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Thinking about Germany

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What is Germany’s current role within the EU and in the global economic system? Which game is it playing? These are questions which cannot be answered in an unambiguous and simplistic way, as often happens today.

First and foremost, we shall wonder whether Germany is the cause or the solution of the European political and financial crisis.

Certainly, the current negative economic situation in the EU comes at a time when global financial markets are losing confidence in Greece’s ability to repay its debts.

The contagion of mistrust forces also other peripheral nations, but certainly not Germany, to seek bailouts of their sovereign debt in the framework of the international community, namely the EU itself and the International Monetary Fund (IMF).

It is the time when – as was the case in the Toronto G20 Summit of June 2010 – the absolute priority of fiscal consolidation, and hence of the squeeze on public spending, is set.

However, if we make an in-depth analysis, we realize that financial deregulation and the lowering of interest rates have been the primary causes of the Eurozone crisis.

It was precisely the new availability of funding from banks – as also happened in the United States – to excessively stimulate consumption and generate a series of financial “bubbles”, especially real estate ones, which apparently increased tax revenues and hence public spending. Those bubbles, however, quickly deflated and burst out, thus creating a structural imbalance which today makes the difference between Germany and the EU “peripheral” countries.

It is also worth recalling that the Euro introduction made the intra-European banking exchanges increase by 40%, with a relative increase in real estate and commodity prices.

Too much credit and at low interest rates “doped” both South European consumers and their governments.

Nevertheless, in the current crisis situation, the EU central countries and Germany, in particular, have maintained a greater competitive margin, mainly resulting from the relatively low wage growth.

Hence, also in the recent crisis, Germany could increase its exports to the EU peripheral countries, while its banks lent money to the EU marginal countries for them to buy German goods and services.

Therefore Germany must be seen both as the cause and the solution of the economic depression of the Euro zone peripheral countries.

However is Germany currently suffering from an invisible crisis, as some analysts note?

Even in this case, the issue is more complex than it may seem.

It is worth noting that Germany is the fourth world economy and the G20 third largest exporter. It depends on its export economy as Saudi Arabia depends on oil sales.

Currently German exports account for 45.7% of the country’s GDP. Therefore Germany is forced to face the imbalances and liquidity crisis of the countries buying German goods and services.

However, are the strategies adopted so far by Germany to support and stabilize its growth through exports still sustainable?

This raises some doubts in my mind.

Furthermore, all the traditional exporting countries, such as China, Russia, Saudi Arabia and South Korea, are in crisis.

Hence Germany could press ever more with its exporting model, thus preserving the EU as a free trade area, but fiercely competing with the European peripheral countries, which also live on exports and would see the German economy burn up the land under their feet, as currently already happens in many sectors.

We experienced so also with the 2008 crisis: the recession made the sovereign debt of many EU peripheral countries unmanageable and Germany, as net creditor, has always required public spending cuts and a quick repayment of the loans granted.

However, while Germany holds most of European debt securities, and particularly of the countries under crisis, if the South European economies collapse (and this possibility cannot be still ruled out) Germany will no longer have a sufficiently large market for its exports, because it cannot offset the losses in Europe with the corresponding increase in exports to China, the rest of Asia or the Arab countries – all nations which, at different levels, are recording an economic downturn.

Hence if Germany stimulates the growth of the Euro zone which owes money to it, the debt of the EU peripheral countries will increase. However, if the debt owed to Germany by the countries already in crisis rises, the latter will experience a very severe banking crisis and a possible default on their sovereign debt.

This adds to an unemployment rate which, in various ways, amounts to 20% in Southern Europe – a rate similar to the one recorded during the Great Depression in the United States.

Hence, against this background, the German economy cannot shrink up to making impossible to preserve the German export economy model also in the EU “economic locomotive”.

Furthermore, in this situation, the South European countries in financial crisis could not even replace Germany as to exports.

A productive and financial trap of which it is extremely hard to get out.

Moreover Germany has no interest in changing its development model.

It is the model which has produced all German comparative advantages since the introduction of the single currency.

Today the signs of the German crisis, which Germany will project onto the whole EU, are already evident.

The foreign market share for the “made in Germany” products is falling and the return on investment has declined. Many German companies are lowering prices to preserve their traditional market share.

If Germany shifts from an export economy to a productive system linked to the internal market growth, the German high savings rate, which allowed the companies’ technological upgrading, will no longer be possible.

France, for example, is no longer the first EU market for the goods produced in Germany.

In 2015 German exports to China fell by 4%.

Some German exports to the United States are increasing (19%), but the US market share cannot be a substitute for a long period of time.

Currently also the United States are a low-growth country and the US savings are increasing.

On average, the US economic crisis cycle is approximately seven years – hence we shall expect that, in a year or two, the North American market will tend to shrink again.

Therefore the bubble-boost cycle is now embedded in the US economy.

Incidentally, this should make us rethink – in a new way – about Marx’s theory of the inevitability of capitalist crises.

Furthermore, as already mentioned, the return of capital on investment in Germany is ever lower.

Over the last two years, the large German groups have seen a drop in the profitability of the capital employed from 13% to 3%.

Moreover the prices throughout the Euro zone are declining.

Last January prices decreased by an average 3% and the downward trend of average prices is increasingly evident and stable.

Hence, if Germany were to fall into recession, the German solution will likely be to quickly recover the Southern Euro zone’s debt, even with some discounts, and then fiercely eradicate competition from other EU exporting countries, also with unfair or dangerous business practices.

It is worth recalling that the German exposure to Italian banks amounts to 120 billion euro and our credit institutions have a share of non-performing loans (NPL) exceeding 17%.

In absolute terms, the German exposure to Italian banks alone is worth 3% of its GDP.

Hence how long will the German patience last in a phase of economic crisis?

It is also worth considering that this year the Commerzbank profit has fallen by 52%, while Deutsche Bank has recorded a fall in profit by 58%, with a German banking system which has as many as 41.9 trillion derivatives entered in the budget.

It is worth recalling that if Deutsche Bank collapses, the Euro will follow suit.

Moreover, if Germany “bails out” Deutsche Bank, everybody will note the different treatment reserved for the German credit institutions compared to the Greek banks.

It would be a sort of “anything-goes attitude” inside the Euro and the EU proclamations would turn into all talk and no action, as well as window dressing which serves no purpose.

If the German banks (and not just Deutsche Bank) are bailed out by the government, the German debt/GDP ratio will rise from 71% to 110%.

There would be no more room for preaching on austerity by Germany, which could not but accept the Italian, Spanish, Greek and Portuguese debt “overshooting”.

It is worth noting that Deutsche Bank funds most of German exports – hence, if it collapses, the German economy will soon fall into a severe crisis.

Therefore, the following can be predicted: if Germany falls into recession, the first reaction will probably be to quickly recover credits from the Euro zone and then follow a scorched-earth approach as to exports in the rest of Europe.

On the contrary, if Germany succeeds in “standing fast”, it will have every interest in refinancing the Southern Euro zone for it to buy its goods.

In any case, however, the EU situation is neither good nor stable and, in the future, we shall see to what extent the single currency will hold firm or whether Germany, or even Italy, will try to exit from the Euro in one way or the other.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Economy

Pandemic: A Challenge for the Globalization

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The vaccination process across the world is underway, and after almost complete vaccination of the world population, we will see a post-pandemic world that is going to be different from the pre-pandemic world, especially in the context of Globalization and the role of states in the world. 

In the post-1980 world, Globalization became the prevailing phenomenon that impacted the whole world and its functioning. Whether it was the realm of society, power politics, or economics of the world, whether, in the context of domestic affairs or global affairs, Globalization has been unavoidable and un-resistible until the ongoing pandemic has erupted after which many changes have been brought to the world. Social distancing and travel restrictions protocols posed challenges but that is temporary, but what offered concerns to the policymakers and businesses of the world that how fragile the functioning of the global economy is, and how the economies of states are depending on this fragile mechanism. 

The interdependence and interconnectedness between national economies as well as multinational corporations and organizations in the global economy are in such a way that if only a single link breaks down, a series of collapses will occur. This has happened during the pandemic. 

When China was hit by the pandemic, two-third of its economy stopped working, consequently, the world witnessed a sharp decline in the global supply. The same happened when the pandemic was at its peak in the West. In this way, the worst impact on the global economy was in the form of a major recession, depriving people of employment, and increasing poverty, across the world as no nation could remain unaffected. 

When such pandemics exploded at a place somewhere before the era of Globalization, other parts of the world were unaffected economically. Another point of pondering is the fact that in the case of China it is not because of the involvement of Chinese firms in the rest of the world but because global companies have some of their production lines installed in China. Globalization lets it happen. This is well explained by famous sociologist Anthony Giddens, who says that it is the major characteristic of Globalization that distant localities are linked with each other in such a way that one event at a place shapes events at other places. 

Notice that if it is thought that virus pandemics erupt once in a lifetime and therefore most of the time Globalization will be dominating and decisive, it is not the case. The future of Globalization was at stake in the recent crisis when both the economic giants China and the USA engaged in a trade dispute because of which world economy faced contraction in its GDP which would have been turned into a global economic recession if the trade war continued. 

Like pandemic exposed the vulnerability in the economic structure of Globalization, so it did by revealing the dangers on the political front. In Globalization, governments were subjected to cooperation which reduced the political tensions between them, however, pandemic reactivated their political motives, which means that in case of an emergency governments failed to cooperate. Such a severe blame game was started when some countries lashed out at China, calling it responsible for the global spread of the pandemic, while China refused all accusations and blamed the US for politicizing the health crisis. The political tussle made faces at Globalization.

International and regional organizations which are the key aspects of Globalization failed too. The World Health Organization is the case in this regard that how it crumbled. It not only faced criticism but the US even withdrew its financial support from it. Likewise, other international and regional organizations could not maintain cooperation among nations. In this way, Globalization could not even handle the crisis adequately. 

Globalization brags about free trade but now people are asking the question that what is the benefit of free trade if it cannot even function when it is needed the most. When there was more need for cooperation between governments, Globalization failed again and it was also exposed in the role of organizations. That’s why one may argue that the post-pandemic world would be the era of de-globalization and states would strive to gain more and more power as they do not want to rely only on Globalization anymore. Likewise, people are now more careful in their spending, while corporations are now more conscious about their dependence on Globalization, therefore, they are going for precautionary measures.

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Post Pandemic Recovery: The Rise of the Alpha Dreamers

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Credit: Byron Anway

There are five billion alpha dreamers across the world; why because they are connected globally with all sorts of devices, more so ever than any other time in the history of civilization, and secondly, interacting at 1000 times faster than any invasions of the largest marching armies ever assembled in history. They select and they choose; they browse, click and chat, they like and dislike. All ages and all cultures, opinionated or neutral, but informed they are, evermore than any other civilization ever existed on the planet. Who are they and what are they after?

First, observe, how their silent whispers are still inaudible in the rotundas of power, notice how their hidden power is sweeping the global mind, sharing something never ever dreamt before. As, during the First Word War, symbolized by digging rotten trenches until death or the Second World War symbolized by senseless revengeful carpet-bombings all organized under deep silent agenda. Now in a new differently connected world of today, the common voice of the common person struggling for common good becoming the loudest whisper starts to emerge.

Today, if they all agree to flush the toilets simultaneously around the world it will dry out an ocean the same afternoon. All such mathematics is based on large numbers, few billions here or few billions there, the real power still deeply hidden on 24x7x365 free access culture keeping global dialogue live and global mindshare active. Political punditry ignoring such power seems only waiting for a big slap on the face when dealing with the next coming elections. Study the rise and fall of leadership, scheduled over next 500 days, the outcomes of next 100 national elections across the world. What is happening in your nations, who is vocal and who is silent, but why? The major shifts are on the way. 

This is all about five-billion-minds active on global-circuitry learning live-facts in real-time.

Who are they and what are they after? Why the name ‘alpha’ because they are the first largest group ever assembled since Homo erectus?  Why the name ‘dreamers’ because the majority are simple common people with simple common dreams of seeking common good and humankind going forward.Alpha dreamers are chasing a better world, not because they have a united cultish agenda but because they treat themselves as ordinary humans and respect humanity. In a world wrapped with fakery, this is a simple goal of a common person, when this multiplied by five billion it automatically becomes an unimagined force.  Truth is the shield, diversity and tolerance the only platform left. The world of seek and destroy doctrine will eventually end. The claims to any exceptionalism unless demonstrated in common good is just fakery and tyranny.

Is shutting down the world’s electricity or snatching seven billion phones the next calamity?

Such moves will only prove the panic in rotundas; it is all about courage to face the mirror and deal with the truth, why many billions of people are challenged on issues of humanity, and why such issues come to the forefront. The emergence of a new world is now challenging political agenda, global policies, economic goals, educational values, environments, rights, diversity and tolerance all tested to pursue common good. The five billion connected alpha dreamers will not be fooled all the time. Global public opinion is a simple opinion of social-justice on any street, in any town; village or city, now connected as a multi-billion force.

The elite practitioners of the fine art of image positioning and election punditry always understood that sometimes a one single picture at a wrong or right time decides the election winner. Today when a silent bullet kills a person in the dark of the night, it sometimes shoots billion minds equally when billion images ricochet around the globe. Today, dark alleys and hidden torture chambers becoming live broadcast shows on social media uprooting leaderships, shattering ideologies and exposing false narrative. The tragedy hidden in denying the power of connected global populace and accepting short-fuse of superiority while ignoring common global connectivity. The credibility of the media is gone on the streets of the world, so are the institutions and most leadership. Will this dark silent vacuum filled by the global whisper strong enough to burst eardrums of leadership? Will it make them come together on a new page and listen deeply?

Smart leadership will not survive just by manipulation; hot notions of controlling masses with AI centric facial recognition and profiling will result in more confusion, but with deeper understanding of truthful dialogue with citizenry to downstream real vision of creating grassroots-prosperity will save leadership. Change without pain is not a change rather just a theme based public relation campaign, as if upskilling midsize economies without measuring current levels of lingering competencies is not going forward but in reality sliding backward in slow motion. No single country in the world is either capable or skilled enough to solve all global problems, nor is any single nation exclusive enough to claim any exclusive superiority in humankind.  However, each single country is very capable to play a big positive role in the global arena and contribute in big ways with diversity, tolerance and peace. Everyone is important and everyone is needed.

Political leaders with one ear to the ground to listen to public opinion NOW need the other ear also on the planet to listen to the global public opinion and to demonstrate courage to face the music and demonstrate skills to articulate on global issues. Study more on Google.

The rest is easy 

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Economy

Bitcoin Legalization In El Salvador: Heading Towards A Crypto-Friendly Regime

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Cryptocurrencies are surely one of the hotly debated topics across the globe. There’s always an ambiguity surrounding the usage and permissibility of crypto assets. Various government entities fear that crypto holds the tremendous power to disrupt the financial and banking sector & it will surely replace the existing financial systems present across the globe. This is 21st century & with the growing technological advancements, the world is rapidly getting acclimatized into the domain of crypto currencies. With this move, some government entities are also changing their perception of cryptocurrencies. The recent legalization of bitcoin in El Salvador can be construed as a prime example of this which apparently came as good news for crypto enthusiasts. The news made El Salvador appearing at the forefront of leading international news channels and websites. By this move it became the first ever country across the globe to legalize any cryptocurrency. The step came after the El Salvador’s President Nayib Bukele announced via twitter that bitcoin will now be accepted as a legal tender across the nation. Earlier in the bitcoin conference 2021 held in Miami, the President gave subtle hints of passing a bitcoin legalization bill. From using bitcoin/paypal hashtags to modifying his twitter profile image depicting red lazer eyes (a trendy way to used in internet by crypto enthusiasts to exhibit their support for crypto), the President’s fascination with bitcoin can be construed prominently. The congress passed the bill on 9th June 2021 by the margin of 62 votes out of 84 favoring for legalization apparently termed by the President as what is called a supermajority. The successful execution and implementation of this bill will make way for the proper legalization of bitcoin. The prominent excerpt from the bill said – “The purpose of this law is to regulate bitcoin as unrestricted legal tender with liberating power, unlimited in any transaction, and to any title that public or private natural or legal persons require carrying out.” To further promote the acceptance of bitcoin the president also made it clear that persons holding bitcoin or persons investing in bitcoin in El Salvador will be offered citizenship of the country.

This pro-active stance by the El Salvador government was very much applauded by the industry experts and crypto enthusiasts around the globe. One of the reasons why the congress took such a drastic step is that El Salvador doesn’t have any currency of its own. Up till now, it has been using the United States Dollar as official currency across the nation. With this move the dependence of nation on US Dollar is likely to be diminished. Nevertheless, the President made it clear that US Dollar would be used for accounting and official purposes. As a matter of fact, the El Salvador government also promised to provide training and necessary guidance to the fellow citizens on the usage and holding of bitcoin. For the purpose of creating a robust bitcoin economy, the government will take assistance from newly launched home country based payment service provider platform Strike. Jack Mullers, the founder and CEO of Strike said – “Adopting a natively digital currency as legal tender provides El Salvador the most secure, efficient and globally integrated open payments network in the world.” The announcement of this legalization increased the value of bitcoin which faced a sharp decrease after the infamous crypto market crash few weeks back.

Apart from authorizing a potential future currency, the legalization will have a plethora of benefits for the country as a whole. For instance, it will boost the overall economy, create new job opportunities for citizens, facilitate faster remittances, help in increasing the low banking penetration rate among others, enable citizens of El Salvador living abroad to send tokens into their home country among others and permit the government to officially own bitcoins among others. It will also make El Salvador future proof from the crypto perspective as there is a strong possibility that crypto market will takeover the traditional banking and financial systems of the world in near future. When formally enacted, the citizens will be able to pay taxes in bitcoins, the price of commodities will be displayed in bitcoin, and almost everything related to price can be calculated from bitcoin terms apart from creating a alternative currency working simultaneously along with US Dollar.  

The legalization of bitcoin in El Salvador also holds the potential to make a remarkable shift in crypto perspective by other Latin American countries given the fact that the region may become a hub for crypto powered finance. Observing this move many Latin American nations have raised a voice to show support for this move. Countries like Argentina, Brazil, Panama, Paraguay and Mexico have given signs of making a similar move. The top-notch politicians fo the above mentioned countries have already commenced the discussion for providing legal backing to crypto assets. 

But taking such a big leap of faith won’t give fruitful results unless & until there’s a strong backing and support provided to it. To realize this bitcoin powered project, the government officials have made it absolutely clear that the geothermal energy will be used for mining bitcoins considering the fact that the country has large repositories of volcanoes. The state-owned geothermal electric company LaGeo will work in assistance with the government officials. Since the President is aware of the ill effects of bitcoin mining on the environment, only the renewable energy source would be used for this project.  As per the estimates the carbon dioxide emissions from worldwide bitcoin mining industry has reached a whopping 60 million tonnes, equal to that of exhaust fumes from 9 million cars. Hence keeping in mind the environmental concern, the President gave assurance via twitter that the nations geothermal energy exclusively will be used. He also took to twitter to show his followers about the zero emission bitcoin mining process being tested by the engineers.

A major obstacle in this project comes from the reluctancy of International Monetary Fund (IMF) with this move which highlights the tensed relations between El Salvador and IMF citing the intricacies in economic and financial conditions currently prevailing in the nation. The IMF is of the view that providing legal backing to bitcoin will make El Salvador a safe haven for tax frauds and money laundering. Since bitcoin doesn’t involve tax on capital gains, it will surely pave a way for wealthy individuals and organizations to save themselves from paying heavy taxes. Also, it may facilitate laundering of billions of dollars by criminal enterprises and drug trafficking organizations. Although IMF earlier gave green signal to this move but lately it has been skeptical about the aftereffects of bitcoin legalization.

All in all, what future holds for crypto market is hard to comprehend. However, the scale at which crypto usage is growing, one can easily anticipate that the 2021-30 decade will observe a boom in the crypto financial market. Considering the disruptive nature, potential and audacity of cryptocurrencies, it will definitely replace the traditional financial systems present across the globe. Even then nothing can be predicted with 100% surety. Being a crypto enthusiast, I hope the world adopts a crypto-friendly policy so as to make sure crypto market is being regulated by regulatory bodies to ensure the authentic, safe and secure environment for crypto investors.  Meanwhile, we can speculate, make bets and invest on various crypto assets based on our own perceptions and calculations. Till then let’s enjoy the existing regime of crypto around the world.

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