Germany Has Got It All Wrong

[Executive Sadman]

Maybe they do a cost benefit analysis for bridges in Germany. If its too expensive it doesnt get done, which is a good thing surely? Last time I was in germany, i tended to notice they make things last. Lots of 80s, 90s cars still on the roads there, even many of their shopping malls still look 80s. Whereas here they seem to undergo pointless facelifts every 5 years or so. Bit of a waste of money IMO.

[alexw]

They survived the DM days (though towards the end of it, it suffers recessions). They will survive, it is just a matter of degree...

The problem is the wrenching dislocation that the currency readjustment would cause. It's ok if its done slowly so they can move from being completely dependent on running a large trade surplus, to a more balanced internal consumption model. But the currency adjustment is going to be far to fast and large for that.

Instead its going to be mass layoffs as companies suddenly become completely uncompetitive, and german consumers retrench in the ensuing recession destroying internal consumption also. Given historical evidence it's going to result in a depression imo.

Edited August 2, 2013 by alexw

[oracle]

Will the German public be as stupid when it comes to rocketing property prices though? One of the things about the bubble in the UK and Ireland that made it so devastating is that the thicko general public and mass media absolutely loved it when it was happening, making it a political imperative to keep the ball rolling on ever-more unaffordable housing.

The Germans have a strong folk memory of the Weimar-era hyperinflation. They might not be so gullible as to see rapidly inflating prices of an essential as a good thing.

quite.they don't

and for most of germany,they have a complete aversion to credit cards too.

[oracle]

The problem is the wrenching dislocation that the currency readjustment would cause. It's ok if its done slowly so they can move from being completely dependent on running a large trade surplus, to a more balanced internal consumption model. But the currency adjustment is going to be far to fast and large for that.

Instead its going to be mass layoffs as companies suddenly become completely uncompetitive, and german consumers retrench in the ensuing recession destroying internal consumption also. Given historical evidence it's going to result in a depression imo.

in essence that is what is required globally.

the whole world has become "one-trick-pony" economies....and overdependent,not interdependent..

it won't stand up to a pandemic.

in those unfortunate circumstances people will be forced to see the error of their ways and think,and produce, local again.

...but this is quite a sh1t scenario for major exporting nations as they will get hit.hard.

[okaycuckoo]

Much better German driving standards ensured better traffic flow and less stressful driving though.

Interesting. What did you observe and how did you judge the standards?

In my view the most important factor would be uniform speed on the inside lane, cutting out slow overtaking.

[(Blizzard)]

The problem is the wrenching dislocation that the currency readjustment would cause...

A sudden collapse of the euro, like all sudden collapses, would have repercussions.

In the event of an ordered switch to a new currency, all that would happen is that the prices of German products, as measured in DM, would fall as the price of the DM appreciated. It wouldn't affect their export led economy one tiny bit.

Just as we have seen, in reverse, in the UK.

[wonderpup]

At some point in the future the German taxpayer will start bailing out German banks,

They already are- they just haven't been told about it. Most of the 'bailout' money that the German people think is going to the Greeks is placed in an escrow account where the Greeks can't use it and then recycled back to German and French banks.

[Sour Mash]

They already are- they just haven't been told about it. Most of the 'bailout' money that the German people think is going to the Greeks is placed in an escrow account where the Greeks can't use it and then recycled back to German and French banks.

Exactly, the so-called 'bailouts' of other EC countries are nothing of the kind. They are loan restructuring designed to make sure that banks in countries like Germany and France who stupidly loaned money to the dodgy PIIGS banks get their money back .. leaving the taxpayers of the PIIGS country on the hook still.

The alternative would be for the horrendous state of the German (or French) banking system to be exposed and a direct bailout needed.

[okaycuckoo]

Exactly, the so-called 'bailouts' of other EC countries are nothing of the kind. They are loan restructuring designed to make sure that banks in countries like Germany and France who stupidly loaned money to the dodgy PIIGS banks get their money back .. leaving the taxpayers of the PIIGS country on the hook still.

The alternative would be for the horrendous state of the German (or French) banking system to be exposed and a direct bailout needed.

The UK did the same for Ireland, and the UK media fed the same mortal outrage we see in Germany.

[alexw]

A sudden collapse of the euro, like all sudden collapses, would have repercussions.

In the event of an ordered switch to a new currency, all that would happen is that the prices of German products, as measured in DM, would fall as the price of the DM appreciated. It wouldn't affect their export led economy one tiny bit.

Just as we have seen, in reverse, in the UK.

????

You have it wrong.

If the germans had a rapidly appreciating DM (as would happen if they left the euro) then imports into germany would become markedly cheaper, as each DM would be able to buy more foreign made goods. The opposite would however be true for their exports. It would cost a lot more pounds, franc's, lira's, etc to buy a DM and that in turn means it would cost a lot more to buy, for example, a german made car. So instead of a Mercedes in the UK costing 50k it will cost 70k.

So what I said before holds true.

[frozen_out]

Interesting. What did you observe and how did you judge the standards?

In my view the most important factor would be uniform speed on the inside lane, cutting out slow overtaking.

I've driven a lot in Germany and in my experience German driving standards are on a par with British, maybe a little worse, but definitely not better. Germans have a nasty habit of randomly pulling out in front of you when overtaking, and they don't leave enough distance between cars.

With regards to German roads, the Autobahn is a nice piece of infrastructure, but not THAT much better than the UK network. I've spent as much time stuck in traffic on German roads as I have in UK ones. What I find really different about German roads is their use of filter lights, I can't explain it but their junction layouts just seem more sensible than ours. Apart from Autobahns, where slip roads off slip raods can be a little un-nerving.

[BalancedBear]

????

You have it wrong.

If the germans had a rapidly appreciating DM (as would happen if they left the euro) then imports into germany would become markedly cheaper, as each DM would be able to buy more foreign made goods. The opposite would however be true for their exports. It would cost a lot more pounds, franc's, lira's, etc to buy a DM and that in turn means it would cost a lot more to buy, for example, a german made car. So instead of a Mercedes in the UK costing 50k it will cost 70k.

So what I said before holds true.

Not quite - The German made car is made from lots of other imported products such as steel etc. A rapidly appreciating DM would allow Mercedes to buy many components for less. The labour costs of building cars is relatively low, so they could reduce the price of their cars to compensate for a significant part of of any currency appreciation.

[Dorkins]

Not quite - The German made car is made from lots of other imported products such as steel etc. A rapidly appreciating DM would allow Mercedes to buy many components for less. The labour costs of building cars is relatively low, so they could reduce the price of their cars to compensate for a significant part of of any currency appreciation.

This doesn't make any sense. If they're making cars from imported components and then exporting them then their customers don't benefit from a stronger DM as their customers are not buying with DM... The final step in your logic is missing.

The only thing that changes from the POV of foreign customers is that a more expensive DM pushes up the cost of whatever work is done in Germany. Labour is not the only expense incurred within Germany - there are also energy costs, taxes, land etc.

[SHERWICK]

We have X Factor.

They don't.

Nuff said.

[LuckyOne]

????

You have it wrong.

If the germans had a rapidly appreciating DM (as would happen if they left the euro) then imports into germany would become markedly cheaper, as each DM would be able to buy more foreign made goods. The opposite would however be true for their exports. It would cost a lot more pounds, franc's, lira's, etc to buy a DM and that in turn means it would cost a lot more to buy, for example, a german made car. So instead of a Mercedes in the UK costing 50k it will cost 70k.

So what I said before holds true.

The Germans and Japanese have been quite clever in diversifying their global manufacturing base. Less than 100% of cars sold by German brands are made in Germany. Less than 100% of the components of cars made in Germany are made sourced in Germany.

While they aren't perfectly diversified, losses to German brands will be less than perfectly correlated to an appreciation of the DM and will be model dependant. The Mercedes ML's price in the UK for example is much more dependant on the USD / GBP exchange rate than the EUR or DEM / USD exchange rate

[@contradevian]

We have X Factor.

They don't.

Nuff said.

Wrong!

British export though as SiCo licences the format. Another success for British Rentierism!

[ingermany]

The article is already years out of date now that Germany is at the liftoff stage of its own house price bubble. The ECB will not raise interest rates to cool it as this would lead to mass defaults by southern European banks and governments, in turn bankrupting the northern European banks that lent them the money and destroying the savings of the German 1%ers. At some point in the future the German taxpayer will start bailing out German banks, and HPI will make the German economy as uncompetitive as the UK's.

I don't think so. There are enough policies in place to protect the rented sector and control prices. Also, the need to own a home for 10 years before selling it to avoid taxation means that a bubble is unlikely. What Germany has had since 2007 is steady slow house price growth or at least stability. Observed from UK it looks like a boom only because of sterling devaluation.

As the city am article points out, UK is attempting to achieve competitiveness solely through devaluation rather than controlling wages and costs. Why the author sees this as a good thing is beyond me.

In spite of the devaluation in sterling, UK manufacturing is dead and balance of payments firmly in the red. Meanwhile Germany continues to export luxury autos because they don't even to attempt to compete on price. And they are still the nation that supplies the engineering that allows Chinese factories to export disposable crap to UK credit card owners.

[Dorkins]

What Germany has had since 2007 is steady slow house price growth or at least stability.

I don't think this is an accurate description of the German property market.

Source

[ingermany]

I don't think this is an accurate description of the German property market.

Source

So for pre owned properties, there has been a rise of around 4-5% in 9 years. With inflation averaging just under 2% pa. I realise that new dwellings have risen more, but still on average just in line with inflation. And wage growth in Germany has been positive, above core inflation for a couple of years now. Nominal wage growth around 2.6%. So yes house prices are rising, but not in the way they rose in UK from 2005-2007. This isn't a credit boom based on house price speculation, and hopefully won't be. In contrast your 100k sterling in 2005 would have bought 150k euros. It is now only 114k. To anyone being paid in pounds its make German property now look very expensive compared to 10 years ago. New houses are now similar price to middle England.

[Dorkins]

So for pre owned properties, there has been a rise of around 4-5% in 9 years. With inflation averaging just under 2% pa. I realise that new dwellings have risen more, but still on average just in line with inflation. And wage growth in Germany has been positive, above core inflation for a couple of years now. Nominal wage growth around 2.6%. So yes house prices are rising, but not in the way they rose in UK from 2005-2007. This isn't a credit boom based on house price speculation, and hopefully won't be. In contrast your 100k sterling in 2005 would have bought 150k euros. It is now only 114k. To anyone being paid in pounds its make German property now look very expensive compared to 10 years ago. New houses are now similar price to middle England.

I think if you keep choosing 9/10 years ago as your baseline you will miss the fact that German house prices have been increasing pretty quickly since 2009, certainly much faster than both GDP and wages, which is a big clue that a bubble is starting to inflate.

[@contradevian]

I think if you keep choosing 9/10 years ago as your baseline you will miss the fact that German house prices have been increasing pretty quickly since 2009, certainly much faster than both GDP and wages, which is a big clue that a bubble is starting to inflate.

http://www.bloomberg...eal-estate.html

Blackstone and GS were heavily invested in German housing "assets."

The German housing market has changed since private-equity firms started investing at the beginning of the last decade, creating opportunities for buyers with different objectives. Investors like Blackstone, the world's largest buyout firm, and Goldman initially struggled to make good on bets that they could buy apartments in bulk and then raise rents or resell at a profit to individuals.

Today's prospective buyers, including pension funds and insurers, may be more focused on annual returns from rents as they seek to offset low interest rates on European fixed-income assets. A German 10-year government bond yields about 1.4 percent, according to data compiled by Bloomberg.

For those investors, returns of about 5 percent from rental income are sufficient, according to Matthias Moser, head of alternative investments at Patrizia Immobilien AG. (P1Z) The company buys large apartment portfolios on behalf of pension funds and insurers. It's one of the bidders in talks to acquire 32,000 homes from Bayerische Landesbank for about 2.5 billion euros, two people with knowledge of the matter said in January.

"What you get at today's prices are reliable long-term returns, but not the 20 percent that private equity seeks," Moser said.

Edited August 4, 2013 by aSecureTenant

[frozen_out]

I think if you keep choosing 9/10 years ago as your baseline you will miss the fact that German house prices have been increasing pretty quickly since 2009, certainly much faster than both GDP and wages, which is a big clue that a bubble is starting to inflate.

There's a general HPC meme that UK = shite, Germany = can do no wrong. Anyone who has worked in Germany knows that the reality is somewhat different.

Germany's great, no doubt. Probably my favourite country, but it has problems all of its own.

[Goat]

Exactly, the so-called 'bailouts' of other EC countries are nothing of the kind. They are loan restructuring designed to make sure that banks in countries like Germany and France who stupidly loaned money to the dodgy PIIGS banks get their money back .. leaving the taxpayers of the PIIGS country on the hook still.

It's even worse than that.

What they are doing is creating a class of primary creditors that are repaid first (the EU/IMF) and then subordinating all other holders of debt to secondary status, who will of course get nothing when the eventual default happens.

The funds injected in the bail out are then used to repay the franco/german banks, meanwhile the domestic holders of Greek government bonds (local banks and pension funds) cannot dispose of them and will have to continue to hold them until default.

So effectively they owe €200, €100 to domestic creditors and €100 to foreign banks and can only afford to repay €100. If they'd defaulted before the bail out then each party would've suffered a loss of €50. Now the €100 has been repaid to the foreign banks but has been replaced by €100 of IMF/EU priority debt. Once the default happens the IMF/EU will be repaid in full but the domestic creditors will get nothing.

So to repeat, rather than a bail out it's a slow motion robbery of the entire Greek financial system that will wipe out all pension funds, all banks and presumably pretty much all other business in Greece. Essentially all non physical assets in Greece will be destroyed.

Muy feo

[@contradevian]

RichardBarley1 Richard Barley Stunning chart of German house-price-to-income ratio from IMF report

[Venger]

There's a general HPC meme that UK = shite, Germany = can do no wrong. Anyone who has worked in Germany knows that the reality is somewhat different.

Germany's great, no doubt. Probably my favourite country, but it has problems all of its own.

I just googled: when was the last time usa criticised uk economic policy. In the hope the US (or even Germany) might eventually have words to say against UK desire to help young people into greater mortgage debt to keep house prices v-high / going up even more.

Failing that, some handsome young renting Mark Antony (Rome BBC) rogue type coming onto the scene, calling Gov's 'help' position out for what it actually is, day upon day.

And the top results Google came back with were all from the other day, about US criticising German economic policies.

31 October 2013

The US has criticised Germany's economic policies, saying that its export-led growth model is hurting the eurozone and the wider global economy.

Analysts said that while Germany could benefit from boosting domestic demand, the criticism levelled at its policies was unfair.

http://www.bbc.co.uk...siness-24753267

Edited November 3, 2013 by Venger