Culture War Over German Identity

Religious Symbols Take Center Stage

The Bavarians want crosses in public buildings, German Jews want to be able to wear kippas in public without being attacked and Muslims would like more understanding for the headscarf. Germany's search for identity has turned religious. By DER SPIEGEL Staff

Photo Gallery: What Does It Mean to Be German?


Neighborhood. It's a word that evokes homey comforts and familiarity. A confined area of bonhomie or, at least, a place free of open conflict.

Helmholtzplatz, a micro-neighborhood in Berlin, is one of the capital city's best-known blocks. Locals like to call Helmholtzplatz, the square from which the area gets its name, Helmi and it is a hub of tolerance and the international lifestyle, evidenced by the fact that English competes with German as the most-spoken language in the area. Ever since the rat problem was eliminated a few years back, the neighborhood has become a place where citizens of the world live in total comfort and can only shake their heads at the conflicts that beset the rest of humanity.

At least until the warm, spring evening of Tuesday, April 17. On that evening, Adam Armoush, a 21-year-old Israeli from a family with Arabic, Jewish and Christian roots, dared to conduct an experiment. Originally from Haifa, he has been living in Germany for three years and moved to Berlin three months ago, where he studies veterinary medicine. He has Jewish friends and is actually not particularly immersed in the hostilities present in the Middle East. An acquaintance gave him a kippah as a gift, but also warned him that it is dangerous to wear it on the streets of Berlin. Adam didn't want to believe him.

And so he set off toward Helmholtzplatz together with a friend, the kippah on his head. He had almost arrived when he encountered three Arab men who began insulting him. Armoush turned on the camera on his smartphone and the video that he took has now become a historical document of contemporary German history.

One of the men, a 19-year-old Syrian, began whipping Adam with his belt and shouting "jehudi, jehudi, Jew, Jew," over and over again. The video, which shows him lunging repeatedly at Adam, is shaky and Adam can be heard saying, "I'm filming you. I'm filming you." At some point another man comes and drives the attacker away. Adam then calls at him, "Jew or not Jewish, you have to deal with it." The video is only 47 seconds long, but it went viral the same night after it was posted online. Forty-seven seconds that place a question mark over many things in Germany, if not everything.

Crumbling Insulation

Germans have long sought to insulate themselves from the problems facing the rest of the world. Since 2005, voters have repeatedly elected a chancellor who has taken pains to fulfill that longing - to ensure that Germany is something like Helmi on a vast scale. An oversized neighborhood so cosmopolitan and liberal that it was even prepared in the summer of 2015 to take in close to a million refugees.

But now, that insulation appears to be crumbling. And religion, something that had long since seemed to have lost its importance in Germany, is at the forefront. Once again, religions are playing a powerful role in the world - and it is a development that is making itself felt in even the most bucolic of German neighborhoods.

The result is that any discussion about the Germany of today must necessarily consider the kippah, the cross and the headscarf. They are all symbols of religion at first glance, but upon deeper reflection, they are also symbols of this country's identity. Or at least its search for identity.

Many Germans have a hard time saying just what this identity might be. The values set down in the German constitution are clearly part of it, that much is obvious. But beyond that? Our obsession with separating our trash, as was recently explained to refugees in guidelines provided by the group Pro Asyl? German punctuality? Our proverbial efficiency?

The vast majority would likely agree that the memory of the Nazi crimes is a part of German identity. The Holocaust is a black stain on German history, and the fact that the country chooses not to be silent about it and has made it central to Germany's culture of remembrance is an achievement that liberal-minded Germany likes to claim for itself.

The murder of Europe's Jews was the ultimate taboo. Those who question this taboo fall outside the scope of what is acceptable to society. This also applies to the country's right-wing populist Alternative for Germany (AfD) party. When Björn Höcke, the head of the AfD state chapter in Thuringia, said in January 2017 that the Holocaust memorial in Berlin was a "monument of shame" and encouraged Germans to focus less on their war guilt, it caused lasting damage to his stature within the party.

But can we demand that immigrants from foreign countries also adopt this significant element of Germany's cultural identity? What connection, after all, does the father of a Muslim immigrant family in Germany have to the Holocaust? Why should he send his children on a trip to visit the Auschwitz concentration camp? To most of the 5 million Muslims living in Germany, the Holocaust is a crime that was committed by others.

Perhaps Adam Armoush's idea of taking to the street with a kippah was naïve. Perhaps it was just a silly coincidence that somewhere in Berlin, an Arab mistook another Arab for a Jew, just because he was wearing a kippah. Perhaps one could just dismiss the video as an unfortunate isolated case. But Adam's 47 seconds developed into an altogether different suggestive power - that Jews are being beaten up on the streets of Berlin by anti-Semites.

A Major Blow to Modern Germany

These 47 seconds are a major blow to the enlightened, modern and liberal nation that postwar Germany has become. Josef Schuster, the president of the Central Council of Jews in Germany, has since warned people against wearing a kippah when walking down the street. And that, too, is a major blow to an enlightened country.

But these 47 seconds represent a serious blow to openness and tolerance for another reason as well. Because the young man from Syria in the video happened to come to Germany as part of the wave of asylum-seekers in 2015.

The name of the Helmholtzplatz attacker is Knaan S., who turned himself in to the police two days after the incident. He had to appear before a court, where he was charged with grievous bodily harm and of making insults, which is punishable under German law. His family reportedly has Palestinian roots. Knaan lives in a refugee hostel on the outskirts of Berlin and his Facebook profile indicates he is single. He plays football with the team SV Stern Britz 1889 e.V. The cover photo of his Facebook profile shows a pro-Palestinian demonstration in front of Berlin's Brandenburg Gate. One photo on his page shows a young man posing with a rocket-propelled grenade and a machine gun. There's a short video on YouTube that Knaan made together with Nathmi Abu S., a Palestinian living in Berlin, which says that Knaan wants to explain to the police what happened. "We are not hostile toward Jews," reads a text at the top of the video. But the video, which is in Arabic, doesn't explain what happened.

It is likely that the 47-second video is so deeply unsettling because, more than 70 years after the Germans sent the Jews to their deaths in trains, the country in 2015 brought Syrian refugees to freedom in trains. The huge welcome the majority of Germans gave them at the time can be seen as a final attempt at atonement by the ancestors of the Nazi perpetrators - but one that is now producing the very thing that can never be allowed to exist again in Berlin or anywhere in Germany: anti-Semitism.

Making things more concerning is the recent rash of reports about Muslim anti-Semitism in Germany. There have been reports about Jewish students being bullied at several Berlin schools. Then came the massive scandal in mid-April when the Echo Award, Germany's answer to the Grammy, was awarded to rappers Kollegah and Farid Bang, whose songs contain anti-Semitic lyrics. Within two weeks, the outrage had grown so great that the Echo awards have since been eliminated entirely.

The situation in Germany has become complicated. Previous certainties are being lost and old battles are being launched anew. In Bavaria, for example, the cabinet of Governor Markus Söder recently moved to require that the cross be displayed at the entrance of every state government building. The Bavarian governor himself took the first step, installing a cross at the reception of the state capital building following his April 24 cabinet meeting. Cameras were there to film the event. The cross is to hold a similar status in government buildings as the blue and white Bavarian state flag. The cabinet decision declares that it is an expression of Bavaria's historical and cultural identity, the "fundamental symbol of Christian-Occidental heritage." Söder says it is not a "religious symbol" and has more to do with the "people's desire to have their identity assured."

Culture Wars

Söder's Christian Social Union (CSU), the Bavarian sister party to Chancellor Angela Merkel's Christian Democratic Union, has repeatedly demonstrated that it sees the cross as more of a political and ideological symbol than a religious one. In 1983, in support of newly elected Chancellor Helmut Kohl's campaign to return to conservative values and morals, Interior Minister Friedrich Zimmermann of the CSU personally intervened to cut government subsidies to a film deemed blasphemous. In the film, director/actor Herbert Achternbusch plays Jesus and in one scene, he climbs down from the cross in a market square and demands to be given "shit."

While there is little doubt as to whether the scene was blasphemous, Zimmermann's action at the time was an expression of an aggressive culture war. It was the subject of intense debate, with intellectuals viewing it as a reactionary step backward. But Zimmermann's move found support within the Catholic Church, including from Joseph Ratzinger, who would later become pope.

That same year, the state government of Bavaria once again instrumentalized the crucifix for political symbolism, ordering that a cross be hung in every classroom in state-run schools. Ultimately, though, Germany's highest court ruled that the regulation was unconstitutional after a group of parents filed a challenge. 
Cozying Up to the Far Right

The fact that Söder is once again instrumentalizing the Christian cross for political symbolism could, of course, just be chalked up to tradition. Lederhosen, frothing mugs of beer, oom-pah-pah bands, the crucifix: Isn't it all just part of being Bavarian? What's the big deal?

Söder's proposal, though, is also an attempt to cozy up to the far right, which, in its fight for the West, has leaned heavily on the symbols and traditions of Christian culture - or, at least, the symbols it considers to somehow be Western. Particularly active in this battle has been Erika Steinbach, who became famous as the champion of Germany's expellees, the segment of the population driven out of areas in Eastern Europe once populated by ethnic Germans after World War II. Steinbach was long a member of Merkel's CDU, but today she is considered close to the AfD, although she is not an official member. Steinbach has taken to Twitter to complain that the chocolate Easter bunnies sold at a major department store chain are referred to on the receipt as "traditional bunnies." She has lamented that the Christmas market in the town of Elmshorn in Schleswig-Holstein is now called the "Festival of Lights." Indeed, the outrage on the web over that Christmas market went viral and the mayor of Elmshorn received dozens of hate mails - with some of the angst directed at the fact that the cherub featured on Festival of Lights marketing materials was black.

One could, of course, simply chuckle ruefully at the silliness of it all. But there is a system behind such campaigns. In France, Steinbach-esque crusades helped transform the far-right Front National into a major party, as it sought to promote traditional nativity figures at Christmas and professed outrage that pork wasn't served in school cafeterias.

At first glance, none of this seems to be directly connected to the actual cross. But there's more at stake here than just the correct faith. Kippahs, crosses and headscarves are the symbols of a culture war over the identity of a society - an identity that has changed just as much in Germany in recent decades as it has in France and other European countries. Some 22.5 million people in Germany, or one in five, has immigrant roots. We now find ourselves struggling to determine who we are, who we were and what we want to be.

During his time as interior minister, Thomas de Maizière had a pretty clear idea about what we didn't want to be. "We are not the burqa," he wrote in a 2017 op-ed for the Bild am Sonntag tabloid, his contribution to the debate over Germany's Leitkultur, or defining culture. It would be easy enough to dismiss de Maizière's claim as populist, an attempt to poach voters from the AfD. And perhaps that was indeed his aim.

'Fascism of Our Time'

But the issue with the burqa is a little more complicated. On the one hand, it is a symbol of Islam. On the other, it provides a view of women that clashes with the one held by enlightened Western feminism. Are burqas and headscarves even religious symbols? Or are they just relicts from some pre-modern, patriarchal parochialism? Whereas younger feminists aren't automatically opposed to the headscarf if the woman is wearing it of her own free will, some more traditional feminists, like Alice Schwarzer, the most famous feminist voice in Germany, have spoken out against them. After the mass sex crimes committed during new year's eve in 2015 in Cologne, Schwarzer even went to far as to say that Islamic ideology justifies violence against women. She has also described Islamism as the "fascism of our time."

In general, of course, Germans should think twice before accusing other cultures, religions or countries of being fascist. But the history of political Islam is also one of subjugation. The ideological renaissance of conservative Islam began with the 1979 Iranian revolution, followed by the 1989 fatwa calling for Salman Rushdie to be murdered because of his book "The Satanic Verses." Was the book blasphemous? One of the central achievements of modernity is that blasphemy is now something that must be tolerated.

In 1751, the Bavarian legal code still called for beheading in cases of repeated heresy. Bavaria has made progress since then, but not all Muslim countries have come as far.

Is the headscarf an appropriate symbol for this form of Islam? Or is it more of a barometer of xenophobia? A recent survey conducted by the pollsters at Forsa found that more than a quarter of all Germans agree that Islam is "to be feared." In 2010, fully 73 percent of Germans believed that Islam doesn't fit in with the Western world. Horst Seehofer, the head of the CSU who has just become German interior minister in Merkel's cabinet, said in March that Islam doesn't belong to Germany but that the 5 million Muslims who live in the country do. It was one of the first things he said in his new capacity as interior minister and Merkel was quick to contradict him. The Muslims belong to Germany, she said, and so too does Islam.

It has now been for almost exactly 50 years that this modern version of Germany, the one that is now wrestling with its own identity, was founded back in April and May of 1968. On April 11, left-wing student protest leader Rudi Dutschke was shot on the streets of Berlin after the tabloid Bild called on its readers to "Stop the Terror of the Young Leftists Now!" That Easter saw street battles in Berlin and a state of emergency was declared in late May -- a move that the prominent student protest group known as the Ausserparliamentarische Opposition (APO), or "Extra-Parliamentary Opposition," compared to the 1933 Enabling Act that essentially handed Adolf Hitler dictatorial powers.

It was an uprising of children against their parents, a cultural rebellion against the Germany of the Nazis, against the narrow-mindedness and lack of openness in society. The 1968 movement made plenty of its own mistakes, including the detour into terrorism on the extreme fringe and the predilection among many for fundamentalist forms of communism.

The Cornerstone for Today's Germany

Nevertheless, the cornerstone for today's Germany was laid in the late 1960s and early 1970s. A democratic, free country dedicated just as much to anti-fascism as to friendship and solidarity with Israel and the Jews. A country striving for equal rights, one which seeks to protect its minorities just as it tries to preserve the environment. A country wanting to be peaceful and do good. A country, in essence, that is really not a bad place at all.

The historic year of 1968 could never have come about without all of the historic years that preceded it: the years 1933 and 1945, the Nazi crimes and the Holocaust. Those who speak of the Judeo-Christian culture today cannot credibly do so without explicitly acknowledging the anti-Semitic pogroms and slaughter of the Jews over the course of centuries. Indeed, those who speak of Europe's Judeo-Christian tradition do so because excluding Judaism from the history of European civilization, particularly since Auschwitz, is simply unacceptable.

The recognition of just how systematic the World War II slaughter of European Jews was proved decisive for the developments seen in 1968. The public at large was first confronted with the enormity of the crimes committed during the Holocaust during the Auschwitz trials, which began in Frankfurt in 1963. One consequence of the trials was that a huge number of younger Germans took their first serious look at those crimes - and many of them arrived at the conclusion that the bourgeoisie had allied itself with the National Socialists. They lost all respect for the dignitaries of old - including the curie. The pope, after all, had remained silent about Hitler's crimes. Postwar West Germany, under the leadership of Chancellor Konrad Adenauer of the CDU, was deeply Catholic and patriarchal. But with the liberalization set in motion in 1968, the influence of churches, most of which were deeply conservative at the time, began to ebb. Today, many of the Protestant regional churches, and even the Catholic bishoprics, have moved just as far to the center as has the CDU under the leadership of Angela Merkel.

The 1968 generation ultimately emerged victorious. Merkel became the first female head of government in Germany and cleared the way for gay marriage. It was also Merkel who brought in trainloads of refugees from Budapest in 2015. The headline on the most recent issue of The Economist reads "Cool Germany," though it appeared in the same week that Kollegah received his Echo award. Germany, the magazine wrote, has become so open and diverse, so economically successful and politically stable, that it could serve as a model for the entire Western world. It is all-too tempting to believe it.

In his recently published book on the legacy of 1968, Munich-based sociologist Armin Nassehi wrote that, in addition to the constant reflection about German history and widespread cognizance of the moral implications the Holocaust has for present-day Germany, today's pop culture is the third great legacy of that year. Particularly the aesthetic means it has provided to relieve us of the burden of constant reflection while remaining progressive and countercultural at the same time. To put things a bit more plainly: If you listen to pop music, you're on the right side of history and don't have to think too deeply about it.

No Paradise

It would be difficult to come up with a more concise formulation of the dilemma behind the Echo scandal centering on Kollegah and Farid Bang.

When the Echo was first awarded in 1992, the Phono Akademie wanted to promote "German music." Back then, that included such acts as Herbert Grönemeyer and the Scorpions, but also the less famous singer Pe Werner. The fact that two rappers named Kollegah and Farid Bang received the prize 26 years later has very much to do with the liberalization of German society that began in 1968. Today, the country is multicultural. But contrary to the dreams likely harbored by many of the 1968 generation and of the Green Party that grew out of it, this multicultural country is no paradise. It is a country where conflicts over national identity also extend into the world of pop. It is also a country home to the conflicts between Jews and Muslims - conflicts that have been imported from the Middle East.

Farid Bang's comparison of his body with those of "Auschwitz prisoners" was a clear indiscretion. Kollegah's depiction in a music video of a devil's servant wearing the Star of David, however, falls more clearly into the category of anti-Semitism. In such instances, imported Muslim anti-Semitism isn't that different from traditional anti-Semitism from Central Europe.

There was a time when the cross was merely a fashion accessory in the secularized world of pop. But the battle over identity has long since reached the culture of pop music.

Fifty years after the birth of this new Germany, the environmentalist, liberal and culturally dominant mainstream in the country finds itself facing a degree of skepticism it has never experienced before. Skepticism from politicians who are demanding a return to Christian values. From the consequences of Muslim immigration, which could ultimately overwhelm the capacity of German society to integrate them. From the populists with the AfD, who would prefer to forget about the 12 years under Nazi rule. From the demons of the past that are crawling out into the open. From the global return of autocrats who reject the West and its universalist impulses. From the shock triggered by recent weeks, a product of the country's desire to do everything right by both the Jews and the Muslim immigrants, only to be forced to realize that the perfect world of the kind it yearns for doesn't actually exist.

What Keeps Us Together?

The problem isn't just that the logic of universalism is reaching its limits, but also that identity politics, an invention of the 1968 generation, is suddenly triggering conflicts that can hardly be tamed. The right to a completely individual lifestyle and the expectation that it be protected cannot just apply to the heart of Berlin but must also be valid for those left behind in a village in Saxony where nobody refers to themselves as gender fluid, where the Saxon dialect is the only language spoken and where most residents cast their ballots for AfD.

What, then, belongs to Germany? What is it that keeps us together? The atheists and Jews, Christians and Muslims, lefties and right-wingers, western and eastern Germans, Bavarians and Saxons, urban dwellers and villagers. Who gets to decide who belongs and based on what criteria? Do German anti-Semites belong to Germany? What about AfD politicians? Or ghetto machos who rap about women only as "bitches" and who date women in headscarves? Or Muslim immigrants who insist on their right to have nothing to do with the Holocaust? Or Catholic fundamentalists who change "Resistance! Resistance!" at anti-Merkel demonstrations? We likely have to put up with all of that. It is acceptable, after all, to have different opinions.

The cross, the headscarf and the kippa: It needs to be okay to display all of them at anytime and anywhere - in the heart of Berlin, at a hip-hop concert or even in the Bavarian state capital building.

They are all symbols of our liberal democracy.


By Laura Backes, Jan Fleischhauer, Jan Friedmann, Lothar Gorris, Sebastian Hammelehle and Jérôme Lombard


Life after digging

After a good run of growth, China’s economy braces for bumps

A trade war with America and the battle against debt at home cloud the horizon



JUST a few years ago Wuhan, a sprawling metropolis in the middle reaches of the Yangtze River, exemplified China’s economic woes. Municipal debt had soared. The most senior local official was known as “Mr Dig Up The City”, a reference to his zeal for grandiose construction projects. A movie theme park, intended as a landmark, closed after failing to draw crowds. It would take nearly a decade, it was estimated, to sell all of Wuhan’s vacant homes.

These days, the city of 11m stands as a monument to China’s resilience. Its economy has accelerated even as the government has controlled debt more strictly. Five subway lines were opened or extended in the past two years alone; they are jammed in rush hour. Investment is pouring into semiconductor production, biotech research and internet-security companies. The glut of unsold homes is almost cleared.



China’s economy, like Wuhan’s, is in much better shape than it was in late 2015. Then, the country was reeling from a stockmarket crash, suffering from capital outflows and accumulating debt at an alarming rate. But figures reported on April 17th showed growth of 6.8% in the first three months of 2018 compared with the same period a year ago. In nominal terms growth was above 10%. China’s total debt-to-GDP ratio has stabilised, a sign that the risk of financial crisis has faded (see chart).

The improvement in China’s fortunes can be traced to three factors. First, the government has started to tackle several ingrained problems. After a long period of overproduction of steel and coal, a campaign to close unused capacity restrained output and pushed up prices. To reduce the property overhang, local governments bought millions of unsold homes from developers and gave them to poorer citizens.

Financial regulators have taken aim at banks’ murky off-balance-sheet loans, and at heavily indebted borrowers such as property developers. Wang Tao of UBS, a Swiss bank, notes that these efforts have given investors more confidence. Chinese shares listed in Hong Kong have risen in value by a third over the past two years. The government has also helped arrange behind-the-scenes rescues of troubled firms. One was in Wuhan. The big local steel company, bleeding cash, merged with its much stronger counterpart in Shanghai in 2016. The combined entity is profitable.

A second factor is that China’s economy is maturing. Growth is bound to slow as China gets richer, but structural changes are also making growth more stable. Thanks in part to a falling working-age population, which peaked in 2011, incomes are growing faster than the overall economy. This, in turn, is rebalancing the economy. Excessive reliance on investment is giving way to consumption. And heavy industry is yielding to services, which now account for more than half of GDP, up from a third two decades ago.

At the same time, China is reaping returns on some big investments of the past decade, such as high-speed rail in densely populated areas. Qin Zunwen, a government economist in Wuhan, says that although local debt shot up, it was almost all tied to infrastructure—half a dozen subway lines, bridges spanning the Yangtze River, elevated expressways—that is now being used. “Yes, it’s much more than we had in the past,” he says. “Has it exceeded our needs? No.”

The final factor has been luck. Robust growth in America and Europe has given Chinese firms a lift. After falling in 2016, exports have rebounded. The rise in global commodity prices has filtered into stronger industrial revenues in China, boosting miners and metal producers. That has helped them service their debts. And it has made the task of deleveraging for the wider economy less daunting. Outflows of hot money have been curbed by tighter capital controls.

China has also benefited from a weak dollar since the start of 2017, which has increased the yuan’s appeal.

The coming few quarters are likely to be bumpier, however. The biggest immediate worry is President Donald Trump. The American administration has announced tariffs on about $50bn of Chinese exports and may soon triple that. Exports to America are only a fraction of Chinese GDP, but a trade war between the world’s two biggest economies could wreak havoc on sentiment and supply chains.

The downsides of the campaign to control debt might also become more apparent. Last year regulators focused on the financial system, clamping down, for instance, on borrowing to buy bonds. This year their focus has shifted to government funding. That will have a more direct impact on the economy. China has tried before to rein in profligate local officials, but they have found ways around the rules. A popular recent trick has been to disguise debt in public-private partnerships. Policy this time seems stricter. Subway construction has been halted in cities whose finances were too weak. Tighter liquidity could also weigh on investment. Credit growth is the weakest since 2015.

Over the past decade China’s leaders have revved up investment whenever the economy has slowed beyond their comfort zone. But Xi Jinping, the powerful president, has often said that the quality of growth matters more than the quantity. Officials in Wuhan seem to be getting the message. At recent meetings they have stressed the importance of fostering innovation, cleaning up the environment and keeping a lid on debt. The test is whether they will still be singing that same tune as growth turns down.

viernes, mayo 11, 2018

A TALE OF TWO REALITIES / PROJECT SYNDICATE

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A Tale of Two Realities

Javier Solana
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 An Execution, Place de la Revolution


MADRID – The opening line of Charles Dickens’s A Tale of Two Cities retains its universality to this day. “It was the best of times, it was the worst of times,” Dickens writes, “it was the age of wisdom, it was the age of foolishness, … it was the spring of hope, it was the winter of despair.”

Dickens’s classic novel, set in London and Paris during the French Revolution, decries both the social injustices of the despotic ancien régime and the excesses of the French revolutionaries.

When asked his opinion of the French Revolution almost two centuries later, former Chinese Premier Zhou Enlai reportedly answered that it was “too early to say.” That quip – though possibly the result of a misunderstanding – perfectly captures Dickens’s own ambivalence about the period of which he wrote.

The Enlightenment ideals that inspired the French to rise up against Louis XVI also drove the American Revolution. And both were set against the backdrop of another sea change: the onset of industrialization. The combination of more liberal political regimes and transformational scientific advances inaugurated the most prosperous period in the history of humankind.

The late British economist Angus Maddison once estimated that whereas global per capita GDP did not even double between 1 AD and 1820, it increased more than tenfold between 1820 and 2008. And this spectacular growth has been accompanied by equally extraordinary improvements in a wide range of socioeconomic indicators. Global average life expectancy, for example, has risen from 31 to almost 73 years in just two centuries.

Two centuries ago, the science and medical communities had not yet accepted the germ theory of disease, and the smell of beef was commonly thought to cause obesity. Today, such beliefs seem grotesque, owing to rapid progress in our scientific understanding. Not only can we now read the human genome; we are also learning how to edit and write it.

For Harvard psychology professor Steven Pinker, such achievements are signs that “the Enlightenment is working.” Moreover, Pinker argues that more moral progress has been achieved in the last few centuries than most macroeconomic measurements can reflect. For example, he points to the expansion – both geographic and substantive – of protections for individual and collective rights, as well as an overall reduction in violence.

The sheer magnitude of the Enlightenment’s achievements tends to be undervalued, because we are prone to remembering and normalizing catastrophes rather than quotidian improvements.

But while this bias is detrimental to decision-making, so, too, is excessive complacency. After all, there are plenty of reasons – many of which are secondary effects of the Enlightenment – for people to feel uneasy about the future.

In his 2013 book, The Great Escape, Nobel laureate economist Angus Deaton shows how progress in reducing aggregate privation, famine, and premature death over the past 250 years has left many social groups behind. While inequality at the global level has recently been mitigated by the economic rise of countries like China, numerous studies find that inequality within countries has been increasing. In countries such as the United States, broad segments of the population lack access to adequate medical treatments, and even democracy seems to be eroding.

Today’s conventional wisdom links the emergence of populist movements around the world, including the election of President Donald Trump in the US, to the people who have missed out on the benefits of globalization. Yet many of Trump’s policies – not least slashing taxes for the rich – are intended to perpetuate the privileges of the economic elite. Trump has done very little to address the fears of those who feel left behind, but he is attempting a classic bait-and-switch to disguise this fact. Accordingly, he singles out China as the source of Americans’ economic woes.

The result of Trump’s “America First” approach and fear mongering about all things foreign has been to undermine global cooperation. Nationalism, one of the potentially harmful legacies of the late-eighteenth-century social revolutions, has made a comeback on the heels of rising nativist and xenophobic fears.

Likewise, the Enlightenment’s scientific and technological legacy has not been wholly positive.

The theories of Albert Einstein and the discovery of fission in 1938 made nuclear power possible, but also led to the bombings of Hiroshima and Nagasaki, and to the disasters at Chernobyl and Fukushima. Similarly, technological progress has left critical national infrastructure potentially vulnerable to cyberattacks. And, as the 2008 crisis revealed, financial engineering carries many risks of its own.

All of these dangers are accompanied by what is perhaps the greatest threat humanity has ever faced: climate change. The peculiarity of this threat lies in the fact that it has not manifested in the form of a single, sudden shock. Rather, it is a cumulative phenomenon, which we might still be able to mitigate. Just as technological advances got us into this predicament, so might they rescue us from it. After all, technological innovation, along with an international effort to adopt the 1987 Montreal Protocol, is how the world put a stop to the erosion of the ozone layer.

Fortunately, scientific rationality is capable of creating tools to remedy its own excesses.

Unfortunately, however, the state of political leadership today may mean that these tools remain unused. The world is in desperate need of leaders who are willing to maximize the benefits of science and technology through collective management and international cooperation. Without such leadership, what is quantifiably the best of times could very well become the worst.


Javier Solana was EU High Representative for Foreign and Security Policy, Secretary-General of NATO, and Foreign Minister of Spain. He is currently President of the ESADE Center for Global Economy and Geopolitics, Distinguished Fellow at the Brookings Institution, and a member of the World Economic Forum’s Global Agenda Council on Europe.


Flattening Yield Curve Isn’t Just the Fed’s Problem

If the yield curve continues to flatten, it might complicate the ECB’s task in exiting ultraloose policy

By Richard Barley


FLATTENING
Gap between two- and 10-year U.S. Treasury yields

Source: FactSet



The flattening U.S. yield curve, a harbinger of possible economic trouble, has caught the eye of officials at the Federal Reserve. But a potential problem for the Fed is a worry for the rest of the world, too—especially the European Central Bank.

An inverted U.S. yield curve—where short-term rates rise above long-term rates—has a strong track record of being a leading indicator of recession. Last week, the gap between two-year and 10-year U.S. Treasury yields reached its narrowest since 2007, below 0.5 percentage point. If it were to continue flattening, the curve could invert later this year or early in 2019.

     The U.S. Federal Reserve building. Photo: Joshua Roberts/Bloomberg 


In addition, swaps measuring U.S. interest-rate expectations for 2021 have edged below those for 2020, notes Deutsche Bank, showing investors are thinking about the Fed cutting rates, not just raising them.

All that might sound a long way off for anyone else to worry about particularly.

But the timing matters because the ECB has locked itself into a very gradual path from exit. It isn’t expected finally to wind down its bond purchases until the end of the year. Rates are likely to rise only slowly after that. By 2020, the ECB might only just have exited its negative-interest-rate policy.


FALLING SHORT
Change in eurozone consumer prices from a year earlier
Source: Eurostat



It is, of course, easier to tighten policy when the growth outlook is good. If the yield curve continues to flatten, however, and markets grow nervous about a hit to U.S. growth, that might at the least complicate the ECB’s task in exiting ultraloose policy. A U.S. downturn will undoubtedly affect Europe.

And if a real downturn were to emerge in the U.S.—Société Générale is forecasting a mild recession in 2019-2020—and spill over elsewhere, then a debate would start about what tools central banks had left. While the Fed now has some room to cut rates again, the ECB might be grappling with inventing new ways to provide stimulus.

True, there is plenty of debate over what message the U.S. curve is actually sending and how flat it is. UBS argues global quantitative easing has distorted long-term bond yields by reducing the term premium, or the extra yield investors demand for uncertainty about monetary policy.

But if investors fear a U.S. slowdown or recession and pull back from taking risk, that will tighten financial conditions. The ECB is trying very hard not to spook investors. Reaching the exit may be the bigger challenge.

 Inflation Is Back: Maybe The Phillips Curve Was “Just Resting”
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Economists have been struggling to explain how unemployment can fall to 4% without wages starting to accelerate. The following chart shows paychecks rising at about the rate of inflation over the past five years, which means the average worker’s earnings don’t buy much more now than in 2013.


wage inflation


The reasons for this glacially slow recovery include demographics, debt, foreign competition and automation. But it now appears that the delay was temporary rather than permanent.

Different industries are getting desperate for workers at different rates, but those that are are are behaving pretty much the way the much-maligned Phillips Curve says they should, with surprisingly big raises.

The Wall Street Journal surveyed a hair salon chain called Sport Clips and found that:
Multiple franchise owners are jacking up or plan to raise wages to attract scarce hairdressing talent and are increasing haircut prices to compensate for it. This fits the classic Phillips curve model, which predicts wages and inflation will rise in response to a tight labor market.  
The low unemployment rate means more competition for workers Sport Clips has to choose from. 
• Wages go up to lure or hold on to workers. Debra Sawyer, a Sport Clips franchisee with salons in Richmond, Virginia and Central Florida, said she raised worker wages in February 2017 in response to the labor shortage. 
• Pay for team members increased 11% to $10 from $9 an hour, while pay for assistant managers rose 20% to $12 from $10 and manager paychecks increased 33%, to $15 from $11.25. Hourly bonuses also went up dramatically. 
• Prices for services rise to cover part or all of the added labor costs. When the Sport Clips franchisee implemented the wage increase, it increased the price of a standard haircut to $20 from $19, a 5% bump, and the signature service cut went to $25 from $24.  
All of these increases went to pay raises and hourly bonuses, said Ms. Sawyer.

In percentage terms these are serious increases that, if they became common, would send the wage component of inflation into absolutely unacceptable territory from the Fed’s perspective, resulting in much higher interest rates.

But it’s not only wages. Raw material costs are up enough to become an issue in corporate earnings reports. A few days ago CNBC noted that:
The main topic was commodity inflation around higher metal prices (aluminum and steel) and higher oil prices, which translated into higher packaging costs for many companies, but it also included wage concerns. 

Earlier in the week, we heard from Caterpillar, which said it expects “steel and other commodity costs to be a headwind all year.” 3M was seeing higher-than-anticipated costs for transportation and raw materials derived from crude oil. Kimberly-Clark said margins were “impacted by significant commodity inflation.” Whirlpool said “significant raw material inflation” impacted margins. Procter & Gamble said, “Higher commodity costs reduced core earnings per share growth by approximately five percentage points.” 
This theme has continued among companies reporting in the last 24 hours: 
• Ford noted that its lower EBIT (earning before interest and taxes) was caused by commodity cost increases (metals) of about $480 million. 
• Ingersoll Rand (heating and air conditioning): “Inflation was higher than we planned and a significant headwind to margin expansion.” 
• Packaging Corp. of America (container products): anticipates continued price inflation in chemical and freight costs, incremental wage pressure with a tighter labor market. 
• Avery Dennison (packaging materials) saw price increases for petrochemicals and paper. 
• Allegion (locks, key systems) said that its operating margin of 17 percent decreased 150 basis points, driven by inflationary pressure, and added, “We expect inflationary pressures to continue throughout the year.” 
While commodity inflation was the main topic, several companies also brought up higher wages. Chipotle said wages were up 5 percent and that they expect it will continue to rise. 
Several companies emphasized they were raising prices in response to higher costs, including Ingersoll Rand and Avery Dennison. A.O. Smith (water heaters, air purification products) said that “As a result of significantly higher steel prices and inflation in freight and other costs, we announced a price increase up to 12% on U.S. water heater products effective in early June.”

Add it all up, and the shift to an inflationary mindset is becoming palpable. As David Altig, director of research at the Atlanta Fed told the Wall Street Journal, “It’s premature to announce the death of the Phillips curve. Maybe it’s just resting.”