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Europe and China: Weapons for Investment?

Atlantic Community:

EU countries mired in debt are getting help from an unlikely source: China. The ascendant superpower is buying up large amounts of European bonds and investing heavily in euro zone countries. Moreover, there is talk of a reversal of the long standing EU arms embargo on China. Is this all a coincidence?

Kurt Volker, a former U.S. ambassador to NATO and now managing director at Center for Transatlantic Relations at Johns Hopkins University commented: "If all this were to play out - that is, lifting the embargo, subsequent sanctions, etc. - it would be a new low point in U.S.-E.U. relations." (HT: NATO Source)

I agree. I hope the EU does not lift the arms embargo. In my opinion NATO countries should not sell any arms to non-NATO members.

Plutocracy: US Media Concerned about the Political Influence of the Super Rich

Conventional wisdom used to be that Europeans envy the rich, while Americans hope to emulate them. Now, Americans are increasingly concerned about rising inequality and the influence of the tiny elite of the super rich.

Plutocracy is a very popular topic of discussion in the US media at the moment. I am quite surprised.

It can't be a coincidence that even mainstream and center-right publications like Foreign Affairs, The American Interest and The Atlantic write about it extensively right now:

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"The Temptation to Save the EU from Itself"

What? John Bolton, a former US ambassador to the UN, says that Europeans have to save the Euro crisis? No way! Uncle Sam has to solve all our problems. We Euro weenies are just kids.

Okay, I get it. It's just a New York Post headline. But still. The premise behind the headline is.puzzling.

So what is John Bolton saying exactly:

As the euro encounters even graver difficulties, America should resist the temptation to save the EU from itself. We must avoid propping it up directly through loans or financial assistance or indirectly through the International Monetary Fund.

"Temptation"? Seriously? Given all the short- and long-term US financial problems, are Americans really tempted to "save the EU from itself"? 

I am not an IMF expert, but is not the fund's purpose to help member states, who are in trouble, but have a plan to bring their finances in order? The EU is not a member, but Greece, Ireland, Spain are members. As sovereign countries they can ask for support. The IMF should grant the support, especially if it is in the interest of the world economy. The IMF's purpose is neither to promote the Euro nor to defend the US-dollar as the world's leading reserve currency. A few years ago, pundits debated whether the IMF is obsolete.

Since the US is the biggest contributor to the IMF, it also gets to influence a country's recovery policies, which is one of the reasons, why some Europeans (France?) used to be against IMF involvement in the Euro crisis.

I agree with Bolton's conclusion, which is just common sense and therefore boring and waste of ink: "We should worry about President Obama's staggering deficit spending and let Europe worry about its own."

Blaming Each Others Financial Policies

From a Washington Post editorial:

ABOUT TWO weeks ago, Germany's finance minister described U.S. economic policy as "clueless." We don't want to sound childish, but after yet another bailout for an insolvent European country - about $137 billion for Ireland - we are inclined to ask: If the United States is clueless, what does that make Germany? The de facto leader of the crisis-ridden, 16-nation eurozone, Berlin has not performed its role brilliantly over the past year.

A good defense of German policy against US criticism of its "export-led growth model" can be found on Atlantic Community: Stop Lecturing and Do Your Homework, America!

Thomas Kleine-Brockhoff: America's argument about the Chinese currency manipulation may be valid but it is also a distraction. It is America's own lack of competitiveness that is hurting the US more than anything. America will be able to revive the credibility of its global economic leadership only when it stops blaming its democratic peers and instead starts doing its homework.

Ecological-Industrial Complex

Environmental policies produces more inequality than neoliberal ones, says Malte Lehming in the Wall Street Journal. He works for Der Tagesspiegel, which has published the provocative German original (HT: Ava). He acknowledges German leadership in the green industry:

In 15 years, according to a government-sponsored study, green technology will overtake the automobile industry as Germany's core industry. A multi-billion-dollar market has developed, and Germany is the leader in many emerging branches, with a worldwide market share in green technology of around 16%. Some 1.5 million Germans already work in the green industry.

This progress, however, comes at the expense of the working classes:

The Greens like to portray themselves as fighting against the excesses of capitalism. Now it's clear that the ecological-industrial complex increases inequality more than neo-liberal policies ever could.

Meanwhile a very different situation in the United States, home of the so-called "military industrial complex." The midterm elections are bad for America's green industry and the future of the US economy in general, writes Carnegie Fellow John Judis in The New Republic. His article on the Lost Generation is among the most negative assessments of the Republican gains at Congress:

America's challenge over the next decade will be to develop new industries that can produce goods and services that can be sold on the world market. The United States has a head start in biotechnology and computer technology, but as the Obama administration recognized, much of the new demand will focus on the development of renewable energy and green technology. As the Chinese, Japanese, and Europeans understand, these kinds of industries require government coordination and subsidies. But the new generation of Republicans rejects this kind of industrial policy. They even oppose Obama's obviously successful auto bailout.

Instead, when America finally recovers, it is likely to re-create the older economic structure that got the country in trouble in the first place: dependence on foreign oil to run cars; a bloated and unstable financial sector that primarily feeds upon itself and upon a credit-hungry public; boarded-up factories; and huge and growing trade deficits with Asia. These continuing trade deficits, combined with budget deficits, will finally reduce confidence in the dollar to the point where it ceases to be a viable international currency.

Strong stuff! Both articles!. Germans are screwed in the short run, Americans in the medium run? And in the long run we are all dead. Speaking of which: Is Obama a Keynesian?

"Superman is wearing black, red and gold this year"

When was the last time the New York Times front page featured a headline with the words "German Surge"? I bet never since WWII.

Well, today's headline might only be at the top of the online edition and only for a few hours.

The good economic news come as quiet a surprise on this side of the Atlantic as well. I got the impression that most folks here don't expect it too last. Thus, consumer spending is not likely to increase, and in consequence our neighbors and the US are likely to continue to complain about our "selfish" economic policy.

Though the NYT points out: "German consumer spending, which tends to be tepid even in good times, contributed to the growth spurt, as the number of people working grew 0.2 percent from a year earlier to 40.3 million, the Federal Statistical Office said."

Bloomberg writes about record German growth (HT: David)

The increase in German GDP was the strongest quarterly gain since records for the reunified country began in 1991. First- quarter growth was also revised to 0.5 percent from 0.2 percent. Euro-area GDP rose 0.2 percent in the first three months of the year.

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What's Worse? Debt or Frugality?

"Bashing Germany is the new favorite sport for policy makers and economists who want a more balanced world economy," writes The Wall Street Journal and points out: "That Germany's economy is unbalanced is clear. Household incomes and consumer spending have stagnated for a decade, and economic growth has come almost entirely from exports and related investment. Consumption is set to drop 1.4% this year, even though the overall economy will grow 1.9%."

The WSJ explains the German position very well, even though it does not quite agree with it:

German Chancellor Angela Merkel argued in an interview last week that balancing the budget could even unlock consumers' wallets-whereas deficit spending might only lead to even-higher household saving. Germans save because they are worried the public pension and health-care systems will run out of money, and would save less if they had confidence in sustainable public finances, she argued.

Ms. Merkel's first term doesn't offer good evidence for that view, however. Germany cut its budget deficit from 4% in 2005, when she took office, to nil in 2008, before the financial crisis struck. In that time, Germans' household savings rate rose rather than fell-to 11.2% of disposable income, from 10.5%. The core problem is lack of growth in Germans' disposable income, not high savings rates which are largely justified for an aging population, say most economists.

Endnote: Does Obama sound French, when he says that he is "concerned by weak private-sector demand and continued reliance on exports by some countries with already large external surpluses."? He was clearly asking Germans to buy more American stuff. (Hey, nearly everyone is walking around with iPhones and the city is full with huge iPad advertisements. Or are that Chinese products?)

Finance Minister Schäuble hits back at Obama by saying: "Governments should not become addicted to borrowing as a quick fix to stimulate demand. Deficit spending cannot become a permanent state of affairs." Oooch. I think most Germans agree. According to polls a majority of Germans are even against tax cuts. Can you believe it?

Austerity and Regulation vs. Stimulus: The Latest Transatlantic Squabble

Ahead of the G-20 summit we are witnessing rising German-American disagreements. Germany wants to reform the financial markets and deal with the debt crisis, while US academics and the president prefers economic stimulus plans and criticize the teutonic export champion. Spiegel International:

Krugman is far from alone with his concerns about German and European austerity packages. Last week, US President Barack Obama sent a letter to other G-20 countries in which he fired a not-so-subtle shot across Berlin's bow. "I am concerned about weak private sector demand and continued heavy reliance on exports by some countries with already large external surpluses," he wrote in a clear reference to Germany. He also warned against reversing economic stimulus policies too soon. "We worked exceptionally hard to restore growth," he wrote. "We cannot let it falter or lose strength now."

Germany and France were hoping that the G-20 summit would focus on measures aimed at reforming global financial markets. In particular, Merkel would like to see an international tax on financial transactions as well as a mandatory bank levy, which would go towards a fund to be used to bail out banks in future crises. But opposition to both proposals has been stiff. And the US, in particular, is hoping to use the G-20 to push for more economic stimulus rather than less, given ongoing high unemployment at home.

Personally, I am not sure, if the US and Europe really need and can afford more stimulus plans right now. They make the long-term debt crisis worse. Besides, tax cuts do not lead to more consumer spending, when citizens are smart enough to realize that the economy and government finances are in trouble and consider tax cuts for what they are: desperate measures to stimulate growth. In those cases citizens use the tax cuts to save more money to prepare for the worst. Of course, stimulus is more than tax cuts.

ENDNOTE: I am sorry for the lack of blogging. In the last six weeks, I learned quite a lot of stuff the hard way: First, a new bike with strong front wheel breaks is not necessarily a good thing. Second, I cannot fly. Third, a broken elbow joint requires two surgeries, the second one kept three doctors over four hours busy. Fourth, doctors and nurses are nicer and more caring than I thought. Even the hospital food was good. Our health care system is still okay. Fifth, even if only the elbow is broken, fingers don't work (typing etc.) very well. Regaining full flexibility apparently takes months. Sixth, one can get quite a lot done with just one functioning arm. Now "I'm a graduate of pain." Yeah.