Enough of the levity (see previous). It’s time to get serious – even “apocalyptic.” Specifically, The apocalyptic cost of the collapse of the Eurozone, a recent entry on the blog of Libération’s famed Brussels correspondent, Jean Quatremer.

That article basically calls attention to a recent, publicly-available and English-language study from ING Bank (main writer: Mark Cliffe) entitled “EMU Break-up: Quantifying the Unthinkable.” It’s quite an eye-opener, and Quatremer has performed quite a public service in calling his readers’ attention to it. For the “unthinkable” when it comes to the euro has become quite a bit less so this year, including the two “unthinkable” extremes between which Cliffe structures his report’s analysis: 1) The departure from the Eurozone of Greece (only), and 2) The collapse of the whole thing, with the current member countries simply reverting to their currencies of prior to 1999. Both developments, and various others in-between, have increasingly been raised as distinct real-world possibilities, and not just as horror-scenarios but also as measures to be induced deliberately (particularly the ejection of Greece) as punishment for the fiscal failings of various naughty governments. (more…)

Today is “Stress Day” – the day when the results of the “stress test” exercises performed on all major European banks will be released after the end of the European business day (but right in the middle of the American business day!). The Financial Times column Alphaville has a handy round-up of articles on the subject, compiled by Gwen Robinson. The most comprehensive guide – perfect if you’re still unsure of what these “stress tests” are all about and have some time – is by far the contribution from Anne Seith of Der Spiegel. (Rest assured: it’s in English. As for Alphaville itself, better enjoy that while it’s still free and available to all!)

Then there is the report by Anne Michel in Le Monde, also cited in the FT Alphaville round-up. Why is everyone so stressed about these “stress tests”? Mainly because banks can only “pass” them or “fail” them, and failure could carry a high price in terms of loss of investor confidence, for starters. Indeed, the impact is likely to be even greater than it was for the ten banks (out of nineteen tested) which “failed” during the American “stress test” exercise carried out back in May, 2009, for banks that fail by definition need recapitalization and there is a dwindling number of European governments still able to provide that. It’s notable, as Mme. Michel points out, that European authorities have staged such “stress tests” twice before, namely dry runs in August of 2009 and April of this year with a more limited selection of banks, whose results have never been made public.

But this time it’s serious, and all results will be released publicly. Naturally, everyone would love to jump the gun and get word of at least some of the results before they’re released to the unwashed masses (there’s potentially money to be made, for one thing). Mme. Michel does her best to oblige. It looks like all the French banks involved – namely BNP Paribas, Société générale, Crédit agricole and BPCE – have passed the test. Indeed, the failures are expected to come only from the usual suspect nations: Spain, Greece, and Portugal. Oh, and Germany, too – but the one German laggard is likely to be the Hypo Real Estate Bank, which already got into so much trouble back in 2008 that the German government fully nationalized it. (Note that this last bit does not come from Mme. Michel’s article, but from another of my on-line sources.)

Going back to the star banking pupils from France, such seeming across-the-board success inevitably raises questions as to the stress tests’ legitimacy. The article does go into some detail about how the tests’ parameters have been toughened up to include some degree of sovereign debt default, placed on top of a posited recession of 3% negative economic growth lasting over a year-and-a-half. But will this go far enough to convince the markets that all this has been a worthwhile, bona fide exercise? That is probably what most EU officials and bank executives are stressed-out about most of all.

Sorry: this has nothing to do with doing-over the financial crisis of late 2008-2009 to get another chance to deal with it right, even only as it hit Belgium. Rather, I noticed from a piece by Bert Broens in that nation’s business newspaper De Tijd that two of the biggest domestic banks, KBC and Dexia, will have undergo so-called “stress tests” all over again right after they thought they were done with all that.

What these “stress tests” are all about is an auditing exercise whereby banks’ balance-sheets are subjected to a standard scenario positing a business downturn, meaning theoretically that more people would not be able to pay back their loans, there would be lesser demand for new loans, and the like, and so you see how the bank would do in such a situation – first of all whether it would even stay solvent and so survive (at least without receiving some sort of state aid). And, as stated, both these Belgian banks already did the exercise and came through it with OK results. But the whistles have sounded and the competitors are being directed back to their starting-blocks to do it all again, and for a good reason: those previous stress tests did not include checking for any situation in which government bonds held by the banks might not be fully repaid. That’s rather an important omission: we’re talking in particular Southern European (or PIGS, if you like) government bonds here, and KBC Bank alone has €60 billion worth of them in its portfolio.

How then could anyone have considered the previous stress tests, which did not account for those public obligations, anything but a waste of time? Well, many cynics (or call them analysts) have felt that the real purpose of such tests was in the first place as a propaganda exercise meant to return a comforting “All OK!” for each such bank tested to calm investors’ and markets’ fears. This whole “stress test” idea was taken over in the first place from the American financial authorities, who performed them on the big American banks in spring-summer of last year, and ongoing coverage particularly from the Naked Capitalism financial weblog not only blew the whistle on that American exercise but also has found serious flaws in the European stress tests happening now. In fact a major complaint (also put forward in a related financial blog here) about the validity of the European tests was their alleged failure to take into account such sovereign risk.

Broens’ piece shows that that at least is not happening in Belgium, although he doesn’t say why, like who decided to make these exercises a bit more bona fide and call back KBC and Dexia to do them “right.” His language is in the passive tense – “in the meantime it has been decided to expand the test” – although one first guess would have to be the Belgian financial authorities.

UPDATE: A new entry on Naked Capitalism tacitly concedes that these European “stress tests” will in fact include banks’ exposure to sovereign debt in their calculations. It then goes on to sketch the great worry resulting from that: What happens when these more-honest tests reveal that too many banks in fact stand in need of more capital, possibly from governments which in many cases are no longer in a position to provide the same?

You might have become aware late last week of a brief kerfluffle involving the new Hungarian government of Prime Minister Viktor Orbán. It didn’t involve Orbán directly, however, only some figures closely associated with him, such as another top figure in his FIDESZ political party, Lajos Kósa (mayor of Hungary’s second city, Debrecen), and Péter Szijjártó, his government spokesman, who together spread the word to the world at large that the Hungarian budget deficit was actually rather higher than previously reported and that their country could soon find itself in a simlar fix as Greece. This quickly led to a mini-financial panic breaking out the world over – including in Far Eastern markets, which suffered price-losses – at the thought that the EU suddenly had another fiscal basket-case member-state to deal with, one that moreover had already had a joint EU/IMF bail-out back in 2008.

“Sorry – did we say that? We weren’t really serious” was roughly the reaction from that same Hungarian government once they realized the wide-ranging storm their comments had unleashed. Clearly, the amateurs were now in charge within that government’s highest reaches, and you can get a quite informative treatment of the incident – with pictures of the major protagonists – from the realdeal.hu weblog. There writer Erik d’Amato makes a convincing case that all this was simply an attempt by the new government to position itself politically to impose some austerity measures in its upcoming budget, albeit one that went spectacularly awry.

But such incompetence cannot go unremarked upon for long, and as the Danish daily Politiken reports (Hungarians go off on top politicians’ mysterious pronouncements) feedback has now started to arrive. For one, the economics editor of one of the major national dailies, Zoltán Baka of Népszabadság, called last week’s pronouncements “completely idiotic.” The IMF chief, Dominique Strauss-Kahn, also told the Associated Press that, in his view, there is “no basis to be worried” about Hungary’s fiscal situation. Other European finance ministers, however, couldn’t be bothered to offer an opinion: they are busy these days trying to find a solution to the ever-weakening euro, whose recent downward course last week’s Hungarian mini-fiasco only served to accelerate.

. . . mainly to include the 500+ million European Union! That at least is the message of Libération Brussels correspondent Jean Quatremer in the lastest post on his Coulisses de Bruxelles, UE (=”Brussels Corridors”) weblog, entitled “Barack Obama, the president of the European Council (Potec).” The basic assertion Quatremer wants to make here is that Obama should get the main credit for the bold/desperate €750 billion emergency aid package that European leaders cobbled together last Sunday night – just after voting in the crucial Nordrhein-Westphalen German state election had closed but just before Asian markets started trading again on the Monday morning of a new week, you understand.

Sure, the President was nowhere near Brussels at the time. Still, in Quatremer’s view it was the key telephone calls he placed to the main decision-makers – mainly France’s Sarkozy and Germany’s Merkel, of course – that made sure something big and decisive would happen. And then it seems he also gave a call on Monday to the Spanish premier, Zapatero, to persuade him to buckle down with some serious government cost-saving measures (that included lowering public employees’ salaries and cutting pensions), and he may have similarly bent the ear of Portuguese premier Socrates as well. (more…)

You’re surely all aware of the big current European story: that minor matter about saving the euro from tremendous speculative pressures on its currency, in light of a threatened Greece sovereign bankruptcy which threatens to drag down further other vulnerable EU sovereign borrowers as well. As always, my policy in approaching this topic is to consider only those non-English-language articles which add something to the discussion that my readers are not likely to have already seen elsewhere in the English-language press. So I admit I haven’t provided much coverage as yet, other than the translation of the French Finance Minister interview yesterday/below.

Then again, that’s also a little disingenuous; a unique viewpoint on virtually any European economic or political issue is almost always to be had from L’Humanité, the organ of the French Communist Party. Naturally, those folks have also been glad to hold forth on the new measures and funding facilities arising from last weekend’s Eurozone crisis meetings over the Greek debt problem, as we see in the piece by Bruno Odent provocatively entitled Euro: the plan aimed at saving the hostage-takers. (more…)

The finance blog Naked Capitalism today linked to a current article of high interest which happens to be available only in a foreign language, in this case French. I’m referring to the interview with French Finance Minister Christine Lagarde in the business newspaper Les Echos – newsworthy at any time, but of crucial interest appearing just now.

This is not the first time this has happened on Naked Capitalism, but my intent here is certainly not to scold. In many of those previous instances I have been happy to step in and provide a translation of the article in question on this site, and I do the same below after the jump with the Lagarde interview. The piece’s lede is “‘There’s a determination to construct a new edifice, to reinvent the European model,’ declared the Minister of the Economy in an interview with Les Echos.” (Interviewer’s questions are in bold.) (more…)

Even as the first Greek act in the developing euro-crisis plays on – now with fatalities, as three people die during violent demonstrations in Athens – the focus of public attention is starting to shift to a feared second act in other countries with similarly weak finances, like Portugal or Spain. With that come calming assurances from high EU officials, like EU Council President Herman van Rompuy (remember him?) who characterized any such fears of financial contagion as “irrational.” Going to the horse’s mouth, though – so to speak – we find them to be anything but, as we can see from an article by Luis Doncel (Spanish risk runs rampant) in the mainstream Spanish paper El País. (The hat-tip for discovering this article goes to Eurointelligence – in English, of course – whose piece itself offers a potpourri of interesting current news items on the Greek crisis.) (more…)

Need I even say it? Despite fantastic economic figures just out from China (exports up 46% in February year-on-year, 8.7% economic growth in 2009), the world-wide financial/economic crisis is far from over. An ever-expanding list of governments (Greece, Spain, Ireland, the UK – yes, also including the US) have adopted the strategy of grabbing back desperately-needed economic growth through success in increasing exports. A corollary to that is that a weak currency is an awfully handy thing.

Except that it simply isn’t possible, from a mathematic point-of-view, for everyone to weaken their currencies at the same time. Someone’s money – preferably some country with a huge presence in international trade – has to go up in value, relatively. And this gets back to recent Chinese economic performance: China seems to be doing rather well, but it is also suffering from a notable bout of price-inflation. Furthermore, the Middle Kingdom’s currency, the Renminbi, is clearly undervalued – infamously so, even, due to the Chinese government’s explicit policy to protect it with various currency restrictions to be sure to keep it that way. So wouldn’t we find some nice economic solution for everyone by heeding the calls that have been issuing from US officials for some time now and convincing the Chinese government to cut that stuff out and allow the Renminbi to appreciate in value?

Not according to Tobias Bayer, in his opinion piece for the Financial Times Deutschland (Exchange rate policy: Dangerous game with the Renminbi). (more…)

More on the Greek debt crisis from Naked Capitalism: German Paper Says AIG May Have Sold CDS on Greece. That German paper would be the excellent business-sheet Handelsblatt, and the full translation of the article into English which that blog’s proprietor requests in her post follows after the jump.

UPDATE: Correction! Looking at that original German piece, it clearly comes originally from the Frankfurter Allgemeine Zeitung or FAZ – often called Germany’s own New York Times. I have noticed before how the two papers clearly have an arrangement allowing Handelsblatt to reprint certain FAZ material. Credit where it is due . . .
(more…)

Over on the financial blog Naked Capitalism today there are some very interesting links concerning the seemingly nefarious role Goldman Sachs has played in the recent past with the Greek government, that government’s attempts to both hide its debt and to find ways to fund it, and with the Eurozone in general.

The headline link is to a very revealing blogpost by Jean Quatremer, Brussels/European correspondent for the French newspaper Libération – but the link is only to the French original. Herewith my translation of that, after the jump, complete with the links Quatremer uses within his piece (other than when they go to Wikipedia or to general homepage sites): (more…)

Germany’s Die Zeit allowed itself yesterday a bit of gloating: Europe takes over from North America as richest region. It’s all due to the Great Recession: North American wealth is to a much greater proportion held in equities, whose values lately have plummeted, so that assets under managment (AuM) there fell by 21.8% in 2008 to $29.3 trillion, while in Europe AuM fell in the same period by merely 5.8%, to $32.7 trillion. Latin America was the only region where AuM increased despite the adverse economic conditions, by 3%.

All of this, and more, is information forthcoming from a new study by the Boston Consulting Group, which the BCG is kind enough to discuss at length here, in English, so you can consider those previous and the study’s other findings at your convenience. (For example, the US still has the most “millionaire households,” at almost 4 million, although they are thicker on the ground in Singapore, where a full 8.5% of all households own more than $1 million.) Indeed, not only is the BCG itself willing to state figures to one decimal place, while Die Zeit for whatever reason tends to round up to the nearest whole number, but the former also makes use of the American/British system of big numbers (thousands, millions, billions, trillions) that you are probably more used to (and whose differences with the continental European system I had occasion to discuss here previously).

“Eick is being rewarded for a task that he did not fulfill!” is the complaint from labor-council chairman Ernst Sindel featured prominently in a new article in Die Zeit by David C. Lerch over the bankruptcy of German retail-giant Arcandor. Welcome to the Anglo-American business culture, Herr Sindel! Isn’t that something that Germans have always been striving to emulate? Well, now you’ve arrived, complete with around 38,000 company employees about to lose their jobs and unsure about where their next paychecks will come from, while Arcandor’s CEO (one Karl-Gerhard Eick) also loses his job but receives a €15 million “golden handshake” to help ease his transition. At least that money will not come directly out of Arcandor’s empty coffers, but rather from those of the private bank Sal. Oppenheim, the bankrupt concern’s majority shareholder.

Money for nothin’ and your chicks for free: that peculiarity has now also reached Deutschland, although at least – thank Goodness – there it does not (yet) involve financial institutions or taxpayer monies. But Arcandor’s plight typifies the way the German economy has been hit hard by the Great Recession, since that business-speak, focus-grouped moniker dates back only to March, 2007, and encompasses two more-serious names, venerable pillars of (West) Germany’s post-war retail world, namely the ubiquitous department-store chain Karstadt and the mail-order house Quelle. Karstadt, in particular, is like Sears in America: every city and town has had one for decades on end, so that you could never even imagine life without it (although, for that matter, Sears has itself been suffering financially for rather a long time now). In another way it is like Macy’s: just like that department-store chain’s world-famous flagship store in New York City’s Herald Square, Karstadt itself boasts of the renowned KaDeWe (Kaufhaus des Westens) in the center of former West Berlin, a gigantic and opulent department store in its own right and the very symbol of Germany’s 1950s-60s era Wirtschaftswunder.

The exact occasion for Lerch’s article is not the sudden discovery of Eick’s generous “golden parachute,” but rather the fact that the three-month “freezing” period, mandated by German law, after Arcandor filed for bankruptcy on June 9 is shortly to come to an end. This means that it will soon be time to liquidate Arcandor, erase that particular business-speak, focus-grouped name from the official business-register, and find buyers for the firm’s component-pieces (or for pieces of those component-pieces, if necessary). Surely someone will be willing to purchase jewel-in-the-crown KaDeWe! It also seems that another big German retailer, Metro, is willing to take up most of Karstadt’s stores to fuse with its own Kaufhof chain. But the mail-order concern Quelle might have a harder time finding a buyer. No interested parties have stepped forward as of yet, and you’d be excused for suspecting that such a business-model might be somewhat outdated, unless it can re-make itself more along the lines of Amazon (which itself certainly already has a robust presence in Germany).

Word is from over there on the West side of the pond we call the Atlantic Ocean that your Great Recession is coming to an end, to the point that the Federal Reserve is starting to move “back toward normal policy.” Well, it seems the same is true for Europe’s largest economy, Germany, as we learn today in the Frankfurter Rundschau: new data out from the Statistical Office there show that there was growth of 0.3% in the second quarter, even though 35 analysts surveyed by Reuters had earlier collectively counted on further GDP-shrinkage by about minus 0.3%.

In fact, that Office reports that there were signs that growth actually re-commenced already in this year’s first quarter, although the cumulative total for 2009 does stand now at minus 3.5% (and is still expected by the government and some leading economic institutes to come out at minus 6% for the year). Even better is the year-on-year comparison with 2008′s second quarter, which itself was minus 7.1%. (I’m assuming all these growth/shrinkage percentage figures are normalized to an annual basis.) Increased private and governmental consumption, as well as construction, get the main credit for the upturn – plus the singular fact that German imports have lately contracted even more than their exports, thus sharpening further the world-beating performance of that champion German export-surplus machine.

Still, you don’t have to be too much of a skeptic to ask “So what? What does this new, surprising, but small growth number really mean?” So the (uncredited) FR reporter turned to a handfull of economic analysts from leading banks and think-tanks to get their opinions. Analysts from Commerzbank and Unicredit (an international bank, Italian in origin) are very optimistic, stating for example that “The recession is over, and has reached its end earlier than everyone thought. . . . According to our calculations we will see a V-shaped recovery in the second half of this year.” Call me congenitally gloomy, but I find the remark from Jens-Oliver Niklasch, of the Landesbank Baden-Württemburg, to be rather more enlightening:

The question is, how enduring [this "end-of-recession"] is. Many problems we have not solved, the banking sector just like before is especially reliant upon the State’s debt-shield. As long as it is not clear that the banks’ capital base is robust, we cannot assume that the Crisis is past. Japan is a cautionary example here.

With a skewed, vertigo-inducing photo taken at the top of a Strip roller-coaster at the head of their piece, Julie Hjerl Hansen and Thomas Hebsgaard of the Danish commentary weekly Information recently presented an interesting profile of the recession travails of Sin City itself: Las Vegas, Nevada (An Amusement Park in Decline). Their lede here provides a good summary, here it is:

A bad hand. Las Vegas is used to pulling through even when the rest of the USA is in crisis. But it’s not like that anymore. The financial crisis has hit the casinos, while the housing market has collapsed – and these days Las Vegas is the city in the USA where the most people are put out on the street.

It’s easy to see why Hansen and Hebsgaard chose Las Vegas specifically for their “US metropolis in economic crisis” feature. Predominating above all must have been the way that city exerts a certain fascination upon most foreigners, in that it is literally impossible for them to find an analogue to it in their own countries (no matter where they may be from – the gambling paradise of Macao, off the southern coast of China, probably comes the closest), and therefore to easily understand the place. Like an unconquered peak to a mountaineer, Vegas must represent to the ambitious journalist the same sort of challenge, defying one to ever come to grips with it, to ever master what really makes the place tick. (more…)

One element in a new spending bill now agreed to by both the US House and Senate is a provision which would provide a US Government voucher of up to $4,500 to Americans to trade in their old automobile for a new one – preferably one more fuel-efficient. It does seem that, as things have proceeded through the legislative process, the motivation of stoking domestic demand for new automobiles has plainly won out over the initial environmental reasoning behind the measure, but at least it does seem pretty guaranteed that the former aim will be accomplished. That much we know from the experience in the country that implemented this idea in the first place, and Birgit Marschall and Martin Kaelble of the Financial Times Deutschland point out that this Abwrackprämie, or “scrapping premium,” is namely a German fiscal innovation. (more…)

It looks like World Bank released an interesting publication a few weeks ago, the “Global Monitoring Report.” Jørgen Steen Nielsen of the Danish commentary newspaper Information has got it covered, albeit with a title for his review-article that the World Bank bureaucrats would never have dared to formulate themselves: The Chinese saved up for the American binge. Likewise, Nielsen’s lede would probably have not passed muster with the World Bank editors:

The large developing country [i.e. the PR of China] through its loans financed the overconsumption in the USA that launched the global recession and now forces millions in undeveloped countries into unemployment, hunger, and extreme poverty, said the World Bank.

How many millions exactly? The report does provide these numbers: 55-90 million more people in undeveloped countries driven into extreme poverty, 50 million in addition to that made unemployed, and the ranks of the world’s chronically hungry growing to over one billion. China did this (that’s the implication Nielsen draws out from the report) by recycling its dollar earnings from exports to the US through the amassing of incredible quantities of US Treasury debt – $696 billion by the end of last year, now grown to $744 (out of a total amount of foreign-owned US Government debt obligations of $3.1 trillion).

Again, this is probably not the slant that the writers of this report originally intended. It seems clear that their point was rather to warn how the UN’s Millenium Development Goals are in danger of not being achieved by the target date, which is 2015. You probably don’t remember this (I don’t either), but back in September, 2000, there was a “Millenium Summit” held at the UN’s headquarters in New York City, the largest gathering of world leaders in history as of that date, when those leaders committed their countries (192 states in all) to certain anti-poverty/anti-disease goals. But now, the report writes, “it is improbable that most of the eight global goals agreed to can be achieved – among these the goals having to do with hunger, child- and childbirth-mortality, education and progress in the fight against HIV/AIDS, malaria and other serious diseases.” In particular, the report writes off entirely sub-Saharan Africa’s chances of achieving these goals.

Die Zeit today brings doleful news: Germany has a relapse! What the unnamed journalist (no by-line) is referring to here specifically is what he calls the “Maastricht Criteria,” according to which EU member-states are supposed to keep their government budget deficits to 3% of GDP or less. (That’s OK as a name, but it would be more accurate to call this requirement part of the Stability and Growth Pact that was agreed to as a pre-condition for the establishment of the euro.) Sure enough, the European Commission now calculates (in a report released today) that the German debt this year will amount to a full 3.9% of GDP – and next year even 5.9%! And all this, the Die Zeit article notes, just two years after Germany had managed to get itself out of the Commission’s bad graces (actually, out of a full-scale official EU “penalty process”) for violating this rule!

Well, to offer a quick bit of economic analysis: No sh–, Sherlock! (more…)

I hate to be a “downer” here at EuroSavant, but nonetheless feel an obligation (as explained below) to bring up recent alarming pronouncements about Germany’s immediate future made by a prominent economics professor there, Dr. Max Otte (full last name: “Otte van Ullstein”) of the University of Worms. The main coverage I found in Die Welt (Crash-guru demands vacation-ban for Germans, no by-line), although that article references and orients itself around a brief interview Prof. Otte recently gave to Berliner Kurier (The crash-professor prophesies: the crisis will hit us this hard), a Berlin-based tabloid. (more…)

“Make no mistake,” as Grégoire Biseau writes for the French left-leaning newspaper Libération, “the crisis continues to wreak devastation.” He cites only figures for France, but they still do not make for very reassuring reading: bankruptcies, for example, are up 21.3% in the first quarter of 2009 (presumably year-on-year), and profitability for non-financial firms is at its lowest level since 1985.

The question naturally arises: Surely there must be companies, somewhere, which are still doing well for themselves despite the tough times. Who are they? Perhaps more importantly – because of the clues that may be extractable for the rest of us – how are they managing to pull that off? As chief editor and team leader, Biseau enlists his colleagues at Libération to put together an article-collection addressing these questions, under the master-title of Seven aspects of getting around the crisis. (more…)

Various American papers (such as the Washington Post) covered the recent 2009 Monopoly US National Championship, which was actually staged last week inside of Washington, DC’s Union Station. But people play Monopoly other places, too, as we are reminded by Matthias Wyssuwa of Germany’s Frankfurter Allgemeine Zeitung with his coverage of the eleventh annual German national Monopoly champion competition (Go to jail).

Granted, America was the original source, in the 1930s, of this ultimate free-market, real estate buying-and-selling competition (looked at it that way, where else could it have come from?), and Wyssuwa informs us that all of this world-wide Monopoly tournament activity is in preparation for the World Championship to take place later this year in Las Vegas. That’s also a fitting choice, except that Atlantic City – whose street-names are the ones you find used in the classic American edition of the game, you’ll recall – would have been even better. Of course, it’s German street-names that are used in the German edition; for example, Hans-Georg Schellinger, the ultimate winner of this 2009 German championship, is said by Wyssuwa in the final round to build up a real estate empire “from the Badstraße to the Opernplatz.” (more…)

Here in the Netherlands we also have a prominent financial sector, dominated by a handfull of internationally-operating banks (e.g. ABN Amro, ING, even Rabobank) for which the value of the assets of any single one alone exceeds the national GDP. It follows that developments here over the past six months or so have more-or-less echoed the more-prominent financial travails in, say, the US or Great Britain: overindulgence in promising new asset-classes – often involving American real estate – which then turn out to be “toxic,” concerns over solvency, government injections of capital through one means or another, and in general some rather poor performance on the part of financial executives when it comes to sober risk analysis and maintaining their institutions’ very financial viability.

What is also not missing from the Dutch experience is the phenomenon that has gotten much of the American and British public exercised in recent weeks, namely that of financial executives walking away with huge monetary bonuses in the face of what is commonly understood as the meaning of “bonus” (“paid over and above base salary to reward extraordinary performance”) and the glaring absence of any merit that would justify them. (more…)

. . . and now back to our regularly-scheduled coverage of depressing news from the current economic crisis. The latest development is the Congressional Budget Office’s report, released yesterday, maintaining that the US Government actually faces budget deficits and total indebtedness amounting to even higher unbelievably-large numbers than the unbelievably-large numbers presented under President Obama’s budget proposals.

The respected German daily Die Welt promptly picked up on this news to come out with its own article: Congress expects highest deficit of all time. What we should look at first here is the German word for “deficit” itself, used in that headline: Fehlbetrag, derived from the verb fehlen, “to err, sin, blunder” – so a “blunder-amount,” if you will. That pretty much sets the tone, right there; even before the reader’s eye gets to the inserted photo of an earnest President Obama – i.e. while it is still reading the lede – it gets assaulted not only by enormous numbers ($1.8 trillion/€1.3 trillion deficit for 2009, $9.3 trillion debt by 2019) but also by the accompanying loaded descriptions (“record total,” “without precedent,” “a debt-mountain”). Then the remainder of the relatively short piece fills in the remaining horrific details, like that such deficits would amount to over 4% of US GDP – “a value that experts term untenable.” US Budget Director Peter Orszag is quoted as conceding that a 5% deficit (getting close!) would truly be unbearable, even as he also maintains that the CBO’s estimates are unduly more pessimistic than the administration’s proposals. (more…)

Need a little bit of good recession-related news? Maybe even something with “rejoice” in the title? We get that from the mainstream Czech daily Lidové noviny, reporting on recent Škoda auto sales: Germans fall in love with the Fabia, Škoda rejoices. Yes, Škoda’s Fabia (pictured here) was the second-most-sold automobile in the German market in February, 2009, behind only that perennial favorite the VW Golf. At 9,190 units sold, Fabia sales were triple what they had been only the previous month, while sales of the Octavia also improved enough to push that sister Škoda model (more of a luxury auto, I believe) to 19th place on the auto-sales hit-parade of what is of course a very competitive German market. One important result of all of this is that Škoda has cancelled the plans it had to go to a four-day work-week until the end of June; the five-day work-week (meaning five-day pay for personnel) will stay. (more…)

Just as the Obama administration is getting prepared to ramp up US military strength in Afghanistan by about another 30,000 troops, a very real problem has arisen as to how to keep supplied the NATO troops already on the ground there, much less bring in brand new forces. The land supply-route from Pakistan via the Khyber Pass has lately become somewhat insecure and unreliable, but now the air route threatens to become much longer and more difficult due to the announced closure to NATO use, within six months, of the Manas airbase near the Kyrgyz capital Bishkek. The Washington Independent’s ace (US) national security reporter, Spencer Ackerman, now considers the Manas closing as inevitable, while Scott Horton over at Harper’s enlightens us as to the corrupt and high-handed (even deadly) American behavior there that caused relations with the Kyrgyz to sour to bring us to this point.

The world-renowned French daily Le Monde provides yet more context for that Kyrgyz government decision (Five countries of the ex-USSR create a fund for dealing with the crisis). Those five countries are Russia herself, Belarus, Kazakhstan, Tajikistan and, yes, Kyrgyzstan, and the article shows clearly how Russia has succeeded in re-extending it’s influence over the Central Asian countries both financially and militarily. Sure, there is that $2 billion loan and $150 million in an outright grant reported by the New York Times that Russia has offered to Kyrgyzstan. But that august newspaper failed to report that Kyrgyz president Kurmanbek Bakiev travelled to Moscow in the first place to take part in a summit with Russian president Medvedev and the presidents of five other ex-Soviet states. It was there that the subset named above established a collective $10 billion fund (with a disproportionate Russian contribution, one would expect) as an emergency and stabilization reserve for confronting the worldwide financial crisis.

But that same summit had an important military dimension as well. All seven of the presidents in attendance (i.e. the five listed above plus those of Armenia and Uzbekistan) agreed to create “collective armed forces” for responding to common external threats. And it was actually in connection with this summit meeting that Kyrgyz president Bakiev made his announcement that the Manas airbase would shortly be closed to the Americans.

Although it is true that “collective armed forces” is a vague phrase, and that one should wait and see what comes of it in operational practice (if anything – it’s highly unlikely to mean a fusion of all those nations’ armies, for example), it is nonetheless clear that Russia’s influence in Central Asia is waxing. But it’s also probably useful to remember that American access to airbases in the region, starting in 2001 (i.e. less than ten years after these states had gained a sort of “independence” from Soviet Russia) was extraordinary to begin with, and really only due to the world political climate in the wake of the 9-11 attacks, which among other effects brought about toleration for this extraordinary concept from the Russian government. If that attitude cooled soon thereafter, it did so somewhat less quickly in the states actually hosting American bases, namely Uzbekistan (with an airbase made available until 2005) and Kyrgyzstan, giving them for a while at least a veneer of policy “independence” from Moscow. The impending loss of the Manas base, however – although considerably helped along by American behavior, as Scott Horton reminds us – was in this geopolitical context something inevitable, so that one would rather hope and expect that contingency plans for what to do next are already in place at the Pentagon.

Sorry for the unrelenting bad news, but here’s a brand-new victim of the current financial crisis that you might be interested in. Märklin is bankrupt, Hasnain Kazim reports on Germany’s Spiegel Online. As his lede then continues:

. . . and millions of model-railroad friends grieve for the tradition-filled enterprise with cult-status. The majority-owner had announced a [financial] rescue not long ago. But now the firm has become a victim of the financial crisis, of management mistakes and of a societal shift.

I also looked at reports of Märklin’s recent demise from various other German on-line publications, but the Spiegel’s account is the best because of the interesting background information that it provides. Like how about this: the announcement that the firm would have to file for bankruptcy from Märklin’s chief executive Dietmar Mundil came yesterday, just prior to the opening of the annual International Toy Fair convention in Nürnberg. And this was only shortly after the company’s marketing head, already present in Nürnberg for the convention, had issued a statement for the benefit of his fellow convention-goers (i.e. worldwide toy industry professionals) that there was no bankruptcy on the horizon for Märklin. Embarrassing, that, but maybe top management should not be blamed too much here, since it seems the bankruptcy was also a surprise for them, something that suddenly became unavoidable after the recent unexpected refusal by the company’s banks to roll over the €50 million in credit it had outstanding.

Ah, but who was that management? Not the original families who had founded and built up this model-train manufacturing business over the course of 150 years (the Märklin family, yes, but also the Friz and Safft families); they sold out in 2006 to a consortium made up of Goldman Sachs and Kingsbridge Capital, a London-based private-equity firm. The company had been losing money since 2004, you see, and these new owners proceeded to do what such private-equity new owners do, namely make their new acquisition start producing profits again no matter what had to be broken in the process. Four hundred of the total 1,400 jobs were eliminated, along with two factories, toy retailers were instructed to pay their invoices more promptly, etc. But those new owners consortium also invested in developing the company and introduced imaginative new marketing wrinkles, such as model-train “starter sets” sold for €100 at the German low-cost supermarket chain Aldi, as well as the simple insistence that store-owners display the model trains more prominently. And indeed, turnover did rise through 2008, to €128 million by the end of the year, so that Kingsbridge head Matthias Hink could declare then that “Märklin is one of Germany’s best brands and has considerable potential,” and that they certainly never intended to sell it. From Kazim’s account, we probably need to take Hink at his word here; it does seem that the firm ultimately went under solely because it could not achieve a credit roll-over that would have been routine for it in normal times.

Out of Track in the Long Run?

On the other hand . . . maybe Märklin was actually doomed, sooner or later. Let’s face it: who plays with model trains these days? Kazim gets some interesting quotes on this subject from an expert, one Werner Lenzner, a toy-industry market researcher, who asserts that, starting in the 1980s, model trains were not for kids anymore but for adult collectors – typically male and between 40 and 60 years of age. The individual pieces were no longer relatively cheap toys meant to be kicked around; they had became expensive and were meant for display. This older cohort is now, in the first decade of the twenty-first century, to be found according to Lenzner “rather sit[ing] during their leisure time in front of the computer [ed. interjection: reading EuroSavant!] or at the fitness-center.” Lenzner is even willing to say for the record that those who still sit around building elaborate miniature train tableaus are now generally viewed as schräg – which my dictionary defines as “slanting, oblique” but I think we can figure out that term’s slang (and probably not so complimentary) meaning.

Then again, what Matthias Hink from Kingsbridge said about the staying-power of the Märklin brand remains true, I think, and no brand really ever has to die unless for some reason it is explicitly put to death. Someone else will surely buy up that brand and the company’s other assets and carry on. Lenzner again: the main mistake was “to make very costly [train] models, in extreme detail, which only a well-to-do collector could afford.” So the new Märklin probably should go back to manufacturing true trains for the kids. Or maybe expand further the product-line to which it can apply its powerful brand: Märklin “train engineer” sunglasses, anyone?

Now that the German government has finally ditched its initial stance of taking only perfunctory measures in reaction to the economic crisis and has instead launched its own expensive stimulus program (as we discussed in the very last post, just below), it’s understandable that there would be some new Teutonic curiosity about how other countries are coping – I mean, now that Angela Merkel’s government has ceased writing everyone else off as a bunch of free-spending Nervous Nellies. So Die Zeit takes up the comparative economics assignment in fine style with a captioned picture-series entitled “Ways out of the crisis,” and dealing with the approach to recession-relief taken by seven of the world’s main nations, one page per country (pages 8 & 9 just have supplementary content).

Those without a facility in German will of course only be able to fully savor each page’s accompanying photo, which in each case presents a scene out of a soup-kitchen or other poor-relief facility in the respective country. Oh, and if your eye should happen to catch sight of the various numbers mentioned in the texts to the right, you will need to remember that Billion (plural: Billionen) in German actually denotes what Americans would call trillion; it’s Milliard in German (plural: Milliarden) that is “billion.” Note that I will, as usual, use the American terminology.

Otherwise, you can be sure that each country discussed (in order: USA, Russia, Brazil, the UK, France, China, and Japan) is taking active, although varying, measures to counteract the economic crisis. The prize so far goes to China which, when central government outlays are added to additional monies released for provincial governments, has committed to around €1.5 trillion in spending, or 2/3 of current Chinese GDP. Then again, they started earlier (the first major stimulus plan was announced in November), and they can afford it more, holding around €1.4 trillion in foreign exchange reserves. And it does seem that conditions there – except for foreign trade volume – are already starting to turn up. The US, in stark contrast, at this point according to the article can still point only to Barack Obama’s still-inchoate plans for an stimulus package of around €600 billion (no mention is made of recent suggestions to devote some of that to tax-cuts, and yes, the article cites it in terms of euros), which still will raise the federal budget deficit to 11% of GDP. So the Die Zeit editors here are ignoring the $350 billion of the TARP program already spent, as well as that stimulus-money (remember that?) that Congress spread around to all tax-paying citizens last spring – but, come to think of it, there’s not much room to object to them doing that anyway.

Notable mentions elsewhere in this article include the unique aspect of Russia’s relief approach which, other than devoting reserves to support the value of the ruble, features direct money-grants in State assistance to an eligible list of over 300 businesses. (What’s Russian for “corruption” again? How about продажность – “prodazhnost.”) And the brief entry on France points out that the public debt there has now risen to around 4% of GDP, i.e. above the 3% level that all euro-zone members, including also Germany, are supposed to keep below.

UPDATE: Regarding China, others are not so sanguine: Chinese Economy Faces 2009 “Hard Landing,” from Bloomberg (noticed at naked capitalism).

It’s over: they caved. Maybe some of us had been looking forward to a real-world macroeconomic experiment with Germany boldly carrying the banner for that strain of economic opinion – that is still out there, loud and boisterous – according to which massive government spending is the wrong way to counter the current economic crisis. But now, with the €50 billion Konjunkturpaket II it just announced, the German federal government has hopped on the mega-spending bandwagon with everybody else. It seems it’s just too hard, even for Germans, to be prudent and thrifty in front of the voters when you face a general election later in the year.

The FAZ gives a good summary of what is involved – as you would expect from the FAZ: The main points of the Konjunkturpaket: Car turn-in premium, debt-limitation, and rescue-shield – and at its core lies the usual combination of infrastructure investment and tax-cuts, just this time auf deutsch. Most of the infrastructure investment will go into schools; to help the auto industry, people will get a payment of €2,500 if, upon buying a new car, they turn in their old one; and there will be set up to assist small businesses finding it hard these days to get credit a counterpart to that “Soffin” we’ve discussed here so much lately, i.e. the government-run fund for bailing out troubled banks. (more…)

Ah yes, as I observed in a post a few days ago, when it comes to state funds made available to prop up failing banks, the German bank bailout demand is low. But “low” does not have to mean “non-existent,” and in fact on Thursday the German government made use of the Sonderfonds Finanzmarktstabilisierung (“Special Fund for Financial Market Stabilization,” or Soffin) it had established to provide Commerzbank with €10 billion in exchange for taking up a 25% ownership stake. More precisely, of that €10 billion €1.8 billion actually buys that equity quarter-stake while the remaining €8.2 billion goes to a “silent participation” that gains no voting rights. By the way, at roughly the same time Commerzbank also took advantage of that other facility offered by Soffin – namely State debt guarantees – to bring in another €5 billion in new capital via a guaranteed bond-issue.

If you were to use your imagination to put yourself in the German federal government’s place – say, if you were a German taxpayer in whose name all this money was being spent – you might very well wonder what those civil servants in charge of the Soffin were thinking by accepting in exchange for the lion’s share of that €10 billion amount a mere “silent participation.” After all, it’s clear that insisting on a 100% active participation would have resulted in the purchase of the entire bank, with money to spare. (Do the math: that €1.8 billion bought a 25% interest, yet constituted not even 25% of the €10 total spent.) Instead, the remainder of that money gains for the government the “silent participation” that is in effect a loan, charging 9% interest. (more…)

It’s a New Year, and now time for us all to head back to work. But I did want to call forth to the light an interesting article of 31 December 2008 from the Frankfurther Allgemeine Zeitung about the experience so far with the structures the German government put in place last fall to prop up its banks (Few banks seek State protection).

FAZ reporter Manfred Schäfers gives an interesting outline of the monetary amounts and structure involved there. First the former: the German government is ready to issue bank-guarantees in the amount of around €400 billion (the exact amount is unclear because Schäfers mentions two different figures even within the confines of this relatively-short article) and is making available an additional €80 billion in outright capital-injections. The program, run out of the federal Finance Ministry, is the Sonderfonds Finanzmarktstabilisierung (meaning “Special Fund for Financial Market Stabilization,” abbreviated as Soffin), headed by a three-person committee of banking worthies that includes Gerhard Stratthaus, former Finance Miniser for the state government of Baden-Württemberg and Schäfers’ main information source. Strangely, the participation on that committee of two other named individuals, who are supposed to be Stratthaus’ colleagues, is still up in the air.

I guess that’s OK, though, because the point of the article is that Soffin’s agenda is not really chock-full. “Up to now we’ve got 15 applications,” Stratthaus reveals, “and most [financial] institutions are interested in the guarantees.” Of those that are seeking a chunk of actual money – i.e. a piece of the €80 million budgeted for capital injections – their requests to this point add up only to less than €15 billion, and other indications point to Commerzbank as responsible for €8.2 billion out of that alone. (more…)