Germany’s recession

11 May 2009

John Vinocur writes a damning article in today’s New York Times about how the German government has botched the response to the recession.

Most interestingly:

Even more strikingly, a report by the federal financial services supervisory agency a week earlier sets at €816 billion the amount of toxic assets in German banks. That is enormous. In terms of overall assets, according to news reports, it is proportionately higher than the International Monetary Fund’s comparable estimate for American banks of $1.6 trillion.

This truly is enormous, and one wonders where these toxic assets are from. A higher share of German households rent rather than own, generally Germans in my experience seem wary of taking on any debt. So if the German banks are so leveraged, they must be truly incompetent.

Or arrogant, which I find is a common thread running through many of my experiences with Germans. For example:

Where was this reality when Mrs. Merkel was going on about the German example for the world, or when Mr. Steinbrück told the Bundestag that while, fortunately, “our situation is more robust,” the United States “will lose its superpower status in the world financial system”?

There is a large degree of Schadenfreude, I think amongst certain sectors of German society (particularly certain elites) that the US is having difficulties. I was once told, for example, that the EUR/$ exchange rate would reach 2 sometime in the near future because of how poorly the US economy was doing — and it was said with a certain smugness.

While the US may take some hits on its “superpower” status in the financial market (and I think the jury is still way out on that), there’s no doubt in my mind it’s not going to be Frankfurt that will fill the gap.

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