Remembering Berthold Beitz

German industrialist and philanthropist Berthold Beitz died on Tuesday at 99. For the New York Times story, see here. He is rightly most remembered for his heroic actions during World War II, when stationed as a Nazi supervisor overseeing oil fields in Poland, he was responsible for ensuring that hundreds of Jews and Poles were saved from deportation and death camps.

After the war, his unsullied past led to being asked to take over the German industrial conglomerate, Krupp. This allowed him to set up the Krupp Foundation with proceeds from the estate of Alfried Krupp, the steel magnate and industrial war criminal. The Foundation under Beitz overcame its history to become one of the most important philanthropic institutions in Germany and Europe.

While much of its focus is on the arts, it is worth remembering the importance the Foundation placed on transatlantic understanding. Under Beitz's leadership, it created, for example, the Krupp Foundation Fellowship, housed at Harvard's Center for European Studies (CES) that since 1975 has funded hundreds of graduate students and undergraduates to conduct research in Europe. Many of those fellows have gone on to become among the prominent academics and teachers of Europe across the world. It is not an exaggeration to say that the Krupp Fellowship has singularly advanced the cause of Europe for several generations of scholars.

I had the pleasure of meeting Mr. Beitz five or six years ago when as CES's executive director, I visited him at the Foundation to thank him and update him on how the Center was preparing students with an interest in Europe.  Already in his mid-90s, he was still running the Foundation and was an incredibly elegant figure. He had a keen intellect, amazing stories and a profound desire to see Europe and the US remain strong allies.  In a splendid office filled with photos of him and virtually every important global leader of the 2nd part of the 20th Century, he brushed those aside to talk about the importance of giving young people opportunities to experience the world so that they would understand it and thereby lessen the misunderstandings and nationalism that give rise to conflict. An astounding life and an astounding man.

The Berlin Consensus

The finger-wagging Washington Consensus of the 1990s that prescribed market based reforms for crisis-ridden developing countries has been replaced in Europe by what we might call the Berlin Consensus that calls for austerity in the Eurozone countries in crisis. Regardless of the outcome of the Brussels Summit taking place today and tomorrow for the fate of the Euro (and you can vote on what you think the likelihood of the breakup of the currency is at CES’s Facebook page), austerity measures will be the order of the day.

Governments in Ireland, Greece, Spain and Italy are slashing budgets, subsidies and social programs  in order to try to bring deficits in line. The pain this will cause in terms of lower wages, higher unemployment and disrupted lives was made remarkably human by the Italian Welfare Minister, Elsa Fornero, who broke down in tears while announcing the austerity plans.

Yet in the slash and burn environment as countries race against the clock to assure markets that they are serious about getting spending under control, there is the danger that too little in these measure will focus on getting the country growing again or that untargeted cuts will destroy existing foundations for future growth. The Guardian’s analysis of  Monti’s budget in Italy, which cuts €30 billion, suggests that there is little that will stimulate growth.  Broadbrush cuts to higher education in Ireland, especially in science, threaten to undermine the high-tech infrastructure that has been crucial in attracting investment and skilled talent to the country for the past two decades, reports the Irish Times.

The human costs for long-term stagnation are also staggering.  El Pais reported today that Spain, at 31% has the highest percentage of overqualified labor in the EU, that is, people with university degrees who are employed in jobs that don’t require one. Ireland is second with 29%.  This inevitably leads to brain drain – indeed, highly skilled workers in the Iberian peninsula have been fleeing to emerging markets in their former colonies in Latin America and Africa where salaries and prospects are better. With youth unemployment rates near 50% in Spain and Greece and over 30% in Ireland, Italy and Portugal, the likelihood that these countries lose their best talent pool or that a lost generation is never really able to make up for the lost wages and experience (see the NBER paper on the long-term effects of graduating in a recession) is high. 
 

Without a better consensus on what kinds of austerity measures are necessary and what kinds of policies will set the stage for increased productivity and employment in the countries currently in crisis the Euro project is not viable.  All kinds of austerity plans will inevitably be painful but the point is not pain in and of itself; they need to be ones that decrease the imbalances in competitiveness of the northern and southern economies.  Otherwise, the Berlin Consensus, like the Washington Consensus that came before it, is doomed to fail.

Melancholia

Yesterday, as I was listening to Guido Goldman's talk on Germany and the Euro Crisis at the Center for European Studies, I was struck by the similarities between the way debt crisis is playing out this week and Lars von Trier's brilliant film, Melancholia.

In the film, an exoplanet is on a potential collision course with Earth. The next crucial days will tell whether it destroys the planet or simply keeps people in a state of deep anxiety and a rising sense of panic. Early on, despite the growing blip on the horizon, most of the characters are unaware of or ignore the danger and party in some vague Northern Europe land at the lush, candle-lit manor of a hedge fund manager.

Here on real Earth, there is a deepening sense that an exocurrency threatens to crash in Europe and destroy the global economy yet the northern Europeans don’t get the danger.  Goldman pointed out, in a sentiment that was clearly shared in the room, that this week is crucial for the fate of the Euro.  All eyes will be on the Brussels summit on Thursday and Friday to see whether the leaders of Europe are able to agree on measures to resolve problems of the Eurozone in a way that calms the markets.

But the main thrust of Goldman’s presentation was why Germany is having such a hard time doing what everyone wants it to. His argument was nuanced but boiled down to this: it's because many Germans do not see a crisis, after all their economy is not in bad shape, and have been ignorant of what real failure would mean not just for the rest of Europe but for Germany itself. Thus, while the SPD is actually supportive of what Merkel now, belatedly, wants to do, she hasn’t had the support of her own party and coalition partners to act.  For Germany to act, there has to be a real crisis. 

Let us hope that the politicians have not waited so long that it becomes impossible to shift the trajectory of the Euro off the path of disaster and destruction.