Germany's migration statistics

Now it's official:

In 2008, the number of people leaving Germany exceeded the number of newcomers by 56,000.

(There's a catch, though: The data regarding foreigners residing in Germany was extensively reviewed during 2008, and many non-existing residents were deregistered by the authorities. In other words, the negative balance is overstated, and nobody knows how many people really left the country last year...)

Wealth Tax

The Vermögensteuer (wealth tax) is being hotly debated in the press once again. The latest study, this one authored by the DIW, suggests to raise an additional 25 bn € by levying a 1 % tax on private wealth in excess of 500,000 €.

In principle, I tend to agree that the lack of demand we are currently facing could be eased by taking money away from the rich (which tend to be big savers) and spending it on the poor (which tend to save little or nothing).

However, in practice this becomes rather tricky:

- How do you measure "private wealth"? One of the reasons why the Vermögensteuer was abolished was that revenue was comparatively small, yet the work involved in assessing it was quite big, i.e. lots of tax inspectors needed to toil away, and lots of tax advisers needed to help filling out the forms. It wasn't exactly an efficient way to raise tax revenue. In particular, how do you deal objectively with real estate and with stakes in non-traded company? The "old solution" was to tax it very lightly. But that of course is unfair, and it also reduces tax revenue.

- The other reason for abolishing the tax was that the constitutional court had declared it to be unconstitutional, because it implied a marginal tax rate of more than 50 % on the income of rich people, and for some reason, the German constitution does not allow for taxation in excess of 50 % (I never quite understood why, though).

- In any case, a wealth tax of 1 % in addition to the 25 % tax on capital income and 48 % top income tax bracket would surely drive many of the remaining ultra-rich abroad: An individual with a net worth of 1 bn € would have to pay an additional 10 m € per year in taxes, on top of what he is already paying.

- Considering the current low money-market of roughly 1 %, many people might even find it more attractive to turn their savings into cash and stash the cash in a safe box or under the mattress. After all, 1 % interest minus 25 % income tax and minus 1 % wealth tax equals -0.25 %. Putting the money under the mattress equals zero.

I'm not sure how the DIW arrived at 25 bn € in tax revenue. But considering all these points, I highly doubt that a 1 % tax on wealth in excess of 500,000 € would yield anywhere close to 25 bn €. But at least it would provide stable jobs to thousands of newly hired tax inspectors...

(According to Wikipedia, the Vermögensteuer was payable until 1996. In 1996, it yielded 4.5 bn € in revenues, and cost 150 m € to collect. Tax-rates were 0.5-1.0 %, depending on asset class. Sure, wealth has grown since 1996, but it hasn't exactly exploded. The gap between 4.5 bn € of revenues back then, and the claim of raising 25 bn € now seems hard to reconcile.)

Bank Recapitalisation

According to this Spiegel article, various high-profile German economists are asking the government to force banks to accept government equity participations.

The strange bit: They don't say which banks. Right now, the only major banks without government involvement are Deutsche Bank and HypoVereinsbank. And currently, those two banks appear to fulfill the solvency requirements. So on what grounds would Berlin be allowed to force a partial nationalization on them?

But it gets even better:

The reaons for the partial nationalisation are stated as follows:

Der Bund hätte zudem Einfluss auf die Geschäftspolitik und könne die Institute zur Kreditvergabe zwingen. Außerdem könne die Regierung die Banken von einer Rückkehr zu ihren früheren gefährlichen Geschäftspraktiken abhalten.

On one hand, the banks should be forced to lend more. On the other hand, the government can make sure that the banks will not return to "dangerous practices of earlier times". Right. State-owned banks do a much better job of avoiding "dangerous practices", as evidenced by the great shape of the Landesbanken. And of course being forced to lower lending standards in recessionary times does not constitute "dangerous practices".

(As posted many times already, I am not against nationalising banks that do not have an appropriate level of capital. But only to avoid setting the wrong incentives. Certainly not to force them to lend more or to institute superior risk management practices.)

Arcandor

In a Spiegel interview, Madeleine Schickedanz, the largest Arcandor shareholder, argues that ex-CEO Middelhoff can't possibly be accused of doing anything improper. His only possible mistake according to her: He may have given too much leeway to his CFO during the real estate crisis.

I see. So the fact that Middelhoff invested millions of his personal money into real estate sold by Arcandor to a fund where he was co-investor is due to the excessive leeway he gave to his CFO. Interesting way of seeing things...

Porsche

According to press reports, it's more and more likely that Wiedeking will step down from his post as Porsche's CEO. Apparently, his contract goes until 2012, and if he agrees to leave early, he would be able to claim a golden parachute worth more than 100 m €.

Now let me get this straight:

Here's a guy who was paid 80 m € last year because of Porsche's record profit caused by a huge bet on VW's share price. Then it all turned sour, and Porsche now desperately needs to be bailed out by VW and/or foreign investors. Yet if the owners want to get rid of him, they have to throw in another 100+ m €?

Why on earth did they give him a contract that entitles him to such a crazy sum in spite of screwing up?

(Though if I read the press reports right, they are speculating. They don't actually know what's in the contract. But I suppose we'll know soon enough if the number turns out to be true.)

Unemployment Rates

The FT has an interesting graph showing how unemployment rates have changed compared to a year ago:

Spain: +8.2 percentage points
Ireland: +6.2 percentage points
US: +3.8 percentage points
Japan: +1.2 percentage points
Germany: +0.3 percentage points

Interestingly, the recession has hit hardest in Japan and Germany when measured by "drop in GDP", with Spain and the US seeing much smaller GDP contraction.

However, Spain's unemployment rate has skyrocketed, whereas it has hardly budged in Japan and Germany.

Part of the reason is probably the German Kurzarbeitergeld, and large companies' reluctance to lay off core staff. In contrast, Spain has presumably shed lots of low value-added, low-paid jobs in the construction sector.

Still, it's hard to fathom how there can be such a huge divergence between Germany and Spain.

As for the US, the article mentions that the number of US workers "forced into part-time work for economic reasons" stands at roughly 9 million people, 6 % of the labor force. And 1 in 9 Americans now rely on food stamps.

German Pensions

According to press reports, "experts" of the Deutsche Rentenversicherung have calculated that Germany's public pension system is not in fact a bad deal for the contributors.

Specifically, an average income-earner retiring between 2030 and 2040 will receive a return of 2.8 % (male) / 3.3 % (female) on the contributions made.

Sounds decent.

The catch:

Nobody tells us what the assumptions are. And the assumptions (inflation, real income growth, number of contributors, taxpayer subsidies) are crucial. The calculation results are completely meaningless without knowing the assumptions.

I tried to find the study on the website of Deutsche Rentenversicherung, but it doesn't seem to be there. Or maybe they are hiding it in some obscure corner of the website.

Salary Caps at German Banks

Banks that receive government funds are only allowed to pay their top management a maximum salary of 500,000 €. HSH Nordbank is one of the biggest basket cases in German banking, so surely CEO Nonnenmacher is subject to the cap, right?

Turns out he isn't. According to the FTD, he will receive a bonus and a pension entitlement totalling 2.9 m €. That's on top of his regular salary (no idea how high that is).

How can that be? Well, technically HSH has not received money from Soffin. It "only" received guarantees of 30 bn €. The equity injection of 3 bn € came from the states of Hamburg and Schleswig Holstein, not from Soffin. So state-owned HSH can pay its CEO as much money as it likes.

German Shipyards

I've been criticising China for pouring so much money into its shipyards even though very few new ships will be needed over the next few years.

Turns out that Germany is doing the same thing, albeit on a much smaller scale:

The Wadan shipyards in East Germany are Germany's third biggest yard. After receiving 167 m € in aid from state and federal government a few months ago, the Russian and Korean owners refused to inject more money, and the company went into insolvency proceedings. Now, the government is apparently in the process of approving an insolvency credit line ("Massekredit") of 190 m €, so that the shipyards can finish their ongoing projects.

Inconvenient detail: Apparently, the buyers of the ships have no financing, so it's highly doubtful that they'll pay. And when they're done building those ships, there are no new orders waiting. But hey, the 190 m € will help maintain the 2,500 jobs for a few more months. What's a mere 80,000 € per job, if it means that those 2,500 people will be able postpone their unemployment by a few more months...

More on Arcandor

Arcandor's market capitalisation as of today: 140 m €

How come the shares are still worth so much?

If investors are betting on a "best case" upside, what would they need to expect?

Let's see some possible calculations:

80 % zero value, 20 % 700 m € value
90 % zero value, 10 % 1.4 bn € value

Can anybody seriously expect an upside of that magnitude?

Hmmm, maybe some investors saw me spending 34,99 € at a Munich Karstadt this morning, and that gave them a much-needed boost of confidence?


On a side note:

I noticed that KarstadtQuelle Bank is aggressively advertising term deposits (3.6 % for 2 years).

While it's true that they are not owned by Arcandor (instead, they are owned by Valovis Bank, which in turn is owned by the Arcandor Pension Trust), most of their business appears to be linked to Karstadt and Quelle.

Right now, they still have 8 branches in Karstadt department stores, but all of them will close within two months.

I wonder: What sort of sustainable business model do they plan on implementing going forward?

Goodwill on German Balance Sheets

Yesterday's Handelsblatt informed us that the 133 German corporates listed in the various DAX-indexes had a total of 189 bn € in goodwill on their 12/08 balance-sheets. Of this, 75 bn € was added since 2004, and 13 bn € in 2008 alone.

The biggest acquirers were Deutsche Telekom (21 bn € goodwill), Eon (17 bn €) and Siemens (16 bn €). 13 companies, including Deutsche Psot (10 bn € goodwill) had more goodwill than equity, i.e. their net tangible assets are negative.

Considering that the lion's share of M&A activitiy was cross-border, that the money paid for acquisitions includes not only goodwill, but also net assets, and that non-listed companies also engage in M&A, it appears that during the last 5 years, at least 1-2 % of Germany's GDP went into cross-border M&A.

That's quite a substantial part of the current account surplus. As much of it was clearly acquired at too high a price, it probably wasn't a much better use of investor money than buying American residential & commercial real estate.

In other words: Much of Germany's current account surplus was invested so wonderfully well (in M&A and foreign real estate), that it has all but evaporated by now...

Lend them money now, or else!

Three German cabinet members are now openly saying that banks should be forced by law to extend more loans to help troubled companies:

"Sollte es zu einer Kreditklemme kommen, müsse die Bundesregierung über noch nie da gewesene Maßnahmen nachdenken, sagte Peer Steinbrück der 'Bild am Sonntag'. Auf die Frage, ob er dabei an die Einführung von Zwangskrediten denke, sagte er: 'Ich will darüber jetzt nicht spekulieren.'

Steinmeier drohte im 'Tagesspiegel': "Wenn wir in einigen Wochen sehen, dass die Banken noch immer nicht bereit sind, ihre Aufgabe als Dienstleister der Wirtschaft zu erfüllen, dann müssen wir über weitere Schritte nachdenken." Trotz massiver staatlicher Hilfe müsse er feststellen, dass viele Unternehmen bei den Banken abgewimmelt würden oder Kredite nur zu unverschämten Zinssätzen bekämen.

Am deutlichsten wurde Guttenberg. Er drohte, die Bundesregierung suche Ansätze, Banken zu der Erfüllung ihres Kreditauftrages zu verpflichten - räumte allerdings ein, dass das rechtlich schwierig umzusetzen sei."

Is this pure posturing ahead of the election, or are they seriously contemplating legislation? I find it rather hard to imagine how such legislation could work in practice: What exactly would banks be directed to do? Fulfill lending targets to specified sectors of the economy? Base their lending decisions on criteria defined by the government as opposed to their own risk assessment? And wouldn't the bank shareholders have legal claims against the government if those "forced loans" go bad?

It all sounds hopelessly impractical to me. But politicians need to be seen to be doing something, I guess...

(Source: Spiegel)

US Real Estate

Manhattan is becoming "cheap": According to the FTD, last month the average price for a Manhattan apartment dropped to a mere ... 835,700 US$. Sure, it's down 20 % on a year ago, but it's still a far cry from Detroit's 6,000 US$.

Reminds me of what a colleague told me yesterday: A friend of his had bought a decent apartment in central Leipzig a few years ago, and is now trying to sell it. Apparently, he's finding it hard to attract buyers at less than 50,000 € asking price (far less than what he had paid). In central Munich, a similiar apartment would probably sell for at least 400,000 €.

German Real Estate

According to the FTD, anglosaxon investment funds have spent a massive 72 bn € on German residential and commercial real estate during 2005-08. And apparently, much of it is now proving hard to rent out or sell on.

It's not clear from the article how much of that money is from investors and how much from banks (nor do we learn how much of the bank loans are from German banks, and how much of the investor money is German money flowing into American-led funds), but it shows that it isn't only German investors that got burnt with US subprime - at least to some extent, it was a two-way-street...

Arcandor Tidbits

My hairdresser is on the third floor (Ground+2) of a Munich Karstadt. When I went there today around lunchtime, there was not a single customer anywhere in all of the third floor (apart from a few people in the hairdressing salon). There were quite a number of customers downstairs, but apparently nobody found it worthwhile to venture upstairs. And there are two more floors above the third floor...

As for Quelle, the FTD reports today that DHL sent out 160 million parcels for Arcandor's mail-order subsidiaries in 2008. That equals 4 parcels for every German household. Considering that I hardly know anybody who ever orders there, it seems that their hardcore customer base orders at least 1 parcel per month. Impressive, isn't it? Apparently, a massive 1/4 of DHL's revenue from commercial parcels is with Arcandor.

If Quelle really shuts down, it will be interesting to see where all these customers migrate to. Otto? Internet retail? Classical retail? 8 bn € of revenues is quite a big pie... As for DHL/Deutsche Post: It's not exactly good news for them, I'd say.

Migration in OECD Countries

The OECD has collected data on migration flows during the period 1998 to 2007. While the quality of local population data (i.e. registration of immigrants and emigrants) varies wildly from country to country, some interesting observations can be made:

- In 2000, 12.5 % of Germany's population was foreign-born. That put Germany at the top of the list of "big countries", higher than the US.

- By 2007, Germany's foreign-born population had increased less than 10 % compared to 2000. But many other countries saw big jumps:

* Spain tripled its foreign-borns (4.9 % -> 13.5 %, 2 m -> 6 m)

* Ireland doubled them (8.7 % -> 15.7 %, 329,000 -> 682,000)

* Norway added 46 % (6.8 % -> 9.5 %, 305,000 -> 445,000)

* the Czech Republic also added 46 % (4.2 % -> 6.2 %, 434,000 -> 636,000)

* the UK added 40 % (7.9 % -> 10.2 %, 4.7 m -> 6.2 m)

* Austria also added 40 % (10.5 % -> 14.2 %, 0.8 m -> 1.2 m)

- The countries with the highest shares of foreign-borns in 2007: Luxembourg had 36 %, Switzerland 25 %, and Australia also 25 %.

- In terms of flows, Germany has lots of immigrants coming, but also lots of people leaving. Other countries appear to see fewer people leaving (if they register departures correctly).

- In recent years, the countries with the highest inflows were Spain (>2 % of population in 2007), Ireland (> 2 %), Switzerland (>2 %), Luxembourg (>2 %), Norway (>1 %), Sweden (>1 %) and Austrria (>1 %). In comparison, Germany had an inflow of 0.7 % (the UK was only slightly higher at 0.8 %).

- Most of the countries with high inflows are comparatively small, so it's natural that they have a higher inflow in % of population, because large countries have more domestic migration due to their bigger size (moving from Munich to Berlin is domestic, but moving from Luxembourg to Brussels is international).

- However, Spain is a big country, and it is at the top of the 2007 inflow list. Also, while small size explains higher inflows, it doesn't explain why these countries have low outflows: In terms of net inflow, all the above countries were big gainers in 2007. And the UK, in spite of having similar inflows, saw less than half of Germany's outflows and recorded a much bigger net gain.

- Strangely, both Italy and France record very low inflows in % of population (their outflow data for some reason isn't available), though I suspect that in the case of Italy, the quality of the data is bad and many immigrants go unrecorded.

It will be interesting to see if/how these figures change due to the crisis. There is anecdotal evidence of foreigners leaving the UK, Spain and Ireland, but no hard data is available so far.

Munich Airport

According to an interview in yesterday's SZ, Lufthansa CEO Mayrhuber firmly believes that Munich's airport needs a third runway "aus wirtschaftlichen und ökologischen Gründen" ("for business and for ecological reasons"). He didn't elaborate.

Maybe I'm stupid, but why would it be necessary for - of all things - ecological reasons to build an additional airport runway?

Things Learnt at a Class Reunion

Yesterday, I went to my 20 year Abitur school reunion.

The principal of the school gave us a tour of the building, and kept complaining about deterioration and decay. According to him, they urgently need several million Euros to fix the worst problems, but the city has no money, so little will happen. When I mentioned the stimulus funds specifically earmarked for education-related investments, he said that it doesn't help, because the city needs to make a contribution as well, and simply has no money. (We are talking about a reasonably prosperous mid-sized Bavarian city with - so far - little unemployment)

Though later, I talked to an ex-classmate who is now involved in municipal politics in a Munich suburb. He said that everybody there is really happy about the stimulus funds, because 85 % of investment costs are paid by Berlin, with only 15 % to be contributed by the municipality. According to him, there is large demand for the funds.

Regarding German demographics, it might be interesting to note that out of a class of 56, not a single person is currently residing abroad. A handful apparently lived abroad for a few years, but all have since returned. Roughly 90 % live in Bavaria. All of the others have moved to Hessen or Baden-Wuerttemberg.

While lots still don't have any kids, the number of families with 3 (and in one case even 4) kids was surprisingly large. But overall, I doubt that the fertility rate has reached the national average of 1.4 - there were too many people with no kids at all. Well, I suppose there's still a bit of time left to get there.

One ex-classmate who hasn't moved away and who now has two kids in elementary school told me that in their school in our once "purely Germanic" small town (there was not a single "migrant" in my elementary school class, and the Abitur class of 56 people had one ethnic Croat and 55 Germans), nearly half the kids do not have German as their native language. Russian is by far the most common foreign language, but apparently there are now also significant numbers of Polish, Czech, Turkish, Iraqi, Lebanese, Afghani, Pakistani and Vietnamese kids.

As far as I could figure out, nobody had so far lost his/her job due to the crisis, and nobody felt in any immediate danger. Though the various engineers did unanimously report that their companies had pretty much eliminated business trips altogether over the last 6 months, some were on Kurzarbeit, and in one case, a company was postponing salary payments by one week to be able to be able to meet financial convenants.

Germany's Fiscal Stimulus

As part of the fiscal stimulus package, the German government decided some months ago to provide up to 13 bn € to finance infrastructure and education projects. That's 0.6 % of GDP, i.e. a significant sum.

Today's FTD reports that to date, only 11 m € have been paid out. That's not as bad as it sounds, as payments are only made upon completion, and you can't expect infrastructure investments to be completed so quickly.

However, it is worrying that applications for funding (which need to be made before work can start) are also quite low:

Nordrhein-Westfalen is one of the most active states in terms of applications. But even though it accounts for more than 20 % of Germany's GDP, total applications to date are only for 422 m €, and work has only started on 40 % of those projects.

Even assuming that all other states end up applying for a similar amount of projects as Nordrhein-Westfalen, total volume for Germany as a whole would only reach 2.1 bn €, i.e. 16 % of the stimulus budget, or barely 0.1 % of Germany's GDP.

So much for the effectiveness of infrastructure stimulus spending...

(The FTD also notes that 2008's federal package for childcare projects was 2 bn €. However, only 68 m € of it was used.)

Quelle

As discussed ad nauseam in the press during the past few days, Quelle (Arcandor's huge mail-order subsidiary) urgently needs government cash because an obscure bank called Valovis is no longer willing to buy Quelle's customer receivables.

The bizarre bit (and not mentioned at all by most press reports): Valovis is a 100 % subsidiary of the Arcandor pension trust, i.e. is 100% owned by Arcandor's staff! (It used to be a 100 % Arcandor subsidiary, and was sold to the pension trust in 2005.)

(Source: Handelsblatt)