€1600 per floating voter…and it won’t work


“Komm mit Geli, unser Schmiergelder ewartet Sie…”

Several German and Greek Sloggers have sent me this week’s big story from Spiegel:the German government is backing away from its austerity mandates and planning to spend billions to stimulate ailing economies in Southern Europe’. But Berlin won’t be ‘stimulating’ anything except its popularity in preparation for the September 2013 general election.

Last week, German finance supremo Wolfgang Schäuble sent a letter to Economics Minister Philipp Rösler in which he proposed that the coalition partners act together in a new plan for stimulation in the ClubMed States. Rösler’s Ministry is responsible for Germany’s KfW development bank – and the Frankfurt-based institution is to play a key role in the German growth concept that experts from both ministries have started drafting for ClubMed…beginning with Spain.

Damian Carrington in the Guardian last week was effusive about its potential as a Green investment bank: ‘It has half a trillion Euros of assets, making it roughly twice the size of the World Bank. It lent €70bn in 2011, raised from international markets at low interest rates thanks to its AAA credit rating. About a third goes to energy and climate change investments, including €24bn from 2009-2011 on energy efficiency in homes, which leveraged a total investment of €58bn.’ That all sounds pretty good – especially if, like Damian, you’re very on-message eco-wise.

Similarly, last month the Financial Times offered up its usual analysis-free enthusiasm by pointing out that KfW ‘has a top credit rating and is the biggest non-sovereign borrower. KfW then lends the funds for development projects and support of industry in Germany and around the world, emphasising projects with an environmental focus.’

Those close to Schäuble are talking up a budget in the region of eight billion euros. But on closer examination, the Spiegel piece that has set a few hearts racing in ClubMed offers little more than a measure of the cynicism involved in Merkelian power-mania….via, for example, extracts like this one:

‘Berlin faces a dilemma. Europe lacks the money for massive economic stimulus programs, and so far the German government has insisted that incurring new debt isn’t the way to solve Europe’s debt crisis. In addition, Germany will elect a new parliament in less than four months, after elections in September. With her administration facing pressure from the anti-euro party Alternative for Germany, and despite her offers to help Southern European countries, Merkel doesn’t want to be accused of throwing even more good German money after bad. To avoid this, the goal in Berlin is to achieve the greatest possible results while spending as little as possible.’

It’s not hard to divine what’s going on here. Geli has an election to win; but at one and the same time, there is clamour among the Bankfurters (and AlternativefürDeutschland) to restrict German commitment to the eurozone money-pit, clamour from German industry not to destroy the consumptive power of Germany’s euro-markets, and clamour from the SPD to engage with the EU ‘ideal’ – rather than do the international Troika’s bidding via blanket austerity.

In fact, the scheme is really little more than a scam via which a political Coalition bids to buy votes and improve its image in export markets using State money. To ensure a clear mandate to govern, the CDU-led Coalition running Germany must retain the support of around 5 million voters who normally ‘float’ from centre-left to centre-right. The 8 billion euro budget for ClubMed stimulation thus represents an investment in persuading those people that their Government isn’t really a destructive European force.

So the cost works out at €1600 a head among that electoral group.

I’d be interested to know what the Karlsruhe Constitutional Court might have to say about that, as even in slippery Blighty, that would represent a blatant misuse of government funds; however, the MerkeSchäuble Axis has an ingenious way of blurring that line readily available.

The €8 billion of money would come via low-interest loans from KfW. Originally set up to help Germany’s post-war reconstruction, KfW is totally owned by the BundesRepublik State. What’s fascinating is that it has earned more than €2bn in each of the past three years. Last year, it earned eight times more in profit than Deutsche Bank. Further, it isn’t dependent on retail money from hard-pressed consumers.

KfW is thus the perfect front for campaign funds derived from the State. No sovereign lending need be involved – it would lend to ClubMed banks at German interest rates. It’s flush with funds, and has built up a more formidable sea-wall against potential debt-crisis Tsunamis than probably any other institution. It neither takes nor needs any money from German taxpayers or Federal budgets. And it shuts up all of the Coalition’s critics by spending money that costs nothing. The SPD, for example, would look foolish if it opposed the idea. AfD leaders and German bankers (speaking through the medium of Frankfurter Allgemeine Zeitung) would be hard-pushed to moan about a zero-cost European growth initiative. Business leaders will applaud the stimulation aspect. And as KfW itself is mega-green in its development policies, die Grünen also find themselves stunned into silence.

In order to control this do-gooding money-machine more closely, the cold slithery skin of the State boa constrictor is, indeed, already in evidence: its CEO Ulrich Schröder recently confirmed that a new deal with the Merkel Administration will see it controlled in future by some of the regulations that govern other banks. Henceforth, for example, it will answer to BaFin and the Bundesbank, Germany’s financial supervisors, about its investment plans.

There’s just one problem for everyone in Europe who isn’t a CDU Coalition MP trying to stay on the Sauerkraut-train: tossing €8 billion into the ClubMed arena in 2013 is a bit like building half a dozen reservoirs in the Sahara Desert after 1918. The chance to re-establish fertile alluvial soils there passed a long, long time ago. This is far too little, far too late.

Of course, apparently growth-converted Wolfie Schäuble and his fridge-magnet Chancellor understand this perfectly well. The European Investment Bank (EIB) plans to issue some €60 billion in new loans over the next two and a half years, but few observers see it as likely to make any appreciable difference to the now parlous state of Spanish banks, Italian State departments, and the Greek population beyond the Venizealots. The idea that eight billion from KfW can act as any kind of effective stimulus is risible – especially when one considers the historical style used by this institution in its use of funds: quite rightly, it assesses risk prudently and prefers long-term building partnerships to Geithnerite bazookas. That’s why Goldman Sachs is leveraged at 100:1, and KfW isn’t. What we’re not going to get from this essentially eco-focused bank is either the size or concentration of economic stimulus required to have an even medium-term effect.

So if I can round off the bollocks deconstruction here, the bottom line is that Berlin’s ‘conversion’ to growth will play well in the Elysee Palace and German voting booths, but it is a cunning stunt by two master-spinners, nothing more. One could spoonerise that last sub-clause there to great effect, but let’s not labour the point: this is buying votes, pure and simple. And if the German electorate wonders why its Berlin Government is so distrusted by its EU ‘partners’, then it would do well to examine the hypocritical politics involved here.

The bigger – and potentially far more disturbing question – is what the MerkeSchäuble might do if and when they’re safely returned to power. Having bottled out of previous ezone-departure windows, whether a newly-powerful leadership goes for FiskalUnion immortality – or cuts all ropes and losses on the Great Project – will be dictated by the speed and seriousness of events. We’re almost in June now, and the German election is scheduled to take place on September 22nd. If Angela Merkel can survive 124 more days with few (or no) EU crisis horrors, she will almost certainly be home and dry for Four More Years.

That timescale alone is obviously going to give the peripheral eurozone members an enormous amount of temporary leverage. And naturally – given the fiscal power-game still going on in the EU – it offers the ECB’s Mario Draghi the opportunity to either sink the CDU single-handed (a prospect that must appeal to him) or press ahead with his under-the-counter money lending and printing Ponzi scheme….in the certainty that neither Merkel nor Schäuble will want their electorate rudely awoken from a supine summer torpor by thunder in the mountains.

It promises to be a long summer in Berlin. Whether it’ll be hot or not is considerably more in doubt.

Last night at The Slog: Bare threads and subscribers