Tag Archives: Germany

No more coals to Newcastle.

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            By the mid-Thirties the international situation had begun to darken.  It was not yet Desperate.  The worst—another World War—might still be avoided.  Serious men had to deal with situations in a realistic way.  What were the situations? 

First, there was the conflict between the “democratic” and “status-quo” powers (Britain, France, and the United States) and the “authoritarian” and “revisionist”: powers (Nazi Germany, Fascist Italy, Communist Russia, and Imperial Japan.  Each of the “revisionist” powers desired to expand its territorial control over adjoining areas.  To accomplish these goals they would have to overthrow the system of international order—often called the Versailles settlement—created after the First World War.  Beyond that common goal they were often at odds among themselves. 

            Second, there were the military realities.  The conventional economic policy adopted to respond to the Depression (1929-1939) combined lower taxes with spending cuts, while limiting international trade (autarky).  Where countries stuck with this policy, military budgets suffered.  Where they did not stick with this policy, they rearmed faster.  Meanwhile, autarky spurred both isolationism and aggression.

            Third, Britain had three enemies threatening its global position: Germany in Europe, Italy in the Mediterranean, and Japan in the Far East.  It had the military resources to fight one major war at a time.  Britain lacked good allies.  America was deeply isolationist; Communist Russia hated capitalist counties—democratic or authoritarian; and France had been “bled white” in the First World War, while the Depression intensified partisan polarization.  If Britain fought one major power, the other two enemies would pile on.  Unless they were bought off or deterred. 

            In July 1934, Austrian Nazis had tried to seize power.  Hitler’s fingerprints were all over the failed coup.  The Italian dictator Benito Mussolini ordered four army divisions to the border with Austria to deter German intervention.  In London and Paris, this seemed a good omen. 

            In March 1935, Nazi Germany declared that it would begin rearmament in violation of the Versailles Treaty.  In April 1935, representatives from Britain, France, and Italy met in the resort town of Stresa.  They agreed to resist any further German violation of the Versailles Treaty.  During the conference, the Italians raised the issue of Ethiopia.  Italy wanted to take over a big chunk of Ethiopia.  This was Italy’s bill for helping contain Germany.  The demand embarrassed the British, so it never made it into a written agreement.    

Mussolini had not abandoned his goals.  In October 1935, Italy invaded Ethiopia.  Public opinion, but especially “progressive” opinion, in both Britain and France went wild.  Demands rang out for support for the League of Nations and economic sanctions on Italy. 

British and French leaders still hoped to save the Italian alliance against Germany.  In December 1935, British Foreign Secretary Sir Samuel Hoare met secretly with French Foreign Minister Pierre Laval.  They agreed on a plan that gave most of Ethiopia to Italy while leaving a fragment independent.  News leaked, public opinion revolted, the plan was abandoned, and Hoare resigned.  King George V said “Ah well Sam, no more coals to Newcastle, no more Hoares to Paris.” 

Lesson: If you want the “status quo” in one area you may have to accept “revisionism” in another.  Who is the main enemy?  What are the alternatives? 

Movies About War at Sea” Greyhound.”

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In 1939, Germany won the “Battle of Poland.”  In early 1940 Germany won the “Battle of France.”[1]  A German invasion of Britain required control of the air over the English Channel.  The British won the “Battle of Britain.”[2]  Then began the “Battle of the Atlantic.”  Britain imported much of its food and raw materials; it would have to send forces to its far-flung battle fronts by sea; no Britain as a base, no cross-Channel attack in 1944 or any other year.  To stay in the war, Britain had to control the shipping lanes of the world.  Hitler ordered his navy to strangle Britain through submarine warfare.  The critical phase of the “Battle of the Atlantic” ran from 1940 to 1943.  All the while, Britain’s survival hung by a thread.[3] 

  At first, the Royal Navy had only the help of the small navies of the Commonwealth countries and a few Polish and Free French ships.  After Pearl Harbor, the United States Navy joined the fight.  “Greyhound” (dir. Aaron Schneider, 2020) provides an absorbing account of the problems of convoy escorts during the critical stage of the “Battle of the Atlantic.”[4]  The movie tracks a 37-ship convoy bound for Britain.[5]  What do we learn? 

First, on either end of the voyage, the convoy is also protected by aircraft, armed with depth charges and searching a much greater area than can the escort vessels.  In between is the “Mid-Atlantic Gap” when the convoy is out of range of air cover.[6]  Then the convoy has only the escort vessels.  The German U-boats loved this “Black Hole.”

Second, modern science helped arm the escort vessels.  “High Frequency Direction Finding” (HFDF or “Huff-Duff”) could locate the source of the long-distance radio messages used by the U-boats to communicate with their bases.  ASDIC (now called Sonar for Sound Navigation and Ranging) allowed the escort vessels to locate U-boats at closer range.  Attacks on submarines used depth charges whose water-pressure sensitive triggers caused them to explode at pre-set depths. 

Third, the U-boats still had advantages.  On the one hand, ASDIC could tell location, but not depth and depth charges had to explode within 20 feet to damage a submarine; when on the surface they had a high speed through the water and a very low silhouette that made them hard to see.  Surface night attacks were common.  Get a ship burning and it illuminated other targets.  On the other hand, the Germans subs took up a picket line across likely convoy routes, then converged on sighted convoys to attack in “wolf packs” that could swarm the escort vessels. 

Fourth, Captain Ernest Krause (Tom Hanks), the commander of the U.S.S. “Keeling,” represents the whole US war-effort in the early period after Pearl Harbor.  The Americans would exert an ever-increasing weight in the Anglo-American alliance as time went by, but the British had been at war for two years already.  Krause relies on his long years of service in a highly-trained and unforgiving Navy and upon an imposing personal sense of duty to cross his own “mid-Atlantic gap.” 

Fifth, words like “success” and “victory” had only a relative meaning.  Six of the merchant ships and one of the escort vessels are sunk by the Germans, and the “Keeling” is damaged.  Still, 31 merchantmen and three escorts survive.  It was a “tonnage war” and much more got through than was lost.  As Krause, exhausted by 52 straight hours on the bridge managing the complex battle trudges toward his cabin, he hears the crews of the merchant ships cheering. 

[1] An umbrella term for conquering Denmark, Norway, the Netherlands, Belgium, and France, and driving the British Expeditionary force off the Continent at Dunkirk.  

[2] See “The Battle of Britain” (dir. Guy Hamilton, 1969).  It is historically accurate and the flying scenes are thrilling.  Based on Derek Wood and Derek Dempster, The Narrow Margin.  The Battle Of Britain (1969) (youtube.com) 

[3] There are a host of good books on this subject, but one might start with Samuel Eliot Morison, The Battle of the Atlantic, September 1939—May 1943 (1947), a volume in Professor/Admiral Morison’s Official History of U.S. Naval Operations in World War II.  Morison knew the sea and how to write readable history. 

[4] Other Good-to-Great movies on this subject include: “San Demetrio London” (dir. Charles Frend, 1943); “The Enemy Below” (dir. Dick Powell, 1957) The Enemy Below 1957 (youtube.com); “The Cruel Sea” (dir. Charles Frend, 1953); and, from the German side, “Das Boot” (dir. Wolfgang Peterson, 1981).   There’s a documentary as well: “U-Boats vs. Allies” U-Boats vs Allies – WWII: Witness to War – S01 EP3 – History Documentary (youtube.com) 

[5] East-bound convoys had an “HX” designation (originally for leaving Halifax, Nova Scotia). 

[6] Both the RAF and the USAAF prioritized strategic bombing of Germany in allocating long-range aircraft, stinting convoy protection.  Eire remained resolutely neutral and denied Britain the use of ports and airfields in Western Ireland that would have greatly eased the situation.  Had Britain fallen to Hitler,… 

Playing Chicken.

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Architects of the Euro-zone sought a stronger, more prosperous, and more harmonious union.[1] The inauguration of the Euro in 1999 began a period of low interest rates for member countries. Low interest rate led to heavy borrowing by both public (Greece) and private (Spain, Ireland) sectors. When the world economy slowed down after the American financial crisis, debt-service became a problem.

The architects had not then—and have not yet—resolved all of the problems. One worm in the apple is that the single currency serves 19 sovereign states. Those states do not pursue uniform economic policies. Nor do all national cultures celebrate the same values.[2] German hostility to budget deficits closed off large-scale counter-cyclical spending as a policy tool. Instead, states were to pursue limiting deficits as a share of Gross Domestic Product (GDP).

The pursuit of austerity policies has had different effects in different countries.[3] The GDP of Germany has risen about 10 percent from 2009. The GDP of Portugal, Spain, and Italy are all down about 10 percent. The GDP of Greece is down more than 20 percent. The decline in GDP has increased the burden of the government debt financed by taxation. Government debt as a share of GDP has risen from about 30 percent to about 70 percent in Spain; from 90 percent to about 110 percent in Italy; and from 60 percent to about 120 percent in Portugal. Greek government debt as a share of GDP has risen from about 110 percent to about 170 percent. (Thus, austerity has pushed Italy and Portugal into the same territory from which Greece began.) This raises the danger that bigger, more severe crises lie over the horizon.

The the creditor countries could pursue expansionary policies that might fuel demand for goods from the debtor countries. Once again, different national politics and cultures come into play. The northern creditor countries don’t want to abandon the policies that they associate with their own success, least of all to bail out the improvident.[4]

The concept of the Euro-zone was that—like Mr. Lincoln’s theory of the Union—the members had formed an indissoluble bond.[5] The Greek crisis threatens that idea. If Greece was to be forced out, then any other country that got into serious financial difficulty in the future might suffer the same fate. Countries at risk would have to pay extremely high risk premiums for financing public debt. The whole Euro-zone could unravel from the bottom like a sweater. Crisis after crisis would gnaw at a union that seeks the benefits of stability.

Hard-liners have not said so, but it might turn out to be a way of finally enforcing the economic doctrines of the northern creditor countries on the southern debtor countries.[6] Any country that did not wish to pay high risk premiums to lenders would have to pursue “sound” finances. That, in turn, could force a reform of social and economic policies.

The Greek “Syritza” and Spanish “Podemos” parties have drawn strong support for demands to end austerity and for debt repudiation. Many American observers seem to think that the Germans and other creditors should be happy to get robbed by the Greeks and other debtors for the greater good. The long Republican counter-attack against high taxes since the Reagan Administration shows something different. People who feel victimized will fight back. Right now, the focus is on angry Greeks and Spaniards. In the future it’s likely to be angry Germans.

[1] Eduardo Porter, “Local Politics Are Fracturing European Unity,” NYT, 3 February 2015.

[2] Flexibility, thrift, and probity, for example.

[3] See the charts in Porter, “Local Politics.”

[4] The limited historical knowledge of many economic commentators leads them to make frequent references to the post-First World War inflation as a formative experience. They ignore the “cigarette economy” that flourished after the Second World War and the heavy burdens carried by West Germans after absorption of the defunct German Democratic Republic in 1989. Germans today have a far more vivid set of memories shaping their behavior.

[5] Stephen Fidler, “Europe Weights Costs of Casting Greece Aside,” WSJ, 6 February 2015.

[6] As Voltaire quipped after the Royal Navy executed Admiral John Byng, “They shoot one to encourage the others.”

 

Annals of the Great Recession III.

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Years ago, back before the world economic slowdown, Germany overhauled its economy to make it more competitive and flexible. This overhaul built on earlier German strengths: an excellent educational system, a commitment to quality production, and a cultural predisposition to sound finances. The successful reforms put Germany in a strong position to first weather the initial storm and then exploit the inflationary policies pursued by other countries.

Not everyone pursued similar policies. Many European countries opted for social protection over economic growth. Their labor and management systems are encrusted with regulatory barnacles that slow growth and hinder employment; they run high levels of debt that become increasingly difficult to support with stagnant economies; and they are broadly change-averse. In the worst case, the Greeks spent years living off grants and loans from the European Community while cooking their books to disguise the fact that the money was being consumed rather than invested. The demographic crisis of an aging population across much of Europe bodes ill for the survival of the welfare states. Reforms to increase innovation, productivity and competitiveness are essential for the long-term future.

With the onset of economic crisis in 2009, the Germans seized upon the crisis as a device to force other countries to make fundamental reforms to improve the long-term position of the whole group.[1] Germany rejected expansionary policies at home while leading the imposition of severe conditions upon Greece in exchange for further aid. Behind the disreputable Greeks stood the more reputable Spaniards, Italians, and Frenchmen. Many countries didn’t want anyone saying that they resembled the Greeks, so they went along with the German policies.

However, even under pressure most countries have not made the kinds of reforms to entitlements, labor market regulations, and budgeting needed to create dynamic economies. Europe continues to limp along behind the United States in recovering from the “Great Recession.” Indeed, the danger that Europe will slide into a deflationary-spiral is very real.

From a dispassionately economic perspective, the best solution appears to be a combination of monetary stimulus by the ECB, higher public spending by Germany and other creditor countries, deficit-reduction in the debtor countries, and a wide application of the reforms that the Germans have been pushing.        The rival policy to that of Germany has been inflation by the European Central Bank (ECB) and higher spending by the creditor countries in order to ease conditions in the debtor countries. The hard times have led to the rise of “anti-austerity” parties, like the Syriza party in Greece and the Podemos party in Spain. Commentators can’t prove it, but they suggest that the growth of anti-European parties like the French Front National and the British United Kingdom Independence Party (UKIP) and of anti-immigrant feeling are all tied to “austerity.” Until recently, Germany managed to fend off calls for inflation.

The German strategy is founded on a misconception. The Germans have assumed that other countries could alter their politics and culture to become German-like. Most countries are not like the Germans and do not want to pay the costs of becoming more German-like. They have aging populations that are set in their ways. They have lived for decades with public discourse that disparages entrepreneurs and American-style capitalism. The costs of transition will be paid by entrenched interests and will benefit chiefly their descendants.[2]

Will the Greeks be forced out of the European Community? Or will the Germans?

[1] Marcus Walker, “Analysis: Double Blow to Germany’s Leadership,” WSJ, 26 January 2015.

[2] As Groucho Marx once asked, “What’s the future ever done for me?” The United States faces something of the same dilemma. See: “College costs: the old eat the young.”