U.S.-German Romances Often End With Broken Hearts: Amity Shlaes
Stock Chart for NYSE Euronext (NYX)
People nurse crushes, but so do countries. This Valentine’s week the collective economic heart of the U.S. burns for Germany. And Germany sure seems to be enjoying the attention.
The European Central Bank needs a new head? U.S. pundits find it an awful shame that Axel Weber, German to his toes, may be turning down the job. Nothing like a German to keep a central bank on the straight and narrow. The ECB is a model the U.S. would do well to follow. Unemployment? January data put German unemployment at 7.4 percent, or 1.6 percentage points below that of the U.S.
But this infatuation is more desperation than love. The February crush says more about the economic troubles of both nations than of their charms.
Consider, to start with, the possible Deutsche Boerse NYSE Euronext merger. Globalization is supposed to be a net good these days, and many people like the idea of the U.S. globalizing with Germany. Two powerhouses have to be better than one.
It’s true that the NYSE is doomed if it doesn’t keep expanding globally. But the exchange’s fragility comes only in part from its its functional limits, or the need for synergy of having one trading platform instead of the current two, Deutsche Boerse’s Eurex or NYSE’s Liffe derivatives market.
Those touting a merger as an argument that it will save the NYSE forget that in June 2007 NYSE acquired a European exchange, Euronext. The combined company’s share of the total volume of NYSE stocks and exchange traded funds that were executed internally dropped to 33.9 percent last month from about 64 percent at the time of the merger, according to its website.
Other, non-German, factors are more likely to revive NYSE or U.S. markets. These include undoing some of the regulation brought by Sarbanes-Oxley, the 2002 law that did so much to decrease U.S. competitiveness. Mergers are no substitute for repeal of Dodd-Frank, the latest reform. Without these legislative changes we’re merely in for a long fight about whether Germans are subject to anti-competitive American rules.
Germans long for the pride of saying that their exchange is based in the world’s financial capital. The phrase, “Deutsche Boerse in New York,” feels as smooth on their tongue as a valentine truffle. But even if Deutsche Boerse is included prominently in the combined company’s name, it isn’t likely to get much prominence post merger.
And other big German-U.S. deals have left broken hearts. An example would be the romantic expectations Daimler Benz had when it acquired Chrysler, a deal Daimler Chairman Juergen Schrempp called “a wedding made in heaven,” according to the New York Times. Then too, there was a name victory -- the merged company became Daimler Chrysler, and not the other way. Schrempp came to rue that marriage to Detroit’s also-ran.
IKB Deutsche Industriebank came to the U.S. to make money in the subprime mortgage market. The deal that the Dusseldorf, Germany-based lender struck at Goldman Sachs to buy collateralized debt obligations was preset to explode on them.
But what about the second infatuation, the one with the European Central Bank? Almost a century ago Germany experienced hyperinflation that destroyed the potential for stability of the Weimar Republic. Americans assume that because it preceded Adolf Hitler, that hyperinflation became part of German genetic memory, and that Germans will always assure the ECB is German in spirit.
Faith in Germans
But admirers in the U.S. overlook the reality, the same reason for which Weber is likely turning down the job. It is that, memory or no, the German-inspired ECB already blinked with its accommodating response to the Greek financial crisis. As thrifty as she sometimes can be, Merkel and her fellow leaders believe that in the long run Europe will move fiscal authority up to the European level from national capitals.
In the name of preventing short-term monetary crises, Europe’s leaders will buy time with long-term spending that leads to great debt, and therefore, eventually, inflation. Weber does not want to preside over this. Sure, there is concern in Germany over the possible appointment of a non-German to the post. Mamma Mia, Please Not This Italian” howled the Bild newspaper at word that the eminent Mario Draghi might be a candidate.
But this time, canonizing an inflation hawk doesn’t represent evidence that German hyperinflation will never be forgotten. Instead, it represents evidence of deflection from the fact that it already has been forgotten.
Even the enviable German unemployment rate isn’t quite real. German apprenticeship hides some youth unemployment; Germany’s now storied job-sharing is better than unemployment but not better than the true creation of new jobs. And for that, the German state is unattractively pudgy.
A couple years ago it was fashionable to make Germany out to be an economic dog. The critics exaggerated. To make her out now as a dreamboat or prophet is likewise to distort. Companies and countries that appraise what they can do for each other more soberly have a better chance of building a love that lasts until the next valentine season comes around.
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