Boomerang: Travels in the New Third World (16 page)

The only economically plausible scenario is that the Germans, with a bit of help from a rapidly shrinking population of solvent European countries, suck it up, work harder, and pay for everyone else. But what is economically plausible appears to be politically unacceptable. The German people all know at least one fact about the euro: that before they agreed to trade in their deutsche marks their leaders promised them, explicitly, they would never be required to bail out other countries. The rule was created with the founding of the European Central Bank and was violated in 2010. Public opinion turns more against the violation every day—so much so that Chancellor Angela Merkel, who has a reputation for reading the public mood, hasn’t even bothered to try to go before the German people to persuade them that it might be in their interest to help the Greeks.

That is why Europe’s money problems feel not just problematic but intractable. It’s why Greeks are now mailing bombs to Merkel, and thugs in Berlin are hurling stones through the windows of the Greek consulate. And it’s why European leaders have done nothing but delay the inevitable reckoning, by scrambling every few months to find cash to plug the ever growing holes in Greece, Ireland, and Portugal, and praying that bigger and more alarming holes in Spain, Italy, and even France do not reveal themselves.

Until now the European Central Bank, in Frankfurt, has been the main source of this cash. The ECB was designed to behave with the same discipline as the Bundesbank but has been redesigned by the financial crisis into something else. Already, it has bought, outright, something like $80 billion in Greek and Irish and Portuguese government bonds, and lent another $450 billion or so to various European governments and European banks, accepting virtually any collateral, including Greek government bonds. But the ECB has a rule—and the Germans think the rule very important—that they cannot accept as collateral bonds classified by the U.S. rating agencies as in default. Given that the ECB once had a rule against buying bonds outright in the open market, and another rule against government bailouts, it’s a little odd that they have gotten so hung up on this technicality. But they have. If Greece defaults on its debt, the ECB not only will lose a pile on its holdings of Greek bonds but must return the bonds to the European banks, and the European banks must fork over $450 billion in cash. The ECB itself might face insolvency, which would mean turning for funds to its solvent member governments, led by Germany. (The senior official at the Bundesbank told me they have already thought about how to deal with the request. “We have thirty-four hundred tons of gold,” he said. “We are the only country that has not sold its original allotment [from the late 1940s]. So we are covered to some extent.”)

The bigger problem with a Greek default is that it might well force other European countries and their banks themselves into default. At the very least it would create panic and confusion in the market for both sovereign and bank debt, at a time when a lot of banks and at least two big European debt-ridden countries, Italy and Spain, cannot afford panic and confusion.

At the bottom of this unholy mess, from the point of view of the German Finance Ministry, is the unwillingness, or inability, of the Greeks to change their behavior. That was what the currency union always implied: entire peoples had to change their way of life. Conceived as a tool for integrating Germany with Europe, and preventing the Germans from dominating others, the euro had become the opposite. For better or worse, the Germans now control the financial fate of Europe. If the rest of Europe was to continue to enjoy the benefits of what was essentially a German currency they’d need to become more German. And so, once again, all sorts of people who would rather not think about what it means to be “German” are compelled to do so.

J
ö
rg Asmussen offers the first hint of an answer in his personal behavior. He was a type familiar in Germany but absolutely freakish in Greece or, for that matter, the United States: a keenly intelligent, highly ambitious civil servant who had no other ambition but to serve his country. His sparkling curriculum vitae was missing a line that would be found on the résumés of men in his position almost everywhere else in the world—the line where he leaves government service for Goldman Sachs to cash out. When I asked another prominent German civil servant why he hadn’t taken time out of public service to make his fortune working for some bank, the way every American civil servant who is anywhere near finance seems to want to do, his expression changed to alarm. “But I could never do this,” he said. “It would be illoyal!” Asmussen echoes this sentiment when I ask him why he hasn’t bothered to get rich.

He then addresses the German question more directly. The curious thing about the eruption of cheap and indiscriminate lending of money between 2002 and 2008 was the different effects it had from country to country. Every developed country was subjected to more or less the same temptation, but no two countries responded in precisely the same way. Much of Europe had borrowed money cheaply to buy stuff it couldn’t honestly afford. In effect, lots of non-Germans had used Germany’s credit rating to indulge their material desires. The Germans were the exception. Given the chance to take something for nothing, the German people simply ignored the offer. “There was no credit boom in Germany,” says Asmussen. “Real estate prices were completely flat. There was no borrowing for consumption. Because this behavior is totally unacceptable in Germany. This is what the German people are. This is deeply in German genes. It is perhaps a leftover of the collective memory of the Great Depression and the hyperinflation of the 1920s.” The German government was equally prudent because, he went on, “there is a consensus among the different parties about this: if you’re not adhering to fiscal responsibility you have no chance in elections, because the people are that way.”

In the moment of temptation Germany became something like a mirror image to Iceland and Ireland and Greece—and the United States. Other countries used foreign money to fuel various forms of insanity. The Germans, through their bankers, used their own money to enable foreigners to behave insanely.

This is what makes the German case so peculiar. If they had been merely the only big, developed nation with decent financial morals, they would present one sort of picture, of simple rectitude. But they had done something far less common: during the boom German bankers had gone out of their way to get dirty. They lent money to American subprime borrowers, to Irish real estate barons, to Icelandic banking tycoons, to do things that no German ever would do. The German losses are still being toted up, but at last count they stand at $21 billion in the Icelandic banks, $100 billion in Irish banks, $60 billion in various U.S. subprime-backed bonds, and some yet to be determined amount in Greek bonds. The only financial disaster in the last decade German bankers appear to have missed was investing with Bernie Madoff (perhaps the only advantage to the German financial system of having no Jews). In their own country, however, these seemingly crazed bankers behaved with restraint. The German people did not allow them to behave otherwise. It was another case of clean on the outside, dirty on the inside. The German banks that wanted to get a little dirty needed to go abroad to do it.

About this the deputy finance minister has not that much to say, though he does wonder, idly, how a real estate crisis in Florida ends with massive financial losses in Germany. That such a thing has happened seems genuinely to puzzle him.

A GERMAN ECONOMIST
named Henrik Enderlein, who teaches at the Hertie School of Governance in Berlin, has described the radical change that occurred in German banks beginning about 2003. In a paper in progress, Enderlein points out, “Many observers initially believed German banks would be relatively less exposed to the crisis. The contrary turned out to be the case. German banks ended up being among the most affected in continental Europe and this despite relatively favorable economic conditions.” Everyone thought that German bankers were more conservative, and more isolated from the outside world, than, say, the French. And it wasn’t true. “There had never been any innovation in German banking,” says Enderlein. “You gave money to some company, and the company paid you back. They went [virtually overnight] from this to being American. And they weren’t any good at it.”

What Germans did with money between 2003 and 2008 would never have been possible within Germany, as there was no one to take the other side of the many deals they did that made no sense. They lost massive sums, in everything they touched, from U.S. subprime loans to Greek government bonds. Indeed, one view of the European debt crisis—the Greek street view—is that it is an elaborate attempt by the German government on behalf of its banks to get their money back without calling attention to what they are up to. The German government gives money to the European Union rescue fund so that it can give money to the Irish government so that the Irish government can give money to Irish banks, so the Irish banks can repay their loans to the German banks. “They are playing billiards,” says Enderlein. “The easier way to do it would be to give German money to the German banks and let the Irish banks fail.” Why they don’t simply do this is a question worth trying to answer.

THE TWENTY-MINUTE WALK
from the German Finance Ministry to the office of the chairman of Commerzbank, one of Germany’s two giant private banks, is punctuated by officially sanctioned memories: the new Holocaust Memorial, two and a half times the acreage occupied by the U.S. Embassy; the new street beside it, called Hannah Arendt Street; the signs pointing to Berlin’s new Jewish Museum; the park that contains the Berlin Zoo, where, after spending decades denying they had ever mistreated Jews, the authorities have newly installed, on the Antelope House, a plaque commemorating their Nazi-era expropriation of shares in the zoo owned by Jews. Along the way you also pass Hitler’s bunker, but you’d never know it was there, as it has been paved over by a parking lot, and the small plaque that commemorates it is well hidden. The streets of Berlin can feel like an elaborate shrine. It’s as if history stopped and assigned roles to people, and the Germans have been required to accept that they will always play the villain. On the other hand, it’s easier to express contrition about just about everything the less personally responsible one feels. The guilt is being so loudly expressed precisely because it is no longer personal and searing. Hardly anyone still alive is responsible for what happened here: everyone is. But when everyone is guilty, no one is.

At any rate, if some Martian landed on the streets of Berlin knowing nothing of its history, he might wonder: who are these people called “the Jews,” and how did they come to run this place? But there are no Jews in Germany, or not many. “The German people never see Jews,” says Gary Smith, the director of the American Academy in Berlin. “Jews are unreal to them. When they think of Jews they think of victims.” The further away the German people get from their victims, the more conspicuously they commemorate them. Of course no German in his right mind actually wants to sit around remembering the terrible crimes committed by his ancestors—and there are signs, including the memorials, that they are finding ways to move on. A good friend of mine, a Jew whose family was driven out of Germany in the 1930s, recently visited a German consulate in the United States to apply for a passport. He already held one European passport, but he worried that the European Union might one day fall apart, and he wanted access to Germany, just in case. The German official in charge—an Aryan out of central casting, wearing a
Sound of Music
vest—handed him a copy of a pamphlet titled
A Jew’s Life in Modern Germany.

“
Would you mind if we take a picture?” he asked my friend, after processing his passport application.

“No problem,” said my friend.

“Can we do it in front of the flag?” asked the official.

My friend stared at the German flag. “What’s this for?” he asked.

“Our website,” said the German official, then added that the government hoped to post the photo with a sign that read:
This man is the descendant of
Holocaust survivors and he has decided to return to Germany.

COMMERZBANK WAS THE
first private bank that the German government had to rescue during the financial crisis, with an injection of $25 billion, but that’s not why it had caught my attention. I’d been walking around Frankfurt one night with a German financier when I noticed the Commerzbank building on the skyline. There’s a law in Germany prohibiting buildings higher than twenty stories, but Frankfurt allows exceptions. The Commerzbank Tower is fifty-three stories high and unusually shaped: it resembles a giant throne. The top of the building, the arms of the throne, are more decorative than useful. The interesting thing, said the German financier, who visited often, is the glass room at the top, from which one looks down over Frankfurt. It is a men’s toilet. Commerzbank executives had taken him there to show him how, in full view of the world below, he could shit on Deutsche Bank.

The Commerzbank chairman, Klaus-Peter M
ü
ller, actually works in Berlin, inside another very German kind of place. His office is attached to the side of the Brandenburg Gate. The Berlin Wall once ran, roughly speaking, right through the middle of it. One side of his building was once a field of fire for East German border guards, the other a backdrop for Ronald Reagan’s famous speech. (“Mr. Gorbachev, open this gate. Mr. Gorbachev, tear down this wall!”) From looking at it you would never guess any of this. “After the wall came down we were offered the chance to buy it back,” says M
ü
ller. “This building had been ours before the war. But the condition was that we had to put everything back
exactly
the way it was. It all had to be
hand-fabricated.
” He points out the seemingly antique brass doorknobs and the seemingly antique windows. Across Germany, in the past twenty years or so, town centers completely destroyed by bombs in World War II have been restored, stone by stone. The German government has agreed to pay some huge sum of money to rebuild the Berliner Schloss, the old Royal Palace that was leveled in the 1950s by the East German authorities, so that it will look exactly as it does in prewar photographs. If the trend continues, it will one day appear as if nothing terrible had ever happened in Germany, when
everything
terrible happened in it. “Do not ask me what it cost,” the bank chairman says, and laughs.