December 3, 2023

Wealth Study Heats Up Euro Crisis Debate in Germany

FRANKFURT — The European Central Bank normally does its best to hold the euro together, but a study it recently issued has created a furor that could do the opposite: drive a wedge in European unity.

Many Germans, egged on by German news media, are upset about the study’s conclusion — never mind how misleading — that they are among the poorest people in Europe, with fewer assets than even the bailed-out Greeks or the hat-in-hand Cypriots.

This week, Der Spiegel, the influential German newsmagazine, summed up the building sense of outrage. The cover portrayed a man, presumably a Greek, astride a donkey carrying baskets bursting with euros. The headline read “The Poverty Lie — How Europe’s Crisis Countries Are Concealing Their Wealth.”

The reaction of the German news media seems to be inflaming the debate about who should pick up the bill for the euro crisis. The central bank study suggested that countries like Greece that have been receiving handouts in fact have hidden stashes of property wealth.

That finding has not sat well with German taxpayers, who have had to guarantee more than 50 billion euros, or $65 billion, in European bailout money earmarked for Athens. Many in Germany still have not forgotten that Greek protesters taunted Chancellor Angela Merkel with Nazi symbols last year when she visited Athens.

The Frankfurter Allgemeine, one of Germany’s most respected newspapers, has accused the central bank of withholding the information until after European leaders agreed last month to a bailout for Cyprus. A spokesman for the central bank said that the report was not ready by then.

Potentially lost in the furor is the fact that even the authors of the central bank’s study cautioned that there were many reasons not to take the findings at face value.

The study was based on an exhaustive survey of 62,000 households in 15 of the 17 euro zone countries, which showed that the median net wealth of German households was only half that of Greek households, less than a third of Spanish households and less than one-fifth of Cypriot households. Much of the gap stemmed from the low rate of homeownership in Germany. In the other countries, real estate was the main source of household wealth.

Some of the data was collected in 2008, well before Spain and Greece were clobbered by plunging real estate prices and soaring unemployment. In addition, households in places like Cyprus tend to have more members than in Germany, skewing the results.

The study showed that German households, rather than scraping by, were actually among Europe’s richest when measured by income rather than the value of homes and other assets. German median household income, at 32,500 euros, or about $42,500 a year, was more than double that of Portugal, another bailed-out member of the euro zone.

But there were kernels of truth in the survey conclusions — like the assertion that Italians, for example, are land-rich even if their average earnings are low. With some of Italy’s biggest banks in trouble and the government staggered by a huge debt, the central bank study could increase pressure on Italy and other countries to raise property taxes.

“It is well known that the Italians are rich in assets, and they don’t have income,” said Lucrezia Reichlin, a professor of economics at the London Business School. “The Germans have a point.”

Ms. Reichlin, who is Italian, was previously director general for research at the central bank and initiated the wealth study. She cautioned, however, that raising taxes in crisis countries could ultimately hurt Germany by leaving Italians, Spaniards and others with less money to buy German exports. The German economy has already suffered from the financial weakness of its neighbors, its main trading partners.

The fact is that many Germans struggle economically. The central bank survey implicitly challenged the stereotype of rich Germans who barrel down the autobahn in their Mercedes Benzes. Although extreme poverty is relatively rare, millions of Germans live in drab concrete apartment blocks, ride the subway and do their shopping at Aldi, the ubiquitous discount grocery chain.

Chris Cottrell contributed reporting from Berlin.

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Italy and Spain Defer Use of Bond Plan

Instead, both the Spanish prime minister, Mariano Rajoy, and his Italian counterpart, Mario Monti, insisted that they would continue to push for rapid adoption of a European fiscal and banking union. “With regard to the European agenda, Spain and Italy are more united than ever,” Mr. Rajoy said at a joint news conference with Mr. Monti.

Mr. Rajoy has been under pressure to tap a bond-buying program announced by Mario Draghi, the president of the European Central Bank, in early September. But he has refused to leap at the opportunity, and on Monday he said Madrid would ask for such financing only when he felt it was “convenient” to do so. Mr. Monti also dismissed the idea that Italy would need such help to meet its immediate refinancing obligations.

Neither leader is eager to expose his government’s finances to the greater European scrutiny that requesting the aid would entail.

The Madrid meeting of the two prime ministers came shortly after Mr. Draghi endorsed a proposal initially made by Wolfgang Schäuble, the German finance minister, to establish a European monetary and economic affairs commissioner. That person would have the power to intervene in national budgets if euro zone governments broke deficit rules. Creating such a post would probably require the approval of all 27 countries in the European Union.

“If we want to restore confidence in the euro zone, countries will have to transfer part of their sovereignty to the European level,” Mr. Draghi said last week during an interview with the German magazine Der Spiegel.

Mr. Rajoy and Mr. Monti discussed the supercommissioner proposal on Monday, but neither offered support for the idea, warning that it could further confuse investors about policy making in the euro zone.

“There is a limit to the signals that can be given to the markets in terms of fiscal virtue,” Mr. Monti said. “The markets could see this as meaning that the existing instruments don’t work.”

The Rajoy-Monti show of unity underlines the extent to which Madrid and Rome face the same challenges in persuading investors to buy their debt at a sustainable borrowing cost.

Mr. Monti argued that the difference between the interest rates of German and Italian government bonds, albeit less than before the European Central Bank’s bond-buying offer, remained “higher than what is justified” by economic fundamentals.

Separately, the Bank of Spain on Monday gave indicative valuations for the so-called bad bank that Madrid is creating to let troubled banks clean their balance sheets by transferring their bad property loans and foreclosed assets.

The central bank said that any loans that lenders placed in the bad bank would have an average write-down of 45.6 percent, climbing to an average 63.1 percent write-down for foreclosed assets. It estimated that the bad bank would start with about 45 billion euros of toxic assets. But it remained to be seen whether such discounts would be sufficient to attract the private investors that Madrid is hoping will share part of the risk in the bad bank.

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Siemens Abandoning Nuclear Power Business

BERLIN — Siemens, the largest engineering conglomerate in Europe, announced Sunday that following the German government’s decision to phase out nuclear power by 2022, it would stop building nuclear power plants anywhere in the world.

“The chapter for us is closed,” Peter Löscher, the chief executive of the Munich-based conglomerate, said in an interview with Der Spiegel, the weekly news magazine. He emphasized the company’s commitment to the rapidly growing renewable energy sector.

He said the decision was also “an answer” to political and social opposition to nuclear power in Germany.

Siemens, which built all of Germany’s 17 nuclear power plants, is the first big company to announce such a shift in strategy. But other German companies involved in the nuclear energy industry are also reconsidering their options.

In May, Chancellor Angela Merkel said that the accident at the nuclear power station in Fukushima, Japan, had convinced her that Germany should look to other power sources. The decision represented a turnaround for Mrs. Merkel, who a year ago agreed to prolong the life of the country’s nuclear plants by an average of 12 years.

Nuclear power accounts for 23 percent of electricity production in Germany. The government is putting in place an ambitious plan to increase the share of electricity generated from renewable sources to 35 percent by 2020, up from around 18 percent now.

Mr. Löscher called the government’s plans for renewable energy “the project of the century.” Although the government’s goal has met with skepticism in some quarters, he said the 35 percent figure was “achievable.”

Mr. Löscher said the shift in strategy meant that Siemens would drop plans to cooperate with Rosatom, the Russian state-controlled nuclear power company that is planning to build dozens of nuclear plants throughout Russia over the coming two decades. Siemens might seek cooperation with Rosatom in other areas, Mr. Löscher said.

The Siemens decision does not amount to a boycott of the nuclear energy industry. A spokesman said the company would continue to make systems that could be used in nuclear power stations.

“We will provide conventional steam turbines that can be used for nuclear power plants and conventional power plants,” Alfons Benzinger, a spokesman for Siemens’s energy business, said Sunday.

The energy division is Siemens’s second-largest in terms of revenue. Last year, the conglomerate had total revenue of €76 billion, or $105 billion, and net income of €4.1 billion. Of that, the energy division contributed €3.6 billion.

Mr. Benzinger said the shift in strategy would not have a negative impact on the company’s overall sales.

Siemens, which has more than 400,000 employees worldwide, makes products as diverse as high-speed trains and sophisticated medical equipment. It is now one of the world’s largest providers of environmental technologies, which last year generated €28 billion of its total revenue.

Siemens said last year that its renewable energy unit — which is part of its environmental technologies division — had the strongest growth of any of its lines of business.

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News Analysis: German Dissent Magnifies Uncertainty in Europe

Global financial markets are expected to go through another rough week as the euro zone’s debt crisis gets messier, and Germany, the euro’s self-styled guardian, is playing a large role in magnifying the uncertainty.

Despite repeated pledges by Chancellor Angela Merkel to keep Europe together, the cacophony of dissent within her country is becoming almost deafening. That is casting fresh doubt — whether justified or not — over the nation’s commitment to the euro.

“The German electorate is not in the mind-set to undertake actions it sees as subsidizing less worthy nations,” said Carl Weinberg, the chief economist of High Frequency Economics in Valhalla, N.Y. “As a result, the government is moving in a very isolationist way to try to establish a fortress Germany that’s economically secure despite the risks in its European Union partners.”

This weekend, Der Spiegel reported that the German government was starting to prepare for a Greek insolvency and was devising various responses to handle a potential default, including allowing Greece to abandon the euro and return to the drachma. The government in Berlin would not comment, but such reports only add to the doubts bedeviling the euro monetary union.

On Friday, a stalwart German member of the European Central Bank, Jürgen Stark, abruptly resigned — news that would have barely merited more than a few lines in the financial pages just a few years ago.

Today, it is considered a sign of disenchantment within Germany of the extraordinary measures being pursued to maintain stability in the euro zone, adding to the wild volatility in financial markets around the world.

“Mr. Stark’s departure could be seen by financial markets as another indication of growing disenchantment in Germany towards the euro,” Julian Callow, chief European economist at Barclays, wrote in a note to clients.

All this has generated severe discomfort in Washington, which has watched the market volatility stoked by the European debt crisis with growing alarm.

The U.S. Treasury secretary, Timothy F. Geithner, has been in regular contact with his European counterparts, repeatedly calling on them to speak with a single voice to help reduce confusion in financial markets. After a series of frank discussions with many of them Friday at the meeting of the Group of 7 finance ministers in Marseille, he declared that “European officials fully understand the gravity of the situation there.”

Finland, the Netherlands and Austria have all spoken with dissonant voices on the Greek bailout, revealing deep divisions among Europe’s strongest countries about how far they should go to save their weaker neighbors.

Continued fears over the state of European banks, and French ones in particular, have also roiled financial markets, especially after Christine Lagarde, the managing director of the International Monetary Fund, warned that European banks needed substantial additional capital.

Meanwhile, fears over Greece are only likely to intensify this week, after Mrs. Merkel’s finance minister, Wolfgang Schäuble, warned that Germany, for one, would not approve new financial assistance to help Athens continue to pay its bills through Christmas unless the Greek government fulfilled the conditions of its first bailout.

Prime Minister George A. Papandreou sought to placate European partners on Saturday yet again in a speech. To keep international rescue funds flowing, he vowed to meet tough new austerity targets despite a recession that could cause the Greek economy to contract by as much as 5 percent this year. Demonstrators frustrated with austerity clashed violently outside Parliament as he spoke.

In the midst of it all, Mrs. Merkel is putting on a brave face. In an interview published Sunday in Tagesspiegel, a Berlin newspaper, she urged Germans to be patient with Greece in its current struggle to overcome the debt crisis.

“What hasn’t been done in years cannot be done overnight,” she said. “Remember the reunification process,” she added, a reference to the considerable amount of time it took for East and West Germany to reunite after the fall of the Berlin Wall.

A few weeks earlier, she put on a show of unity at the Élysée Palace in Paris with President Nicolas Sarkozy of France. Giving one another air kisses before a phalanx of cameras, the pair reaffirmed their commitment to the euro and to fixing some of its worst features, including compelling countries to get their finances in better shape.

“Germany and France feel absolutely obliged to strengthen the euro as our common currency and further develop it,” Mrs. Merkel said.

Outside of Greece, some things have improved, if only haltingly. Italy’s lower house of Parliament is expected to approve a tough new fiscal package in coming days.

France, Portugal and Spain are adopting measures to make it easier to balance budgets, moves intended to reassure investors about their commitments to fiscal prudence.

Still, Mrs. Merkel must contend with a stark divide between her support for European unity and a German public that sees no reason, in the majority’s view, to pour good money after bad into the indebted countries of southern Europe. Her Christian Democrat Party has now lost five local elections this year. Yet even as many Germans complain bitterly about their southern neighbors, few in business and politics are ready to let the euro zone fall apart.

After all, if the weakest countries were to revert to their original currencies, a German-dominated euro would soar as investors flocked to it as a haven, devastating the business of exporters who have relied on its stability and relatively affordable level against other major currencies.

Further electoral losses could make it harder for her to get the votes needed to bolster the emergency bailout fund designed to keep the problems that began in Greece from infecting larger countries like Spain and Italy.

That is one thing that investors want to see addressed. A failure by Germany — whose Parliament may now delay a vote — or any other European country to vote for a timely expansion of the fund would deal a serious blow to the confidence of financial markets.

“Given the market volatility, from a German point of view you would think they want to do something about it because it’s affecting their own companies and their exports,” said Martin N. Baily, an economist at the Brookings Institution in Washington and a chairman of the Council of Economic Advisers under former President Bill Clinton.

“It is certainly the kind of thing that will keep you awake at night, and it should give an incentive to Chancellor Merkel” to take greater risks to keep the euro zone from unraveling, he said.

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