Tag: germany

Germany’s Free Democrats Are More than “Pro-Business”

The effort to form a coalition government in Germany may finally be coming to an end. Chancellor Angela Merkel’s original plan after last September’s election fell apart when the liberal Free Democrats (FDP) decided to not join a coalition due to the fiscally irresponsible demands of other parties. It’s unfortunate that major American media regularly refer to the FDP as “pro-business” (or occasionally “business-friendly”). See, for instance, the New York Times, the Wall Street Journal, the Washington Post, the Associated Press, and Reuters. It’s not exactly wrong, but it’s incomplete and misleading. The party would be better described as pro-market rather than pro-business, and it’s also liberal on such issues as gay marriage, marijuana legalization, the dangers of surveillance. It pushed its coalition partners, Merkel’s Christian Democratic Union and the allied Christian Social Union, to end conscription in 2011. 

In the United States such a party would be called libertarian, or maybe “fiscally conservative and socially liberal.” In the rest of the world it’s called liberal. A helpful description for American readers might be “the free-market liberal FDP.”

In this case Wikipedia does a better job than the journalists: “The FDP strongly supports human rights, civil liberties, and internationalism. The party is traditionally considered centre-right. Since the 1980s, the party has firmly pushed economic liberalism, and has aligned itself closely to the promotion of free markets and privatisation.”

A merely pro-business party might join the European People’s Party (along with most Christian Democratic parties) or the Alliance of Conservatives and Reformists in Europe (along with the Conservative Party of the United Kingdom) in the European Parliament. Instead it’s part of the Alliance of Liberals and Democrats for Europe, as well as the broader Liberal International.

The FDP has been part of a governing coalition for most of Germany’s post-1945 history, usually in coalition with the CDU/CSU but during the 1970s with the Social Democratic Party. It is the most pro-trade party in Germany, strongly endorsing projects such as the Comprehensive Economic and Trade Agreement between Canada and the European Union, and the Transatlantic Trade and Investment Partnership agreement between the United States and the EU (on hold since President Trump’s inauguration). It supports the EU but wants to demand more fiscal responsibility among EU member states. It rejects federal minimum wage laws, advocates more competition in heavily regulated industries and professions, and promotes a smaller and more efficient welfare state, perhaps with a negative income tax and individually funded health and retirement systems.  Because of its liberal social policies and support for entrepreneurship and globalization, the FDP did better among 18-to-24-year-old voters in last fall’s election than any other age group.

Unfortunately, the United States lacks a (classical) liberal party, one committed to freer markets and more personal freedom. Germany has one, and “pro-business” doesn’t capture its ideology or its appeal.


Fred Roeder is an economist from Berlin and chief strategy officer of Students For Liberty.

Fatalities and the Annual Chance of being Murdered in a European Terrorist Attack

Recent terrorist attacks in Europe have increased death tolls and boosted fears on both sides of the Atlantic. Last year, I used common risk analysis methods to measure the annual chance of being murdered in an attack committed on U.S. soil by foreign-born terrorists. This blog is a back of the envelope estimate of the annual chance of being murdered in a terrorist attack in Belgium, France, Germany, Sweden and the United Kingdom. The annual chance of being murdered in a terrorist attack in the United States from 2001 to 2017 is about 1 in 1.6 million per year. Over the same period, the chances are much lower in European countries.

Methods and Sources

Belgium, France, and the United Kingdom are included because they have suffered some of the largest terrorist attacks in Europe in recent years. Sweden and Germany are included because they have each allowed in large numbers of refugees and asylum seekers who could theoretically be terrorism risks.

The main sources of data are the Global Terrorism Database at the University of Maryland for the years of 1975 to 2015, with the exception of 1993. I used the RAND Database of Worldwide Terrorism to fill in the year 1993. I have not compiled the identities of the attackers, any other information about them, or the number of convictions for planning attacks in Europe. The perpetrators are excluded from the fatalities where possible. Those databases do not yet include the years 2016 and 2017, so I relied on Bloomberg and Wikipedia to supply a rough estimate of the number of fatalities in terrorist attacks in each country in those two years through June 20, 2017. The United Nations Population Division provided the population estimates for each country per year.

Will TTIP Wilt in the Shadow of the Aging German Voter?

In today’s Cato Online Forum essay, Iana Dreyer of the EU trade news service Borderlex marshals public opinion data to support a rather gloomy prediction about the chances for a robust and comprehensive TTIP outcome. Despite having “strong ‘Atlanticist’ instincts and the vision for Europe as a dynamic, globalized, economic powerhouse,” the EU’s business community and its cosmopolitan policy makers are likely to be thwarted by demographics: especially, by the aging German voter.

Iana concludes that the likely outcome will be a TTIP agreement that reflects the sensibilities of older, risk-averse Europeans who are unwilling to gamble with their social safety nets, even though those safety nets are not really on the negotiating table, which means a rather shallow and limited agreement at best.

The essay is offered in conjunction with a Cato Institute TTIP conference being held on Monday.  Read it. Provide feedback.  And register to attend the conference here.

A Fiscal Lesson from Germany

Germany isn’t exactly a fiscal role model.

Tax rates are too onerous and government spending consumes about 44 percent of economic output.

That’s even higher than it is in the United States, where politicians at the federal, state, and local levels divert about 39 percent of GDP into the public sector.

Germany also has too much red tape and government intervention, which helps to explain why it lags other European nations such as Denmark and Estonia in the Economic Freedom of the World rankings.

But I have (sort of) defended Germany a couple of times, at least on fiscal policy, explaining that the Germans didn’t squander much money on Keynesian spending schemes during the downturn and also explaining that Paul Krugman was wrong in his column on Germany and austerity.

Today, though, I’m going to give Germany some unambiguous praise.

If you look at last decade’s fiscal data, you’ll see that our Teutonic friends actually followed my Golden Rule on fiscal policy for a four-year period.

Here’s a chart, based on IMF numbers, showing total government spending in Germany from 2003-2007. As you can see, German policy makers basically froze spending.

German Fiscal Restraint

I realize that I’m a libertarian and that I shouldn’t be happy unless the burden of spending is being dramatically reduced, but we’re talking about the performance of European politicians, so I’m grading on a curve.

By that standard, limiting spending so it grows by an average of 0.18 percent is rather impressive. Interestingly, this period of fiscal discipline began when the Social Democrats were in power.

And because the economy’s productive sector was growing at a faster rate during this time, a bit more than 2 percent annually, the relative burden of government spending did fall.

The red line in this next chart shows that the public sector, measured as a share of economic output, fell from almost 49 percent of GDP to less than 44 percent of GDP.

German Spending+Deficit as % of GDP

It’s also worth noting that this four-year period of spending restraint also led to a balanced budget, as shown by the blue line.

In other words, by addressing the underlying problem of too much government, the German government automatically dealt with the symptom of red ink.

That’s the good news.

The bad news is that the German government wasn’t willing to sustain this modest degree of fiscal discipline. The Christian Democrats, who took office in mid-2005, allowed faster spending growth beginning in 2008. As I noted above, the budget increases haven’t been huge, but there’s been enough additional spending that Germany no longer is complying with the Golden Rule and the burden of the public sector is stuck at about 44 percent of GDP.

The moral of the story is that Germany shows that good things happen when spending is restrained, but long-run good performance requires long-run spending discipline.

That’s why I’m a fan of Switzerland’s spending cap. It’s called the “debt brake,” but it basically requires politicians to limit spending so that the budget doesn’t grow much faster than inflation plus population.

And that’s why Switzerland has enjoyed more than a decade of good policy.

To see other examples of nations that have enjoyed fiscal success with period of spending restrain, watch this video.

The Canadian example is particularly impressive.

Pushing Ukraine Back to the Soviet Union?

Ukraine scored a historic upset in their first Euro 2012 soccer match yesterday, creating a rare celebratory and unifying atmosphere in the country. There had been little good news out of the Ukraine leading up to its co-hosting—with Poland—of the continent’s major soccer championship. Despite achieving independence two decades ago, Ukraine’s political development remains stunted. Ironically, European governments risk pushing Kiev away while attempting to promote democracy there. Such as by Berlin’s threat to block a new political and trade agreement between Ukraine and the European Union.

There’s not a lot to choose from among Ukraine’s leading politicians. However, President Viktor Yanukovich appears to be misusing his power to punish rival Yulia Tymoshenko for political revenge.

In response, German Chancellor Angela Merkel said that her nation would boycott the 2012 European Championships. Last month German Foreign Minister Guido Westerwelle also threatened to kill Kiev’s Association Agreement and the Common Economic Space Treaty with the EU. Ukraine is a member of the Eastern Partnership initiative, created three years ago by Brussels.

Ukraine is not the only troubled member of the EP:  Armenia, Azerbaijan, Belarus, Georgia, and Moldova all have serious human rights issues. However, Nicu Popescu of the European Council on Foreign Relations explained that while Ukraine is not the worst offender among the group, it “is the biggest source of disappointment and bad news.” As a result, warned Jana Kobzova, also at the Council, “More and more EU states are asking why should we want the Ukraine closer to the EU when its political system is increasingly incompatible with the values the EU preaches?”

It’s a fair question, but the alternative is Kiev slipping closer to orbit around Russia. Yanukovich originally was viewed as Moscow’s candidate, since he represented Russophone speakers. However, in office he put his nation first. He has refused to join Russia’s Customs Union (which also includes Belarus and Kazakhstan) and turn over control of Ukraine’s natural gas to Moscow. But because of resistance in Brussels, Yanukovich last month declared a “strategic pause” in Ukraine’s relations with the EU. In fact, Foreign Minister Konstantin Grishenko said his nation would no longer seek full EU membership.

Germany and the other EU members should moderate their ambitions. None of the Eastern Partnership members were on the fast-track to EU membership. The systems were too different and the geographic distances were too great. Even before Kiev disappointed its European friends people were talking of a 20-year accession process. And enlargement fatigue had not yet afflicted Brussels, with disappointment over the performance of Bulgaria and Romania, resistance to Turkey’s membership, and reluctance to quickly include the rest of the Balkans.

Instead of viewing Ukraine as a candidate member to be transformed, the Europeans should treat Ukraine as an errant friend to be reformed. Closer ties should be developed, allowing more criticism to be delivered with greater effect. The association agreement between the EU and Kiev obviously is important economically to Ukraine. It also may be the best vehicle to help pull Kiev back to a more democratic course.

Cross-posted from the Skeptics at the National Interest.

The Euro Crisis in Prose and Poetry

The European debt crisis is inspiring public radio to literary analysis. Last week NPR’s Planet Money put the French-German relationship into a “threepenny opera”:

All

Everyone is counting on you
You’ve got the money
We’ve got the debt (Oh yes, we’ve got a lot of debt!)
And do we need a bailout—you bet

Germany

Zat’s it, I’ve had enough
Looks like it’s time now for me to leave…

France

Oh?

Germany

Vhy is ze door locked? You must let me out.

France

Dear when the times are tough
It’s better to give zan to receive

Then Monday Marketplace Radio turned to classics professor Emily Allen Hornblower and economist Bill Lastrapes to discuss Greek debt as classical tragedy—Oedipus? The ant and the grasshopper?

Loyal Cato readers will recognize Bill Lastrapes as the coauthor of the much-discussed Cato Working Paper “Has the Fed Been a Failure?

And then, if you prefer prose and sober analysis to literary analogies, let me recommend Holman Jenkins’s perceptive column on why Europe hasn’t solved its crisis yet, which unfortunately appeared in the less-read Saturday edition of the Wall Street Journal. (OK, not less read than Cato-at-Liberty, but probably less read than the weekday Journal.)

Neither leader has an incentive to sacrifice what have become vital and divergent interests to produce a credible bailout plan for Europe. To simplify, German voters don’t want to bail out French banks, and the French government can’t afford to bail out French banks, when and if the long-awaited Greek default is allowed to happen….

There is another savior in the wings, of course, the European Central Bank. But the ECB has no incentive to betray in advance its willingness to get France and Germany off the hook by printing money to keep Europe’s heavily indebted governments afloat. Yet all know this is the outcome politicians are stalling for. This is the outcome markets are relying on, and why they haven’t crashed.

All are waiting for some market ruction hairy enough that the central bank will cast aside every political and legal restraint in order to save the euro….

And then the crisis will be over? Not by a long shot.

All these “solvent” countries and their banks will be dependent on the ECB to keep them “solvent,” a reality that can only lead to entrenched inflation across the European economy. That is, unless these governments undertake heroic reforms quickly to restore themselves to the good graces of the global bond market so they can stand up again without the ECB’s visible help.

It’s just conceivable that this might happen—that countries on the ECB life-support might put their nose to the grindstone to make good on their debts, held by ECB and others. Or they might just resume the game of chicken with German taxpayers, albeit in a new form, implicitly demanding that Germany bail out the ECB before the bank is forced thoroughly to debauch the continent’s common currency, the euro.

The Lives of Others 2.0

Tattoo it on your forearm—or better, that of your favorite legislator—for easy reference in the next debate over wiretapping: government surveillance is a security breach—by definition and by design. The latest evidence of this comes from Germany, where there’s growing furor over a hacker group’s allegations that government-designed Trojan Horse spyware is not only insecure, but packed with functions that exceed the limits of German law:

On Saturday, the CCC (the hacker group) announced that it had been given hard drives containing “state spying software,” which had allegedly been used by German investigators to carry out surveillance of Internet communication. The organization had analyzed the software and found it to be full of defects. They also found that it transmitted information via a server located in the United States. As well as its surveillance functions, it could be used to plant files on an individual’s computer. It was also not sufficiently protected, so that third parties with the necessary technical skills could hijack the Trojan horse’s functions for their own ends. The software possibly violated German law, the organization said.

Back in 2004–2005, software designed to facilitate police wiretaps was exploited by unknown parties to intercept the communications of dozens of top political officials in Greece. And just last year, we saw an attack on Google’s e-mail system targeting Chinese dissidents, which some sources have claimed was carried out by compromising a backend interface designed for law enforcement.

Any communications architecture that is designed to facilitate outsider access to communications—for all the most noble reasons—is necessarily more vulnerable to malicious interception as a result. That’s why technologists have looked with justified skepticism on periodic calls from intelligence agencies to redesign data networks for their convenience. At least in this case, the vulnerability is limited to specific target computers on which the malware has been installed. Increasingly, governments want their spyware installed at the switches—making for a more attractive target, and more catastrophic harm in the event of a successful attack.