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German report German report
by Euro Reporter
2012-02-18 10:43:44
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President quits in scandal over favours

Germany's president resigned Friday in a scandal over favours he allegedly received before becoming head of state, and Chancellor Angela Merkel moved quickly to try and head off a domestic political crisis as she grapples with Europe's debt troubles. Christian Wulff, who was Merkel's candidate for the presidency when elected less than two years ago, quit after two months of allegations he received favours such as a favourable loan and hotel stays from friends when he was governor of Lower Saxony state.

Pressure mounted after prosecutors in the state capital, Hannover, asked Parliament Thursday to lift his immunity so they could start a formal investigation of allegations related to a film producer friend. Merkel, who called off a trip to Rome on Friday, voiced "deep regret" at his resignation. She moved quickly to limit the fallout and try to ensure a smooth succession, saying she would seek an agreement with the main opposition parties on the next president. Wulff, 52, was a deputy leader of Merkel's conservative Christian Democratic Union before becoming president in a messy 2010 election in which the opposition's candidate, well-regarded former East German human rights activist Joachim Gauck, drew votes from Merkel's centre-right coalition.

Prosecutors said there was an "initial suspicion" that Wulff improperly accepted or granted benefits in his relationship with David Groenewold, a German film producer whom they also plan to investigate. Those benefits allegedly included Groenewold paying for a luxury hotel stay in 2007. Wulff said he was stepping down because Germany needs "a president who is supported by the confidence not just of a majority of citizens, but a wide majority." "The developments of recent days and months have shown that this confidence, and therefore my ability to act, has been lastingly impaired," a sober Wulff said in a brief statement at the president's Bellevue palace, with his wife, Bettina, at his side. The speaker of Parliament's upper house, conservative Bavarian governor Horst Seehofer, will take over the presidential duties on an interim basis, mostly signing legislation into law.


Germany has forgotten the lessons of war reparations

I see that my colleague, Ambrose Evans-Pritchard, has quoted extensively from Thucydides' History of the Peloponnesian War to demonstrate how bully-boy treatment of the underdog is not just callous and inhumane, but ultimately self-defeating. The reader is rightly invited to draw a parallel between the appalling punishment which Athens meted out to the Melians back in the fourth century BC, and today's treatment of Greece by the Germans. I've no idea what translation he was citing, but would urge alternative use of the far superior version penned by my grandfather, Rex Warner. While on the subject of historical parallels, there's another which has not yet been given sufficient an airing. This was the vexing question of German war reparations after the slaughter of the First World War, brilliantly identified by John Maynard Keynes at the time in his polemic, "Economic Consequences of the Peace", as fundamentally unfair on the Germans. Keynes branded the Treaty of Versailles a "Carthaginian Peace".

Part of Germany's purpose during interminable attempts to renegotiate these debts on less oppressive terms was to demonstrate that the German economy was in no position to pay – ergo, the creditor was at some stage going to have to take an almighty hit. Indeed, it is sometimes argued that the Weimar hyperinflation was deliberately engineered in order to demonstrate this fact beyond doubt. There can be no other explanation for the bizarrely ruinous policies of deficit financing pursued by the Bundesbank at that time. No sane central banker could possibly have sanctioned such a strategy.

A similar approach is now being pursued by Greece's Prime Minister Lucas Papademos. Not hyperinflation, of course – though this will no doubt come when Greece leaves the euro, further destroying the value of Greece's external indebtedness – but a similar attempt to persuade fellow Europeans that Greece simply cannot pay. The terms of the bailout are too harsh to allow Greece any kind of viable way back to economic health. Given its history, it is quite strange that Germany has such difficulty in grasping this reality. It is sometimes said that German attitudes to the economy and the current crisis are instructed by experience of Weimar inflation and its catastrophic consequences. Yet it wasn't hyperinflation that brought Hitler to power, but rather the depression of the early 1930s, which in Germany's case was greatly exaggerated by the pro-cyclical austerity the government of the time insisted on applying to the problem. Those who don't learn from the past are doomed to repeat them.


German boom casts shadow over French election

Germany's booming economy has dominated the early exchanges in France's presidential election campaign but President Nicolas Sarkozy and his Socialist rival draw very different lessons from across the Rhine. While Sarkozy believes France must copy Germany's painful budget cuts, wage restraint and labour market deregulation to boost prosperity, Socialist poll frontrunner Francois Hollande warns that such austerity could choke off a fragile recovery. He wants to emulate Germany's investment in research, its support for small firms and its bigger role for trade unions in decision-making while keeping France's generous welfare system.

"Not everything in Germany's economic model deserves to be copied," Hollande's campaign chief Pierre Moscovici said. While French growth has stalled, Germany's robust recovery stands in painful contrast. Stripped of its AAA credit rating by Standard & Poor's last month, Paris posted a record trade deficit last year. Unemployment is at a 12-year high. Over the border, joblessness is at 20-year lows and exports hit a record last year. Small wonder perhaps that a recent poll found that 62 per cent of voters thought France should take the German model as an example. "Germany has had huge success. That doesn't make us jealous, that inspires us," Sarkozy said in a television interview, pledging to learn from Germany's export-led growth.

He praised the 2003-2005 Hartz reforms under former Social Democratic Chancellor Gerhard Schroeder that liberalized the German labour market, helping it to shake off the hangover of unification with former-Communist East Germany in 1990. Sarkozy plans to raise VAT to cut France's high labour costs by shifting the tax burden from payrolls to consumption, copying a step Germany took in 2007. He also wants to let firms bypass sectoral wage deals and negotiate on a company basis -- effectively burying the national 35-hour work week which the Socialists introduced in 2000. Accusing Sarkozy of "capitulation to Germany," the Socialists say the Hartz reforms generated underemployment and raised the number of working poor. With no national minimum wage, roughly one-fifth of German workers are in low paid jobs -- a higher ratio even than in Greece. Hollande has vowed to renegotiate a fiscal discipline pact adopted by 25 European leaders last month, which Berlin made a condition of its support for euro zone bailouts. He wants to give more priority to growth and a larger role to the ECB.

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