Wednesday, 18 July 2018

On German unification, Chinese can kicking and French climbing

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My compliments and thanks to Roger Bootle’s Capital Economics for a cracking summer garden party last night for which they caught what appears to have been the only decent summer’s evening of the week. All the great and the good were on parade on the day on which Capital was awarded the Wolfson Prize for its work on how the eurozone might face up to dealing with deconstruction, should it come to that. Congratulations.

Anthony Peters, SwissInvest Strategist

It also occurred on a day upon which three central banks, those of China, the eurozone and the United Kingdom, took a further step down the stimulus road.

The PBoC and the ECB both cut rates and the BoE added another £50bn to its QE programme. But instead of the howling and hollering which central bank policy shifts used to generate, there was a general shrugging of shoulders and a quiet “So what?” response to be detected in the markets.

There is still a gushing wound in the global economic body and three sticking plasters will do no better in fixing (Eeek! Can I use the word “fixing” without being guilty of something criminal?) the problem than would one.

I am again drawn back to the response of the Bundesbank in the aftermath of the FRG’s leveraged take-over of the GDR. Inflation was through the roof, Buba rates were sky high and the West German economy was struggling with the huge cost of trying to integrate a country where the economy had stood still for fifty years.

All the while, Bonn – the capital hadn’t moved to Berlin yet – was knocking at the door of the Buba in Frankfurt asking for help through easier monetary policy. The men in grey were utterly unimpressed and sent the politicians packing with a clear message that it was not the central bank’s, or at least not the German central bank’s, role to use monetary policy to pursue economic policy aims.

Economic policy was for the politicians to deal with and if they thought that the central banks was here to swallow the bitter medicine for them, they’d better think again.

So, while large parts of the rest of the West was off on what turned into a debt fuelled shopping and consumption frenzy, Germany was working through its problems and structuring its economy for the future. Jean de la Fontaine gave us the fable of the ant and the grasshopper. Bundesbank Presidents Karl Otto Pöhl, Hans Tietmeyer and Helmut Schlesinger gave us the fact of the second German economic miracle and the jealousy of its European cohorts.

Am I surprised that the Germans who watched growth all around them while they were treading water don’t feel particularly keen on being punished for their own acts of humble virtue – as don’t the Finns and the Dutch. In stepping aside at the eurozone summit last week, Angela Merkel has put those two in the firing line. Through the entire crisis so far, they have hidden behind Germany, have quietly nodded in agreement with their big partner but have so far taken none of the flak. Another diplomatic master stroke from the Krupp steel Lady.

So, anyhow, the central banks have acted and the polis are off the hook again, for the while.

Even in China there is a political element to the rate cuts. As the administration is about to “do a Doctor Who” and return in a new incarnation in October, the outgoing bunch has decided to leave whatever problems it perceives to the next lot and to take the soft option of easier monetary policy. China is catching up with the West as fast in politics as it is in economic terms and is also learning how to elegantly kick its cans down the road too.

I was listening to the wireless in the car last night and heard of the French authorities’ decision to investigate Air France and Airbus with respect to contributory negligence in the case of the AF 447 which crashed into the Atlantic in June 2009. The case deals with the pilots’ lack of training and experience and the fact that when the plane stalled, they tried to climb rather than to dive in order to overcome the stall. Their decision to climb proved to be fatal.

As the French economy is stalling, President Hollande might be advised to read the findings on the errors made by Flight 447 as he too seems to believe that he can accelerate upwards out of the stall rather than trying to counter it by trying to pick up speed in a dive before pulling back the stick and levelling out at a lower altitude.


Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful week-end. With the Wimbledon Indoors Final and the Le Mans Aquaplaning Classic on the calendar for this week-end, may you find the time to sit down with the Misses and discuss where you are going to store away the warm clothes, come November, and who you will be inviting for the Christmas lunch barbecue.

Grrr! Or should than be Brrr!       

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