Pacifist Germany defies Europe’s nationalist tide

Berlin has not shrunk from the darkest chapters of continental history

PHILIP STEPHENS



There was a time when Europe thought it had made its peace with history. The nations of East Asia — Japan, China, Korea — might nurture the embers of conflicts past, but Europe had liberated itself with the creation of the EU. You did not have to be an ardent Europhile to see that economic integration served as the midwife for postwar reconciliation.

All this was before Poland’s authoritarian government reopened a claim for war reparations against its neighbour Germany, and Hungary’s prime minister Viktor Orban sought to rehabilitate the reputation of his country’s fascist wartime leader Miklos Horthy. The ruling Law and Justice party (PiS) in Warsaw now wants to criminalise any suggestion that some Poles were complicit in the operation of Nazi concentration camps.

Nations mostly celebrate history by marking triumphs over adversity or, sometimes, bathing in the nostalgia of past glories. In its moment of denial, Brexit Britain cannot get enough of Churchillian reminiscence about standing alone. The new nationalism is rooted in mostly imagined grievance.

Mr Orban has never quite reconciled himself to the loss of Hungarian territory under the Treaty of Trianon in 1920. Jaroslaw Kaczynski, the leader of PiS, sees a German or Russian plot around every corner.

The nationalist right has a keen eye for enemies. Jews have always been a favourite target. Now they are joined among adversaries of old by Muslim refugees arriving from the Middle East. Nor is Mr Orban alone in his revisionist take on 1930s dictators. In far-right Italian circles you often hear that history has “misunderstood” the fascist leader Benito Mussolini.

Harder to comprehend have been angry demonstrations in Athens against suggestions that the former Yugoslav Republic of Macedonia might more simply be called Macedonia. The tiny Balkan state stands accused of seeking to appropriate Greek heritage. But is Greece’s identity really quite so fragile? Surely after the tribulations of recent years the nationalists could find more recent grudges than an argument about the lineage of Philip of Macedon?

There is one European nation that has never sought to forget the history of the continent during the first half of the 20th century. Germans remain at once uncomfortable about talking about the past, but determined to confront it. This way they can legitimise the present.

Walk the streets of Berlin and there is no escape from Hitler’s calumnies — from the small, gold memorial plaques studded in the pavement to mark places where individual Jews were seized, to the grim but inspiring Holocaust memorial next to the Brandenburg gate and the bleak account of the rise of Nazism in the museum of German history.

Next week foreign and defence policy chiefs from across the advanced western democracies will gather for the annual Munich Security Conference. Two of the conclusions of their deliberations can be written in advance. Donald Trump’s disavowal of global leadership in favour of “America first” nationalism leaves Europe to do more to safeguard its own security. And the nation most able to shoulder more of the defence burden? Germany.

The hosts cannot complain. It was in Munich that chancellor Angela Merkel last summer offered a caustic assessment of Mr Trump as an unreliable partner. Only last month in Davos she called for Europe to “take its destiny into its own hands”. Talk to policymakers in Berlin and you get the same message: as Europe’s most powerful nation, Germany will play its part.

I wonder. Ms Merkel may tell international audiences that Germany will pay up for defence and security, but the draft coalition agreement her Christian Democrats have negotiated with the Social Democrats tells a rather different story. Beyond a few bromides — “German foreign policy is dedicated to peace” — the draft says nothing about Germany’s role in preserving an open international order. As for defence, well, “the Bundeswehr remains an indispensable element of German security policy”.

Critics call this freeriding. And there is something of that. Germany is a stable, prosperous society and its citizens have grown wealthy as others paid for Europe’s security. But no one should underestimate the weight of history.

Berlin’s Invaliden cemetery was built more than 250 years ago on the orders of Frederick the Great to memorialise Prussia’s war heroes. Among the graves is the tomb of the warrior Gerhard von Scharnhorst. But do not expect grandeur — the monuments sit on a small scrap of ill-tended land hemmed in by apartment blocks and the canal behind the city’s main railway station.

Scharnhorst shares the ground with the authors of Operation Valkyrie, the abortive attempt by military officers to assassinate Hitler. Somewhere, in an unmarked grave, lies Reinhard Heydrich, the SS officer who chaired the infamous Wannsee conference.

This is our “Arlington”, a former German foreign minister told me laconically. Another way of putting it would be to say that Germany’s stubborn pacifism keeps clear sight of history. That is inconvenient for those of us who believe that Europe does indeed need to do more to defend itself. But Germany at least has held on to a true account of events that angry nationalists pretend to have forgotten.

The Era of Fiscal Austerity Is Over. Here’s What Big Deficits Mean for the Economy.

It depends on whether you look at the short, medium or long term.

By Neil Irwin

India’s Path From Crony Socialism to Stigmatized Capitalism

Arvind Subramanian  



NEW DEHLI – Is India about to get its mojo back? As the country’s exports accelerate on the back of today’s synchronous global economic expansion, the negative effects of the November 2016 demonetization of high-value bank notes and the enactment last July of a new goods and services tax (GST) are receding. Provided that macroeconomic pressures from high oil prices are contained, and sharp corrections to elevated asset prices are managed, India is poised to regain its status as the world’s fastest-growing major economy.

But ongoing efforts by the government will be key to reviving private investment and sustaining medium-term growth. Specifically, economic policymakers must address the long-standing problem of over-indebted firms and under-capitalized public-sector banks – the so-called “twin-balance-sheet problem.”

To that end, many distressed companies have been forced to clean up their balance sheets under a new bankruptcy code that was adopted in December 2016, and more companies are likely to follow suit this year. Meanwhile, the government has also announced a large recapitalization package (about 1.2% of GDP) to shore up public-sector banks, so that they can write down their stressed assets.

As these reforms take hold, Indian firms should finally be able to resume spending, and banks will once again be able to lend to the critical but currently indebted infrastructure and manufacturing sectors. India’s economic reforms have taken a long time to implement. But if they continue to be a success, they will provide valuable lessons for future leaders about the proper role of the private sector not just in India, but around the world.

In India, the private sector – and capitalism generally – evokes feelings of deep ambivalence. This is for good reason, given that India’s private sector still bears the stigma of having been midwifed under the pre-1990s “License Raj” – an era remembered for its red tape and corruption. To this day, some of India’s legendary entrepreneurs are believed to have built an empire simply by mastering the minutiae of India’s tariff and tax codes, and then manipulating them brazenly to their advantage.

Some of the private sector’s stigma was cleansed by the boom in information and communications technology that started in the 1990s. The ICT sector had developed by virtue of its distance from, rather than proximity to, government. Indian ICT firms adopted exemplary governance standards, were listed on international stock exchanges, and thrived in the global marketplace. And, by extension, they improved the standing of Indian capital.

But after that era of good capitalism, the stigma returned. During the infrastructure boom of the mid-to-late 2000s, public resources were captured under a “Rent Raj,” which put terrestrial rents (land and environmental permits), sub-terrestrial rents (coal), and even ethereal rents (spectrum) up for grabs. Moreover, the infrastructure investments of this period were funded by reckless and imprudent lending by public-sector banks, which often funneled resources to high-risk, politically connected borrowers.

As a result, the Indian public concluded that majority equity holders (“promoters”) had little skin in the game, and that “limited liability” really meant no liability at all. And now that rapid technological change is threatening the ICT sector’s business model – providing low-cost programming services to foreign clients – even India’s “cleanest” capitalist industry is confronting governance challenges.

More broadly, one could say that India has moved from “crony socialism” to “stigmatized capitalism.” And under stigmatized capitalism, the prevailing zeitgeist has hobbled policymakers’ efforts to address the legacy of the twin-balance-sheet problem, which, in turn, has constrained growth.

Indeed, the mere thought that major shareholders’ debts would be forgiven at taxpayers’ expense has created political paralysis for years. After all, why should ordinary people bear the burden of fat cats who are laughing all the way to the bank?

Seen against this background, it is easier to understand why India’s economic reforms have taken so long to adopt, and why they have been so difficult to implement. At the same time that the government has had to resolve the twin-balance-sheet problem, it has had to ensure that promoters cannot regain access to their assets, driving up fiscal costs.

India’s early-stage experience with capitalism has lessons that other countries should heed in an age of rising tech giants. The Indian model, whereby public-sector-banks lent to private firms, proved so toxic and difficult to replace that public-sector bank ownership itself has lost much of its traditional socialist appeal. The irony is that after a long and bruising experience with crony capitalism, the best thing for India now might be more capitalism, starting in the financial sector.


Arvind Subramanian is Chief Economic Adviser to the Government of India.