ask people to take a slightly longer view: like 5 to 10 years, and look at how much equity they saw grow over than period vs. inflation. Now that it's in a pause and the curve has dropped off in a lot of places, I think that what's true of homes is true of any other product subject to supply and demand: the market will seek an equilibrium of what something is worth at any given moment if you buy or sell. Anyone feeing sketchy about this just shouldn't sell for a while. As for the people and institutions who bought securities that went bad, one has to remember why they did it: too much cash on hand that needed to be converted into an asset. The fact that the money kept pouring in actually supresssed the interest rate hike that would have slowed it down. You can see where UBS and Royal Bank of Scotland are now because of that. The risk they took was actually pretty low in buying those securities. The problem is that they were unlucky playing against that risk, and weren't sufficiently diversified. Anyone interested might want to see merely as an example what I've had my cabbage in after the winter market correction: [url=http://finance.google.com/finance?q=NYSE:EPP]16% EPP[/url] - Asian rim + South Asia (minus Japan) [url=http://finance.google.com/finance?q=NYSE:EWJ]16% EWJ[/url] - Japan market index [url=http://finance.google.com/finance?q=NYSE:IEV]16% IEV [/url] - a Europe-wide market proxy [url=http://finance.google.com/finance?q=NYSE:IYY]32% IYY[/url] - broadly following the whole of the US stock market. and finally: [url=http://finance.google.com/finance?q=AMEX:UUP]20% on the potential of a rising US dollar[/url] - and it's a Deutsche Bank product. Having not been able to understand at that point just WHAT was rotten in the market, and having seen the whole market drop, it stands to reason that parts of each market would creep back up in a way that would show itself in the whole-market, not just some sectors. As for the last one, in february it looked like if the USD hadn't bottomed out, it was close. Ergo: it would then go up. I hope this helps.

influx on :

@Pamela I had to live with the CTA for four years, and it was, hands down, one of the worst public transportation systems I've ever seen. Routinely, the El would break down in the winter (Chicago winter, mind you), which meant standing on a freezing platform, waiting for an hour for the next operating train, which often turned out to be too packed to pick up any more passengers. Sometimes, they simply announced that no more trains would be running in the next two hours or so. I won't even get into the smell issues and the times I had to get off a train because some fusebox had caught fire. Seriously, I cannot think of a worse public transportation system in a major city. Completely agree with your comment regarding the scale of Germany and the US, though.

Pamela on :

Odd. Our son and daughter-in-law lived there for 3 years and they thought it was great. D.C., NYC and SanFran I can vouch for personally. Chicago weather. We were there one May to visit the kids. Took a boat ride on the lake. I thought I was going to die of hypothermia. IN MAY. Best Polish food in the U.S. tho'

influx on :

Chicago weather, indeed. Once you lived in Chicago for more than a year, you will have clothing for any climate zone on the planet. Polish food there is great, though, very close to the stuff I get in Warsaw. Great food place in general, Chicago. Wouldn't mind moving back there at some point, it was definitely my favorite city in the US.

Don S on :

Chigago weather can be - extreme. I visit Chicago once a year and usually stay a couple nights for Xmas shopping before heading up to see my exteneded family in Milwaukee. Half the time it's hypothermal shock stick my nose out of the terminal and it freezes off, not to mention the time it was snowing heavily when we arrived. Fortunately on a direct flight or I never would have gotten there. The wind makes it worse - add a 30 mph wind to a medium chilly day and the effective temperature plunges a lot. And Europeans wonder why Yanks didn't take global warming seriosuly for a while? Might be that it's hard to do that when the winters seem worse than anytime since you were a kid. I've learned to wear a good leather coat and have a couple sweaters, gloves, hat etc easily accessable at the top of one of the suitcases.

David on :

I grew up in Chicago and agree with Influx about the El. Yes, the Acela is good, but not nearly as good as the ICE in Germany or the TVG in France (not to mention the express trains in Japan). The poor track conditions prevent Amtrak from traveling at speeds over 100mph. And there are long stretches where it has to travel at under 80. NYCity has an excellent and extensive system, but how many people who work in the city actually live there? Have you ever been on the LIRR or NJ Transit? Torture...

Joe Noory on :

David: Geography is destiny. Our IC system is the airliners. As for the housing issue, the market which doubled in value was a problem to the "social thinkers" in the exact same way a 15% drop is their horror show over which they're wringing their hands this week. Which is it? Or do you prefer the idea of price controls and state regulated markets? Or would have preferred that the left's "community reinvestment act" that forced banks to lend to marginal borrowers have never been? Or do you think that they should have stuck to redlining?

Pamela on :

"The poor track conditions prevent Amtrak from traveling at speeds over 100mph. " Interesting point about the track conditions in Europe and Japan being better than those in the U.S. Obviously, the tracks in the U.S. are older. Why do you think that is, David?

Don S on :

"Interesting point about the track conditions in Europe and Japan being better than those in the U.S. Obviously, the tracks in the U.S. are older." The answer is that the tracks for the new fast trains are newly-built for purpose. Last year the French made a test run between Paris and Strasborg which came within a hair of setting a new speed record for trains. The impressive thing is that they did it on a standard-gauge track, but over a section of right-of-way had been entirely rebuilt and reinforced. The other record was on maglev or something -n not standard track at all. Correctly if I'm wrong but I don't believe you can run truly fast trains on the older lines - they have to be upgraded quite a lot. Recently a new terminal was opened in London for Eurostar (the under-the-Channel service to Paris and Bruxelles). The terminal opening was the occasion for a service which cut the previous time from London to Paris/Bruxelles from close to 3 hours down to 2 hours, and required complete replacement of the tracks between London and the Chunnel.

Pat Patterson on :

I can understand the desire of the German authorities to avoid the kinds of social upheavel that might come from making some economic changes but I also can sympathize with the German citizens in wondering exactly when "steadier but lower" will benefit them. In ten years the unemployment rate has not changed, 10.8% in 1997 and 2007, and the rate of growth has barely budged between 1.7% and last year's 2.2% and the same projected for this year. Which according to the bust theory of the American economy is still lower that the 2.4%, admittedly on the basis of the first quarter but is still higher than the slower and steadier German economy. I think that I would rather live in a bust cycle in the US then the boom cycle of Germany. Or is that the bust cycle of the German economy. For example both Porsche and Mercedes have had a slump in sales, though Porsche had a very good fall with the new Cayenne, which have declined 13% just in the recent 1st Quarter. Mercedes' sales have dropped 16% and its stock price on the DAX dropped 21%. Another German company, also dependent on exports, SIEMENS, has suffered a drop in sales of 15% and its stock price has dropped 27%. Volkswagen is somewhat confusing as its sales are off 19% in the US yet its ADRs are up 20%. Though its stock price on the DAX has dropped 15%. If I was a German the last thing I would be worried about is any kind of gloating over the state of the American economy as those who export soon find that they are completly at the mercy of those buyers in their bigger markets. Who simply may chose not to buy for a while.

influx on :

The unemployment rate in Germany is 8.1 percent according to numbers released last week.

Pat Patterson on :

The official numbers that I used, 10.8%, were drawn from the Federal Employment Office. But there does appear to be some hiring, at least from February's numbers but these are not adjusted and still range upwards towards 10% and average 9.1-9.8% while the current unemployment figures for the US actually dropped from 5.1% to 5.0%. There was a report from the AP that in the last quarter of 2007 unemployment dipped to 8.1% but once adjusted this year that claim seems to have vanished. A one percent drop in unemployment is indeed a good thing but after ten years seems meaningless especially because not just the companies I mentioned above but many of Germany's biggest companies, that live or die with exports, have announced job cuts in March and April. The only other recognized numbers are those put out by the UN's ILO which is always slightly lower due to counting seasonal employment as full time.

influx on :

These are the official numbers from the Statistisches Bundesamt: http://tinyurl.com/5orhof These are the numbers reported by the Bundesagentur fr Arbeit: http://tinyurl.com/5c368e What site did you use?

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