An Epistle to the Germans

One of the papers I get a regular email summary from is Handelsblatt Global. Last Friday, 26th January 2018, they did a piece on Germans’ attitude to money. I reproduce it at the bottom. I decided to reply to the editor, Andreas Kluth, as follows.

Dear Sir,

Thank you for this opportunity to provide some feedback. I had not noticed it before. I am a Kipper (member of UKIP) and retired Chartered Accountant, and was fascinated by your article about Germans’ attitude to money. I had some experience of doing business in Germany in the early 90’s (your tax system is far more logical than ours, and I enjoyed the opportunity to write off goodwill against tax!) but recall the difficulties of paying bills by credit card. Now I know why!

I am concerned that there is so little understanding of Brexit on the continent. UKIP (and the AfD) are routinely and lazily dismissed as racist and right-wing, whereas in fact we are nothing of the sort. I was fascinated recently by a television documentary here from Freital. When people feel insecure, threatened, ignored and shat upon from on high they get angry, and when they get angry they get confrontational and even violent and abusive. It’s regrettable but it’s the only way they can get attention, and it’s perfectly normal human behaviour. No amount of sanctimonious lecturing is going to change that. The only solution is to address the underlying problems, and that means listening to the message rather than shooting the messenger. I am assuming of course that democracy prevails. You can suppress the few, but you cannot suppress the many. Even Machiavelli understood that.

People look to their own kind for support (hence all the flag waving and putting their country first – all of which I don’t personally chime with) and I see exactly the same thing in my prospective constituency of Southall in West London where there is a majority black and Asian community. We have the largest Sikh community outside India, yet we also have many other ethnic groups as well. The interesting thing is that they all self-segregate into their own streets and around their own places of worship. They feel safer that way and I don’t blame them or have a problem with it, yet when the indigenous community does exactly the same thing they are called racist! There is surely a difference between diversity (good) and cultural displacement (bad)? Many immigrants are in fact white. The immigration debate is about numbers, not race.

I can tell you that my Asian constituents understand Brexit perfectly. It’s the white metropolitan lefties who are the problem. We had a 40% vote in favour of Leave in the referendum (London generally voted to remain). The housing crisis, deteriorating public services and environmental pollution are all major concerns. On average Britons today are 25% worse off than they were 30 years ago (download the numbers for GDP, population and prices and you can see for yourself), and the effect is magnified by widening pay and regional employment gaps partly caused by wage compression from immigration. The metropolitan elite have managed to insulate themselves financially in this way, which probably explains their arrogance and their ignorance.

As I am sure you know, historically the term right-wing derives from the National Assembly in France during the French Revolution when the bourgeoisie, who were better off and better educated, sat to the right of the speaker. Not only were they richer but they also believed in a restricted franchise. Fascism also has its roots in belief in rule by the elite. If anything therefore it is Remainers who are right-wing in Britain, not Brexiteers.

I don’t know how hot you are on English history, but I see this political divide today as similar to that between Catholics and Protestants in the 16th and 17th centuries. Nigel Farage is Martin Luther (ok, he was German!) with his protestations against the indulgences of the Catholic Church (the EU). David Cameron was Mary, Queen of Scots, whose fateful letter to Anthony Babington (Nick Clegg) led to her execution (the referendum result). The Spanish Armada (Article 50) continues to advance. Let’s hope David Davis (Sir Francis Drake) has enough balls (non-canon variety) to win the Battle of Gravelines, though the weather (Theresa May) is decidedly changeable!  In fact it took another hundred years until the accession of William of Orange and the Glorious Revolution of 1689 for the matter finally to be settled.  Since then of course we have enjoyed great success with our German monarchy (many thanks – a big improvement on the Normans).  UKIP may be suffering an attack of hiccups at the moment, but if Theresa May screws up Brexit, which is now looking very likely, I can but quote Arnold Schwarzenegger in The Terminator – “We’ll be back”!

UKIP is still seen as a single issue party, despite two very comprehensive manifestos for the last two general elections in 2015 and 2017.  We stand as a centre radical libertarian alternative to the failed ideologies of socialism and conservatism (big brothers and dead sheep) who are only interested in keeping each other out. Our national political and economic situation reminds me of that of the victim in Edgar Allan Poe’s novel The Pendulum. In it the victim is strapped onto a table and cannot move. Just above him a huge pendulum is swinging from side to side with a huge knife on its underside. Tick, tock, Left, Right it goes on and, with every tick and every tock it descends another notch. Our fate is predictable if we cannot escape our bonds (the EU) and smash the pendulum (proportional representation). Why, for example, do we have to take our essential services from hopelessly inefficient public sector monopolies? Why should we not have the option to purchase them from the private sector on a means-tested basis, perhaps by using a national credit card managed through the tax system? Why do we have to send our children to single-stream comprehensive schools when it is perfectly obvious that many children, particularly those from poorer groups, are struggling to keep up and it is clear they need preferential support and perhaps a more focused curriculum? And why cannot we have a cash alternative to housing benefit when the public sector cannot supply sufficient social housing? It’s all about freedom of choice. I could go on.

However it is trade and the economy that worry me most. Over the past 30 years, since the onset of globalisation and the transfer of responsibility for our trading affairs to the EU, we have built up a massive trade deficit amounting to around 5% of GDP. The EU deserves the sack for that alone!  A trade deficit is like having a hole in the bottom of our economy, and is the single most obvious reason for the decline in our standard of living. Jobs, wealth and consumer demand are pouring out of it all the time, and if nothing were done about it unemployment would go through the roof.

Fortunately the Bank of England came up with a cunning wheeze called Quantitative Easing. This works by reducing interest rates thereby persuading people to borrow their future income to spend today.  Unfortunately it also has the effect both of building up a personal debt mountain (all bubbles burst eventually) and of reducing savings, thereby starving the banks of money to lend to business for investment and productivity growth. And the media wonder why we have a productivity gap?!

As Mervyn King (Governor of the Bank of England between 2003 and 2013) points out in his recent book, QE can only be a temporary fix. Sooner or later tomorrow becomes today and everyone has already spent all their income and cannot borrow any more. Thus the only permanent solution is to eliminate our trade deficit. If we fail to do that interest rates will remain on the floor and not only will our standard of living continue to decline but people will remain unable to save for their retirement and we will have an even greater financial crisis when the debt bubble bursts.

Any attempt to do a trade deal with the EU as part of the Article 50 negotiations will have the effect of locking us into our £70bn trade deficit, as well as denying us some £25bn or so of import tariff revenues. There are only two ways a country to manage its trade balance – devaluation and import tariffs – both of which are only available through Brexit.  It is surely imperative for us to maintain sufficient flexibility to increase our import tariffs to a level that will balance our trade, but nobody seems to have spotted this. Theresa May is clearly out of her depth and doesn’t understand the economics of it, and gets poor advice from a civil service that is no longer fit for purpose, possibly due to having been subject to years of subservience to Brussels and decades of politically-correct social engineering as well as being institutionally biased in favour of Remain. A future UKIP government would have no hesitation in tearing up anything she has signed.

There was never any need to enter into the Article 50 negotiations at all. I am not surprised that M. Barnier cannot decipher what we want from them. The real answer is nothing!  Non-tariff barriers can be overcome by the use of online predeclarations and ANPR cameras, and trackers fitted to lorries would remove the need for inspections at borders; a simple bilateral treaty with Ireland to run joint external border controls would remove the need for a hard internal border; and a two-tier immigration system (balanced migration for citizenship on a first-come first served basis following fifteen years of self-sufficient residency under a points system set to keep the citizenship queue to a reasonable length) would surely preclude the need for special arrangements for EU citizens, which we see as discriminatory anyway. Even the City is now relaxed about banking passports. What is there to negotiate? If you do not throw stones at us we will not throw them at you. Never cast the first stone. Isn’t that all we need to agree?

I shall never understand the continental fixation with free movement of people; presumably some sort of hangover from the war?  My view is that removing borders between countries is a bit like removing the bulkheads from within an ocean-going oil tanker. It just creates instability.  Balanced trade and balanced migration must surely be a precondition for peace and prosperity.  Just as the human body is composed of cells, the family composed of individuals and the nation state is composed of families, so the global community is composed of nation states. If the cell structure breaks down the result is cancer and death. If democracy is extinguished in one part of the world it can continue to shine like a beacon elsewhere. That is why I am a strong nationalist, as well as a strong believer in the benefits of competition both economically and culturally (ok, we might let you win a football match sometime!)

Also I shall never forgive our Treasury mandarins for failing to advise George Osborne  to start a Sovereign Wealth Fund when interest rates first hit the floor nearly ten years ago (I accept he would never have thought of it for himself). We now have a national debt approaching £2trn plus another £4trn or so of unfunded pension liabilities which will hit us later this century. If taxpayers can’t even fund our fiscal deficit now they will have no chance of producing surpluses of this order later. Yet the solution is staring us in the face. Any decent fund manager will get returns of between 7 and 10% on average long term from global equities, yet government 30 year money costs less than 3% simple interest at present. Even just a 5% return compounded would quadruple our money over 30 years – enough to repay the loans and all the interest on them and leave a substantial unencumbered fund thereafter. They can’t even be proper Anglo-Saxons when we want them to be! Where are the non-conformists? Where are the original thinkers? Where are the problem-solvers? Our establishment today represents the lowest common denominator from our paranoid quest for equality. UKIP stands fore-square against all forms of discrimination, including positive discrimination, but with the single exception of ability-ism. I don’t mind where they come from, and it is great to see so many women and people of colour becoming prominent and successful, but we must always chose the best.

I think Germans are very fortunate to have a distaste for debt. It has kept your trade in surplus and your economy stable. Even so your psychology is not in fact that different to ours.  You may suffer from post-traumatic stress disorder (PTSD) on account of your recent history, but our barmy establishment suffers one from our imperialistic past too, which is hardly taught in schools any more. I enjoy reminding them that the British Empire was the first Single Market!  You cannot judge the past by today’s values. The glorious irony is that history programmes on the telly have never been more popular, even those going back to Roman and Norman times.

Don’t be put off by our programmes on WW2, which I see your retiring Ambassador to London is so exercised about. It’s nothing personal. We are saddened by your apparent desire to lose your national identity in Europe, which we think distorts your assessment of the EU. As a nation you have much to be proud of. Let us all remember the teaching of the Bible which exhorts us to “visit not on the sons the sins of the fathers” (to which I always like to add “and neither credit to the sons the claims of the fathers”!). I am quite sure few Brits today blame Germans today for WW2, and as generational renewal, which has always been the ultimate cure for accumulated traumas, proceeds those with direct family memories will die out. Life goes on. It’s just history, from which we learn about human psychology generally.

Well, I hope you liked my little bit of feedback,

With very best wishes,

John Poynton


Dear Reader,
Germans are different, and it often matters. Take, for example, a subject of more than passing interest: money. At a rudimentary level, Germans have the same attitude toward money as English-speaking people and others do: They like it, and they’d like more of it. But beyond that, Germans think about money in a way that is, to put it charitably, idiosyncratic.

For starters, compare attitudes about borrowing. Anglo-Saxons see no problem with that. They borrow money, then spend it on college tuition, get a better job and eventually make even more money. Or they just have fun. At some point, the bank might call. But, you know, who cares? Germans are aghast at such flippancy. Phonetically, etymologically, and psychologically, they understand that Schulden (debt) = Schuld (guilt). Borrow, and thou shalt die. Thy death will be slow and painful.

The differences are just as stark on the savings side. Anglo-Saxons, if they have money left over, will put it where they have been told it will grow. So they buy shares, either directly or through mutual funds. The stock market sometimes nosedives, as in 2008. But they are sure that in the long run they will win. They also buy houses, because they can live in them, and they don’t like paying rent. To buy the houses, they borrow (see previous paragraph). Some are unlucky and get foreclosed on. But most pay off their mortgages, then retire with their house and their shares and feel wealthy.

Germans look askance at shares, and many never buy their own houses (probably because that would mean borrowing). Don’t those Brits and Americans understand that shares are risky, and that risk is, well, dangerous? Germans instead practice safe saving. They put their money into savings accounts at local Sparkassen, which are municipally-owned thrift institutions. The interest paid is not visible even with a magnifying glass, and the money often shrinks when counted after taxes and inflation.

Germans also buy life-insurance policies of a type that Anglo-Saxons don’t really have. These are so-called “capital-life” policies. Like term-life policies, they pay money to loved ones if the policyholder dies. But these German policies are really savings accounts or pension plans, in that they accumulate capital until retirement and then pay an annuity even when the policyholder doesn’t die.

Some of that return is guaranteed by the insurer. But some is discretionary and thus at risk. These subtleties are in the fine print, which even Germans don’t read. Almost all Germans have placed their trust in such insurance: There are actually more capital-life policies than people living in the country.

Jeremy Gray, one of our finance editors, explains this German life-insurance culture and its consequences, which are dramatic. For many years, the life insurers promised policyholders high returns, and Germans based their retirement expectations on those promises. Then interest rates fell almost to zero, and the insurers could not invest the premiums to honor their promises and still make a profit. So now the insurers are in trouble, because their old policies have become time bombs. Many are unloading them to bargain hunters, rather as troubled lenders set up “bad banks.” Some German life insurers are no longer financially sound. A new financial crisis is conceivable.

And the policyholders? Many are suddenly realizing that their policy won’t pay out anything near the amount they had factored into their retirement planning. Some panic, and surrender their old policies, which is often a bad idea. Many fear poverty in their old age.

Just knowing a bit about these different money cultures helps to understand a lot of European politics today. Many Germans consider it self-evident that low interest rates, and by implication the European Central Bank, are the root of all evil. Anglo-Saxons, meanwhile, are watching their stock portfolios and house prices go up, and are looking for a central banker to hug.

Until the next market crash. Last time, it came from America and, tellingly, had to do with houses and shares, among other things. Next time, could it start in Germany and those staid insurance firms?


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