For three years the Financial Times Deutschland (FTD) offered the Chancellor its carefully considered suggestions for managing the crisis. And now the paper is folding, as a result of her failure to implement our recommendations in a timely manner. How unfair is that?
Once it became clear that the days of the FTD were numbered, many media folk have been taking the opportunity recently to tell us what the reasons for this are. And why none of them apply to their own paper. Obviously. The FTD’s demise is blamed on competition from the Internet, on a structurally-driven reluctance to spend on print advertising, and on bad decisions.
All this is undoubtedly true. But so far nobody has really hit on the real reason. Let’s be honest: it was Angela Merkel.
Now some people might take the view that this is verging on the paranoid. Well, you may think so. But you’ll see for yourself in the next few paragraphs how the evidence stacks up. And how unfair the world then looks.
What happens if you don’t listen to the FTD
For the past three years we have been doing our level best to support the Chancellor with advice – and to protect her from wrongdoing in her management of the euro crisis. But it seems we have not entirely succeeded.
At the start of Greece’s winter of discontent in 2009/10 we did wonder if it isn’t stupid to exclude the possibility of a bail-out per se when you are faced with a self-perpetuating cycle of fear of the kind that triggers a bank run – otherwise the contagion could spread to other countries. We somehow sensed that it is not very helpful to force a country in economic crisis to pay high borrowing costs – not if we want that country to reduce its debt burden instead of increasing it. And from time to time we tried to point out that a country may end up with the very opposite of a shrinking debt burden if it has too much austerity imposed upon it, and if it makes savage cuts and raises taxes. Because then its economy collapses and the ratio of debt (relative to economic output) immediately rises.
We also did our best to help prevent further escalation of the crisis, and in the summer of 2011 we warned against rushing in to put the squeeze on private creditors. Because that in its turn was only likely to trigger another round of panic reactions. Instead we pointed out that at the end of the day the central bank was going to have to underwrite the system anyway in a crisis of this sort. It was meant well.
But somehow it did no good. The fact is, Mrs. Merkel herself always started out by doing the exact opposite – at least to start with:
* No loans for Greece – until the crisis escalated and there was no other way to protect our own interests.
* Full-blown austerity – until it became clear that this only led to depression and more debt rather than less.
* Penalty interest charges – until the insight dawned that this is utter lunacy.
* Involvement of private creditors – until the crisis escalated as predicted.
* Ranting against interventions by the ECB – until the late summer of this year, when common sense finally prevailed here too, and the Chancellor now seems to think it is quite a good idea.
* And again this summer a loud “No” from Merkel to the idea of giving Athens more time – until the most recent summit, that is, when that’s exactly what was decided, on the grounds that anything else would be counterproductive.
Crashing economy, crushed dreams
|Shock tactic In July 2011, in the face of dire warnings from many quarters, the Chancellor forced through the rescheduling of Greece’s debt. This unleashed fresh panic on the markets, caused the euro crisis to escalate, share prices to tumble and the economy to slump overnight.|
|Turn for the worse Since that shock moment Germany’s strong economic recovery has stalled – as has the trend towards a gradual improvement in the business fortunes of Germany’s newspaper publishers.|
The trouble is, by the time the penny finally drops the damage is already done. And in the three to twelve months it has always taken for the Chancellor to do what we advised in the first place, the crisis has escalated further. Until at some point it engulfed the real economy here as well. Which brings us to the injustice of history.
The ECB has at least signalled that it will intervene on a massive scale if necessary – which has had a calming effect on the markets in recent weeks. But in the meantime our own number is up. A bit like the valiant Winnetou, when he throws himself in front of Old Shatterhand to protect him – and then (but please note: the analogy ends right here) dies in his arms.
[Text on graph:
Anzeigen = Advertising sales
Juli 2011 = July 2011
Eskalation Euro-Krise nach Merkel-Vorstoss = Escalation in the euro crisis following Merkel’s initiative
Geschäftsklima = Business climate
Ifo Business Climate Index for Germany v. monthly pages of advertising in the leading German business papers
It turns out on closer inspection that the kiss of death in the here and now was the aforementioned insistence of the Chancellor on the rescheduling of Greek debt, i.e. private creditor involvement, which experts now regard as the trigger for the dramatic escalation in the crisis in the second half of 2011. The “haircut” did indeed trigger panic at the time, raising immediate fears about Italy and Spain – and causing share prices to tumble and economic growth to falter across Europe. And at that very moment the Ifo Business Climate Index for the German economy fell sharply.
As a result, it’s goodbye to German growth rates of around three per cent; it looks as if the economy is set to shrink for a second time. And please note: since that summer of 2011 it’s goodbye too to what was previously a slow but steady upward trend in sales of advertising space by German newspapers and magazines (see graph). And an abrupt end to the hopeful trend that set in with the upturn in 2009, holding out the prospect of a gradual easing of the situation, even if things didn’t quite get back to where they were before. Instead the leading German business papers now began to see a new and disastrous downward trend, which has proved unstoppable – just like the decline in business confidence. And it all started with the economic slump that followed Merkel’s coup. Coincidence? Hardly.
You know how the story ends, for now. Badly. Our financial backers had at least told us that it would not matter too much if we made a small loss here and there – just so long as the general business trend was moving in the right direction. But after July 2011 business was going nowhere. And that’s pretty much where we still are today.
We fought the good fight, like Winnetou of old
Now that’s not to say that ailing newspapers would not have disappeared in a year or two anyway. It’s quite possible. But it does seem that the Merkel factor played a big part. Which doesn’t help much now. It’s just that it makes us feel better if we fully understand the underlying reasons – and are able to say that in all probability we would still have had a future if the Chancellor had listened sooner to our entreaties. There must be a movie in this somewhere …
It’s impossible to imagine what would have happened if the crisis had not escalated in the spring, if the Irish, Portuguese and Spanish had not been caught up in it, if there were no needless recessions in those countries – and if our own fundamentally healthy economy were experiencing the long recovery that was already in sight at the time. And if the trend in the newspaper’s structurally weakening sales were at least still going in the right direction now, buoyed up by the cyclical upturn.
As it is, we join the ranks of Edmund Stoiber, Helmut Kohl, Jürgen Rüttgers, Norbert Röttgen, George W. Bush, Silvio Berlusconi, Nicolas Sarkozy and all the others that Angela Merkel has seen off. And yet we meant so well.
Well, Mrs. Merkel will just have to get by without us. She’ll soon see how far that gets her. Right now she has no one who can tell her beforehand which decision in the euro crisis she’s going to have to reverse in three to twelve months’ time. Not on pink paper, anyway. We can only hope that some of it has sunk in.
The paper is dead. We go on with our thoughts. Because we have to. No question.
The Financial Times Deutschland will be published for the last time on 7th December 2012. Translation by Allan Blunden.