quarta-feira, 23 de julho de 2014

Devesh Kapur: Western anti-capitalists take too much for granted

There is something paradoxical about the crisis of capitalism that has unfolded since the financial turmoil of 2008. Westerners are heirs to the capitalist system – and to a vast trove of wealth that it has created. But many in the developed world now count themselves among capitalism’s discontents. It is in the east, where the tradition of free enterprise is still young, that its virtues are more easily perceived.

Capitalism has of course been tarnished by its role in a financial crisis that plunged many countries into recession and put millions of people out of work. It is resented, too, for its perceived tendency to exacerbate inequalities, which sting all the more now that so many people find themselves poorer.

Look east, however, and you see something different. Economic statistics show that hundreds of millions are being lifted out of poverty. Below the surface, the social changes are even more profound.

Among the most striking beneficiaries are India’s Dalits (previously known as the “untouchables”), who for centuries were victimised by one of the most hierarchical societies in the world. Capitalism’s role in erasing this stain on Indian society is comparable to the contribution it made to curtailing slavery, serfdom, feudalism and patriarchy in the west.

Since India underwent market-based reforms in the early 1990s, Dalits have advanced their economic lives. If they have the money they can now buy what was once out of reach, and receive the education they were once denied. They have made still more impressive gains in securing dignity and ending social humiliation. Surveys have found that in the early 1990s, for example, fewer than 3 per cent of non-Dalits who visited Dalit homes in the state of Uttar Pradesh would condescend to drink water or tea; two decades later, two-thirds would accept.

Dalits have also increased their consumption of high-end food, grooming products and other goods associated with high social status. They participate in ceremonies, such as weddings, that were once reserved for people of more fortunate birth. They are no longer confined to their own parallel economy, but buy from the same merchants and sell to the same customers as everyone else.

Capitalism has played a critical role in securing this emancipation. The Dalits were once consigned to demeaning occupations, such as handling dead animals or working as bonded agricultural labourers. This transmitted the patterns of caste oppression down the generations. But market forces are driving out these humbling activities.

No longer the indentured servants of high-caste groups, the Dalits have instead become their customers – leasing land or hiring capital goods such as tractors, and selling their wares at market. They are also moving away from rural settings, where many people are still obsessed with caste, to the cities, where there is less discrimination.

And the Dalit community is producing its own capitalists, too – entrepreneurs who are profiting from opportunities in everything from construction to healthcare to education. In a growing economy that is open to all, fortune rewards those with grit, ambition, drive and hustle. Even if stories of self-made success are rare, such role models will inspire future change.

Echoes of the Dalits’ new freedoms reverberate through India’s democracy – indeed, they are amplified by it. In the most recent elections, for example, a plurality of Dalits voted for the Bharatiya Janata party, which has traditionally been dominated by the upper castes.

This is a constituency that can no longer be ignored. Dalits have received legal and constitutional protections, and benefited from affirmative action in public employment and education – measures that have helped create a small Dalit middle class. In 2007 Mayawati Kumari, a Dalit, was elected chief minister of India’s largest state. That a woman of her caste should have risen to high office largely on her own efforts would, until recently, have been unimaginable. Caste has by no means disappeared. But India’s economic growth and dynamism, unleashed by market forces, are at last providing new ways for Dalits to liberate themselves from servility and servitude.

At the end of Aravind Adiga’s Booker Prize-winning novel on contemporary India, The White Tiger, the amoral protagonist says, after slitting his master’s throat: “I’ll say it was all worthwhile to know, just for a day, just for an hour, just for a minute, what it means not to be a servant.” Happily, the liberation of India’s Dalits has been accomplished at a far lower price. Capitalism has been a wrenching force in human history – but also a revolutionary one, weakening deeply entrenched social hierarchies. In the tropics the people are cheering as capitalism undermines social inequalities. Whatever its flaws, westerners are short-sighted to lament it.

Devesh Kapur is a professor at the University of Pennsylvania and
co-author of ‘Defying the Odds: The Rise of Dalit Entrepreneurs’Tagged

Fonte: FT

terça-feira, 22 de julho de 2014

Adam Posen: The errors of conservatives obscure the case for trade

Twenty years after Bill Clinton, former US president, signed the North American Free Trade Agreement, its very name chills the spines of US voters and congressmen alike. Even advocates of new regional trade agreements insist that they are not countenancing “another Nafta”. Yet Nafta-phobia is irrational. None of the terrible things that were, according to its opponents, supposed to result from its implementation have in fact occurred. Members of the free-trade area – Canada, Mexico, and the US – enjoy a large joint market and a common supply chain. Consumers in all three countries have gained.

It is true that America’s less-skilled workers have received an increasingly raw deal since the 1970s. But Nafta is not to blame. To claim otherwise is at best to mistake coincidence for causation. At worst, it is a cynical tactic employed to protect special interests at the expense of the common good.

Econometric studies have established that when US companies invest abroad, the net result is increased employment, stronger demand and more investment at home. This makes sense, since it should on average be the more competitive businesses that have the resources and opportunities to expand abroad, and investing should increase their productivity. This conclusion applies specifically to US companies that have invested in Mexico. Recent research has found that, on average, for every 100 jobs US manufacturers created in Mexican manufacturing, they added nearly 250 jobs at their larger US home operations, and increased their US research and development spending by 3 per cent.

At least until the 2008 financial crisis, US unemployment rates were much lower in the decades following Nafta than before the agreement came into effect, even at a time when the US labour force was growing steadily. Doomsayers claimed that after Nafta, US exports of corn and other agricultural products would lead to a surge of displaced Mexican farmers drifting northward. Yet US Border Patrol apprehensions from Mexico have been declining steadily since 2000, in line with most estimates of illegal immigration from Mexico to the US. The current tragedy of minors from Central America crossing the southwestern border illustrates how desperation, not globalisation, is what truly triggers migration.

True, there have been job losses as a result of competition from Mexican (and Canadian) exports. Some critics of Nafta estimate these at an average of 45,000 a year over the past two decades. But out of a US workforce of 135m workers – between 4m and 6m of whom leave or lose their jobs every month – that is less than 0.1 per cent of turnover. What about the 4m or more other American workers who change jobs every month, many of whom are forced to do so through no fault of their own? It is unclear why someone who loses their job because digital photography replaces film, or because the taste for business-casual decreases demand for suits, or because an industrial plant moves from California to Texas, is any less deserving of support than someone who loses their job because assembly of computers and flatscreen televisions moves to Mexico. It is clear, though, that since such a tiny fraction of total labour force churn in the US is due to Nafta, that deal cannot be a significant cause of wage or employment conditions at home.

Many on the left in the US nevertheless use international trade, and especially Nafta, as a scapegoat for the weakening of labour rights and growing inequality. Others have tried to use trade legislation as a bargaining chip with which to secure concessions on extending the American welfare state – something that conservatives oppose.

For all their efforts, opponents of trade legislation have won only meagre adjustment funds for workers whose job loss is supposedly attributable to international trade. Pro-trade Democrats and Republicans alike have seen these as the minimum concessions required to secure consent for liberalisation. But the result is that job losses attributable to trade are unjustifiably given an outsize significance in the public mind. Moreover, this relatively minor cause of unemployment has been demonised in a way that other job losses are not, even when they are involuntary.

This bogeyman-based approach to trade has failed both the progressive agenda and the US economy as a whole. America has ended up delaying or missing out on opportunities for trade expansion and thus income growth, while the welfare state continues to shrink.

In most countries, increases in openness to trade are associated with a more generous welfare state. In contrast, the US has steadily cut back benefits and worker protections at both the federal and state level. This has nothing to do with international trade. It is the result of legislative majorities that favour a smaller role for the state. Even many Democrats have attacked forms of welfare.

Progressives should stop blocking or scapegoating trade, and instead tackle the problems that contribute to voters’ grievances head-on. Nafta resulted in increased employment, higher productivity, and greater purchasing power for American consumers. This did not come at the expense of less-skilled American workers. Attacking Nafta has done little to help progressives win elected office. Nor has it produced policies that would offer workers greater security. It is time to move on.

Adam Posen is president of the Peterson Institute for International Economics

Fonte: FT

sexta-feira, 18 de julho de 2014

A peek into the IMF machine

A couple of years ago, Liaquat Ahamed, a Washington-based fund manager turned writer, flew to Tokyo to participate in the annual meeting of the International Monetary Fund. It was a febrile moment for the global economy: the eurozone region was on the brink of a crisis, and speculation was sky-high about what the Fund should (or should not) do.

But unlike the other 12,000 delegates who typically attend such meetings, Ahamed was not lobbying for policies, cutting business deals or reporting. Instead, for a few days he observed the IMF circus as if he were an ethnographer plunged into a strange tribe – or a botanist planted in a jungle. Then he travelled to Mozambique and Ireland to watch IMF missions at work. This was not to evaluate the efficacy of IMF programmes but simply to see how the Fund’s staff interacted with each other and local officials as human beings, within the dizzy cross-cultural kaleidoscope of encounters.

The results, published this month in a monograph, Money and Tough Love: On Tour with the IMF , are not just hilarious but shrewdly provocative. These days, as I observed in last week’s column, the issue of globalisation is more emotive than ever. As Ian Goldin, the Oxford-based economist (and a former World Bank official himself) notes in The Butterfly Defect, another thought-provoking new book, “The tidal wave of globalisation that has engulfed the planet in the past two decades has brought unprecedented opportunity. But it has also brought new risks that threaten to overwhelm us.” Financial crises – of the sort the IMF was created to contain – are just one case in point.

But while this means that the question of international governance is also becoming more important, what is striking is how little on-the-ground ethnographic research has been done into organisations that try to implement this. In the wake of the Great Financial Crisis there has been a plethora of books that offer blow-by-blow accounts of what happened inside banks before and after the meltdown. There have also been some fly-on-the-wall accounts of what occurred inside national finance ministries, central banks and regulatory agencies, often written by officials themselves (Timothy Geithner’s Stress Test is simply the latest in this genre). But there are almost no inside accounts of what happens when central bankers congregate for international meetings at the Bank for International Settlements in Basel, or when finance ministers and others gather at the IMF or World Bank.

It is not difficult to work out why. Institutions such as the IMF are generally terrified of letting outsiders peer too closely inside, and Ahamed probably only received permission to do this research because his last book, Lords of Finance, was a weighty, prize-winning tome. Even with these credentials, Ahamed could only peek into the more sanitised edges of the IMF machine.

But even this limited glimpse is fascinating, because Ahamed lifts the lid on seemingly irrelevant details about the fabric and rhythm of IMF life and on the myriad subtle cultural symbols that are used to signal hierarchy, tribal affiliation and power – and which the IMF economists themselves almost never talk about. Ahamed describes, for example, the dress code patterns, noting that “the men [at IMF meetings are] uniformly dressed in dark suits and ties, apart, that is, for two groups: the Iranians, who have this odd habit of buttoning up their collars but refusing to wear ties, and the hedge fund managers, who [are] young, fit and wear designer suits…[they] no doubt refuse to wear ties for much the same reason as the Iranians – to signal their rather self-conscious freedom from arbitrary social conventions.”

. . .

He also tries to explain how policy ideas emerge to dominate the debate – via media platforms. In the case of the Tokyo meeting, for example, he details how the issue of austerity took centre stage, even amid linguistic confusion. “When someone asked the panel why, in view of the costs exacted by fiscal austerity on the social fabric of the countries in crisis, it did not make sense to go slow on budget cuts,” he writes, “[Jörg] Asmussen tried the following comparison: if you plan to cut off a cat’s tail, better to do it in one fell swoop, rather than in slices. This left the half-Japanese audience quite bewildered: why would anyone want to cut off the tail of a cat in the first place?”

Of course, while his account is deliciously droll, this mass of observation reveals a serious point. Although policy makers and economists might like to pretend that international governance is all about abstract ideas or quantitative models, it is actually rooted in complex cultural patterns and languages that outsiders struggle to understand. That is no surprise; all institutions have such traits. But I just hope that the experiment that Ahamed has started will now open the door to other ethnographic accounts of how our huge cross-border bureaucracies really work – not simply to spark more reflection among voters but also among the staff of groups such as the IMF too.

Gillian Tett

Fonte: FT

quinta-feira, 17 de julho de 2014

Gillian Tett: The darker side of Iceland’s showcase recovery

Six years ago, Iceland became a miniature emblem of the crazy credit boom – and bust. This volcanic island has just 320,000 people; think of Buffalo, New York. But in the 2000s, the country’s three main banks expanded at such a breathless pace that they assumed $85bn of debt to fund a collective balance sheet 10 times bigger than the country’s economy. And when the 2008 crisis hit they collapsed, sparking a brutal downturn.

Iceland today is a showcase once more – but this time for the unfinished policy challenge that now hangs over the western world in relation to deleveraging. The economy has staged a laudable rebound, producing a growth rate above 3 per cent as tourism, energy and IT businesses have replaced the frothy banking world as a source of activity and jobs. Growth has been so strong that the central bank is even deliberating over whether the economy could soon overheat.

This is a testament to what can happen to a post-crisis economy when a resilient population embraces painful restructuring and its currency loses half its value. Leaders of Greece, Portugal and Italy would be forgiven a twinge of jealousy.

But there is a problem with this cheering tale. All the laudable growth has not magically removed the cause of Iceland’s crisis: debt. Its sovereign debt is “just” 84 per cent of gross domestic product, according to the International Monetary Fund. But if you add the remaining liabilities of the banks – which are implicitly owned by the government – the total debt ratio is 221 per cent, and there is little chance of the island repaying it in full.

The government has managed to avoid dealing with this problem because it has been using capital controls to prevent investors freely exchanging the krona for foreign currency. This has helped prevent widespread capital flight and enabled Iceland to protect its financial system since the crisis hit. This, in turn, has created breathing space for the economy to recover; but also removed the pressure to deal with the debt overhang or make hard choices about how to allocate the costs of debt restructuring.

As in much of the west, the system feels calm – partly because of heavy state intervention. As one Icelandic policy official says: “Capital controls are our version of quantitative easing.”

But the big question in Iceland – as elsewhere in the west – is how long policy makers can defer dealing with the problem. When the three banks collapsed, the government decided to save the domestic parts of the system (and its own taxpayers) by piling pain on to foreign creditors and depositors. So bank bonds held by foreigners were tossed into default and turned into implicit equity claims on the collapsed lenders – and bank deposits that foreign investors held in Icelandic krona were trapped in the country by capital controls.

In the past few weeks the government has indicated that it wants to start removing these controls to attract more investment to the energy sector and to create a more “normalised” financial system. And, as Mar Gudmundsson, central bank governor, points out, any relaxation will force a new debate about that debt mountain, since the $7.4bn of krona held by foreigners in Iceland’s banks will almost certainly flee if controls are removed without any clarity on how creditors who hold Icelandic bank debt will be treated. And a flight of capital could spark a fresh crisis.

The good news is that the government announced this week that it has appointed external advisers for talks with creditors. But the bad news is that finding any resolution could prove very hard. A group that represents about 70 per cent of bond holders wants its claims to be settled by selling the successors to the collapsed Icelandic banks to new foreign owners.

However, since nationalist sentiment on the island is running high, politicians seem loath to give foreign creditors anything more than a token settlement. So there is every likelihood the country will either end up in a protracted court fight, like the one between Argentina and its “holdout” creditors; or that the government keeps playing for time by extending those supposedly “temporary” controls indefinitely.

Either way, investors would do well to keep watching. For, while the details of any restructuring fight are likely to be complex and the money involved small on a global scale, Iceland reminds us all of two crucial points. The first is that “emergency” policy measures that distort the financial world tend to become addictive. Second, this addiction is very hard to break when there is an unpleasant debt overhang, be that of the public or semi-public sort.

That is a lesson that Lilliputian and giant nations alike need to remember now. And doubly so, as the Bank for International Settlements trenchantly notes, since total gross debt burdens are still rising, not falling, across the west.

Gillian Tett

Fonte: FT

quarta-feira, 16 de julho de 2014

Zhiwu Chen: Foreign companies are easy prey in Xi’s China

Eighteen months into China’s anti-corruption campaign, officials are still being removed from positions of power every day – and corporations and business people are increasingly caught up in the investigations, too.

GlaxoSmithKline was caught in the middle of this campaign a year ago, with evidence emerging that the UK drugmaker’s managers bribed doctors and officials with large sums of money. The scandal is among the most high-profile corporate corruption stories in China, with television stations repeatedly broadcasting the lurid details. With the company’s confirmation last month that executives had been emailed a secretly filmed sex video of Mark Reilly, then the company’s China head, the scandal made headlines worldwide.

Executives are asking why GSK, of all the multinationals operating in China, has been picked on – and what the case means for their own businesses in the country.

Before the anti-corruption campaign started, under the leadership of President Xi Jinping, it was no secret that corruption was widespread, and that pharmaceutical companies, both domestic and foreign, often had to bribe doctors with hongbao, or cash packets, and expensive goodies. If so, why are foreign companies more likely to be picked on and their practices subjected to maximum publicity?

There is an old Chinese saying: “Sa yi jin bai”. It means kill one to deter hundreds of others. Given the large number of corrupt companies, the government cannot afford to investigate and punish them all. So they pick and choose. In particular, they choose those that maximise the deterrence value – well-known foreign multinationals that have engaged in bribery. This is despite the fact that most of them follow better practices than China’s domestic companies because they have more at stake in terms of reputation and they face greater potential liabilities back home.

In the 1980s and 1990s, foreign multinationals would never have been picked on; officials would have looked the other way. The country was poor and in need of foreign investment and expertise. Companies willing to do business were given the red carpet treatmen t, with privileges such as tax breaks and free land use. Their jobs were sought by the best students from the finest universities; even Chinese people who returned from working and studying overseas would be given higher rates of pay. The door was wide open to foreign capital and knowledge.

Today it is a different story. Foreign capital and knowledge have no premium; indeed, it may even be the reverse. Multinationals face a significantly harsher landscape. Returning Chinese no longer enjoy a pay premium.

This all adds up to a significant shift in society’s attitudes towards things foreign – not least towards multinationals.

The first big difference is that, in a reversal of the situation of two or three decades ago, China is a capital-rich nation. It is perhaps second only to the US. So the red carpet is no longer being rolled out for foreign money. From computer to car manufacturing and more advanced industries, the country is internationally competitive on its own terms and no longer hungry for technical knowhow.

Second, entrepreneurship is booming, fuelled by abundant venture capital, angel investors and private equity funds. In the past decade, Chinese technology companies’ initial public offerings on Nasdaq, NYSE and the Hong Kong Stock Exchange have created many millionaires and billionaires, encouraging a number of talented senior executives to leave multinationals and investment banks and start their own businesses. This brain drain has blunted the multinationals’ competitive edge and eroded their position in China. They no longer enjoy unfettered admiration and reputation.

Third, while most multinationals are staffed by good citizens, a few individuals have undoubtedly helped take corruption to a new level. Before the mid-1990s, government agencies and state-owned enterprises would be the most favoured places to work for relatives of the powerful. But then Wall Street bankers came to Beijing. To win contracts to restructure and float SOEs, foreign investment banks competed hard to hire relatives of officials. In a country where relationships are everything, this is a sure way to secure deals.

Soon they had an over-concentration of well-connected relatives among their employees. Such hiring practices helped create resentment against foreign companies among the public.

China has also become more assertive on the international stage, which only adds to multinationals’ vulnerability in the anti-corruption campaign. Targeting them poses little risk but offers much in terms of potential domestic political gain.

Taken together, all these changes combine to make foreign multinationals easy targets to single out.

Zhiwu Chen is a professor of finance at the Yale School of Management

Fonte: FT

terça-feira, 15 de julho de 2014

Wolfgang Münchau: What central banks should do to deal with bubbles

The world has conducted two controlled experiments on how to fight financial bubbles in the past decade. Both failed.

The first was to ignore the bubble and to mop up later. The idea seemed plausible to a lot of people. But it was based on the false premise that the costs of mopping up would be bearable.

The second experiment has just concluded in Sweden, also with calamitous results. There, the central bank did the exact opposite. It had previously raised interest rates to rein in a domestic housing bubble. In doing so, it generated deflation and raised unemployment. It recently corrected that policy error by cutting the interest rate back to 0.25 per cent.

These two experiments present the opposite ends of our thinking: either ignore bubbles or ignore everything else. What should central banks do?

The consensus view is that they should rely on macroprudential regulation. The Hong Kong Monetary Authority, for example, imposed restrictions on loan-to-value ratios for mortgages. The Bank of England recently placed caps on mortgages with very high income multiples.

Central bankers love macroprudential tools because they are in thrall to an old idea that is simultaneously true and useless. The Tinbergen rule, named after a Dutch economist, states that you need one policy instrument for each policy target. If you have two targets – price stability and financial stability – you need two instruments. Monetary policy deals with prices, macroprudential regulation takes care of bubbles. Problem solved.

Or is it? For a start, the instruments are not entirely separate. Monetary policy affects not only retail prices but also the prices of financial assets. If a central bank commits to keeping interest rates at zero for the foreseeable future, it sets a benchmark for the price of risk-free securities directly and other securities indirectly.

There is also a more fundamental problem. Consider Spain’s housing bubble. The country has an above- average share of brilliant economists and bankers yet hardly any of them expressed concern about pre-2007 house prices. So what would macroprudential supervision have accomplished in those years? Even if our hypothetical macroprudential regulators had correctly identified the risks, they would still have focused on the banking sector. Yet the real tragedy of post-bubble Spain occurred in the household sector. The country’s conservative bankruptcy rules meant that many mortgage holders have been saddled with huge debts for the rest of their lives. Macroprudential regulation might have saved the banks but it would not have saved Spain.

Central bankers are fooling themselves if they think macroprudential regulation is a potent independent monetary policy tool. It is a useful supplementary tool, nothing more, nothing less.

Our best hope lies in a unified framework. Unfortunately, the workhorse models used in mainstream economics do not have a concept of finance. Default cannot happen in these models because their fundamental building block is the “representative agent”, jargon for “your average Joe”. But the average Joe cannot simultaneously default and be defaulted on. You need two Joes for that – none of them is average. Specifically, you need a financial sector in those models, one that includes what we have seen in the past decade – default, credit crunches, rent-seeking, extortion of governments, antisocial behaviour, unethical behaviour, criminal behaviour – to mention just a few.

The great James Tobin, another Nobel-prize winning economist, produced a model with an explicit role for asset markets as long ago as 1969. But rather than building on his work, the economic mainstream rode off in a different direction. The financial crisis gave rise to new approaches but they are still not mainstream. Central banks do not actually use them.

I have been intrigued by some pioneering work by Markus Brunnermeier and Yuliy Sannikov at Princeton, who constructed a model in which the world has two states: one in which banks lend freely and one in which they do not. The policy prescriptions of this model are not fundamentally different from what central banks have done recently. But with the possibility of a future credit crunch integrated into the model, interest rate policy cannot be blind to asset price developments. Such a model would suggest an earlier rise in interest rates in the UK, for example, compared with standard models. For the eurozone, the model would justify aggressive policy easing because a fall in the rate of inflation or outright deflation would harm financial balance sheets and add to instability.

There are several competing approaches. Modern monetarists focus on money, as opposed to credit, as the driving force. But despite their huge differences, both ideological and practical, none of them supports the experiment that just failed in Sweden or the one that failed 10 years ago. And none is particularly keen on macroprudential regulation.

Wolfgang Münchau

Fonte: FT

segunda-feira, 14 de julho de 2014

Gideon Rachman: A golden moment for Germany that may not last

Germany has a habit of winning the World Cup at symbolic moments. Victory in 1954 – captured in the film, The Miracle of Bern – allowed Germans a moment of pride and redemption after defeat and disgrace in 1945. A second victory in 1974 went to a West Germany whose “economic miracle” had, by then, allowed it to regain its status as one of the world’s most advanced nations. Victory in 1990, just months after the fall of the Berlin Wall, caught the joy and potential of a soon-to-be united Germany.

Now, in 2014, Germany has won the World Cup again – and once more at a symbolic moment. The past five years have seen Germany re-emerge as the leading political power in Europe. Britain and France may have the nuclear weapons and permanent membership of the UN Security Council. But the euro-crisis has seen Germany emerge as the undisputed leader of the EU.

Even calling Germany the “dominant power” in Europe would have sounded unsettling a few years ago. But modern Germany has pulled off the unusual trick of being simultaneously powerful and popular. A BBC poll, carried out in 21 nations last year, suggested that Germany was the most admired country in the world.

While Paris feels like a beautiful museum, Rome is crumbling and London is overpriced and overcrowded, Berlin has emerged as a cool city, full of art galleries, clubs and exciting modern architecture from the Reichstag to Potsdamer Platz. It is also a city in which the young can still afford to live.

Once again, the German football team captures the mood of the moment. The sides of 1954 and 1974 were resented by some fans for defeating more stylish opponents – in the shape of Hungary and the Netherlands. The victorious German teams of 1974 and 1990 were praised for being “efficient” or “hard-working” – and lampooned for their ludicrous hairstyles. By contrast, the current German side is applauded for its flair and its sportsmanship. It is also the most multicultural team to represent the country in a World Cup final, reflecting the increasing openness of German society. Yet some of the old virtues remain. At its best, the German team does feel like a well-designed machine, with all the parts working together in harmony. It seemed fitting that Mario Götze, the scorer of the winning goal in Rio, is the son of a technology professor – and one of the two players in the team born in a united Germany.

But if all that sounds too good to be true, it probably is. Germany is undoubtedly going through a golden moment – on and off the football-field – but there are reasons for fearing that it will prove all too momentary. Political leadership in Europe involves making choices – and those choices will inevitably be unpopular in many quarters. To paraphrase Trotsky on war, while modern Germans may not be interested in power, power is interested in them. So while the country has a positive image in the world at large, where its power is not yet felt, the euro-crisis has seen Germany’s image take a battering in its own European backyard. The Merkel government’s insistence on economic austerity in southern Europe has revived old images of arrogant, unfeeling Germans. Asked which country they least wanted to see lift the World Cup, the Portuguese, Spanish, Greeks, Dutch and English all named Germany in their top two least favourite nations.

When it comes to Germany’s global role, the country itself remains deeply divided. The row over US spying on Germany has revived a latent anti-Americanism that was very visible during the Bush years. Indignation over snooping is understandable, but – among the German public – it seems to have spilled over into a refusal to choose between Russia and the west. A recent opinion poll, taken before the latest spying row, showed that more Germans think their country should maintain a policy of equal distance between Russia and the western alliance than opt for a pro-west strategy. That attitude alarms Germany’s Atlanticist foreign-policy establishment, as well as its eastern neighbours. German diplomats are worried that their government’s views are out-of-tune with the public they are meant to represent.

As long as Germany’s economy is humming along as efficiently as its football team, its EU neighbours are likely to be careful and polite about any reservations they might have about Berlin’s foreign policy. However, thoughtful observers within Germany itself are worried that the success of the economy is reliant on a number of advantages that will erode with time.

Germany has lousy demographics. Its fertility rate of just over 1.3 children per woman means that the country’s population is both ageing and on a downward trajectory. Recent moves to reduce the pension age for some workers will make this problem worse.

After years of domestic wage restraint, German workers are understandably pushing for higher pay, But that could erode Germany’s hard-won competitiveness, Meanwhile, German industry may be threatened by its reliance on exporting to austerity-stricken neighbours, even as China’s industrial firms move upmarket and attack the profitable niches that Germany has made its own.

Chancellor Angela Merkel, whose quietly impressive leadership has contributed a lot to the positive image of modern Germany, will be well aware of the challenges that lie ahead. But, along with the rest of the nation, victory in Rio allowed her a moment to pause – and relish Germany’s golden moment.

Gideon Rachman

Fonte: FT