Streetwise Professor has a post up about the difficulties facing Deutsche Bank and the arbitrary nature of the $14bn fine the US has foisted upon it. It is worth reading in full, as are the comments, but I want to expand on this paragraph left by SWP himself below the line:
German hypocrisy on these issues is pretty amazing. It’s not just an incestuous relationship among companies, but between companies, unions, and the government. A very corporatist model.
There is a general view of the world, which is probably held by a majority of people, which goes something like this.
The Western world is in decline because they don’t make stuff any more. China will soon take over the world because they are making stuff and building things. Europe is screwed because they aren’t making things and their economies are in freefall. The only thing keeping Europe going is Germany, because they make things. They make good cars and machinery that works, and so they have money and are rich, and they support everyone else. Britain could have been like that but switched their economy to financial services which is just making money out of nothing for a handful of people and not producing anything of real value.
There are some grains of truth in this, but it is largely wrong. Reinsurance, legal, and project financing services delivered out of London are equally valuable and viable as a cornerstone of an economy as a fleet of BMWs delivered out of Munich. But that doesn’t really matter, Europeans are about to find out post-Brexit how “unsustainable” Britain’s financial sector is (hint: those banks won’t move to Paris).
What makes the view dangerous is that Germany is viewed as the model to aspire to in terms of how to run an economy and get a population doing something productive. When in doubt, look at how it’s done in Germany. Germany has become the father figure of Europe (Fatherland?): provided he is alive and bringing home the bacon, everyone else will be taken care of. But putting Germany on this pedestal has meant too many people are turning a blind eye to what is actually going on. European politicians, state bodies, and regulators believe that what is good for German companies and banks is good for Germany, and what is good for Germany is good for Europe as a whole. I am certain that this is what led to the VW emissions cheating being tolerated for so long (please don’t tell me nobody knew it was going on), and the interests of German companies always seem to be at the forefront of their relations with Russia (Gerhard Schroeder’s appointment to the board of Gazprom’s Nord Stream days after he signed off on it as Chancellor being the most egregious example). In other words, provided Germany is seen as a father figure in the provider role, everyone will pretend not to notice that Dad is stopping by the casino on his way home from work, taking in a hooker or two at the weekends, and his credit cards are maxed out.
People have been turning a blind eye to Germany’s structural and ethical issues for a long time in the hope that the engine will keep running. The $14bn fine levied on DB by the US might seem unfair and destabilising, but if it exposes what has been swept under the carpet and bring in transparency and better corporate governance without which Europe’s leading economy might collapse taking the continent with it, it will be a bargain.