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Vital Signs: economically, Australia is at risk of becoming Germany, and not in a good way

Once, emulating Germany would be something to be proud of. Not at the moment.

Richard Holden, UNSW

It’s four years since then Prime Minister Tony Abbott warned Australia had been heading to “a Greek-style economic future”.

He was referring to what he said had been happening under the previous Labor government.

When Labor left office in 2013 the federal government’s budget deficit had been 3% of gross domestic product. The Greek government’s had been 7%.

The Australian government’s debt to GDP ratio was 20%. The Greek government’s was 177%.

Australia was never on the path to becoming an economic basket case like Greece, but right now we are on the road to becoming like another European nation.

It also starts with “G”.

Becoming economically like Germany isn’t as scary. But it is genuinely troubling nevertheless.

Germany is not in good shape

Germany’s GDP growth in the June quarter was minus 0.1%. That means economic activity shrank.

Its central bank, the Bundesbank, doesn’t see things getting better any time soon, saying growth “is probably set to remain lacklustre in the third quarter of 2019”.

Interest rates have fallen so low that investors are now paying the German government to take their money. The nominal interest rate on 2-year German government debt is -0.90%, and on extremely long-term 30-year bonds is -0.15%.

Read more:
The ‘yield curve’ is one of the most accurate predictors of a future recession – and it’s flashing warning signs

That’s right: even for 30 years into the future, investors think its safer to lose money by parking funds with the German government than to try to make money by using them in other investments.

Put another way, markets think the German economy will be in trouble for decades, meaning short-term German interest rates will have to remain ultra-low for decades.

The German penchant for balanced budgets became (there’s really no other way to put it) fanatical in the wake on the financial crisis of 2008.

Like centre-right governments around the world – Britain was a leading example – a dark fiscal austerity took hold, at precisely the wrong time.

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What is an inverted yield curve? Why is it panicking markets, and why is there talk of recession?

2009 was a time of chronically weak private demand that required both lower interest rates and, as monetary policy was running out of steam, continuing budget deficits.

Instead Germany cut government spending, pushing the budget back into surplus
from 2014.

It didn’t get everything wrong.

As I wrote at the time, Germany was largely right to insist that Greece get its out-of-control spending and government debt under control.

But Germany’s approach to its own economy hurt it and other European economies such as Italy and Spain.

We’re turning German…

With apologies to British 1980s band The Vapors, we’re at risk of “Turning Germanese”.

Like Germany, our interest rates are getting close to zero. OK, Germany has negative nominal 30-year interest rates, but we’ve got negative real 10-year bond interest rates, and zero 30-year bond rates.

Both of our major political parties are gripped by balanced-budget fetishism, appearing to want to balance the budget regardless of the economic context.

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Mine are bigger than yours. Labor’s surpluses are the Coalition’s worst nightmare

Again, here we are not quite as fanatical as Germany, but Labor seems determined to “out-surplus” the Coalition to prove its economic management credentials. And the government has made delivering a surplus the centrepiece of its economic agenda.

And, like in Germany, our economic growth is slowing. We don’t yet have negative GDP growth like in Germany, but we do have negative per capita GDP growth.

…but there’s time to pull back

RBA Governor Philip Lowe in a staged photo op with Treasurer Josh Frydenberg, July 11, 2019.
David Geraghty/AAP

Poor old Reserve Bank governor Philip Lowe has been pleading over and again for more aggressive government spending, particularly on infrastructure, to help complement what he is doing on interest rates.

A couple of cheesy photo ops with Treasurer Josh Frydenberg aside, there’s no evidence of him gaining any traction in Canberra.

Structurally balanced budgets are important, and thinking government debt doesn’t matter is deeply misguided.

But this is the situation we face:

  • private demand is chronically weak

  • our physical infrastructure has not kept pace with population growth and modern needs

  • our social infrastructure (including all levels of education) is not up to standard

  • interest rate cuts are running out of puff

  • the government can borrow in its own currency, long-term, for close to nothing

Any government that won’t borrow and spend up big and smart in these circumstances is making a huge mistake – one for which we and our children will pay dearly.

If we’re not careful the old Abbott narrative of “we’re about to become Greece” will become true, except about another country whose shoes we would rather not be in.

Read more:
Vital Signs: Amid talk of recessions, our progress on wages and unemployment is almost non-existent

The Conversation

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Five questions about Nazi Germany and how it relates to Australian politics today

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The primary legacy of Nazism was the second world war, which led to the deaths of more than 50 million people.

Matt Fitzpatrick, Flinders University

Almost every day comparisons of contemporary politics to Nazi Germany are cropping up in the news. But are these comparisons historically grounded, or are they an abuse of Godwin’s law? Here are some answers to some questions that have cropped up recently.

1) What is Nazism? What is fascism? Would Australia’s right-wing populists fit into either of these categories?

Nazism and fascism were aligned far-right political movements that came to power in Germany (Nazism) and Italy (fascism) after the first world war. There were also fascist parties elsewhere, including in Britain and in Nazi-allied states like Croatia and Romania.

Their policies were grounded in radical nationalism (which often drew on racist ideas), economic corporatism (that is, a particularly authoritarian form of capitalism), anti-democratic, authoritarian and violent politics, anti-unionism and anti-communism.

These parties were an outgrowth of the specific political and economic conditions of the post-war period, but they have attracted some on the radical right globally, who either consider themselves or are considered by others to be neo-Nazi or neo-fascist. In Australia, there are few avowed neo-Nazis or neo-fascist parties, and those that exist are not popular.

Populist parties in Australia that are seeking to gain votes by appealing to anti-immigration and racist sentiments are generally outgrowths of the long-standing tradition of such politics in the political history of post-1788 Australia.

Read more:
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Unlike the Nazis and the fascists, who ruthlessly destroyed democratic institutions upon coming to power, the most prominent anti-immigration parties in Australia don’t claim to want to abolish democracy. Instead they want to use the liberal democratic system to entrench what might be called “white” or “settler” privilege, at the expense of migrants and Indigenous people. Their model is generally the White Australia Policy, not Nazi Germany.

2) Why do people talk about Nazism or fascism with such fear and horror?

The primary legacy of Nazism was the second world war, which led to the deaths of more than 50 million people. Nazis killed almost 6 million European Jews and (directly and indirectly) around 20 million Russians, all in pursuit of an illusory territory secure from racial or political threats. It has been usefully referred to as thanatopolitics – a politics of death founded on the false promise of securing life.

3) Senator Fraser Anning used the phrase ‘final solution‘ and it upset people. Why?

The phrase is a direct reference to the Nazi term Endlösung der Judenfrage (The final solution of the Jewish question), which in the end meant genocide. It is clear that this goes well beyond “dog whistling”. It is instead the kind of language that (until now) only the most rabid and marginal of Nazis would deliberately choose to use.

The term recalls the desire of the state to kill its citizens and the citizens of states around it to secure its own racial fantasy. Anning argues that his usage was unintentional. This is difficult to believe, given the context of the speech.

What is especially chilling about it is that evokes not only the genocidal policies of the Nazi regime, but also its earlier “final solutions” (grounded in the global eugenics movement for ‘racial hygiene’) which included halting Jewish migration, then taking away the civic rights of Jews, then expelling Jews, and then finally murdering them.

To use this kind of historically and racially charged language to talk about migrants was a new low, even in Australian politics, where tolerance of racially charged political statements is extraordinarily high.

4) Some Australian press commentators have said that Nazism was left-wing. Is this right?

No. Nazis and fascists were decidedly right-wing and fervently anti-communist. There was a small and short-lived group of Nazis clustered around the Strasser brothers who were interested in a racial strain of anti-capitalist politics. They might loosely be termed “socialist”, but they were completely purged from the Nazi party very early on.

On coming to power, the first targets of the Nazis were communists and socialists. The formal name of the Nazi party, the NSDAP (National Socialist German Workers Party), was a failed attempt to attract workers to the party and away from the left. It failed, and the main voters for the Nazis remained the lower middle classes – the economically vulnerable who most feared the spectre of socialism.

5) Some activists have likened Australia’s offshore detention centres to concentration camps **Is that a fair description?

It pays to be careful here. Firstly, not all concentration camps were in Nazi Germany. Concentration camps were used by the British in South Africa, by the Spanish in Cuba and by the US in the Philippines.

Secondly, when talking about Nazi Germany, a distinction should be drawn between concentration camps (which were places of detention without trial used by the state to sequester undesired non-criminal elements from other citizens) and extermination camps, which were places of execution.

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It was in the extermination camps (among other, less organised sites) that the Nazis perpetrated the Holocaust.

No two historical examples of concentration camps are exactly alike, but Australia’s offshore mandatory detention centres fit most elements of the description. Those in them are detained without trial. Their purpose is political rather than penological. These are not places of rehabilitation or even punishment. They are indefinite holding centres for those classed as politically problematic.

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The Conversation

However, to say Australia is running a detention network with many of the attributes of earlier concentration camps does not mean that Australia is a dictatorship, or that the policy is intrinsically “fascist”. Liberal democracies have their own forms of inhumanity and nations such as Britain and the US have also made use of such camps in the past.

Matt Fitzpatrick, Associate Professor in International History, Flinders University

This article was originally published on The Conversation. Read the original article.

Germany’s (not so) grand coalition may cause ripple effects on European refugee policy

Kelly Soderstrom, University of Melbourne and Philomena Murray, University of Melbourne

After a tumultuous 2017 election and six months of political uncertainty, Germany finally has a government. The so-called “grand coalition” made up of the centre-right Christian Democrats (CDU), its right-wing sister party, the Christian Social Union (CSU), and the centre-left Social Democrats (SPD), will govern Germany for the next four years.

At the centre of it all is the coalition agreement. The 179-page document sets out the goals for the government, including a new approach to Germany’s refugee policy.

The agreement explains “a new direction for Europe, a new dynamic for Germany, a new cohesion for our country”. It notes two changes in German leadership: a change in the power dynamics among the ruling parties, and a strong emphasis on using the European Union (EU) to achieve German political objectives.

With a weakened CDU under Chancellor Angela Merkel ceding considerable control to the anti-immigration CSU and the socialist SPD, the centre of German political power has shifted. This shift will have a profound impact on German and EU refugee policies.

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The issue of refugees is discussed deeply in German society. Since the height of the refugee crisis in 2016, when 722,370 people applied for asylum in Germany, the number of asylum applicants has decreased significantly.

However, 1.6 million refugees remain in Germany and Europe’s refugee crisis appears to be far from over. Not unexpectedly, this is a huge source of tension in the government.

At first, Merkel gained praise for her humanitarian, liberal refugee policy focused on refugee reception and integration. However, growing anti-immigrant sentiment, evident in the rise of groups like Patriotic Europeans Against the Islamisation of the West (PEGIDA), the electoral success of the far-right Alternative for Germany (AfD) and the difficulties in integrating a large number of refugees all resulted in increasingly protectionist sentiment.

Germany needs to provide a feasible refugee policy that is manageable and does not split the coalition.

Merkel had pushed for refugee responsibility-sharing across the EU. However, no pan-EU approach drawing on the German example eventuated. Many EU member states refused to honour the major instrument for delegating responsibility for refugees, the Dublin Regulation, or participate in the EU-wide refugee redistribution scheme.

Given Merkel’s weakened position in the coalition, it is not clear that Germany will continue her humanitarian approach.

The government faces two leadership challenges in refugee policy. Firstly, it needs to provide Germany with a feasible refugee policy that is manageable and does not split the coalition. Secondly, it is attempting to lead a different type of coalition – namely, the EU’s 28 member states.

Read more:
Why Europe shouldn’t follow Australia’s lead on asylum seekers

Leadership in Germany: Can Merkel still say ‘wir schaffen das’?

In domestic refugee policy, Germany is fractured. Of the three coalition partners, the anti-immigration CSU is the primary winner in migration and refugee policy. CSU leader and Interior Minister Horst Seehofer is leading dramatic restrictions in refugee policy. Although the SPD negotiated a modest victory with 1,000 family reunification visas per month for refugees, government parties are refusing to do more than this.

Creating a cap on refugee visas was a major point of controversy between the CDU and CSU. The CSU prevailed, with the coalition agreement calling for an annual cap of 180,000-220,000 refugees. However, that cap may not take effect as only 198,317 first-time asylum applications were filed in Germany in 2017. Yet this threshold creates distraction from Merkel’s humanitarian approach as it prioritises immigration control over humanitarian obligation.

There is some good news for refugee integration in Germany.

This, coupled with the limitations on movement of refugees imposed by centralised processing centres and repatriation centres for failed asylum seekers, demonstrates new constraints in refugee policy. This in turn demonstrates the CDU’s diminishing power and the fracturing of the centre of policy leadership.

Yet there is some good news for refugee integration. The grand coalition still maintains a focus on refugee integration, especially through language acquisition and participation in the labour market.

As Germany struggles with its fractured leadership and seeks consolidation and centralisation of refugee processing procedures, the German approach is becoming increasingly binary: if you are not a refugee, you must leave; if you are a refugee, you must integrate.

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Leadership in Europe?

When it comes to the EU, the grand coalition government has four objectives: halt secondary movement of refugees; toughen the EU’s external borders; tackle external push factors; and create a robust mechanism for responsibility-sharing.

The Common European Asylum System aims for common application procedures for refugees and accommodation standards to prevent asylum-shopping across countries. The German government is also renewing calls for a quota-based refugee redistribution and resettlement scheme among EU states.

In calling for increased policing of the EU’s external borders and a common approach to push factors, these mechanisms paint refugee protection as a security issue rather than a humanitarian one.

During the Eurozone crisis, Germany showed strong leadership in EU policy. However, it has failed to persuade other member states to follow its leadership on refugees. Its leadership may further weaken as other states refuse to follow.

Will Germany step up to lead in Europe?

The EU is deeply divided on refugee policy and distracted by other concerns. The United Kingdom is consumed by Brexit negotiations, while many eastern and central European states refuse to participate in EU-level refugee resettlement schemes.

The anti-refugee populist parties have increased influence across Europe. Merkel has few natural allies, if any, in the grand coalition or within the EU on this issue.

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Yet Germany regards leadership of the EU as the key to achieving its interests. Merkel is emphatic that “Germany will only do well if Europe is doing well”.

However, Germany is falling in line with more restrictive policies, rather than leading the EU towards a more comprehensive and humanitarian solution to the refugee crisis.

The ConversationIf Germany leads EU policy change, we may well see increased blocking of access to the EU for refugees and policies that emphasise control and expediency over humanitarian values.

Kelly Soderstrom, PhD Candidate in International Relations, University of Melbourne and Philomena Murray, Professor, School of Social and Political Sciences and EU Centre on Shared Complex Challenges, University of Melbourne

This article was originally published on The Conversation. Read the original article.