Winter 2015/2016
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The Voice of Europe’s Leading Economy
Can Germany Survive
a Refugee Crisis of its
Own Making?
Why Women CEOs
are Rare in the Land of
Angela Merkel
Dennis Schröder Boosts
Basketball in Germany
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From the Editor | Cover Story
Jörg Letz
Kevin O’Brien
Editor in Chief
Handelsblatt Global Edition
Dear Readers,
Not so many months ago, all seemed
right in our corner of the world. Europe’s
largest economy purred pleasantly along,
flirting with export highs and unemployment lows. The nation still basked in the
warm and fuzzy afterglow of the German
soccer team’s fourth World Cup victory.
That feels like another era now. Barely
had Europe recovered from another cliffhanger over Greece that German industrial
prowess suffered a punch in the gut.
American regulators caught Volkswagen
red-handed as the company deceived over
11 million customers using illegal emissions
software. The automaker’s unconvincing,
defensive response to the unfolding scandal could prove more damaging than the
toxic smog from its manipulated engines.
In our cover story on page 24, we examine the fall of the House of Wolfsburg, tracing the story of a German car company that
set out to overtake Toyota to become the
world’s biggest maker of cars and trucks.
Until it apparently ran out of innovative
engineering ideas and tried to hoodwink
the public instead.
Germany’s post-war tolerance is being
put to the test by the arrival of nearly one
million refugees from the Middle East and
Africa fleeing war, terrorism, poverty and
callous indifference. In our report on page
58, we take you beyond the daily news to
examine how much Germany has learned
from past waves of immigration, and how
the fallout will affect the political future
of the country’s once-teflon chancellor,
Angela Merkel.
Down the street from where I live, officials plan to convert the old city hall in
Berlin’s Friedenau district into a shelter
for hundreds of refugees. As the holidays
approach, many ordinary Germans are
volunteering their help across the country
as Syria’s four-year-old war finally arrives
Handelsblatt Global Edition appears Monday through Friday at noon
in Berlin and at 6 a.m. on Wall Street.
Read the Global at: www.handelsblattglobal.com
3
From the Editor | Cover Story
Hermann Bredehorst
Berlin mayor
Michael Müller
(right) meets with
Handelsblatt Global
Edition’s Franziska
Scheven and Kevin
O’Brien at city hall.
at their doorstep. Even as we write, the war
continues, producing fresh waves of refugees every day.
cities. We’d love to have you join us. If
you’re interested, please send me a message at editorial@handelsblattglobal.com.
These are just two of many insightful,
probing stories you’ll find in the latest edition of our magazine, Handelsblatt Global
Edition, the English-language voice of German business, politics and culture, and the
glossy print cousin to our daily digital
newspaper.
We hope you enjoy this latest issue of
Handelsblatt Global Edition magazine.
As always, I welcome your comments,
feedback and suggestions to the email
address above and invite you to visit our
newspaper at handelsblattglobal.com,
where you can register for a free, fourweek trial subscription. Just enter the
coupon code CARHPS.
In September we celebrated our first
year of delivering a daily insider’s perspective from Europe’s largest economy to English speakers around the world. We on the
Global Edition team are grateful for your
interest in our work, and look forward to
serving you in 2016.
In fact, your interest has been so great
that in March, we will be taking Handelsblatt Global Edition on the road to the
United States for a promotional tour and
series of events with key decisionmakers
and reader groups in several East Coast
Yours truly,
Kevin O’Brien
Editor in Chief
Handelsblatt Global Edition
Berlin, Germany
5
Table of Contents | Global Edition
11
Table of Contents
3 From the Editor
Leaders
16 Why mass migration is globalization’s
next phase, by Miriam Meckel.
18 Leaders
Merkel takes the
riskiest gamble of
her political career
18 Angela Merkel takes a risky gamble,
by Torsten Riecke.
20 Drowning in FIFA’s cesspool:
German soccer needs to come clean,
by Hans-Jürgen Jakobs.
22 Mario in Wonderland: The ECB is slowing
Europe’s recovery, by Daniel Schäfer.
Cover Story
24 Inside the Volkswagen scandal,
by Franz Rother and Stefan Theil.
40 Autos are the German economy’s
cluster risk, by Dirk Heilmann.
42 Ex-lawmaker Friedrich Merz
asks why Europeans are so lenient
on corporate crime.
24 Cover Story
Interviews
The story behind the
scandal shaking Europe’s
biggest automaker
46 Premier Li Keqiang on China’s stake
in a strong Europe.
50 Tesla’s Elon Musk on the end of gasoline
and the pleasures of the autobahn.
Big Reads
58 Germany’s great experiment with
immigration, by Kevin O´Brien.
68 How Wolfgang Schäuble became
Germany’s voice of reason,
by Sven Afhüppe and Gabor Steingart.
76 Coal pits and debt mountains in
Germany’s heartland,
by Maike Freund and Axel Schrinner.
Beata Zawrzel/Demotix/Corbis, Getty Images News/Getty Images, Dominik Butzmann
54 Berlin mayor Michael Müller on how long
the city can keep its cool.
58 Big Reads
Can Germany learn from
the past and integrate a
wave of refugees?
Table of Contents | Global Edition
13
The Boardroom
80 Amazon’s German adventure,
by Sarah Mewes.
84 Why women entrepreneurs still face
a stubborn glass ceiling,
by Dana Heide and Miriam Schröder.
84 The Boardroom
88 Germany’s DAX companies discover the
joys of simplicity, by Siegfried Hofmann.
Women entrepreneurs
make it big but still face
many hurdles
Mittelstand and Innovation
92 Berlin: Invasion of the foreign founders,
by Dana Heide and Miriam Schröder.
94 The art of building an organ,
by Caterina Lobenstein.
Culture and Lifestyle
98 Dressing for power: A Swiss fashion
house makes it big, by Thomas Tuma.
102 Markus Lüpertz: “Am I a genius? Yes!”
by Susanne Schreiber and Oliver Stock.
108 Hoping for a slam dunk:
German basketball gets a boost,
by Alexander Möthe.
92 Mittelstand and Innovation
112 Hold the wurst, let’s have a burger,
by John Blau.
Cool Berlin is now a magnet
for start-up founders from across
the globe
Opinions
114 Mohamed El Erian:
The hidden opportunities in
Europe’s migration crisis.
116 Peter Singer: Corporate honesty isn’t
just for suckers anymore.
120 Ian Bremmer: Three Leaders
to watch in 2016.
Last Word
122 Normality is underrated,
by Gabor Steingart.
Ingo Hoffmann, picture alliance/Svenska Dagbl, Kai Nedden/laif
118 Nouriel Roubini: The greatest global
risk is a Middle East meltdown.
108 Culture and Lifstyle
German NBA players like
Dennis Schröder are boosting
basketball back home
14
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Global Edition | Leaders
WHY IT MATTERS
FALLING BORDERS
The massive wave of refugees
and migrants arriving in Europe since this summer shows
no signs of slowing down.
This Globalization
is Real
FACTS
Between January and October,
813,000 migrants arrived in
Germany. Most are from Syria,
Serbia/Kosovo, Albania, Afghanistan and Iraq.
Mass migration is the rule, not the
exception. Welcome to the next phase
of globalization.
The European Union estimates
that another three million will
cross into Europe by the end of
2016.
There are an estimated 60 million refugees and displaced
persons worldwide, many of
whom are on the move.
BY MIRIAM MECKEL
O
Many millions more are leaving
developing and poorer countries for economic reasons.
Miriam Meckel is the editor in
chief of the weekly news magazine WirtschaftsWoche.
Sandra Semburg/Roba Press, ddp images/Joerg Koch/dapd
16
n a single day, 10,000 refugees sailed past the newlybuilt Statue of Liberty and
landed in New York. The publishers at The New York Times were furious. “Shall we take Europe’s paupers,
her criminals, her lunatics, her crazy
revolutionaries, her vagabonds? ” they
penned in their paper. It was May 1887
when Europeans were the poor devils
and America the land of hope.
Today the land of hope is Germany,
while the poor devils hail from Syria,
Libya and other countries plagued by
war and crisis. The history of humanity
is a history of mass migrations. There
was the era of Europe’s great migrations in the 4th to 6th centuries
AD. During the age of colonialism from
the 15th to 20th centuries, around 10
million Europeans left for the New
World in search of a better life. At the
close of World War II, about 12 million
fled to the western zones of Germany.
By 1973, another 14 million migrant
workers had arrived in what was then
West Germany.
Mass migration is the historical rule,
not the exception. “The atmosphere’s
normal state is turbulence. The same is
true of earth’s settlement by humans,”
wrote Hans Magnus Enzensberger in
his 1992 collection of essays, “The Great
Migration.” When he wrote that, Germany had just gone through reunification – and experienced a spectrum of
human reactions, from welcome gifts to
burning refugee shelters. The end of the
Cold War tempted some to declare “the
end of history.” A grandiose mistake. It
was just the end of an already-dying socialism, and the transition from a bipolar to a multipolar world. Things have
not gotten simpler since then.
The current refugee and migrant
movements are the sign of another
transition – this time, to a truly globalized world, in which the term “globalization” is starting to get filled with life. In
this version of globalization, it’s not just
goods, data, airplanes and container
ships that are criss-crossing the world,
but – surprise! – people, who can now
see for themselves how people live in
other parts of the world.
An open world and open markets are
the foundation of growth and prosperity. We want that. But that is only possible with people, not without them. The
fact that many Germans are currently
so welcoming to refugees shows that we
have understood: In a time of globalization, the world is always in competition with itself.
Whoever dreams of border fences or
ethnically shut-off societies, as Hungary
does, doesn’t just block off refugees, but
stands in his own way as well. “We have
sufficient stock in America now for us
to shut the door, Americanize what we
have, and save the resources of America
for the natural increase of our population,” said Ellison DuRant Smith, a
Senator from South Carolina, before the
U.S. Congress in 1924. Had he gotten his
way, the United States would never have
become the world’s most important
economic power and driver of innovation. Too much purity shuts down
competition.
Leaders | Global Edition
The atmosphere’s
normal state is
turbulence. The same
is true of earth’s
settlement by humans.
Hans Magnus Enzensberger
in “The Great Migration“
Actress Sibel Kekilli
belongs to a new generation
of Turkish-Germans mixing
up the cultural scene. She has
starred in Game of Thrones
and Fatih Akin’s masterful
film Head-On.
17
18
Global Edition | Leaders
LEADERSHIP
Angela Merkel’s
Risky Gamble
She may not have won the Nobel peace prize but
the refugee crisis has shown Angela Merkel to be
a leader of great resolve, says Handelsblatt’s
international correspondent.
BY THORSTEN RIECKE
N
ot even Angela Merkel’s leftwing critics can believe their
eyes and ears these days. “It’s
been many years since I’ve
agreed so strongly with our government,” the prominent leftist philosopher Jürgen Habermas said in a recent interview with Handelsblatt. Like
many others, Mr. Habermas had lambasted the chancellor’s “weak leadership” for years.
Ever since the German chancellor
opened her arms to embrace the wartorn Middle East’s persecuted and humiliated refugees, the world has been
full of praise. Her own electorate, a
little less so. Last month, amid speculation that she was a candidate for this
year’s Nobel Peace Prize, Ms. Merkel
was too busy to care. In an unusually
frank TV interview, she said she was
“going full-steam ahead.” She sounded
like a politician who finally found her
cause, perhaps even her destiny, after
ten years in office.
She’s not without her detractors, of
course. For that, the migration crisis is
too complex, her decisions too controversial and risky. Her critics include
Horst Seehofer, leader of the Christian
Social Union (the Bavarian sister party
of Ms. Merkel’s Christian Democrats)
and his like-minded friend Viktor
Orbán, the prime minister of Hungary.
They talk of “self-defense” against
Ms. Merkel’s policy of compassion. German voters, too, are beginning to
Angela Merkel and
French President
Francois Hollande try
to find common
ground on refugees.
Leaders | Global Edition 19
This is only the second time
Angela Merkel has strayed
from her tentative and probing
political style.
WHY IT MATTERS
Chancellor Angela Merkel has
won hearts and minds by welcoming refugees to Germany.
But she faces growing criticism
at home from the public and
members of her own party.
FACTS
is not my country.” Yet it’s not just her
moral compass that’s driving Ms. Merkel. Her actions stem from the sober
realization that, as she says, “We cannot
close the borders.”
Perhaps it is her realism and constructive pragmatism that characterizes
Ms. Merkel’s style of leadership. Yet she
knows that she is taking a bold risk for
the second time in her chancellorship.
She is also clever enough to know she
needs the help of others if Germany is to
succeed. That is why she’s talking with
Turkish president Recep Tayyip Erdogan, why she keeps an open line to Russian president Vladimir Putin, and why
she is pressuring her European
partners to show more solidarity.
She must know that she and Germany
will face some very difficult decisions to
address the causes of the refugee crisis
in the Middle East. Not just political
decisions but military ones. There, too,
Ms. Merkel will have to lead, just like
Germany’s other great chancellors —
Konrad Adenauer with his alignment of
West Germany with the Western alliance, Willy Brandt with his Ostpolitik,
Helmut Kohl with reunification, and
Gerhard Schröder with his Agenda 2010
reforms.
If Ms. Merkel wants to belong to this
elite club, she must complete the work
she started on the migration issue, both
at home and in foreign policy.
“A good German cannot be a nationalist. A good German knows that he cannot deny a European destiny,” said Willy
Brandt in his Nobel Peace Prize acceptance speech in 1971. With her courageous decision to reach out to refugees, Angela Merkel has shown herself
to be acting in that spirit. What still lies
ahead is for her to bring the greatest
challenge of her chancellorship to a successful end.
One of the chancellor’s biggest
critics heads Bavaria’s CSU,
sister party to the Christian
Democrats.
The migration crisis has also
strained unity among European Union countries.
Angela Merkel was considered
a frontrunner to win this year’s
Nobel Peace Prize, which was
ultimately awarded to Tunisian
democracy activists.
imago/Panoramic, Pablo Castagnola
grumble, reflected in her sinking polls.
“Much foe, much honor,” goes an
ancient saying that might console idealists, but for politicians it can mean the
end of their career. Just ask Ms. Merkel’s
predecessor, Gerhard Schröder.
The real surprise is that Ms. Merkel’s
courageous welcoming of refugees does
not match her usual political style. How
often has she been criticized for her
hesitating and wavering, for appearing
paralyzed by the risks politicians must
take? During the drawn-out crisis over
Greece, for example, she has preferred
to take one step forward, two steps
back.
This is only the second time Ms. Merkel has strayed from her tentative and
probing political style. After the 2011
Fukushima nuclear disaster, she announced Germany’s exit from nuclear
power practically overnight. It is
doubtful that she was aware of all the
consequences, what that kind of energy
revolution would actually entail. What
she did know was that nuclear power
no longer had a political future in Germany, and so she made a cool political
calculation. But if leadership is about
acting despite a risk of failure, then it
was the first time that Ms. Merkel decidedly led.
Today, Ms. Merkel has once again
forged ahead. This time, too, she could
not have known where her decision to
keep Germany’s gates open would lead.
When she assured Germans that “we can
manage it,” it was an offer of encouragement, not a guarantee.
The chancellor’s critics also accuse
her of reacting too emotionally in the
refugee issue. Hungary’s Orbán accuses
her of “moral imperialism.” Ms. Merkel’s
memorable reply to her critics: “If we
have to apologize for showing a friendly
face in a situation of adversity, then this
Torsten Riecke is Handelsblatt’s
international correspondent and
covers international finance and
economics.
Global Edition | Leaders
WHY IT MATTERS
CASH FOR KICKS
In the wake of the investigations into world soccer federation FIFA by U.S. and Swiss
authorities, Germany has
come under suspicion for having cheated to win the right to
host the 2006 World Cup.
Drowning in
FIFA’s Cesspool
FACTS
Germany’s World Cup bidding
committee is alleged to have
used a slush fund to pay FIFA
officials to vote for Germany to
host the 2006 tournament.
The massive corruption scandal at the world
soccer organization has spread to Germany,
and it’s time for the country’s soccer officials to
come clean. Many will go down in the mire.
On November 3, the German
tax police raided DFB offices
in connection with a suspicious €6.7 million payment to
FIFA connected with the World
Cup bid.
BY HANS-JÜRGEN JAKOBS
F
On November 9, DFB president Wolfgang Niersbach resigned, the first German
soccer official to go down in
the wake of the scandal.
Read the latest news on the
FIFA scandal:
http://hbge.net/2eat5
Hans-Jürgen Jakobs is the
co-editor in chief of Handelsblatt.
Witters, Frank Beer
20
rom time to time, a society needs
illusions. It needs the strength of
a story that unites people, a story
that has nothing to do with the
everyday pursuit of profit and power.
In the dizzy summer of 2006, the
World Cup soccer championship hosted
by Germany was one such story. But
from this “summer fairy tale”, as the Germans affectionately call it, a more sordid
story has emerged. It’s a story of breathtaking revelations about dubious transactions and the stench of corruption inside FIFA, the mafia-like governing body
of world soccer.
Judging by the latest allegations, it’s
high time the Germans gave up on their
2006 World Cup illusion.
At the center of the accusations is the
legendary former soccer star and coach
Franz Beckenbauer, who headed the
committee that brought the championship to Germany – allegedly with a little
help from his friends in the FIFA cesspool. Mr. Beckenbauer denies that he
used a slush fund of dirty money to help
win the bid.
But what can’t be denied are the insights the case is providing into the
shocking machinations of the athletic industrial complex, where German sportswear giant Adidas is a main player. According to various reports, the group’s
late CEO and major stockholder, Robert
Louis-Dreyfus, funneled millions of
Swiss francs to the bidding committee in
2000 to bribe FIFA officials who decide
which country gets the World Cup.
The French businessman, who engin-
eered a successful turnaround of Adidas
in the 1990s, seems to have had a long
history of discreetly assisting soccer officials. Mr. Louis-Dreyfus, who died in
2009, loaned millions of euros to FC
Bayern Munich hero Uli Hoeness for the
former player and manager’s personal
investment deals – which later landed
Mr. Hoeness in jail for tax evasion. And
it was Mr. Louis-Dreyfus who, in the
decisive period before FIFA selected a
host for the 2006 World Cup, allegedly
provided the German bidding committee with 10 million Swiss francs, or
about $10.5 million. The money, it appears, was a secret slush fund to motivate greedy soccer officials to vote for
Germany.
Even before the latest allegations, corruption rumors were circulating about
how the World Cup tournaments were
awarded to France in 1998, South Africa
in 2010, Russia in 2018 and Qatar in
2022. Now, Germany too joins that list of
suspected shady dealings.
Two players are in an especially unpleasant spot: Adidas and the German
Soccer Federation (DFB). Since the
World Cup scandal came to light in October, the DFB has been entangled in a
web of denials, half-denials and threats.
Its president, Wolfgang Niersbach, has
resigned, saying he is taking “political
responsibility” for the affair. But he has
yet to give an explanation for the dubious payment of millions of euros to
FIFA for a supposed “culture program”
at the 2006 World Cup that never happened. Is that how the bribe money
Leaders | Global Edition
Lips are no longer
sealed, and the ties
cemented by
mutual favors are
loosening.
Disgraced former FIFA head
Sepp Blatter (left) and German soccer legend Franz
Beckenbauer both have some
serious explaining to do
flowed back to Mr. Louis-Dreyfus?
The DFB must lay all the facts on the
table: it will all come out anyway. U.S.
authorities are already shining a bright
light on FIFA’s labyrinth in their corruption investigation, and insiders are
beginning to talk. Lips are no longer
sealed, and the ties cemented by mutual
favors are loosening.
Adidas, in turn, has neglected to distance itself clearly from FIFA’s practices
under suspended president Sepp
Blatter, who resigned this summer in a
U.S. corruption investigation. Other
FIFA sponsors like Coca Cola withdrew
their support. Is it because Mr. Blatter
was paid by the late Adidas owner, Horst
Dassler?
The scandal is a reminder that Germany’s record on corruption has been
anything but squeaky clean. Not too
long ago, the German tax code allowed
corporations to write off bribes as regular business expenses. Model German
companies like Siemens systematically
used bribes to clinch export deals in the
battle against global rivals. Unraveling
those practices shook Siemens to the
core. Germany’s soccer officials, for
whom hosting the 2006 World Cup appears to have been a prize that justified
all means, now face a similar upheaval.
A period of rigorous investigation and
reform beckons for them.
In October, when Niersbach was still
president, he inaugurated a new soccer
museum in the city of Dortmund. Perhaps the museum should add a special
exhibit on the topic of corruption.
21
22
Global Edition | Leaders
EUROPEAN CENTRAL BANK
Mario in Wonderland
Markets have cheered plans for a new round of
bond-buying by the European Central Bank.
But the bank’s president, Mario Draghi,
is putting the institution’s credibility
on the line.
BY DANIEL SCHÄFER
W
hen Mario Draghi first
launched the European
Central Bank’s bond-buying program this spring,
he was in a mood to celebrate. Markets
had responded well to the program’s
€1.1 trillion ($1.2 trillion) total volume.
For Mr. Draghi, the ECB had passed the
credibility test.
Now, less than eight months later, Mr.
Draghi himself seems to have lost faith
in his cash-injection plan. Not even halfway through the old program – which
runs through September 2016 – Mr.
Draghi has announced that the bank is
working on a new set of measures, putting the ECB on track to open the monetary floodgates even wider when the
bank’s governing council next meets in
December. Mr. Draghi also suggested
the ECB might lower the penalty rate it
charges banks to deposit their reserves,
currently set at minus 0.2 percent.
Once again, Mr. Draghi’s magic words
had their effect. Stocks rose, the euro
fell, government bond yields dropped –
into negative territory for most of the 19
euro countries’ two-year debt. Thanks
to Mr. Draghi, investors must now pay
money to over-indebted states such as
Italy for the honor of owning their
short-term bonds.
Mario Draghi has cleared the way
fora year-end party in asset markets.
But at what cost? The collateral damage
is great. For one, the frantic activity
with which the ECB reacted to Septem-
Under Mario Draghi, the
ECB has kept interest
rates near zero, helping
governments and debtors
but hurting savers.
Leaders | Global Edition
WHY IT MATTERS
Just as the Federal Reserve gets
ready to raise rates, the European Central Bank is planning
to loosen monetary policy.
The ECB’s monetary policy
creates zombie companies
and undead countries
whose unsustainable
amounts of debt suddenly
appear viable.
FACTS
ECB President Mario Draghi
has signaled an expansion of
the central bank’s bond-buying
program, also known as
„quantitative easing.“
Stock markets surged when Mr.
Draghi announced the plans.
Many European companies are
reluctant to invest because of
the ECB’s policies, our author
argues.
same is true of countries: The bonds of
over-indebted Italy now pay less than
one percentage point more interest
than those of the far more solid Germany.
The ECB’s monetary policy creates
zombie companies and undead countries whose unsustainable amounts of
debt suddenly appear viable.
The bank’s argument that it is buying
time for governments to implement
structural reforms is difficult to follow.
Despite some progress – for example
under Prime Minister Renzi in Italy –
there is too little reform in the euro
zone today. If interest rates weren’t so
artificially compressed, there would
much more pressure for change.
Instead of leading the euro zone
deeper into a world of economic makebelieve, Mr. Draghi and the ECB need to
regain their trust in the healing power
of markets. Especially as the effectiveness of any extension or increase in
bond purchases remains dubious – interest rates, after all, are already at record lows. Even more dangerous would
be an increase in the penalty rate for
banks to hold reserves. That would risk
serious damage to Europe’s banking
system.
It’s time to stop ever-growing monetary expansion. The risks and side effects are just too great. Otherwise, the
second half of Mr. Draghi’s eight-year
term could go down in history as the
time when the ECB lost all credibility.
Daniel Schäfer is the editor of
Handelsblatt’s finance pages and
covers the European Central
Bank.
AFP, PR
ber’s negative inflation in the euro zone
was a big blow to the bank’s muchvaunted credibility. By accelerating
bond purchases from the current €60
billion a month, the ECB has mainly signaled that its previous policies have
been far less effective than hoped.
Mr. Draghi’s constantly growing monetary expansion is like a medicine that
becomes less effective each time it’s
taken. At ever shorter intervals, the ECB
chief has to supply the markets with a
new pill. Just look at the euro, which fell
sharply against the U.S. dollar when the
bond-buying program was announced
last January, but has traded largely sideways since easing actually began in
March.
Mr. Draghi’s words might be magical,
but his actions are not. Neither have accelerated the eurozone’s recovery nor
had the desired effect on inflation. Instead, they have done great, possibly irreparable damage to European economies: Despite low interest rates, the
flood of money has, if anything, lowered companies’ desire to invest.
Massive central bank interventions create high volatility in asset markets,
which in turn spread uncertainty in the
real economy.
But above all, “Super Mario” has destroyed normal market mechanisms.
Because investors are under tremendous pressure to find returns, the
bonds of high-risk companies pay just a
small premium above blue chips. The
23
dpa (2)
24
Global Edition | Cover Story
Cover Story | Global Edition
Ferdinand Piëch chaired
Volkswagen’s board until
April 2015. He wanted to
make diesel the engine of
Volkswagen’s growth.
DIESELGATE
Inside the Volkswagen
Scandal
Europe’s largest automaker is in crisis after admitting to
systematically cheating regulators on emissions tests.
Handelsblatt Global Edition takes you inside the culture
of hubris and fear that produced one of the biggest
scandals in automotive history.
25
26
Global Edition | Cover Story
BY FRANZ ROTHER AND STEFAN THEIL
A
rnold Schwarzenegger is “mad
as hell” at Volkswagen. Writing
on his Facebook page, the former California governor was furious at the automaker for taking him for a
ride. Seven years ago, when Schwarzenegger toured the 2008 Los Angeles
Auto Show, he listened to VW of America
CEO Stefan Jacoby sing the praises of the
“clean diesel” Jetta TDI, which had just
pocketed the prestigious “Green Car of
the Year” award. With its stellar fuel
economy and sports car-like acceleration, the new Jetta even passed California’s recently introduced tailpipe
emissions standards, the toughest in the
world. In combining these three traits in
a diesel car at reasonable cost, Volkswagen’s brilliant engineers had squared
a technological circle.
As all the world now knows, the engineers achieved no such thing. Volkswagen’s automotive miracle was a case
of crude deception. The car’s newly-developed EA 189 diesel engine was only
clean on the test stand. Out on the road,
it turned into a stinker, emitting up to 35
times California’s legal limit of nitrous
oxides, highly toxic pollutants that play a
crucial role in creating smog. A piece of
software installed by Volkswagen’s engineers detected the difference between
test conditions and the open road. For
the tests, the engine ran clean by sacri-
Cover Story | Global Edition
At VW’s headquarters in
Wolfsburg, police raided
offices and apartments.
WHY IT MATTERS
In the wake of the Dieselgate
emissions-fixing scandal,
Volkswagen faces a long
uphill battle of investigations,
fines and litigation. While the
investigation focuses on a
group of engineers, the genesis and scale of the scandal
point to broader problems
within VW’s top-down corporate culture.
FACTS
VW has admitted to installing
illegal emissions-fixing software in 11 million cars.
In addition, the company has
admitted to cheating on CO2
tests.
The company’s share price
fell by over 30 percent when
the emissions scandal became
public.
Follow our coverage of the
Volkswagen scandal at:
Frieder Blickle/laif, PR
http://hbge.net/7vw23
ficing fuel economy and acceleration.
For regular driving, the engineers programed the engine to run without pollution controls so drivers could enjoy the
car as it was advertised, including the expected acceleration and speed.
What the German press calls “Dieselgate” is now the biggest case of fraud in
automotive history. More than 11 million
cars worldwide were delivered with the
EA 189 engine and the deceptive software installed, requiring a massive global recall. Criminal investigations, lawsuits and regulatory probes have been
launched by the U.S. Justice Department,
the states of Texas and West Virginia, as
well as countries around the world from
Franz Rother is a staff writer at
the weekly news magazine
WirtschaftsWoche.
27
Global Edition | Cover Story
Der Spiegel once
caricatured
Volkswagen’s
corporate culture as
“North Korea
without the labor
camps.” Sources
describe executives
whose principal
management tool
was fear.
Stefan Theil is a business
journalist based in Berlin.
Ute Grabowsky / photothek.net, dpa [M] Handelsblatt
28
Australia to Spain. At company headquarters in Wolfsburg, German police
raided offices and apartments. Hundreds
of class-action suits have been filed by
consumers and investors. On the stock
market, Volkswagen lost over one-third
of its market value, or €27 billion ($29
billion), in just a few days after the scandal broke.
Since then, the scandal has spread far
beyond just one model or a single type
of engine. Different emissions scams
now involve all of the company’s
major brands, including Volkswagen, Audi, Seat and Škoda.
Sales of various models have
been halted in several countries around the world. In late
October, the carmaker announced a €3.5-billion thirdquarter operating loss – the
company’s first in 15 years.
VW has set aside €8.7 billion
to cover the cost of recalls,
but not the massive fines and
legal settlements that are all
but certain still to come.
What boggles the mind even
more than the scale of the scandal
and the fallout for the company is the
sheer audacity of this systematic and intentional fraud, involving all of the company’s major divisions and different
types of cheat software depending on
where the vehicle would be tested. Did
the executives and engineers involved
really think they could get away with
duping the world’s regulators, lying to
millions of customers and risking the
wrath of the company’s investors?
The answer to that question lies buried inside Volkswagen’s corporate culture of hubris and fear – a culture once
caricatured by the German magazine
Der Spiegel as “North Korea without the
labor camps.” Sources interviewed by
Handelsblatt Global Edition describe the
relentless pressure at the company to
push up sales and overtake Toyota as the
world’s largest carmaker – by any possible means. They describe senior executives whose principal management tool
was fear. But they also describe a company without a functioning corporate
governance, one so impervious to criti-
2005
ddp
Imago
2005
At Volkswagen headquarters in
Wolfsburg, executives and engineers begin developing a new
diesel engine primarily for the
U.S. market. They quickly realize
that the company’s current
technology cannot comply with
strict U.S. emissions standards
Cover Story | Global Edition
Martin Winterkorn, a
long-time protégé of
Piëch’s, resigned as
CEO in the wake of the
Dieselgate scandal.
cism that it ignored warnings by a key
supplier and one of its own engineers
that its trickery to evade emission standards was illegal from the start.
Investigations have so far focused on
the engineers and managers directly involved in developing the EA 189 “clean
diesel” engine, where the most blatant
fraud was found. Yet in the background
lurks the man who like no other created
the corrosive corporate culture in which
such a massive scandal could unfold,
and who was deeply involved in the company’s technical and operational decisions for more than 20 years. Ferdinand
Piëch, a former engineer and engine
specialist who was CEO from 1993 to
2002 and supervisory board chairman
from 2002 until April 2015, made Volkswagen into the successful global automaker it is today. But Mr. Piëch – the
grandson of Ferdinand Porsche, who developed the first Volkswagen car in the
1930s – also ruled the company as a terrifying taskmaster. Legendary for his attention to the smallest technical detail
and the ice-cold derision with which he’d
fire managers for the slightest transgression, Mr. Piëch was ruthless in his efforts
to raise quality and slash costs.
Current and former Volkswagen
executives say that Mr. Piëch and his
protégé Martin Winterkorn, CEO from
2007 until his resignation in the wake of
the scandal, created an autocratic, corrosive culture in which dissent and criti-
2007
2006
The new engine, later known as
EA 189, is first tested in South
Africa. CEO Ferdinand Piëch is
not impressed. But VW presses
on with plans to introduce the
engine on the U.S. market
February 2007
Martin Winterkorn takes over
the VW brand. Business in the
U.S. is floundering. Mr. Winterkorn believes only “clean diesel” can compete with hybrids
like Toyota’s
dpa
2006
29
Global Edition | Cover Story
Sam Owens
30
The strategic decision
that appears to have
led to the scandal was
Piëch’s choice of diesel
as Volkswagen’s engine
of growth.
cism weren’t tolerated. “Workers and
managers are afraid to speak the truth,”
says Utz Claassen, a former VW executive who worked closely with Mr. Piëch.
“Dissenting opinions are at best ignored
and at worst suppressed.” Claassen’s assessment was shared by many. Mr. Winterkorn, long groomed by Mr. Piëch as
his successor, only tightened the authoritarian reins, according to sources inside the company interviewed by Handelsblatt Global Edition.
Volkswagen’s dysfunctional culture of
fear was compounded by an almost complete lack of corporate governance at the
carmaker. Controlled by Mr. Piëch’s own
family dynasty, the Porsche-Piëchs (who
hold the majority of shares), by politicians of the state of Lower Saxony
(which owns a 20-percent stake) and by
members of the powerful IG Metall labor
union (who control half the supervisory
board and executive committee), Volkswagen has long been impervious to outside influence. And so Mr. Piëch ruled it
like his personal fiefdom, even promoting his fourth wife, a kindergarten teacher and the former family governess, to
the supervisory board. Lower Saxony
and the union, who together control a
majority on the board, cared more about
jobs than how the company was run, and
Mr. Piëch knew how to keep them
happy. Volkswagen has 600,000 em-
PR
August 2007
The new diesel engine EA 189 is installed in new cars for the first time.
It meets E.U. but not U.S. emissions
standards. The engine contains the
cheat software, which is not yet activated. Parts supplier Bosch had
warned VW not to use the software
Thomas Einberger for Handelsblatt
2007
Cover Story | Global Edition
Researchers at the Universtiy
of West Virginia discovered
Volkswagen’s emissions scam.
ployees, almost twice as many as Toyota’s 340,000 – even though both produce
a similar number of cars.
Mr. Piëch was also behind Volkswagen’s push to replace archrival Toyota as the world’s largest carmaker,
launched in 2007 when Toyota still produced 8.5 million cars compared to
Volkswagen’s 6.2 million. The strategic
decision that appears to have led to the
scandal was Mr. Piëch’s choice of the
diesel engine as Volkswagen’s engine of
growth. With their higher fuel efficiency,
diesel cars are tremendously popular
among European drivers, accounting for
54 percent of total auto sales last year.
But in the United States, where diesel
had a dirty reputation, Mr. Piëch’s plan
would be a dud – unless Volkswagen’s
engineers could come up with a miracle.
And so the plan to build the world’s
cleanest, fastest and quietest diesel engine was born. Models containing the
engine – to be marketed as “clean diesel”
– would also have to be so affordable
that they could compete with Toyota,
whose hybrid cars were enjoying rising
sales. “With the TDI, we will disprove the
prejudices against a diesel engine as
loud, foul-smelling and dirty,” boasted
Johan De Nysschen, who headed Audi’s
U.S. subsidiary at the time. The launch
of Audi’s new, three-ton Q7 luxury SUV
with a powerful six-cylinder TDI diesel
engine on the American market seemed
promising. At the Q7’s unveiling at the
2007 Detroit Motor Show, the company
engaged the British pop star Seal to sing
his hit, “Fly like an Eagle” – but with the
lyrics changed to “fly like a diesel.”
Back in Wolfsburg, the challenge for
the team of engineers tasked with developing the smaller, less expensive EA 189
engine was huge. Their task had been
made harder still by California’s landmark adoption of the toughest emissions
standards in the world, against which
Volkswagen and other carmakers had
lobbied hard but lost. Falko Rudolph,
who oversaw diesel engine development
at the carmaker’s Wolfsburg headquarters at the time, was well aware that
any effort to build a cleaner engine
would either substantially raise its cost
(because of expensive exhaust-cleaning
equipment) or reduce its efficiency and
performance (which would have to be
throttled to reduce exhaust). “The biggest challenge is resolving the consumption-emissions-cost conflict,” Mr. Rudolph wrote in a technical documentation at the time.
Mr. Rudolph, who was suspended by
VW on October 23, has emerged as a
possible key figure in the scandal, along
with two other mid-level engineers involved in drive train development and
the development of ultra-low-emission
engines. Mr. Rudolph was suspended
from his job running a components
plant in Kassel, while the other two are
no longer working for the company. The
public prosecutor in Braunschweig is investigating the three men – as well as
more than a dozen other engineers and
managers – but they have not been
2008
August 2008
Volkswagen launches the
Jetta 2.0 TDI in the U.S.,
which contains the EA 189
engine. The cheat software
is now activated to evade
U.S. emissions standards
AP
September 2007
German authorities are warned
by environmentalists that actual
emissions far exceed those
stated by VW and other manufacturers
31
Global Edition | Cover Story
The noose around
VW’s neck
tightened when
the Japanese
developed new
technology to test
emissions.
charged with any crime. As with Mr. Rudolph, Handelsblatt Global Edition attempted to contact Mr. Piëch and Mr. Winterkorn through Volkswagen but was told
the men were not available for comment.
As the engineers were racing to meet
Volkswagen’s ambitious schedule to introduce the Jetta “clean diesel” TDI on the
American market, costs were getting out
of control. The original plan was to use
the same complex exhaust technology
used by Daimler in its Mercedes brand
luxury vehicles. Mr. Winterkorn, in a classic case of not-invented-here syndrome,
axed that plan. With that option gone and
time running out – the car’s launch date
Carmakers
operated on
the honor
code, which
VW ignored.
2008
had already been delayed by a year, from
2007 to 2008 – the engineers faced a terrible conundrum. “They couldn’t meet
the deadline, and they were too afraid to
tell their superiors,” is how a lawyer involved in the company’s internal investigation analyzes the situation. “It would
have been a huge disgrace for the engineers.”
The engineers may have feared another
temper tantrum from their CEO as they
faced another key problem: VW’s strict
cost targeting. Installing additional technology to clean the exhaust, as other
manufacturers do with their diesel engines, would cost an additional several
2009
2011
December 2009
The Audi A3 wins
“Green Car of the
Year.” It also contains
the manipulated EA
189 engine
Reuters
November 2008
The Jetta TDI wins “Green
Car of the Year” award at
the Los Angeles Auto
Show. It’s the first time a
diesel car wins the award
picture-allianc/dpa
32
33
picture-alliance/ dpa
Cover Story | Global Edition
hundred euros. This is where, according
to sources familiar with VW’s internal investigation, another engineer at Wolfsburg headquarters, who was in charge of
engine electronics at the time, came up
with the shortcut of altering the engine’s
emissions behavior using software in the
engine control unit. Ten different software programs were installed – including
the now-infamous cheat programs that
changed the way the engine performed
during vehicle tests; during regular
driving, emissions would be up to 40
times higher. The engineer has been suspended and is under investigation by the
state prosecutor.
The perpetrators at Volkswagen probably thought they were safe. For years,
automakers could feel comfortable that
suspicious discrepancies between
stated and actual emissions would not
be discovered. The only way emissions
were ever measured was on test stands
in laboratory-like conditions, using
standardized routines that the type of
cheat software deployed by Volkswagen
could easily detect. Carmakers were
basically operating on the honor code –
which Volkswagen repeatedly ignored.
As early as 2007, technicians from supplier Bosch had warned VW that the
cheat software was illegal, and in 2011
May 2011
Volkswagen opens a factory
in Chattanooga, Tennessee,
with 2,000 workers and a
planned capacity of
230,000 cars a year. VW’s
U.S. diesel sales jump to
70,000 that year
Bloomberg
Early 2011
A VW technician sounds the
alarm that the software might
be illegal, but the company
apparently ignores the warning. The cheat software is
now installed in the company’s major brands, including VW, Audi, Škoda and Seat
Arnold Schwarzenegger,
then governor of California,
in a VW Touran at the 2009
Los Angeles Motor Show.
34
Global Edition | Cover Story
dpa
Ulrich Hackenberg,
development chief
at Audi, is one
of six executives
suspended by
Volkswagen so far.
The rogue-engineer
theory is beginning
to look increasingly
dubious.
one of Volkswagen’s own engineers had
given a similar warning to a company
executive. It seems the warnings were
ignored.
But the noose around VW’s neck
tightened when Japanese engineers developed mobile exhaust measuring
equipment that reliably registered
emissions on the open road. In 2013, researchers at the University of West Virginia, working on behalf of the International Council of Clean Transportation (ICCT), used the new technology
– known as Portable Emissions Measurement System, or PEMS – to doublecheck the Volkswagen TDI’s suspiciously
low emissions values.
Ironically, the ICCT had first honed in
on Volkswagen’s diesel cars because they
were allegedly so clean, and wanted to
prove that they were even cleaner in the
company’s U.S. models than those produced for the European market. At the
2013
2014
Early 2014
Researchers at the University of West Virginia
test diesel cars on the
road. VW models exceed
legal limits up to 35
times. They inform U.S.
authorities
action press
May 2013
Following warnings by
environmentalists, the
European Union plans
stricter emissions limits.
The German government
rejects the plans
Franz Bischof/laif
same time, ICCT and other environmentalist groups had long complained that
exhaust measurements in the laboratory
had little to do with actual vehicle
emissions. Now, they finally had the
technology to test their claim.
What the researchers found was
shocking. A BMW they tested came out
clean. But the VWs they tested showed
huge discrepancies between reported
emissions and actual on-the-road tests.
The researchers passed their findings on
to the U.S. Environmental Protection
Agency and the California Air Resources
Board. The EPA confronted Volkswagen,
which ordered a recall of some models
in December 2014 and afterwards
claimed that the problems were resolved. After a new set of tests showed
the same high levels of toxic exhaust –
and reportedly following threats by EPA
chief Gina McCarthy to take VW’s 2016
models off the market – Volkswagen fin-
Global Edition | Cover Story
AP
EPA chief Gina McCarthy
is not letting up on the
German carmaker
ally confessed to the EPA in early September that it had installed illegal cheat
software to manipulate emissions testing results.
To this day, the carmaker claims it was
a few rogue engineers who made all the
decisions, unbeknown to upper management. And given the toxic and despotic corporate culture created by Mr.
Piëch, Mr. Winterkorn and their protégés, it is entirely possible that the engineers were so afraid for their hides
that they’d do anything to please the
higher-ups, and that the latter didn’t
want to look too closely. And the software running an engine is buried so
deeply in the car’s technology that it
often gets overlooked. “Millions of programs and commands control a car’s
functions,” says Heike Flick, an IT
specialist at Frankfurt-based auto supplier SyroCon. “A little notebook with
special commands is very easy to hide
in this enormous library.”
Yet the rogue-engineer theory is beginning to look increasingly dubious as
the scandal spreads to include other engines, car models and divisions of the
company. In the EA 189 engine, different
software programs were installed to detect and circumvent both U.S. and European emissions tests, which have slightly
different protocols. On November 2, the
EPA accused Volkswagen of installing
similar cheat software on V6 engines in
the Porsche Cayenne, the Volkswagen
Tuareg and several models of Audis.
Volkswagen has vigorously denied the
claim but has stopped U.S. sales of those
models. A few days later, Volkswagen
came forward with its own confession
that it cheated on CO2 tests involving another 800,000 diesel and gasoline vehicles – initially claiming the company
had simply misreported the numbers
before admitting that it manipulated the
emissions tests themselves, which
implies a more systematic scam involving more people than someone simply
misreporting the numbers by the stroke
of a pen. The company immediately set
aside another €2 billion to cover potential costs. VW shares lost another 10 percent on the news.
While Mr. Winterkorn, Mr. Piëch and
other C-suite executives might all have
plausible deniability over the exact na-
2014
2015
December 2014
VW recalls 500,000 cars
in the U.S. for software
fixes. The company tells
U.S. authorities it has
solved the problem
ddp images/Zuma
May 2014
The U.S. Environmental
Protection Agency
(EPA) and the California
Air Resources Board
begin to investigate
Volkswagen
AP
36
Cover Story | Global Edition
ture of the scams involved, they’re
widely known to be experienced, detailobsessed engineers. They might have
wondered how their diesel engines had
suddenly become squeaky clean at such
incredibly low cost, when other automakers had to install additional hardware to clean up the exhaust. Few analysts contacted by Handelsblatt Global
Edition believe the company’s claims
that it was just a rogue team of lowly engineers, especially now that the scandal
has spread. “VW has probably the most
technically expert senior management
in the industry, it’s an engineering-led
culture,” says Max Warburton, industry
analyst at Bernstein Research. “Investors simply don’t find it credible that
these problems are due to a few rogue
engineers.” At least that’s how some investors see it from afar.
As of early November – almost two
months after the scandal went public,
and a year and a half after the EPA first
confronted VW with its findings – the
company has still not explained the
decision-making processes that led to
emissions cheating on such a massive
scale. It has suspended at least six managers, including the development chiefs
at Volkswagen, Audi and Porsche. Volkswagen’s evasive statements and piecemeal admissions have not exactly
helped the company regain trust -- nor
has VW’s refusal to let in independent
investigators. “The company’s efforts to
portray itself as a victim of some sort of
unfortunate accident are not going to
September 3, 2015
Volkswagen admits to
U.S. regulators that it
had installed the cheat
software in its cars
dpa
July 2015
After new tests still
show discrepancies,
U.S. regulators
threaten to withhold
certification of VW’s
2016 diesel models.
The company is
bracing for a year or
two of costly recalls,
fines and litigation.
37
Global Edition | Cover Story
New CEO Matthias
Müller, who was
previously chief at
Porsche, needs to
turn Volkswagen
around after the
scandal.
Dominik Butzmann/laif
38
CEO Matthias Müller
– who probably has
the toughest job in
the corporate world
right now – promises
a “new culture” at
the company.
satisfy anyone,” Warburton says. As VW
hems and haws, America’s EPA remains
ahead of European regulators in pushing
the company to come clean.
Volkswagen can weather a scandal of
this magnitude, analysts like Warburton
say. VW sits on a €30 billion cash pile
from many profitable years, and the company has already announced a cost-cutting program. The silver lining is that the
scandal might finally lead the company’s
owners to clean up its authoritarian culture and ineffective governance. Already,
the new CEO Matthias Müller - who probably has the toughest job in the corporate
world right now - promises a “new culture” at the company, including greater
transparency, decentralized decision
making and a less authoritarian style. In
a sign of change, the company has appointed a former judge at Germany’s con-
stitutional court as a compliance officer
and given her a board position. But skeptics will remember similar promises by
Mr. Winterkorn to decentralize the company, made shortly after he became CEO.
And the company’s main owners - the
Porsche-Piëch family and the state - have
so far resisted calls to let in an outside
CEO, or change the company’s exotic governance structure.
Meanwhile, the company is bracing for
a year or two of costly recalls, criminal
cases, regulators’ fines and legal battles.
And with the various investigations still
going on, no one knows what new problems will still emerge.
And so the greatest scandal in automotive history festers on.
Handelsblatt Global Edition’s John Blau
contributed to this article.
2015
Getty Images
September 18, 2015
EPA administrator Cynthia Giles tells the world
press that VW deceived
regulators to evade limits
on toxic pollutants. The
scandal goes public
September 20, 2015
After two days of silence,
VW responds.
CEO Winterkorn says he is
“deeply sorry” for breaking
the public trust
September 21, 2015
After the Frankfurt exchange opens, Volkswagen shares slide 20
percent, wiping almost
€20 billion off market
value
40
Global Edition | Cover Story
CAR INDUSTRY
Autos are Germany’s
Cluster Risk
Volkswagen’s self-inflicted troubles pose a serious threat to
the world’s largest automaker. They also expose a dangerous
cluster risk to the German economy.
BY DIRK HEILMANN
W
hile the jury is still out – literally speaking – on how
much Volkswagen’s reckless
deceit will cost the company,
workers and suppliers who depend on VW
for their livelihood have every reason to
worry. The emissions scandal’s fallout will
be felt not just in Wolfsburg, the company
town built around VW’s headquarters, but
all over Germany. Almost half of the behe-
With its futuristic F 015
concept car, Daimler
hopes to win a slice of
the future market for
driverless cars.
moth automaker’s 600,000 jobs are in
Germany, making it the country’s largest
private employer.
It’s only the latest shock for the German
car industry. In October, Apple chief
executive Tim Cook predicted massive upheaval in the global car industry amid reports that Apple is preparing an entry into
the auto market. German car manufacturers are threatened on two fronts. One
threat is the increased demand for electric cars and other alternatives to the
traditional combustion engine, where Japanese and American carmakers have
taken the lead. The other is the rapid advance of digital services and networking,
including driverless cars.
If future customers want affordable,
self-driving electric cars that create a digital cocoon with no need to pay attention
Cover Story | Global Edition
year, and German carmakers have increased their sales from 4.7 to 5.9 million.
German manufacturers dominate the global market for premium vehicles, and
have gained 20 percent market share in
China. Volkswagen became the world’s
largest carmaker earlier this year, passing
Toyota in terms of total vehicles sold.
But now, it’s Toyota which is introducing the first fuel-cell production car in
the marketplace. In the U.S., it’s Tesla that
has captured the industry’s imagination
with its high-performance electric cars.
The German auto industry lacks the resolve to seize technological leadership in
alternative engines, including the push
for batteries. The industry’s hopes rest on
the German supplier Bosch, which is feverishly trying to catch up on batteries,
or on future orders from Asian battery
suppliers.
Twenty years ago, German carmakers
took the global lead in introducing advanced electronics into the car, but here
too they have squandered their lead.
Now, German carmakers will have to
partner with companies like Google and
Apple to bring next-generation cars to
the market. But who will control the car’s
operating system and the data generated
on the road? If automakers lose this
battle, they risk going the way of the chip
or PC industry – as makers of commoditized, low-margin hardware that others
use to create value with their software
and services. A car shell around Apple’s
mobility services.
As these dangers loom, the industry’s
decline is by no means certain. Other
than embattled Volkswagen, German
automakers are financially strong and
have recognized the existential challenges they face. What’s still missing is
for Germany’s politicians to help create
the conditions that would make Germany a pioneering market for next-generation cars.
That includes promoting the expansion of the country’s sparse network of
electricity charging and hydrogen filling
stations, as well as creating incentives
for more investment in broadband wireless networks.
Germany’s lawmakers should beware
of playing the arbiter, championing one
technology over another in a market
whose future development remains uncertain. As Volkswagen found out in its
all-out push of “clean diesel” technology,
such a bet can go horribly wrong.
press photo
to traffic, then the German carmakers’
business model – providing ever-higher
performance and driving perfection –
may soon become obsolete. Companies
like Apple or Google will have better command of the key technologies required to
build these next-generation vehicles.
That’s why cars are Germany’s cluster
risk. Should Germany’s auto industry
face disruption and decline, the effects
on the country’s economy would be profound. With sales of €368 billion ($416 billion) and 775,000 direct employees, the
auto industry is Germany’s largest industrial sector, and its importance continues
to grow.
Since 1995, its share of the German
economy (measured in value added) has
increased from 2.8 to 4.0 percent, and of
industrial workers from 10.9 to 12.8 percent. To this, add countless suppliers and
providers of services. Without the auto
industry, the German economy would
have grown by 2 percent less since 1995.
No other economy in the world is this dependent on cars.
Germany’s auto brands have enjoyed
two golden decades. Since 1995, worldwide car production has grown from 50
million to about 90 million vehicles a
41
42
Global Edition | Cover Story
interTOPICS/Arne Schultz
Waiting for the U.S.
to uncover scandals and
corruption is not something Europe can be
proud of, says former
lawmaker Friedrich Merz.
2015
September 28, 2015
Matthias Müller, head of
VW’s Porsche brand, is
named CEO. Key executives at VW, Audi and
Porsche are suspended.
The U.S. bans Volkswagen diesel sales
dpa
September 23, 2015
Mr. Winterkorn resigns,
but insists he was not
aware of wrongdoing.
German public prosecutors begin to investigate
AFP
September 22, 2015
VW sets aside €6.5 billion
to cover recalls. Shares fall
another 12 percent
Cover Story | Global Edition
FRIEDRICH MERZ
Why are we Europeans
so lenient?
Corrupt functionaries and corporate executives
fear U.S. authorities more than Europe’s.
BY TORSTEN RIECKE
V
olkswagen, FIFA, Siemens, banks
like UBS – time after time, it’s been
up to American courts and regulators to expose European corporate scandals and corruption cases. Friedrich Merz, former senior lawmaker and
head of the U.S.-German business network
Atlantik Brücke, says it’s time for Germans
and Europeans to get just as tough.
Handelsblatt: Mr. Merz, why is it that U.S.
authorities continually uncover European
business scandals? Before VW, there were
cases involving the soccer federation FIFA,
Siemens, UBS and many others.
The U.S. judiciary and authorities are much
less lenient than Europe’s. Take FIFA. It is
nothing short of an unmitigated disgrace
that neither the Swiss nor Europeans in
general were able to tackle this criminal
morass of corruption. But the Americans
get tough and show how it’s done – at least
as far as their enforcement power reaches.
Corrupt functionaries and company executives in Europe must fear U.S. authorities
October 8, 2015
Police raid VW’s Wolfsburg
headquarters, confiscating
documents and computers.
In the U.S., Volkswagen
America chief Michael Horn
testifies before Congress
more than those in Europe. That’s not
something we Europeans can be very
proud of.
Why are we so lenient and tame?
Unfortunately, one of our weaknesses is
that Europe seldom acts as one. Individual
member states are usually responsible for
law enforcement. Cross-border cooperation is extremely complicated and laborious, especially among European law enforcement agencies. European states all
are fighting white-collar crimes with different and unequal means. The Americans,
on the other hand, are in a position to act
very effectively within their own legal area
and beyond.
The U.S. is even able to enforce its norms
and laws outside its borders. Must the
superpower also be the world’s policeman?
We’ve been complaining for a long time
about the extraterritorial imposition of
American law, such as in enforcing economic sanctions or antitrust laws. The U.S.
assumes American law is always applicable
whenever a U.S. citizen or an American
company is directly or indirectly involved
or affected. So, when a company has a subsidiary in the United States, the entire company is subject to American law.
Can Europe turn the tables?
Europe could answer with similar demands. But to do that, Europeans must
also agree to broadly apply their own law,
including extraterritorially, when a European company or citizen is affected or involved. But again, such a stance requires a
unified European legal system. We are a
long way from that in many areas.
Should we be grateful to the Americans for
putting a stop to evildoers we Europeans
fail to deal with?
Certainly with FIFA, we must be thankful to
the United States that it took such a tough
stance. On the other hand, companies such
as Siemens, and now Volkswagen, have to
undergo enormous efforts in clarifying alleged irregularities because American law
requires them to.
October 14, 2015
VW suspends Falko Rudolph,
the developer of the EA 189
diesel engine
Polaris/laif
October 15, 2015
Volkswagen announces it
will recall 8.5 million vehicles
containing the EA 189 engine
in Europe
43
44
Global Edition | Cover Story
Witters
Where did all the
money come from?
FIFA chief Sepp
Blatter faces questions as the FBI investigates the world
soccer body.
Take FIFA. It is nothing
short of an unmitigated
disgrace that the
Europeans weren’t able
to tackle this morass of
corruption.
The enormous penalties European companies have to pay in the United States lead
some to suspect a conspiracy by American
courts and regulators to make life difficult
for the foreign rivals of U.S. firms.
The VW scandal will result in such conspiracy theories spreading again, particularly
in Germany. But American companies are
also subject to tough laws in the United
States. Just take the Enron case, or that of
the investment swindler Bernard Madoff.
Those responsible lost their entire fortunes
and are now in prison for the rest of their
lives. Madoff was sentenced to 150 years in
prison. Getting a life sentence in America
really means a life sentence. There should
be no talk about the United States being
lenient toward its own companies.
But is it still proportionate to impose such
enormous penalties, especially if the
money flows into the coffers of the U.S.
government?
The German proportionality principle,
enshrined in the constitution, doesn’t
have the same meaning in the American
legal system. Other considerations, such
as punishment and deterrent are more
important in the United States. You can
moan about the money going to the U.S.
government, but that can’t be changed.
Every country is free to enforce its laws in
the same manner.
Many Europeans reject the Transatlantic
Trade and Investment Partnership because they fear weaker environmental
and health standards will be imposed on
the European Union by the United States.
Will TTIP opponents have to rethink their
opposition in light of the VW scandal,
where it was the U.S. and not Europe that
cracked down on dangerous emissions?
Everyone should understand that U.S. environmental and consumer protection
standards are at least as tough as those in
Europe. If more people grasp that, then
the events surrounding VW, deplorable as
they are, will at least produce some good
in the end.
2015
October 28, 2015
VW announces its
first quarterly loss in
15 years, €3.5 billion
dpa
November 2, 2015
The EPA accuses VW of
installing illegal software in another type of
engine, including the
Porsche Cayenne’s. VW
denies the EPA’s claim
November 3, 2015
VW admits to cheating
on CO2 tests as well,
affecting 800,000 cars
in Europe. VW shares
drop another 10 percent
vario-images
October 21, 2015
VW halts sales of
car models containing the cheat
software
Global Edition | Interviews
imago/Xinhua
46
EASTERN PROMISES
China’s Stake in a
Strong Europe
China’s Prime Minister Li Keqiang calls for closer ties with the
European Union, promises action on climate change and complains
that Europeans aren’t investing enough in China.
Interviews | Global Edition
BY SVEN AFHÜPPE
D
China’s Prime Minister
Li Keqiang visits a
shipyard in Dalian,
northeast China, in
September.
espite €1.7 billion ($1.86 billion) in
trade between the European Union
and China each day, economic relations have often been prickly. The
E.U. has investigated China for dumping
solar panels and complained about widespread restrictions on foreign companies in
China. Chinese companies, meanwhile, have
stepped up their investments in Europe, including a small but growing number of M&A
deals.
In Brussels for the annual E.U.-China summit, Chinese premier Li Keqiang pushed for
a fresh round of bilateral negotiations on
trade and investment between the two economic superpowers.
versary of diplomatic relations between
China and the European Union this year.
This cooperation has achieved considerable results over the past four decades.
Mutual political trust has been
strengthened. The European Union is now
China’s largest trading partner. And we’re
making progress in many other areas, for
example when it comes to investments, infrastructure and finances, as well as with
innovations in science and technology.
China and the E.U. are in close contact
about international and regional issues.
Relations between China and individual
E.U. member states are also making progress.
Handelsblatt: Europe is still struggling
with high levels of debt and the financial
crisis. What consequences does a weaker
Europe have for relations with China?
Li Keqiang: Europe has a strong economy
and is a technological leader in the world.
Despite the debt and financial crisis, Europe remains a driving force. I am pleased
to see that the economic recovery has
picked up steam since the beginning of the
year. The macroeconomic data are improving. Inflationary pressure has decreased, and the confidence of consumers
and investors has improved. This all shows
that the reforms of the European Union
and its member states are having an effect. What’s even more important is that
the European economy is resilient and
you can assume that it will recover
through its own strength. This improved
situation is good for Europe, and it also
contributes to the recovery of the global
economy.
What do you expect to gain from negotiations with Europe?
Relations between China and the European Union have a chance to grow further.
The China-E.U. 2020 Strategic Agenda for
Cooperation covers more than 100 fields
and is oriented toward the future. China
and the E.U. are tackling structural reforms and have made big and strategic
steps to advance their agenda. Above all,
we want to find new ways in the next five
years to strengthen cooperation between
China and the E.U. in a new era, and
thereby advance our comprehensive strategic partnership.
Does European integration need to be accelerated?
China has always supported the European
integration process. China was on the side
of Europe in difficult times. And Europe
has China’s support when it comes to dealing with the challenges of the international
financial crisis and the debt problem in
Greece. I have emphasized more than
once that China wants to see a flourishing
Europe, a united European Union with a
strong euro because that’s in the interest
of China. We will celebrate the 40th anni-
Tackling climate change is one of the most
important topics on the global agenda.
What is China prepared to do?
China stands firmly behind its responsibility to combat climate change. Finding an
active answer to climate change is China’s
responsibility. This will also allow the
country to engage in steering global issues,
to build a community of shared destiny
and further the development of all. The
fight against climate change also meets
China’s research development needs. As
an important, responsible country, China
is working in the fight against climate
change under the principle of common but
differentiated responsibilities, as well as on
the principles of fairness and differing capabilities. China is taking on international
commitments that are consistent with its
national conditions, its pace of development and its real capacity.
47
Global Edition | Interviews
Premier Li and Chancellor
Merkel in the gardens
of Meseberg Manor near
Berlin. They met again in
October in Beijing.
China wants to see a
flourishing Europe, a
united European Union
with a strong euro
because that’s in the
interest of China.
dpa
48
WHY IT MATTERS
China wants to deepen
trade and investment ties
with Europe despite the
euro-zone debt crisis.
FACTS
The European Union is
China’s largest trading
partner with a total volume
of $600 billion last year.
Beijing and Brussels are
implementing the ChinaE.U. 2020 Strategic Agenda
for Cooperation which
covers 100 different sectors.
China and the European
Union are currently
negotiating an investment
treaty. Beijing also wants to
discuss a free trade
agreement.
Does China view negotiations between the
European Union and United States over a
free trade and investment agreement,
known as TTIP, as a threat?
Regional trade agreements should be open
and transparent and TTIP should not be an
exception. China would welcome progress
in the talks. In this sense, there could be a
closer exchange of information between
China, the E.U. and other negotiating
partners.
Do you view the free-trade pact between
the United States, Japan and 10 Asia-Pacific
states, known as TPP, as more problematic?
In principle China is open to TPP. China
has also concluded many trade agreements
in the Pacific area as well as in Southeast
Asia. I am convinced that bilateral and regional treaties on the one hand and the
Word Trade Organization on the other
hand are like two wheels of a cart. They
should progress in tandem and strengthen
one another.
Isn’t it about time that Europe and
China deepened their economic integration?
China and the European Union are currently negotiating an investment treaty.
Economic and trade cooperation are a fundamental pillar of relations between China
and the E.U. A comprehensive, balanced
investment treaty with high standards
would give both sides the chance to combine their respective strengths and enter
into a new model of cooperation. The result would be more imports and exports of
greater value. This would give new impetus
to our cooperation.
What does that mean concretely?
Cooperation has been flourishing particularly in the field of investment for some
years. The partnership between Geely and
Volvo is an example of this success. But the
scope of bilateral investments, just $20 billion in 2014, is hardly satisfying. That’s the
point where I see clear room for improvement. I hope that we will agree to more cooperation projects – in infrastructure, industry, the sciences, technology and other
areas. This requires both sides to make an
effort. Should China and the E.U. agree to
conclude an investment treaty early and
begin examining the feasibility of a freetrade agreement, this would strengthen
ties between Asia and Europe and counteract protectionism. It would be a major contribution to an open global economy.
This is an abridged version of an interview
that appeared in the Handelsblatt newspaper. Handelsblatt co-editor-in-chief Sven
Afhüppe was one of eight European journalists whose questions Mr. Li answered
jointly in writing.
50
Global Edition | Interviews
Tesla founder Elon Musk
loves driving an electric
car down the German
autobahn.
ELON MUSK
All Charged Up
in Berlin
During a visit to the German capital, electric-car
evangelist and Tesla Motors founder Elon Musk shared
his thoughts on the Volkswagen scandal, stuffy CEOs
and the need to consign gasoline to history.
BY LUKAS BAY AND THOMAS TUMA
T
he biggest surprise was that Elon
Musk showed up in a tie. That was
something we least expected from a
Californian entrepreneur. Before
his interview with Handelsblatt in Berlin,
the Tesla Motors CEO had just had breakfast with 30 government representatives at
the German parliament; afterwards, he was
off to meet with German Economics Minister Sigmar Gabriel. Musk gave Handelsblatt his frank take on old-school thinking
within the German auto industry, what
Volkswagen should do next and how the
German autobahn forced Tesla to adapt its
cars.
Handelsblatt: Mr. Musk, how many Teslas
have you seen on the road during your visit
to Germany?
Elon Musk: I admit it wasn’t that many. But
in Germany, we are also still a comparatively small player on the market.
By the end of 2014, you wanted to sell 300
cars here per week. In the entire first half of
2015, it was only around 700. Isn’t that way
too few?
We’ve been able to meet our global sales
targets with no problem. But proportionately speaking, our sales in Germany are
lower than in a lot of other parts of the
world, in particular compared to the
United States. A few hundred cars per
week is a tiny drop in the bucket for the
German auto market. But it is our aspiration to sell more than 1,000 cars a month
in Germany. Do I think we’ll get there? Yes.
Would you like to have more political support?
Government incentives would be helpful,
no question. For a very large auto market,
Germany has the worst incentives for electric vehicles. I think the government is listening too closely to what the big German
automakers say. And if the big German
automakers are wrong, then the wrong
thing happens.
What do you want politicians to do?
I don’t want to pretend to be the government advisor, but I think, for a large economy like Germany, it would be important
to have a meaningful set of financial incentives for electric vehicles. Some of the
smaller economies have much greater incentives. In Germany it would be a good
start to make bus lanes available for electric cars. In Norway that has worked well.
In Oslo, the use of bus lanes has been one
of the top reasons for people to buy an
electric car.
What does Tesla need to do to reach more
German customers?
Our car has always had excellent acceleration, but its operation at high speed
wasn’t that great. And in Germany, which
is really the only place where people experience truly high speeds, that wasn’t so
well-received. We have worked hard to
tailor our car to high speeds. Now the car
not only delivers consistently good performance but we have also greatly reduced noise and vibration. And we now
have enough Superchargers (fast charging
stations) in Germany and the rest of Europe. So I see things really coming together. And if that’s combined with more
action on the government front, we’ll have
all of the prerequisites for being successful
in Germany.
Do you like the German autobahn? It
would be better for Tesla if Germans didn’t
drive so fast.
Of course! I wish the autobahn was in
other countries too. I think that’s one of
the great things about Germany.
Do German politicians understand what’s
happening in the mobility market?
I think the public understands better than
the politicians and the automakers. If you
judge the public reaction in the room,
they know what should be done.
At the Frankfurt Motor Show in September, German carmakers unveiled their
answers to Tesla. What do you think of the
Audi e-tron quattro or the Porsche Mission
E?
Any action in the direction of electric mobility is good. Our goal at Tesla is for cars
to transition to e-vehicles. That’s why we
opened up all our patents for use by anybody.
And who has used them?
Maybe the companies you already mentioned. When I saw a diagram of Porsche’s
Mission E, I thought: It looks exactly like
Contour by Getty Images
Interviews | Global Edition
51
52
Global Edition | Interviews
WHY IT MATTERS
Tesla has launched a challenge
to German luxury carmakers’
engineering leadership with
high-end electric cars.
FACTS
Elon Musk founded SpaceX in
2002 and Tesla in 2003. In
2008 he sent the first privatelyfinanced rocket into orbit.
Germany is Tesla’s biggest
supply base for components
outside North America.
Only about 12,000 electric cars
and 80,000 hybrids have been
registered in Germany to date.
our car. Which is fine. It’s more important
to accelerate the advent of sustainable
transport.
What are German carmakers doing wrong?
The senior management is too old-school.
They’re not accepting the future yet. Germany needs to move to the next level of
technology. The country was a pioneer in
internal combustion technology. But if you
cling to the past, you won’t get to the future. It’s time to start building a fundamentally new generation of cars.
What role will German manufacturers play
in the future?
The longer the delay of getting into electric
cars, the worse off the German car industry
will be. We have reached the limit of physics
for what gasoline and diesel can do. You see
what’s happened with the current diesel
scandal at Volkswagen. In order to make
progress, they apparently had to cheat. I
think if you intentionally mislead governments around the world with software that
is designed to only be effective at the test
stand, this is a very conscious action.
Does Tesla profit from the situation?
I don’t think so. I don’t think anyone really
profits from this kind of situation. But the
best thing that could come out of this is a
decision to abandon oil-based transportation – and for Volkswagen to make a very
serious move towards electro-mobility.
You used to have partnerships with German
automakers. Is that a model for the future?
The problem that we found with programs
we did with Toyota and with Daimler was
that they ended up being too small. They
basically just calculated the amount they
needed to keep the regulators happy and
made the program as small as possible. We
don’t want to do programs like that. We
want to do programs that are going to
change the world.
How big would they have to be?
It would be interesting starting at around
100,000 cars in Europe, for example.
For those kinds of sales figures, Tesla needs
new models. The Model S is still a car for a
chosen few; the Model X will be even more
expensive. I’ve only been saying it for nine
Global Edition | Interviews
A Model S is ready to leave the
factory. Tesla delivered 11,580 cars
in the third quarter, up 49 percent
from the previous year.
want to build are key to making this energy
permanently available. In terms of markets
outside of the United States, Germany is
one of the most interesting markets in the
world because here you already have an
awareness of renewable energy. But e-cars
can also theoretically store and release
energy.
Bloomberg
Apple just hired some of Tesla’s most important engineers. Do you have to worry
about a new competitor?
Important engineers? They have hired
people we’ve fired. We always jokingly call
Apple the “Tesla Graveyard.” If you don’t
make it at Tesla, you go work at Apple. I’m
not kidding.
years: step one: expensive car, low
volume. Step two: medium price,
medium volume. Step three: low
price, high volume.
Bloomberg
Daimler CEO Dieter Zetsche said: “No
one will make money on electric
cars.” When will Tesla?
I hope to be profitable next year. I
agree, we cannot be making losses
forever. This year we’ll be investing a
lot into the manufacturing ramp-
up of the Model X, and in the long
term, the Model 3 as well. So our
goal from next year onwards is to be
cash-flow positive. But we wouldn’t
slow down our growth for the sake
of profitability.
When people discuss e-cars in Germany, they want to know where we’ll
get the clean energy to drive them.
We need reliable renewable energy
like solar and wind. The batteries we
In September, Tesla
began shipping the
Model X, an all-electric
SUV. Inn the U.S., the
car starts at $132,000.
Do you take Apple’s ambitions seriously?
Did you ever take a look at the Apple
Watch? (Laughs.) No, seriously: It’s good
that Apple is moving and investing in this
direction. But cars are very complex compared to phones or smart watches. You
can’t just go to a supplier like Foxconn and
say: Build me a car. But for Apple, the car is
the next logical thing to finally offer a significant innovation. A new pencil or a
bigger iPad alone were not relevant
enough.
You still work with a number of German
suppliers to build the Model S. How important is German technology for you?
Our biggest supply base outside North
America is Germany. Bosch, for example, is
a huge supplier of a variety of components
for us. We’ll be working with Dräxlmaier
for interior components because they offer
higher quality than some of our U.S. suppliers. I think those are two good
examples.
What role will Asia play in the future of the
e-car? We just saw the Taiwanese Thunder
Power e-car at the Frankfurt Motor Show.
Thunder Power? Never heard of it. But you
do have to take them seriously. There are
four China-funded electric vehicle start-ups
in the United States alone at the billion-dollar level. We are facing some challenges in
China because we don’t get produced domestically. We have to pay 25 percent import taxes; when China exports a car to the
United States, it’s 3 percent. If China expects other countries to have a level playing field then they should too.
53
54
Global Edition | Interviews
COOL CAPITAL
Growing by Leaps
and Bounds
Imago
Will Berlin stay affordable? Can the city handle the stream
of refugees? Will the new airport ever open? Handelsblatt
Global Edition meets with Berlin mayor Michael Müller.
Interviews
Global
Edition
| Global
| Interviews
Edition
Berlin’s quality of life
has drawn young and
creative types fom
around the world.
BY FRANZISKA SCHEVEN
M
ichael Müller has big shoes to
fill. In December 2014, the
50-year-old former printer’s apprentice took over as mayor of
Berlin from the charismatic, popular and
openly gay Klaus Wowereit, who’d been
the city’s longest-serving mayor since reunification. Born and raised in what was
then West Berlin, Mr. Müller, just like his
predecessor, belongs to the left-leaning Social Democratic Party and is a product of
the city’s political machine, which rarely
lets in outsiders. He faces a full plate of issues, from Berliners increasingly unhappy
about rising costs to the rapid influx of migrants that is straining the city’s resources.
Your popular predecessor, Klaus Wowereit,
did a lot to market Berlin as a dynamic and
creative city, a hip place that attracts newcomers and tourists. At one point there
were rumors he might even be a candidate
for chancellor. He is a hard act to follow.
My style is certainly a little more reserved.
We’re also a little different in our priorities. Klaus Wowereit focused a great deal
on culture, media and the creative scene.
That was important for the city and for me
too, but I want to put a greater emphasis
on other sectors such as industry and
technology.
Does that mean Berlin won’t be as cool anymore and not attract as many young
people from all over the world?
On the contrary. We attract many newcomers, including young and creative
people, as well as a great deal of international interest, because we’re a multicultural, tolerant city, because we have
science and culture. And because we’re an
affordable city.
Berliners worry a great deal about rapid
gentrification. Will Berlin be like London
one day, a city where only the rich can live?
Gentrification is a normal process of
urban development. There were parts of
Berlin where we urgently wanted change.
Of course it is a problem when the city becomes fuller, when space is limited, when
we urgently need more housing. If you
already have an apartment in Berlin
you’re fine, but if you have to move, you
generally have to pay a lot more. And for
a lot of people that is a serious problem,
because salaries here are not as high as
in London or Paris. We’re not typical for
a capital city.
What can be done to keep Berlin’s housing affordable?
Well, first of all build new housing. The
city has €500 million to invest. And use
regulation, including legal limits on rent
increases and, in some areas of the city,
limits on building conversions and upgrades. We cannot completely prevent
price increases, but these measures slow
them down and moderate them.
Berlin has become a laughing stock for
building an international airport that was
supposed to open in 2012.
We certainly didn’t cover ourselves in
glory there. There were bad political
decisions, there were failures at top management level of the airport and at the
construction companies.
And corruption?
Several cases were opened by the public
prosecutors. Legal proceedings have
been initiated against managers where
bribes were paid. Of course this has discredited the project as well. But it is certainly not the only problem.
When will you finally open the new airport?
It is possible to complete construction in
2016 and then start flight operations in
2017. That is our aspiration.
Berlin has taken in many refugees and
more are expected. Can the city handle
the influx?
Even without refugees we are seeing a
rapid growth in population, with 40,000
newcomers every year for the fourth
year in a row. And now we have the refugees on top of that. At the moment we
55
Global Edition | Interviews
Mayor Michael Müller
promises to slow down the
steep rent increases that
have Berliners worried.
Caro / Waechter
56
WHY IT MATTERS
Berlin has turned into one of
Europe’s most dynamic cities,
but faces major challenges such
as a housing crunch and a huge
influx of refugees.
FACTS
Michael Müller, a member of
the Social Democratic Party,
has been the mayor of Berlin
since December 2014.
Berlin’s economy has improved, but still lags far behind
many European capitals. At
10.2 percent, unemployment is
much higher than the German
average of 6 percent.
The opening date for the new
Berlin-Brandenburg Airport, a
high profile project, has been
delayed multiple times.
Watch the full interview
with Mr. Müller:
http://global.handelsblatt.com/video
have around 40,000 refugees in our city.
There is a great deal of support in Berlin.
But there is also criticism regarding what
we need to do to integrate these people,
that some things are not happening
quickly enough. But it is not just Berlin
which has to deal with this situation. All
federal states are struggling to find accommodation and personnel, not to mention
the necessary funding.
Can you integrate all the migrants coming
to Berlin?
Many people still haven‘t realized what is
in store for us. At the moment we are talking about this exceptional situation and
how to manage it properly. We will be occupied for the next seven to ten years getting people qualified, educated and integrated into the labor market. We are already deeply involved, but the big task of
managing it all financially and in terms of
human resources is still ahead of us.
What is the maximum number Berlin can
handle?
I don‘t think that this discussion about
maximum capacities and maximum
numbers really helps, because people just
keep coming anyway. There is no border
which can be closed. I cannot close a
border I don‘t have. That is why we have to
work out how to deal with them. Apart
from that, we need more international
solidarity and a distribution system, quicker asylum procedures and clear repatriation rules for unsuccessful applicants.
How do Berliners feel about the refugees?
We’re showing that we are willing to accept these people, and we are doing so in
a positive fashion. Of course we cannot ignore the critical voices. There are those
who do not want the refugees here at all,
but we are talking about a clear minority.
We had demonstrations here in Berlin
with 100 to 300 right-wing demonstrators
protesting against refugees on one side of
the street facing 3,000 people on the
other side holding a counter-demonstration. In terms of attitudes, that speaks volumes. It is not an uncritical attitude visà-vis the situation or the policy, but there
is a fundamental commitment to help
people from war zones. Perhaps Berlin’s
history is instrumental here. Berlin was always a city that received help and solidarity. From the Allies at the time of the Soviet blockade, and after the Wall was built,
West Berlin would not have survived without help from others. Then, when the Wall
came down, our city saw another wave of
migration. Berlin has hands-on experience
that it can work.
58
Global Edition | Big Reads
REFUGEES
Germany’s Great
Experiment
No one knows the numbers, but up to 1.5 million migrants
are expected to arrive in Germany this year. The country
feels like a powder keg, but for now, optimism prevails.
Global Edition | Big Reads
BY KEVIN O’BRIEN
dpa
I
Angela Merkel stops
for a selfie at a
refugee registration
center in Berlin.
n Sumte, a sleepy farm village of just
100 residents in northern Germany,
“foreign” used to mean the Greek restaurant in Lüneburg, about an hour’s
drive away. The tiny hamlet 80 kilometers
(50 miles) southeast of Hamburg faced the
usual challenges confronting rural Germany. The abandoned office complex on
the edge of town, which once employed
300 people at a bill collection agency, was
looking for an occupant while sliding into
disrepair.
But life is changing dramatically in
Sumte now – as it is across much of Germany – as the flesh-and-blood reality of
Angela Merkel’s sudden, fateful decision to
take in a seemingly endless flow of migrants and refugees takes shape, transforming the rhythm of life in towns, cities
and vast stretches of countryside. Up to
1,000 asylum seekers from the Middle East
and the Balkans - some 19 countries in all are being bused in to live in the office park,
a decision made by state officials in Lower
Saxony that stunned residents.
“It was hard to fathom – 1,000 refugees is
10 refugees for every resident,’’ says Christian Fabel, Sumte’s mayor and a member
of Merkel’s Christian Democratic Party.
“The mood in the town is not so positive.
We don’t know what is coming at us.’’
Neither does the rest of Germany. In
leafy suburbs such as Hilden on the edge of
Düsseldorf, in gritty urban neighborhoods
such as Berlin’s Moabit, and along pastoral
border crossings near Passau on the Austrian border, Germany is no longer that
well-organized, sleepy haven of western
European prosperity and “ordnung.’’ From
mid-August through October, 800,000 migrants have streamed into Europe’s largest
economy, most walking a contentious
gauntlet of cold-hearted disregard through
the Balkans and eastern Europe – lured by
the unexpected generosity of a mystical
woman some call “Mama Merkel,“ the patron saint of European compassion.
By the end of October, 10,000 people –
mostly men from Syria and Iraq, but also
citizens of Afghanistan, Eritrea, Serbia and
many other countries – were still lining up
each day at the German border to enter
their new promised land. As they keep
pouring in, day after day, they are part of a
forlorn chain of human misery, corruption,
terrorism and war now testing Germany,
Ms. Merkel and the bonds that have held
together the European Union during the
post-war era. A worried Gerd Müller, min-
ister for economic cooperation and development, spoke for many Germans when he
recently asked on television, “How long
can this go on?’’
As a turbulent 2015 comes to a close,
Germany has the feel of a powder keg. The
sheer dimension of the drama has been
mind-boggling – the equivalent, adjusting
for the two countries’ population size, of
3.2 million refugees streaming into the
United States in just a few months. By the
end of this year, as many as 1.5 million will
have arrived in Germany, according to government sources cited in the German
press. The anxiety across Germany also has
an ugly side. Through September, German
police recorded 482 acts of right-wing violence, mostly arson and vandalism of
homes set up to house refugees.
Ms. Merkel’s coalition is also showing
serious signs of strain. By the end of October, the Bavarian premier, Horst Seehofer, was making public ultimatums to
Ms. Merkel to close Germany’s borders. Opponents to Ms. Merkel’s open-armed policies among her own Christian Democrats
are increasingly nervous about the party’s
sliding poll numbers, and see themselves
buoyed by rising calls in Germany for Ms.
Merkel to slow the intake of refugees – including by German business leaders, as a
recent Handelsblatt survey showed.
With four to five million displaced persons already produced by the Syrian war
and continued fighting producing more
refugees each day, the refugee problem
cannot be solved in Germany alone.
But at home, the biggest question is
whether Germany can sustain the political
will to see the massive integration project
through to completion as costs and social
disruptions mount. Amid the daily chaos
wrought by the droves of uninvited guests,
German officialdom appears committed to
laying the groundwork for the country’s
greatest social transformation since the
1960s, when the first Turkish guest workers
were brought in.
“Many people still don’t realize the
changes that are about to come,’’ said Michael Müller, the mayor Berlin, in an interview with Handelsblatt Global Edition. “At
the moment, we are talking a lot about the
processing and intake of refugees. The real
challenges of integration are still ahead of
us.’’ Through October, Berlin had taken in
40,000 refugees, and expected to house
30,000 to 50,000 more by the end of the
year, the mayor said. Each day, about 500
59
Global Edition | Big Reads
imago/Christian Mang
60
A child of newly
arrived migrants
plays with donated
toys in Saxony.
WHY IT MATTERS
The flow of migrants and refugees
into Germany since this summer
shows no signs of slowing down.
Germany now faces the massive
task of how to handle the arrivals,
including housing, language training, jobs and education.
FACTS
Between January and October,
813,000 migrants arrived in Germany. Most are from Syria, Serbia/
Kosovo, Albania, Afghanistan and
Iraq.
Deutsche Bank estimates a €10 billion cost in 2016 to feed, house
and support the refugees who have
arrived so far.
In an October Handelsblatt Business Monitor survey, a majority of
German business executives
wanted Ms. Merkel to limit the
flow of migrants.
Read the latest news on
immigration:
http://hbge.net/dvpif
arrive by bus and train. Half are housed in
Berlin and the rest go to the neighboring
state of Brandenburg.
So far, Berlin has been spared incidents
of right-wing violence against refugees,
which have tended to take place in rural
areas and smaller towns. In October, a
mayoral candidate in Cologne, Germany’s
fourth-largest city, was stabbed by an unemployed man shouting right-wing epithets during a street market campaign
stop. Voters elected her the next day.
In an October 3 poll, one in two Germans was nervous about the unbroken
flow of foreign arrivals. Although new
blood, demographically speaking, is
exactly what Germany needs. Without immigration, Germany’s population will
shrink by 5.3 million people by 2030,
from 81 million to 75.5 million, according
to a study by Munich’s Ifo Institute and
Dresden Technical University. Immigration
alone won’t necessarily halt the population decline, but it can slow the decrease, said Marcel Thum, who coordinated the Ifo study.
But what one needs, and what one
wants, are often not the same. If the thousands of volunteers who work at refugee
centers are an indication, Germany wants
to embrace a multicultural future. Many
volunteers say they want to provide a
better integration pathway than Germany
did a half century ago with the Turkish
guest workers. About 3 million people
with Turkish ethnicity live in Germany, but
about half hold Turkish, not German,
passports. “People realize something has
to be done,’’ said Peter Puchalla, a volun-
teer at the refugee center in Berlin-Moabit
who was working a 14-hour shift. “Germany
has learned from past mistakes,’’ said Lothar Probst, a professor of political science
at the University of Bremen. “This time we
are cleverer, we are better prepared. All of
the parties recognize that Germany is now
an immigration country.’’
But good will alone won’t be enough to
ensure the successful integration of Syrians, Iraqis, Afghans and other arrivals.
The project will cost billions of euros from
German taxpayers, and force Germany to
accept a level of multiculturalism it hasn’t
experienced since early 19th century,
when Napoleon Bonaparte occupied much
of the country. Nine in 10 refugees will
need retraining in language and in job
skills, a herculean task that Thomas Liebig, a senior immigration expert at the Organization of Economic Co-Operation and
Development (OECD) in Paris says will
take at least six years.
Raimund Becker, a member of the board
at the German Job Agency, expects 90 percent of refugees to be on welfare. Many
will eventually bring family members once
they receive asylum, a process that can
take a year or more. How many those will
be, no one can say.
In October, Deutsche Bank estimated it
will cost the government €10 billion next
year to feed, house and support 800,000
refugees. The German Council of Cities, a
lobbying group for municipalities, says the
cost will be more like €15 billion. But with
estimates of as many as 1.5 million arrivals
by the end of this year, the costs could
quickly skyrocket.
64
Global Edition | Big Reads
Life is changing
dramatically as the
flesh-and-blood reality
of Angela Merkel’s
fateful decision to take
in a seemingly endless
flow of refugees takes
shape.
But the crisis may be more manageable
that many think. Based on previous refugee
flows, only 40 to 50 percent of those pouring into Germany will receive asylum and
be permitted to stay, Liebig says. Most applicants – he estimates 30 to 40 percent are
from countries of the former Yugoslavia -will be returned because they aren’t fleeing
war, the common prerequisite for gaining
asylum.
Slotting the new arrivals into Germany’s
industrial economy won’t be easy. German
unions are closely watching developments
to ensure arrivals don’t take jobs from their
members. The country’s rigid labor market
– which often refuses to recognize foreign
academic degrees and prevents even unskilled interns from working for anything
less than the minimum wage of €8.50
($9.50) per hour – will also be a barrier for
immigrants seeking an economic foothold.
But the government, after some initial
stumbles that led to the quick replacement
of the country’s integration minister, is
showing signs of learning on the fly. Since
August, the Bundestag adopted laws to
speed the processing of applicants and the
deportation of those rejected. In September, Ms. Merkel’s coalition funneled €2 billion to Germany’s 16 states for the costs of
housing and feeding refugees. In early November, rules on migrants bringing their
families to Germany were tightened.
The country’s immigration system – routinely criticized as calcified, outmoded and
overly restrictive – is also proving to be
more modern than many Germans had
realized. That’s not surprising, says Mr. Liebig, because Ms. Merkel has made immigration a cornerstone of her administration
since taking power in 2005. Many of those
changes, the broadening of exceptions, the
Global Edition | Big Reads
The Diab family,
newly arrived from
Damascus, watches
as their son gets his
vaccinations.
Hans Christian Plambeck/laif, dpa (3)
A volunteer in
Schleswig-Holstein
has collected
children’s books to
help new arrivals
learn German.
The stream of
refugees, here
at a train station
in Brandenburg,
is straining
Germany’s
infrastructure.
After arriving in
Germany, refugees
are distributed to
communities all
over Germany. Here
a Syrian family arrives in Lüneburg,
Lower Saxony.
continual opening of the nation’s doors to
foreign workers, are now routine and paying off. In 2014, 400,000 people – not refugees but transplants mostly from other
parts of Europe – moved to Germany for
jobs and family, Mr. Liebig says.
One of the biggest things in Germany’s
favor is its growing economy and sound
public finances. Unemployment, at 4.5 percent in September, was at its lowest since
1981. The federal budget will run a €20-billion surplus this year. Even after additional
spending on refugees, Germany is likely to
run a surplus again next year, says the
country’s finance minister, Wolfgang
Schäuble. Still, a majority of German business executives – nearly eight in 10 – are
skeptical their country can sustain the support. In an October Handelsblatt Business
Monitor survey, a majority wanted Ms.
Merkel to slow the flow of migrants.
But the mood of the German electorate –
not economic appeals to reason – will ultimately determine whether Germany stays
the course on the refugees. “In the long
run, when we look at topics such as
growth, job opportunities, social housing,
education and refugees, I would say we
should move forward and invest and ignore the fact that we might enter a phase of
moderate debt,’’ said Christian Petry, a Social Democrat who is a member of the Bundestag’s Finance Committee.
Eckhardt Rehberg, a member of Ms. Merkel’s Christian Democrats and the Budget
Committee, says the costs were manageable. “We can deal with the current stream
of refugees financially,’’ Mr. Rehberg says.
“But we don’t know yet today what the continuing development will look like.’’
Initially at least, the refugee flood is
likely to cause a mini-stimulus from added
65
66
Global Edition | Big Reads
Davids
Ali Ali/laif
A Berlin district has
set up container
housing for migrants
as they wait to have
their asylum applications processed.
fiscal spending on refugees, economists expect, as the care, feeding and housing of
nearly one million new residents fuels demand for new construction and basic
goods. The government plans to spend
some €6 billion in 2016 on infrastructure
such as shelters, housing and schools. The
country’s GDP should rise about 0.25 percentage points next year as a result.
But the logistical challenges are enormous. “Many cities are already at their capacity limits,” said Jochen Möbert, an
economist at Deutsche Bank. There are
also questions about whether Germany can
scale up fast enough to handle the massive
flows of people and teach them all to speak
German.
At an adult education center in Berlin’s
Neukölln district, administrators are
scrambling to keep meet demand for German language instruction. In early 2015,
the center planned 20 integration language
courses. By September, they had more
than doubled the number of courses to 54.
“There’s a waiting list of 200 people,’’ said
Bernd Müller, the center’s director. “ We
don’t have enough space and we’ll need
more teachers who are qualified.”
States such as Baden-Württemberg are
already reporting a shortage of language
teachers. The German federal office of migrants and refugees has eased its strict accreditation requirements for language instructors to help communities find enough
teachers.
The pressure to produce quick success is
immense. The longer it takes, the more
political oxygen will be given to Germany’s
right-wing groups. On October 12 in
Dresden, 8,000 turned out to a demonstration held by Pegida, an anti-immigrant
group. Two demonstrators carried a mock
gallows through the city’s central square
with nooses reserved for Ms. Merkel and
Sigmar Gabriel, vice chancellor and chairman of the Social Democrats.
While Pegida and similar local groups
around Germany are still largely fringe
groups, the refugee issue is pushing some
mainstream voters toward Alternative für
Deutschland, or AfD, a populist party that
formed in 2013 in opposition to Ms. Merkel’s euro policies and now has representatives in four state parliaments. While not
as far right as other anti-immigrant parties
in Europe like France’s Front National, it
has been buoyed by rising anti-migrant
sentiment. Opinion polls in November
showed support for AfD to be growing
among German voters, to about 9 percent
of the national electorate, which
would be enough to enter the
Bundestag at the next
national elections set for 2017.
The refugee tide is also feeding extremist right-wing
views, said Fabian
Virchow, an expert
at Dusseldorf Technical University.
German President
Joachim Gauck
at a refugee center
in Berlin
“We already are seeing a rise in the
number of attacks,” Mr. Virchow said.
“They’re protesting against asylum policies
and I think we’ll see more of that, along
with attacks, in particular where there are
social problems or a large number of refugees are housed.”
But on the ground, at least at the beginning of November, small-town Germany
seemed still to be behind Ms. Merkel and
their country’s big multicultural adventure.
At a town hall meeting in late October in
Sumte, the farming community taking in
1,000 refugees, about three quarters of
speakers told state officials they welcomed
the arrivals. Over the next month, a first installment of 500 refugees will move into
the old office park. The complex is rated
for 750 people, but many in the town expect the state to ignore the limit.
“I’m a member of a Christian-oriented
party and believe I have to care for my fellow man in need,’’ said Mr. Fabel, the
55-year-old mayor. “The mood here is actually hopeful. Not all of our questions
have been answered, and there is a lot of
uncertainty, but we are optimistic.’’
Handelsblatt Global Edition’s
Siobhan Dowling, Chelsea
Spieker, Meera Selva, Sarah
Mewes, Franziska
Scheven, Christopher
Cermak and Allison
Williams contributed
reporting for this article.
Dominik Butzmann/laif
68
Global Edition | Big Reads
At 73, German Finance
Minister Wolfgang Schäuble
no longer has anything to
lose by speaking his mind.
Global Edition | Big Reads
A YEAR OF CRISIS IN EUROPE
Germany’s “Chancellor
of Reason”
A hero to some, a villain for others, Wolfgang Schäuble often
polarizes the debate. Criticized abroad for promoting fiscal
austerity, the German finance minister is scoring points at
home as he calls for slowing down the flow of refugees. He has
emerged as a voice of reason in difficult times.
BY SVEN AFHÜPPE AND GABOR STEINGART
O
nce upon a time, Wolfgang
Schäuble was an optimist. The
German finance minister was
convinced the Greek government would implement the reforms to
which it had long ago agreed – and avoid
a government default. In a 2012 interview with Handelsblatt at his office in
Berlin, he ridiculed the idea of a Grexit –
a Greek withdrawal from the euro zone –
as “nonsense,” saying there were no
provisions in the European treaties for
kicking out a member state. In repeated
interviews and conversations, Mr.
Schäuble also promised to keep the risks
to the German taxpayer within a manageable range. “It stops at €210 billion,” he
said in 2012.
Three years and many rescue deals
later, Mr. Schäuble now sees the world
differently. The potential cost of Germany’s continued support of Greece has
increased beyond what Mr. Schäuble
once promised. Greece is insolvent, and
closely avoided default this summer only
because its European creditors gave it
another bailout, this time up to €86 billion euros, in return for promised reforms. As the negotiations dragged on
and and the country was collapsing, Mr.
Schäuble unexpectedly proposed what
he once insisted was unthinkable: That
Greece at least temporarily abandon the
euro and return to its own currency.
That outcome has for now been
avoided – but only by saddling Greece
with more debt than it can repay. With
August’s new bailout, Greek national
debt has now reached over €380 billion.
The International Monetary Fund projects the country’s debt to eventually
reach close to 200 percent of GDP, far
beyond the 60-percent limit set by the
European Stability Pact, the 1999 agreement set up at the birth of the euro to ensure members behave in a fiscally responsible manner. More importantly,
200 percent is much higher than the
feeble Greek economy can ever service.
It turns out that the life preserver the
Europeans have dropped in Athens is
made of lead.
His bold proposal of a euro zone exit
for Greece shows that reality has forced
Mr. Schäuble to come up with new
answers to old questions. Now, it is Mr.
Schäuble who is emerging as a voice of
reason in the refugee crisis, calling for a
more measured, calibrated German response to the crisis that has overwhelmed Europe’s largest, and for the
time being, most generous economy.
This is to Mr. Schäuble’s credit. Unlike
other key politicians, he has relentlessly
Sven Afhüppe is the co-editor
in chief of Handelsblatt.
Gabor Steingart is the publisher
of Handelsblatt and the CEO of
Handelsblatt Publishing Group.
69
Global Edition | Big Reads
Mr. Schäuble’s
insistence on
reforms in return for aid did
not go over well
in Greece.
dpa
70
WHY IT MATTERS
Wolfgang Schäuble’s demands
for Greece to reform in return
for aid have increased his popularity at home, as has his call to
limit the flow of refugees.
FACTS
This summer, Germany’s finance minister suggested
Greece exit the euro zone for
five years.
Mr. Schäuble has seen his popularity soar at home while abroad
he has often been vilified as a
heartless loan collector.
Among Christian Democrats,
Wolfgang Schäuble is the most
popular choice to become chancellor if Angela Merkel stumbles
over the refugee crisis.
drawn the necessary conclusions from
present realities. He no longer allows himself to be carried away by his own romantic notions of Europe. To many Germans,
therefore, he has become the “chancellor
of reason.” According to opinion polls, the
73-year-old is now Germany’s most popular politician.
More than any other politician, Mr.
Schäuble embodies authenticity and staying power. Ironically, many Germans are
now pinning their hopes for the future on
him, the great conservative of the past.
Germans want to be good Europeans – but
not the eternal paymaster. They love
Greece, but they hate it when their politicians are made to look like fools. They
came to terms with the European single
currency long ago, but this doesn’t mean
that they want it to get weak. Germans
want the euro to be synonymous with
prosperity, not crisis.
They feel most confident in Mr.
Schäuble as the politician to come up with
the right answers. He is willing to accept
that his opinions sometimes conflict with
Chancellor Angela Merkel’s political strategy and, in doing so, is willing to risk his
political fate, including his job as finance
minister. This raises him above the sea of
opportunists and careerists who would
eagerly tell the chancellor she is wearing
beautiful clothes, even if she were standing naked in front of them.
There are three uncomfortable realizations that prompted Mr. Schäuble to
Global Edition | Big Reads
dpa
72
Not always seeing
eye to eye: Ms. Merkel
and Mr. Schäuble
during a parliamentary
debate over another
Greek bailout this
summer.
change his views. First: This summer’s crisis showed that the serial Greek rescue
could continue indefinitely. But fires cannot be extinguished with oil.
Second: The financial cost to German
taxpayers has already exceeded the oncepromised cap of €210 billion and would
continue to exceed each additional cap.
Greece’s debts have gone beyond its ability to repay. The political costs are tremendous, both in Germany and Greece. The
Greek population has already gone
through all governing parties on the democratic spectrum, replacing socialist Giorgos Papandreou with conservative Antonis
Samaras, and when he failed to produce
relief, the left-wing Syriza Party was voted
into the presidential palace. What could be
next? The radical right?
Third: The European ideal – essentially
all for one, and one for all – has been done
a disservice by the circumstances surrounding the Greek rescue. Anti-European
parties are gaining strength throughout
Europe. In France, the right-wing populist
Front National is going head-to-head with
the president, and in Spain the left-wing
populist Podemos party is benefiting from
the Europeans’ unsuccessful bailout attempts. Northern Europe now looks to
Greece with bewilderment and incomprehension.
The Europe of law and order that Mr.
Schäuble invoked in 2012 has become a
Europe of lawlessness. According to a
prognosis by the European Commission,
14 of the 19 euro zone countries no longer
adhere to the stability requirements enshrined in the E.U. treaties. In its response
to the refugee issue, the European Union
has broken apart in full view of the public,
to the bewilderment of leaders such as Ms.
Merkel. Hungary has erected a barbedwire fence along its borders. Other
member countries such as Poland and the
Czech Republic have rejected Ms. Merkel’s
demands to take in a share of the migrants.
This “new normal” is undermining the
foundation of the monetary union, and
pulling at the core humanitarian ideals of
the European Union. Mr. Schäuble has
drawn consequences from this analysis.
Unlike the political elites in Europe, he believes that “more of the same” would be
disastrous. This – and not any aversion to
Greece, of which some have wrongly accused him – is why he changed his mind
this summer and proposed the previously
unthinkable: Grexit, or Greece’s temporary withdrawal from the monetary union
while remaining a full-fledged member of
the European Union.
A return to the drachma would give
Greece the chance to devalue its currency
and make its own export goods, including
tourism, substantially cheaper. A temporary exit would also ease debt relief, which
Mr. Schäuble insists is “incompatible with
membership in the monetary union.”
This summer, Mr. Schäuble went from
being a romantic European to a reason-
Global Edition | Big Reads
able European, able to change his mind
over Grexit. Throughout the tense standoff
in July and August, his intention was not
to harm the Greeks, but to help. To get the
country back on its feet rather than humiliate it. To save Europe, not just Greece.
The intellectual rigor of his solution
matches the verve with which he expresses
it, against a wall of rejection and incomprehension. That’s only possible because
the he 72-year-old escaped the convulsions
of domestic politics long ago. The great
traveling circus of domestic policy, which
travels from one anxious summit to the
next, is no longer his arena. If a true
statesman considers the next generation
and not just the next election, Mr.
Schäuble is indeed the real deal, and one
of the few in Europe. His badge is a compass, not a weather vane.
This also makes Mr. Schäuble, one of the
architects of German reunification, an extremely inconvenient politician, who cannot and will not toe the line.
There is also a key difference between
Mr. Schäuble and the host of better-known
establishment Europeans past and present, such as ex-chancellor Helmut Kohl,
former foreign minister Hans-Dietrich
Genscher, former European Commission
president Jacque Delors, former European
Commission president Jean-Claude Juncker and Chancellor Angela Merkel.
Mr. Schäuble, the “chancellor of reason,” does not idealize the European project, because he believes that the current
rhetoric on Europe, that well-oiled double
game of transnational vision and the in-
vocation of Europe’s warlike past, is no
longer convincing. European reality must
pass the smell test: It must prove that it
can increase prosperity and defuse conflict as it claims to do.
But its members must play by the rules.
“We need to keep Europe together; we
need to promote Europe,’’ says Mr.
Schäuble. “But that naturally also means
that we need to stick to what has been
agreed on in Europe; otherwise, there will
no longer be any trust.”
The hopes of former chancellor Kohl –
that the currency union would bring about
political union – have not been fulfilled so
far. Mr. Schäuble does not believe they will
ever be. The hallmarks of political union –
such as a European leader with real executive powers or an E.U. finance minister
with control over national budgets – are
not supported in the major capitals. They
remain the stuff of non-binding declarations, dutifully signed by Europe’s elite.
Mr. Schäuble has therefore made a decision. He wants to be a European, but not a
naïve one. That’s why he insists on compliance with the rules set out in the Maastricht Treaty, in the European Growth and
Stability Pact, in agreements between
Greece and its creditors.
He is not prepared to let anyone force
him to act against these rules and his convictions – not even the chancellor. “If anyone tried it, I could go to the federal president and ask to be dismissed,” he told
German weekly news magazine Der Spiegel earlier this year. This statement was an
insult that undermined the chancellor’s
authority. Never before in the history of
the Federal Republic has a minister so
openly challenged the head of government’s policy-making power in public.
Mr. Schäuble clearly feels he has nothing to lose. Not only does he feel free to
express his opinion openly, but even asserts it in the face of opposition. There is
no longer any likelihood of capitulation
with him. Mr. Schäuble – the man who was
once chairman of Ms. Merkel’s political
party and at one time close to becoming a
candidate for chancellor – is no longer
seeking higher office. That frees him – and
makes him dangerous. His reserves of
loyalty have been largely exhausted.
It is in the nature of democracy for there
to be differences of opinion, Mr. Schäuble
says, adding that everyone has a part to
play. “Angela Merkel is the chancellor and
I’m the finance minister,” he noted. What
he is also saying is that not even Ms. Merkel defines the red lines of financial policy,
but Mr. Schäuble himself. Sources in the
chancellor’s office, under protection of
anonymity, call it a “highly volatile conflict
situation.” Ms. Merkel cannot simply dismiss the finance minister. Unlike environment minister Norbert Röttgen, who was
fired, Mr. Schäuble is not a lightweight
who can easily be shoved out of the way.
As a turbulent 2015 comes to a close, the
big question in Berlin is how far Mr.
Schäuble will be willing to push his own
principles against his own chancellor. The
European refugee crisis may prove to be a
defining event for both of them. When Ms.
Merkel, out of humanitarian reasons,
73
Global Edition | Big Reads
In a wheelchair since a
1990 assassination
attempt, Mr. Schäuble was
one of the architects of
German reunification.
Wolfgang Wilde
74
Germans want to be
good Europeans – but
not the eternal
paymaster. They love
Greece, but they hate it
when their politicians
are made to look like
fools.
opened Germany’s door to millions of Syrian war refugees, a large segment of the
German population was appalled at the
offer, which in just a few months has cost
taxpayers an estimated €10 billion to
house some 800,000 arrivals. As the
human dimensions of the promise have
become tangible in Germany – 10,000
people were still pouring into the country
each day across the Austrian border in late
October – many in the German political establishment, including within Ms. Merkel’s
coalition, have demanded an about-face
and closing of the borders – something
that would not be possible without the 21st
century equivalent of a medieval castle
wall and moat.
Within Ms. Merkel’s cabinet, Mr.
Schäuble, as he did on Greece, has begun
to steer a subtle, yet deliberate course of
opposition to his own chancellor, encouraging business leaders and other key interest groups to publicly call on her to reverse and put a cork in the refugee flow. In
public, his criticism has been measured.
“The flow cannot last indefinitely if we
aren’t to lose our ability to offer help and
refuge in the future.’’ But in private conversations with German political and business leaders, Mr. Schäuble is surprisingly
frank about his concerns over the chancellor’s open-door policy, which he feels is
motivated by good humanitarian reasons
but is being exploited by Germany’s E.U.
neighbors, who are passing the crisis on
to the country’s taxpayers.
Ms. Merkel is well aware of the internal
discontent her finance minister is encouraging, but ever the political pragmatist, is
attempting to thread the needle and obtain the necessary legal reforms in Berlin
and Brussels to temper the refugee flow
and silence her critics without having to
make the spectacle of a formal, politically-damaging about-face. The outcome
of this behind-the-scenes power struggle
between Ms. Merkel and her closest advisor remains uncertain.
For now, there reigns a tenuous peace
between Germany’s elected leader and
the de facto chancellor of economic common sense. In October, E.U. leaders
began to impose limits, both physical and
legal, to better manage and control the
refugee flow. It was the second tangible
victory in an eventful year for the backchanneling realist, Mr. Schäuble, after
this summer’s battles over Greece. Without admitting it, European leaders are
adopting a more sanguine view of what
Europe can and should be in this age of
crisis. Behind the scenes, its architect,
Wolfgang Schäuble, can lean back and
smile at a job well done.
Global Edition | Big Reads
Oliver Tjaden/laif
76
DECLINE OF THE WEST
Coal Pits and Debt
Mountains
Since reunification, Germany has ploughed more than a
trillion euros into its once-blighted east. Twenty-five years on,
a struggling western region wants to reverse the flow.
BY MAIKE FREUND AND AXEL SCHRINNER
T
he excavator crunches and groans
as it eats its way into the masonry.
The red bricks fall away, exposing a
pink-and-blue border that probably
once adorned a kitchen wall. Once a stately
home, the building housed factory workers
for many years. Now it is being demolished. Across the street, the ThyssenKrupp
steel mill still stands – a symbol of better
days in Bruckhausen, a district in the city
of Duisburg.
Those better days were too long ago for
many residents to remember. Nobody
wants to live in Bruckhausen anymore. The
windows are empty, the doors boarded up,
the gardens overgrown. A forlorn “For
Sale” sign stands in the front yard against a
backdrop of steel mill towers jutting into
the gray sky.
Duisburg lies on the western end of the
Ruhr region in the state of North RhineWestphalia, once the industrial beating
heart of the West German economy. Düsseldorf, the state capital with its gleaming office towers and luxury boutiques, is just 20
kilometers (13 miles) away. But the two
cities are worlds apart. Duisburg struggles
with unemployment and a mountain of
debt, while Düsseldorf is a city of Porsches
and prosecco.
In the far north of Duisburg, past the
port and across the highway, lies Bruckhausen. Today, the poorest of the poor live
in this former working-class neighborhood.
Half the residents are foreigners, mainly
Bulgarians, among them many members of
the Roma community. Entire apartment
blocks stand abandoned and in disrepair.
Here, buildings have dark holes where
Global Edition | Big Reads
A towering steel mill in
Duisburg’s blighted
Bruckhausen district is
one of the area’s last big
industrial employers.
Thomas Pflaum / Visum
windows should be. Tufts of grass grow
wild on the rooftops. Bruckhausen is becoming a ghost town.
Structural change is turning the region’s
working-class neighborhoods into problem
districts without a future, now that the
coal-mining industry has died. Bruckhausen is an extreme case. Yet it is still emblematic of what has happened in the oncebustling Ruhr region. Almost every city
here has similar neighborhoods: Nordstadt
in Dortmund, Katernberg in Essen, the list
goes on.
A sudden decline in the demand for the
region’s coal – once the basis for its wealth –
set off the decline in the late 1950s, and it’s
been downhill ever since. The last coalminer will finish his last shift in the last
shaft in 2018.
North Rhine-Westphalia, once Germany’s
strongest regional economy, has lost its
dominant position. Today Bavaria, BadenWürttemberg and Saxony have overtaken it
as the country’s economic powerhouses.
Saxony, another great center of German industry, had fallen onto even worse times
under communist rule. Now, it’s a vibrant
region with prosperous towns and brandnew infrastructure, thanks to a series of
pro-business governments – and twentyfive years of post-unification subsidies.
Those transfers to the east now total more
than a trillion euros. Arguably, Saxony
owes much of its success to transfers from
western regions like the Ruhr.
German reunification isn’t the cause of
the Ruhr region’s problems. Yet some
places, like Bruckhausen, urgently need
money for social projects, infrastructure,
culture and parks. “The state government
supports solidarity among states,” says
North Rhine-Westphalia’s Finance Minister
Norbert Walter-Borjans, a member of the
center-left Social Democratic Party (SPD).
In the last 20 years, the state has spent
more than €54 million ($59 million) on
inter-state fiscal adjustments, a system of
transfers to states with weaker economies.
Most of that money has gone to help the
states of the former east. But, says Mr.
Walter-Borjans, it’s been 25 years since
German reunification. “It’s time we
stopped treating the eastern states as
needy and applied fairer criteria [to determine] which states are donors and which
are recipients.”
Back in 1989, the state of North RhineWestphalia made up more than a quarter
of what was then West Germany. It was responsible for a quarter of the nation’s economic output and provided more than a
quarter of all jobs. It also held one of the
ten votes in the Federal Assembly, the legislative body that represented the West German states, and was home to Bonn, then
the national capital.
“We in NRW,“ where the initials stand for
North Rhine-Westphalia, was the campaign
slogan chosen by the late State Premier Johannes Rau of the Social Democrats. It
This is the pits: Coal
miners in Bottrop
have seen better
days. The last mine is
set to close in 2018.
WHY IT MATTERS
North Rhine-Westphalia, Germany’s most populous state,
was once the central cog in the
West German economy. It’s one
of several German regions that
have struggled to adjust to the
digital economy.
FACTS
East Germany got most of the
post-reunification development
funding.
For many decades, North
Rhine-Westphalia has subsidized its ailing industries, but
hasn’t been able to halt the decline.
The state is now drowning in
debt and wants the federal government to send some development funding its way.
77
78
Global Edition | Big Reads
Buildings have dark
holes where windows
should be. Tufts of
grass grow wild on the
rooftops.
went hand-in-hand with the concept of
Germany Inc., with its industrial policy,
cronyism and old boys’ networks. Much
power was placed in the hands of the Westdeutsche Landesbank (WestLB), headed
from 1981 to 2001 by Mr. Rau’s card-playing friend Friedel Neuber.
Mr. Neuber, nicknamed the “red banker,” with neither a high-school diploma
nor a university degree to his name, built
the bank into what looked for a while like
a global player. While heading the bank,
Mr. Neuber increased total assets sixfold.
West LB was frequently called in to rescue
companies that needed restructuring, and
Mr. Rau returned the favor by providing
the bank with collateral and loan guarantees. More than once, the scandal-prone
bank would run aground and get a
friendly bailout from the state.
In 1995, the European Commission challenged this all-too-cozy relationship between the financial world and the nurturing state, but couldn’t prevent the public
bank from getting deeply involved in the
subprime crisis. On July 1, 2013, the name
WestLB finally disappeared from the picture, leaving the state’s taxpayers holding
the bag.
Unsurprisingly, given its history of decline and bad investments, North RhineWestphalia is today known mainly for its
debts and broken infrastructure. The state
has seen weaker growth than the national
average for years. Stubborn unemployment is declining only slowly. In the first
half of 2015, the state economy grew by
only 0.3 percent over the same period in
2014, compared to 1.4 percent growth nationwide.
North Rhine-Westphalia is now burdened with almost a third of the total debt
borne by Germany’s regional governments
and almost 40 percent of the nation’s municipal debts. It is home to eight of the ten
German cities with the highest debt nationwide, including Oberhausen, which has the
highest per-capita debt in Germany.
North Rhine-Westphalia’s GDP per capita
has slipped below the West German average. It’s a sharp fall from the glory days of
the 1970s, when the state boasted the highest GDP per capita in West Germany. One
of the state’s biggest cities, Cologne, is Germany’s gridlock capital, while the state as a
whole is known for having the most congested highways in the country. One key
bridge across the Rhine River is in such
bad repair that even small trucks are
banned from crossing.
“Poor transport infrastructure is a serious problem for North Rhine-Westphalia,”
says regional economy expert Uwe Neumann of the RWI economic research center.
Global Edition | Big Reads
79
Some Westerners look with
envy on symbols of East
German prosperity, such as
Dresden’s Our Lady’s
Church, lavishly restored
thanks to private donations.
epd
IMAGO / VG-BiKu Bonn 2015
A walkable sculpture
in Duisburg is one of
many state projects
hoping to raise the region’s profile.
This ought to be taken into account in
the distribution of federal funds, says Mr.
Neumann, because the volume of traffic
in the Ruhr region is so much higher than
in the much less densely populated east.
Massive financial injections have
helped at least parts of eastern Germany
to blossom over the last 25 years, while
areas of western Germany slip further
into decay. Struggling western states are
still paying for the eastern states, even as
the latter are increasingly standing on
their own economic feet.
Meanwhile, North Rhine-Westphalia is
losing ground. Since 2014, the state has
seen weaker growth in industrial production and construction than in Germany as
a whole. Production growth has been
stuck at below-average rates for years,
leading to sluggish employment growth.
Unemployment has shot up there since
2011 particularly in the industrial Ruhr,
while it has stayed roughly even nationwide.
According to calculations by the North
Rhine-Westphalian finance ministry, the
state’s debts have grown from €57 billion
to €138 billion in the last two decades.
Over the same period, the state was
required to pay €53 billion into the interstate fiscal adjustment system, funds that
subsidize the budgets of economically
weaker states, mostly in the east. By
contrast, the five states of former East
Germany got well over €200 billion from
the rest of the country between 2005 to
2014, or more than €10 billion a year.
In 2012, a study by the Federal Ministry
of the Interior concluded that the adjustment process in the new states had “already come to a standstill,” even as funds
continued to flow. The aim, enshrined in
Germany’s constitution after reunification, was to establish an equal standard
of living between Germany’s western and
eastern regions. But the study found that
bringing the former Socialist east up to
capitalist living standards should no longer be the sole focus of Germany’s mandate for redistribution.
“This policy should be increasingly applied to all of Germany, so that all structurally weak regions are treated equally,”
the authors wrote. In future, “efforts
should not be as heavily focused on inequality between western and eastern
Germany, but on achieving convergence
of regions throughout the entire country.”
For all the decline of recent years,
North Rhine-Westphalia remains an industrial state and still suffers from associated problems. Production in primary industries like steel and chemicals is particularly energy-intensive. These sectors
have also been hit hard by stricter environmental standards, whereas more innovative (and less energy-intensive) sectors
such as the auto industry play only a
minor role in the state.
More recently, Germany’s phase-out of
nuclear power and transition to renewable energy have heaped extra pressures
on North Rhine-Westphalia. Profits have
declined sharply among the coal-based
energy companies headquartered in the
region, leading to layoffs.
In a bid to strengthen their collective
voice, overindebted cities and towns
joined forces to form a coalition for action called “Eliminate Debt – For the Dignity of our Cities.”
Their demands include more federal
funds for municipal investment and subsidies to help them cut their debt. The coalition has already seen some success. Yet
the first of this aid had barely made a
dent when municipal budgets were hit by
Europe’s migrant crisis, the worst since
World War II. North Rhine-Westphalia has
already spent €335 million on asylum
seekers this year. That’s a 40-percent increase over 2014. North Rhine-Westphalia’s interior minister Ralf Jäger estimates
his state alone will have to absorb more
than 100,000 refugees by the end of this
year.
Global Edition | The Boardroom
Amazon CEO Jeff Bezos
can thank German customers
for generating one-eighth of
the company’s total sales.
John Keatley/Redux/laif
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The Boardroom | Global Edition
CULTURE CLASH
Amazon’s German
Adventure
The online retailer has come under fresh scrutiny for its
labor practices on both sides of the Atlantic.
Handelsblatt Global Edition went to Amazon’s logistics
center in Leipzig to hear both sides of the story.
BY SARAH MEWES
dpa
A
man in his late twenties, dressed
in black with long hair tied in a
ponytail, is a little reluctant to
admit the truth. Yes, he explains,
he does work in the vast container-like
warehouse across the street, at Amazon’s
logistics hub in Leipzig. “It’s not something
that people here think of as a good thing,”
he says.
The 75,000 square-meter (800,000
square-foot) complex employs around
2,000 people. This holiday season, another
1,400 workers will get temporary jobs in
the massive building, to help handle the
crunch of Christmas orders.
The jobs should be welcome in a city
where the unemployment rate is 9.5 percent – almost 3 percent above the German
average. But some employees are frustrated working for Amazon, the world’s
leading online retailer that has turned Germany into one of its biggest bases outside
the United States.
For about three years, the Seattle-based
behemoth has been the target of Verdi, Germany’s biggest labor union, which wants
Amazon to adhere to Germany’s collective
bargaining agreements instead of using its
own pay scale. Since 2013, the union has
organized strikes at Amazon locations
across Germany – where it operates nine
warehouse centers like the one in Leipzig.
The union’s demands are specific – Verdi
wants Amazon to classify its warehouses as
part of the German retail sector, where
wages are higher than Amazon’s pay scale,
which in turn is based on what Germany’s
logistics industry pays. The union also
wants Amazon to hire more full-time
workers instead of part-time, temporary
employees. The company argues that its
workers are paid well by logistics-industry
standards.
Amazon has refused to buckle, despite a
drumbeat of negative press in Germany.
The company has often been held up – unfairly, say Amazon and some of its own employees – as a caricature of the heartless
American employer that reduces its
workers to drones, underpaid and unloved.
The battle is also typical of the culture
Holiday bells are
ringing: At its
Leipzig logistics
center, Amazon
will hire 1,400
extra workers.
81
Global Edition | The Boardroom
WHY IT MATTERS
Germany is the Seattle-based
online retailer’s second-largest
market after the United States.
The company has come under
attack for its labor policies on
both sides of the Atlantic.
FACTS
Amazon employs 12,000
workers in Germany at nine
warehouse logistics centers.
In 2014, Amazon had sales of
€10.4 billion in Germany.
Total global revenues were $89
billion (€79.57 billion) in 2014.
Amazon received more than
one-eighth of all orders by
value from German customers.
Bloomberg
82
clash that often occurs when U.S. and other
foreign companies come to Germany. Here,
workers can take on management in mandatory, company-wide works councils, are
represented on the supervisory boards of
corporations, and have powerful unions
like Verdi – which has two million members
– at their back.
The union has settled in for a prolonged
fight, with some of its members even traveling to Seattle in 2013 to protest outside
Amazon headquarters. In the United
States, too, Amazon’s labor practices have
come under fire, most recently this
summer, when The New York Times exposed what it described as a “toxic” white
collar working culture. Amazon lashed
back at the paper, accusing it of shoddy reporting.
Amid charge and counter charge, Amazon has thrived and expanded in Germany,
which is now the company’s largest single
market outside the United States. In 2014,
German sales totaled €10.7 billion ($11.9 billion), about 13 percent of its $89 billion revenues worldwide. Germany is home to
about one-third of Amazon’s 29 warehouses in Europe.
Amazon says it is creating opportunity
for people who would otherwise struggle to
find work. The company’s job center is
open to anyone and prospective employees
don’t even need a resume on recruitment
day. “Everyone gets a chance and then we
check out how they work here,” says Dietmar Jüngling, the manager of Amazon’s
enormous Leipzig facility. The selection
criteria, he says, are to be physically fit and
to speak English or German.
Amazon employs 12,000 people in Germany, making it one of the country’s largest foreign employers. At most of its logistics centers in Germany, Amazon pays nonmanagement workers about €10 to €11 per
hour. Employees work one of two different
shifts, and can choose their own break
schedule.
The entrance to Amazon’s warehouse in
Leipzig is fortified with high gates, employee screening machines and beefy security guards. Theft is often a problem at
large warehouses like these. One Amazon
worker, who was provided by Verdi but requested anonymity, says the problem is
caused by Amazon’s cavalier approach to
hiring workers. “If one chose employees a
little bit more carefully, trusted them and
gave them a fixed contract, then one
wouldn’t need those big security gates at
the entrance,” says the worker.
It is during the Christmas holiday season
that most theft occurs, the worker says. Mr.
Jüngling told Handelsblatt Global Edition
that Amazon trusts its staff, and the security gates are there as a precaution. “We
have a low theft rate here,” Mr. Jüngling
says. “This is not only because of the security gates upstairs. Our biggest security are
our employees.”
Disputes over whether Amazon takes
good enough care of its German workers
continue to simmer. Mr. Jüngling, the Leipzig plant manager, says Amazon prides
itself on constantly improving its efficiency
and making processes run more smoothly.
While this may please customers and boost
profits for Amazon, some workers argue
that the efficiency drive comes at the expense of workers.
One employee who works at an Amazon
logistics center in Pforzheim in southwest
Germany says she feels unsafe having to
handle 2-meter (6’7“) high pallets often
stacked with 15 to 25 kilograms (33 to 55
pounds) of goods. “I am 1.64 meters (5’5“)
and weigh 50 kilograms (110 pounds). What
about safety?” says Corina Rauscher, a
48-year-old employee who is also associated with Verdi. Ms. Rauscher says she is
not the only shorter employee at her
center who feels unsafe working with the
pallets. She says she has injured herself at
work three times over the last two years.
Work accidents appeared to be closely
monitored during a tour of the Leipzig facility provided by Amazon in August. The
warehouse floor had a large blinking board
set up like a stop watch to record the
number of hours, minutes and seconds
since the last employee accident. On that
day in Leipzig, when Handelsblatt Global
Edition visited the fulfillment center, the
last accident had occurred five days earlier.
Most accidents, Mr. Jüngling says, are related to workers moving around the vast
center to retrieve or stow away products.
The last accident in Leipzig involved an
employee tripping on the stairs and
wrenching his leg.
Some workers complain that the cafeteria at the Leipzig center takes 10 minutes
to reach from some parts of the building,
leaving no time during the workers’
20-minute break to sit down for a meal. In
Germany, most people continue to eat a
hot lunch, unlike Americans, who are more
likely to grab a sandwich and return to
work. Amazon has offered employees longer lunch breaks in exchange for showing
up earlier. This the workers will not do.
The Boardroom | Global Edition
Amazon says it provides much needed
opportunities in a region where jobs are
scarce. Temporary staff hired over the busy
Christmas period are frequently hired to
stay on. Ali Türk, a Turkish-German who
started out as a temp worker during the
holidays, is now a senior operations manager.
Christmas is a crucial time for Amazon:
The retailer celebrated its best-ever season
in Germany last year. That success comes
with restrictions. Staff are not allowed to
go on vacation during the Christmas season, something that irritates many who
want to spend time with their families.
Other workers don’t mind, and are
happy to take longer vacations during the
rest of the year – a total of 28 days a year, or
eight days more than the legal minimum in
Germany. “I get paid on time and am happy
to have found work,” says Natalia Korneeva, a 57-year-old Russian immigrant who
has worked at the Leipzig center for six
years. Previously, she worked at a cleaning
service that went bankrupt in 2009.
The real danger for workers at warehouses like Amazon’s is something else entirely. As logistics technology and automation advance, many jobs could get
scrapped altogether. “With increased digitization of processes, warehouse work will
lose its importance,” said Britta Matthes, a
labor expert at the Federal Employment
Agency in Nuremberg.
But even automatization may not be all
bad news. With their generally better
qualifications, Ms. Matthes says, some of
Amazon’s German workers could be put in
charge of controlling the machines in new,
higher level jobs. Still, there’s no way
around the fact that a machine-led future
would mean fewer jobs. For those who
don’t qualify for the ones that remain,
times could get tougher.
Amazon, along with
other companies like
Deutsche Post DHL,
has begun to test
delivery drones in
the United States,
but not in Germany.
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84
Global Edition | The Boardroom
WOMEN ENTREPRENEURS
Germany’s Stubborn
Glass Ceiling
Germany lags behind other leading economies
in opportunities for female entrepreneurs,
according to a new study.
BY DANA HEIDE AND MIRIAM SCHRÖDER
W
hen Donna Harris graduated from one of the best business schools in the United
States, she quickly discovered that her talent wasn’t enough to get
ahead. Her first boss asked her if she
really wanted a top management job,
warning Ms. Harris that such a position
would be extremely taxing. At business
meetings and conferences, the assumption was that all the main participants
would be men.
Many years later, Ms. Harris can laugh
at the memory. Now, she runs her own
firm, a start-up incubator named 1776 in
Washington, DC. Recently, she flew to
Berlin to share her experiences with
women from around the world at a conference on women and entrepreneurship,
organized by consumer electronics company Dell.
Even though Ms. Harris has been successful, a new country ranking presented
at the conference – the Dell Global
Women Entrepreneur Leaders Scorecard
– shows that women and men still have
vastly different access to financing and
leadership positions in business.
Germany comes off particularly badly –
even though the most powerful person in
the country is a woman. Opportunities for
female entrepreneurs in Germany are
rated far behind countries like the United
States, Canada, Australia and Sweden.
It’s bad enough that not a single company listed on Germany’s blue-chip DAX
stock index has ever been headed by a
woman. There is also little gender equality in the new economy. Though roughly
a third of all companies in Germany are
founded by a woman, they are often very
small ones with a few employees at most.
Only 10 percent of all companies with real
growth prospects have a woman manager
or founder at the helm.
German politicians have noticed the
problem. “We need and want more
women to dare to take the step toward
self-employment,” Economics Minister
Sigmar Gabriel says. The government is
trying to support women entrepreneurs
by starting a network of 180 female role
models to encourage others to follow
their example. It’s not the first attempt to
push more women into leadership positions. There have been several initiatives
in the past, but few have succeeded.
There are several reasons for this, but
an important one seems to be that many
German women simply don’t feel they’re
up to it. Only 36 percent of the women
surveyed in the study believe they were
The Boardroom | Global Edition
WHY IT MATTERS
Germany’s start-up culture is
booming. But there are only a
handful of successful women
entrepreneurs.
FACTS
The German start-up and venture-capital scene is dominated by men.
Not a single CEO of a DAX
company is a woman. Executive boards are almost exclusively male.
Some German companies have
adopted voluntary quotas to
promote women executives.
Mentoring and networking is
also helping women get ahead.
Kai Nedden/laif
Claudia Nemat was the
first woman promoted to
the supervisory board
after Deutsche Telekom
introduced a quota.
But most German C-suites
are still men-only.
85
Global Edition | The Boardroom
Anne Deppe, Bert Bostelmann / bildfolio
86
Julia Depis and Judith Trifonoff
(left photo) founded Newniq, an
online store for designer jewelry.
Nicola Leibinger-Kammüller (right)
is CEO of laser maker Trumpf.
Germany’s most
powerful person may
be a woman. But
opportunities for
female entrepreneurs
lag far behind
countries like the U.S.,
Canada, Australia and
Sweden.
capable of starting a business. And those
that do set up a company are often hesitant to let it grow.
Do German women simply lack self-confidence? That explanation is too simple
and lets companies off the hook, argues
study author Ruta Aidis from George
Mason University in the U.S. state of Virginia. More likely, they just lacked the
necessary role models. “If a woman works
in a male-dominated environment, you
see fewer opportunities,” she says.
The study also found a general lack of financing opportunities for European startups, with women entrepreneurs at a particular disadvantage. “Women receive only
5 percent of invested capital,” Ms. Harris
says. “Only very few venture capitalists are
female.”
Anna Alex, co-founder of the successful
start-up Outfittery, managed to collect €20
million in venture capital – but not from
German investors. “Women have to think
big, that’s what investors want to hear – regardless of gender,” she says.
But thinking big is precisely what some
women have a problem doing. Studies
show that they are more risk adverse than
men. Anyone who wants to change that
needs to start early. Boys and girls are
equally courageous and curious up until
the age of 10, said Anna Maria Chávez,
head of the Girl Scouts youth group in the
United States. Shortly thereafter, however,
society starts to split them into gender-specific roles. “We have to encourage girls to
trust themselves, that’s the best investment in the future,” Ms. Chávez says.
If women need help in becoming entrepreneurs, most don’t even have contact to
the start-up scene. Only 26 percent of
women said they knew someone who had
set up a company. Ms. Aidis recommended giving female role models greater
public prominence – not just to inspire
and help other women, but also to get
men better used to the idea of women
business leaders.
Sexism is everywhere, including in pay
equality. Katrin Göring-Eckardt, leader of
the Green party faction in the Bundestag,
told Handelsblatt that more needs to be
done to ensure equal pay for women. “We
need a law for wage equality – with sanctions – to create a new working culture,”
Ms. Göring-Eckardt says. “It just can’t be
that the wages of female preschool teachers are miles apart from male high school
teachers’ even though early childhood
education is so important.” German
women, from schoolteachers to entrepreneurs, still have quite a ways to go.
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Global Edition | The Boardroom
DAX COMPANIES
Achieving More
With Less
Germany’s blue-chip companies often consist of
hundreds of individual firms, with complex structures
that hinder growth, according to Handelsblatt
research. The trend is toward simplicity, transparency
and consolidation.
The Boardroom | Global Edition
89
Corbis [M] Handelsblatt
Investors will be happier
when Volkswagen and
other companies have
fewer subsidiaries.
90
Global Edition | The Boardroom
WHY IT MATTERS
DAX companies have overly
complex structures, where a
tangle of subsidiaries and separate legal entities generates
extra expense and acts like a
brake on growth, according to
a Handelsblatt analysis.
FACTS
With more than 2,100 companies in its consolidated financial statement, health care
group Fresenius is the most
complex of all DAX companies.
Over the past five years, about
half of DAX-listed companies,
including E.ON and RWE, have
cut the number of subsidiaries.
Marc-Steffen Unger
Volkswagen has five times as
many subsidiaries as rival BMW
and twice as many as Daimler.
BY SIEGFRIED HOFMANN
M
any of Germany’s biggest companies are too big – when it
comes to the number of their
subsidiaries. That was a key
finding of a Handelsblatt study of firms
listed on the country’s blue-chip DAX
index. The analysis revealed that their
complex structures are often costly and
unwieldy.
Some of the country’s blue-chip companies, such as energy producer RWE,
are taking action. In a letter to executives,
Peter Terium, the company’s chief executive, recently outlined a “downsizing of
legal structures” aimed at making the organization leaner and meaner. The plan
calls for eliminating entire management
levels, slashing 30 out of 90 limited companies and liquidating two of a total of
five separate corporations that were all
operating under the same RWE roof.
Greater decentralization is also part of the
plan, with a focus on managing markets
closer to customers.
Over the past five years, about half of
DAX-listed companies, including Heidelberger Cement, E.ON and RWE, have reduced the number of their consolidated
subsidiaries.
But the other half, including Fresenius,
Lufthansa, VW and SAP, are headed in the
opposite direction – mostly because of
their expansion strategies. With more
than 2,100 companies in its consolidated
financial statement, the Bad-Homburgbased health care group Fresenius is the
most complex of all DAX companies.
Volkswagen follows in second place in
terms of complexity, with about 1,000
fully consolidated firms and nearly 400
subsidiaries and investment companies.
The carmaker has five times as many indi-
The Boardroom | Global Edition
With more than
2,100 companies in
its financial
statement,
Fresenius is the
most complex of
all DAX companies.
Markets have already
pushed German
companies like E.ON
and RWE to simplify.
vidual companies as rival BMW and twice
as many as Daimler. Deutsche Post and
Heidelberger Cement each have 700, followed by Siemens with around 600.
There is a general trend toward more
simplicity and transparency, says
Thorsten Hein, a director at the consulting firm EY, formerly known as Ernst &
Young. But there is no standard approach
to achieving both, he adds.
Reducing legal complexity is itself a
complex undertaking. Legal structures
are often a legacy of takeovers or specific
business models. Tax or legal aspects
often cause complexity, as do licenses or
marketing contracts linked to certain
companies. “Takeovers always mean taking over a certain legal structure, which is
not always beneficial for the buyer,” says
Thomas Senger, a partner at Warth &
Klein Grant Thornton auditors.
The increased number of consolidated
companies at Volkswagen primarily resulted from the acquisition of three additional brands – Porsche, MAN and Scania
– raising the number of VW’s brands to 12,
a company spokesperson says.
In the banking sector, Federico Ghizzoni, CEO of Italy’s UniCredit, recently told
Handelsblatt that he planned more centralization, sending an alarm signal to its
Munich-based subsidiary, Hypovereinsbank (HBV). Many HVB tasks are to be
transferred to Milan. The Italian insurance company Generali is dissolving its
entire German structure consisting of several holding and intermediate companies
to reduce costs and locate operational
business closer to headquarters.
Even if some legal entities exist largely
on paper, costs quickly accumulate, according to EY. Each legal unit typically
has at least one legal representative and
must file its own tax return and financial
statement. Depending on the legal
status, certain units within the company
have to be staffed by several people.
The lack of transparency and potential
for friction increase when organizational
and legal structures drift too far apart,
and it becomes more difficult to identify
those responsible, says Mr. Senger of
Warth & Klein Grant Thornton. A manager of a subsidiary may be legally responsible for the entire company, but operationally control only a small part of
the business.
Consolidation trends are more noticeable when times are bad, according to
Tim Zimmermann, a partner at the Roland Berger consultancy. That’s when
companies don’t just slim down – they
simplify.
91
92 Global Edition | Mittelstand
BERLIN START-UPS
Invasion of the
Foreign Founders
SoundCloud founders Eric
Wahlforss and Alexander Ljung
moved from Sweden to Berlin
to start their €1.2-billion music
streaming company.
picture alliance / SVENSKA DAGBL
Berlin’s sizzling start-up scene has become a magnet
for foreign entrepreneurs. They like the German
capital’s cheap cost base, international labor pool and
creative urban culture.
Mittelstand | Global Edition
BY DANA HEIDE AND MIRIAM SCHRÖDER
W
hen Reshef Almog talks about
Berlin, he glows. The 31-yearold Israeli came to Germany’s
capital three years ago to set
up Ducksprint, a producer and online retailer of customized photo magnets used for
promotion and advertising. Since launching
his company last August, he has attracted
orders from clients such as Deutsche Telekom, Volkswagen and Groupon. Mr. Almog
says that when he had to choose a base from
which to expand into the vast European market, he picked Berlin over his hometown of
Tel Aviv, which vies with California’s Silicon
Valley as the globe’s leading hub for startups.
Not only has Berlin emerged as Germany’s hotbed for home-grown entrepreneurs. Lately, the city’s burgeoning startup scene has gotten another boost from a
rising influx of founders and venture capital from across the globe. People like
Almog are drawn to Berlin by lower costs
for labor and office space, a growing pool
of young, English-speaking expats from
around the world, and by what they describe as a creative energy that makes the
city a place where good ideas can thrive.
Immigrant entrepreneurs have, of
course, been a driving force behind the
success of Silicon Valley. There, roughly
half of all technology start-ups have a
founder born in India, Russia or elsewhere
outside the United States. While in Berlin,
too, 51 percent of all new businesses are
started by migrants, most of these businesses are family shops and other lowtech ventures. Germany-wide, only 9 percent of tech companies have immigrant
founders, according to the latest Start-Up
Monitor report by the German Start-Ups
Association and business consultancy
KPMG.
But the number of foreign founders is
rising – and nowhere more than in Berlin.
The poster child for successful foreignfounded ventures is SoundCloud, a Berlinbased music streaming service with 175
million monthly users. Recently valued at
$1.2 billion, SoundCloud was started by
two Swedes, Alexander Ljung and Eric
Wahlforss, in 2007. The service has become popular among musicians, DJs and
music labels, who use it to upload their
tracks and connect with their fans. The
two founders, who’d conceived their company in Stockholm, picked Berlin because
of what they say is the city’s “creative
spirit.”
A huge draw for start-ups is Berlin’s large
and low-cost labor pool. Many find the mix
of workers they need – young, cheap and
multilingual – to rapidly scale up their
business model to serve a global market.
Rocket Internet, for example, runs a global
conglomerate of internet companies active
in 110 countries from an office in Berlin.
Unlike other German cities like Hamburg
or Munich, Berlin is increasingly crowded
with expats and Germans fluent in English.
Mr. Almog says that some of his friends in
the start-up scene still don’t speak German
after many years in Berlin – they simply
don’t need it. Mr. Almog himself also
speaks German but says English is enough
to succeed in the German capital. While
some other German cities also have well-established ecosystems for founders, none
are as international as Berlin.
Along with the entrepreneurs themselves, the money flowing into Germanybased start-ups is also getting more global.
Almost forty percent of German start-ups
are now funded with foreign venture capital. Here too, it is primarily the Berlin
scene that lures in the cash. In September,
the food mail-order service Hello Fresh, reported an investment of €75 million ($83.5
million) by the UK-based fund Baillie Gifford, valuing the company at €2.6 billion.
Also in September, the discount goods
website Lesara pulled in €15 million. The
main investor was Norwegian. SoundCloud’s investors are mainly American, including the actor Ashton Kushner.
While Berlin now ranks as one of Europe’s leading meccas for entrepreneurs, it
will be a while before it can vie with global
leaders such as California or Tel Aviv. One
reason is that the amount of venture capital
invested in Berlin is still a minuscule fraction of what Silicon Valley start-ups raise
each year. Another hurdle are Germany’s
restrictive immigration laws, which can
make it easier for a refugee to claim asylum
than for an entrepreneur without E.U. citizenship to create German jobs. Thomas Jarzombek, Bundestag deputy for the centerright Christian Democrats, has called for a
new immigration law to help Germany
compete with the U.S. for foreign entrepreneurs. “We must see to it that the hurdles
are removed in Germany for founders from
non-E.U. countries,” Jarzombek says.
But despite the remaining obstacles,
founders like Almog, Ljung and Wahlforss
are living proof that Berlin’s start-up boom
is well underway.
WHY IT MATTERS
Foreign-born entrepreneurs
and international venture capital are accelerating Berlin’s
boom in Internet-based startups.
FACTS
Only 9 percent of start-up
founders Germany-wide are
foreigners, according to the
Start-Up Monitor report.
Berlin has seen an influx of
foreign venture capitalists,
entrepreneurs and tech
workers from Europe, Israel
and the United States.
Almost 40 percent of German
start-ups receive venture capital from abroad.
Find our reporting on German
start-ups at:
http://hbge.net/nzvas
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94
Global Edition | Mittelstand
SOUND BUSINESS
The Art of Building
an Organ
Philipp Klais is the world’s leading organ builder.
He explains where to use pine or spruce, why the
moon cycle matters and how what’s most
important is taking time.
BY CATERINA LOBENSTEIN
A
n organ builder needs tin, wood,
cattle bones and mammoth
teeth. He needs the skin from
sheep and kangaroos. He needs
tools that can’t be purchased anywhere. But
most of all, he needs time. Philipp Klais, a
fourth-generation builder of pipe organs, says
it usually takes three years from the planning
stage until one of his majestic musical instruments is installed in a concert hall or cathedral. Once there, their music can sound for
centuries. “We’re not selling a product,” Mr.
Klais says. “We sell sound.”
Mr. Klais’ red-brick workshop, opened by
his great-grandfather in 1882, lies on a busy
street on the north side of Bonn. There, between an Aldi supermarket and a shisha
lounge, Mr. Klais and his 60 employees
carefully craft what music aficionados consider among the best pipe organs in the
world. Mr. Klais’ organs stand in Cologne
Cathedral, Kuala Lumpur’s Twin Towers,
Beijing’s National Center for the Performing Arts, as well as concert halls from St.
Petersburg to Buenos Aires.
A tiny company that has perfected its
craft and gathered a global reputation for
quality, Klais Orgelbau is one of Germany’s
“Hidden Champions” – a term coined by
the German business professor Hermann
Simon for the country’s countless global
leaders in often obscure niche markets.
They produce surgical instruments or
book-binding machines, wheels for hospital beds or the tiny metal clips that close
the ends of sausage casings. They are all
highly specialized to compete against their
rivals, and many are all but invisible to the
public or the media.
The 48-year-old Philipp Klais was taught
how to build organs by his father. As a boy,
he played by the work bench, so he knew
how an organ sounds before he could
speak. He and his workers are among
2,000 people still working in the German
organ-building industry, according to the
Federation of German Organ Builders. It’s a
small world where all the builders know
one another. They read the same trade
journals, Organ International or The Musical Instrument. They meet every year at
the Gloria Church Fair, a trade exhibition in
Augsburg that specializes in products and
services for churches and monasteries. In
this world, no one is as successful as
Mr. Klais. He is the world’s leading organ
builder, with 70 percent of his production
going abroad. Mr. Klais recently got an
order from Budapest and will soon install
an instrument in Taiwan. The bulk of his
clients are church parishes and concert
halls. But there are also a few private organ
lovers who order an instrument custombuilt for their home.
Of all musical instruments, the organ is
the largest and loudest. Some have more
than 8,000 pipes, each individually made.
Pipes that produce the lowest tones are
more than 20 meters long. Those hitting
the highest notes are as tiny as a child’s
finger. Organs built by Mr. Klais weigh up
to 55 metric tons and cost up to €3.5 million ($3.8 million). The smallest models
start at €60,000, or about $65,000.
In a courtyard behind his workshop,
spruce logs are delivered from the Austrian
Alps. Mr. Klais only buys wood from trees
grown at elevations between 700 and
Mittelstand | Global Edition
Fourth-generation organ
maker Philipp Klais
supplies churches and concert halls around the world.
WHY IT MATTERS
German organ makers have
been renowned for centuries
for the sound and quality of
their instruments. Today,
2,000 people still work in
Germany’s organ-building industry.
FACTS
Klais Orgelbau GmbH & Co.
was founded in Bonn in 1882
by Johannes Klais, Philipp
Klais’ great-grandfather.
Organs from the Klais workshop weigh up to 55 tons and
cost up to €3.5 million ($3.8
million). The smallest models
start at €60,000 ($65,000).
Heiko Specht/laif
The company has a little over
60 employees, many of
whom have worked at the
company for all their working lives.
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96
Global Edition | Mittelstand
Philipp Klais pours his
own tin to make organ
pipes. He’s one of the
last of his craft and his
order books are full.
What’s different about
Mr. Klais’ business is
that his company does
not grow. There were
times when he might
have expanded, but he
did not succumb to the
temptation.
1,200 meters. At these heights, the
spruces grow more slowly and the growth
rings are finer. After these trees are felled,
their wood hardly warps. The timing for
chopping down the trees is set according
to a farmer’s almanac. “If the moon affects the seas, it might also determine the
water balance of organisms,” Mr. Klais
says. He believes the moon cycle affects
the amount of sap in the wood, which attracts parasites. Trees felled during a waning moon contain less sap, he says.
The workshop is full of electric saws
and carpenter’s planes, bench vises and
anvils. The air smells of fresh wood and
warm glue, and a film of fine sawdust
covers the floor. Men in wool sweaters
and blue overalls file, shave and sand, listening to blues guitar on a portable radio.
Philipp Klais stands in the middle of it all,
his black leather shoes buried in a pile of
wood chips.
In the furthest corner of his workshop,
Mr. Klais steps into a dark chamber lined
with dozens of gleaming bars of tin, each
weighing 37 kilograms. Mr. Klais calls it
“our Fort Knox.” The bars – 99.997 percent pure – are the raw material for making organ pipes. Next door in the workshop’s foundry, a man in a welder’s helmet and blue uniform sweats in the heat,
his sleeves rolled up and hands inside
sturdy gloves. He stirs a tank that hangs
from the ceiling, heating tin bars to 300
degrees Celsius, (572 degrees Fahrenheit)
until the metal melts into a silvery liquid.
After checking the temperature with a
thermometer, he pours the tin into a mold
and spreads it out. It cools into a flat sheet
that looks like matte aluminum foil. Later
the sheets will be cut, bent and soldered
into organ pipes. One day, they will fill the
church nave of St. Joseph in Bonn with
their sound. Until then, no one can touch
them with bare fingers – sweat from skin
could put the pipes out of tune.
Once, Mr. Klais built an organ in Siberia
and carved the keys from the prehistoric
picture alliance / dpa
Mittelstand | Global Edition
tusks of a Siberian mammoth. Like a star
chef who chooses the best and freshest regional vegetables, Mr. Klais uses indigenous raw materials wherever possible. They
sound better and last longer, he says. For
organs in Hamburg or Cologne, he always
uses spruce or oak. But for those in Beijing
or Singapore, he switches to mahogany or
teak.
For the leather he uses to build bellows
– the device that pumps air into the
organ’s pipes – Mr. Klais swears by kangaroo skin. “It’s clearly superior” to sheep or
cow leather, he says. Kangaroo leather
adapts better to changing temperatures
and rarely becomes brittle. Mr. Klais’ company even makes its own glue – a slimy yellow mixture of water, skin and ground-up
bone. He don’t use synthetic glue, which is
cheaper but has only been around for a
few decades. That wouldn’t do for a craft
that is many centuries old.
It can take Mr. Klais and his workers
more than three years to complete a single
organ. Then, a 40 foot-long shipping container is driven into the workshop’s courtyard, and the organ – disassembled into
single pieces and packed in wooden cases
– is carefully loaded and shipped to its destination. Mr. Klais always books a place at
the center of the container ship, where the
load is the most stable. When the container arrives in Beijing, Singapore or
Auckland, Mr. Klais is there to put the
organ pieces back together again. Finally,
tuning a large new organ can take several
weeks.
What’s different about Mr. Klais’ business is that his company does not grow.
There were times when he might have expanded, but he did not succumb to the
temptation. “I don’t know why,” he says.
Mr. Klais never builds more than four organs at once, and his little workforce has
stayed steady for years. If Mr. Klais gets an
order but doesn’t have the capacity, he rejects the order instead of hiring more
people. It’s not a common strategy.
Much to his accountant’s chagrin, he
also refuses to adopt any strategy to optimize costs. Under Mr. Klais, there will be
no outsourcing, no searching for cheaper
glue. If necessary, the company even
forges its own custom-made screws and
tools. “We are in a constant battle [over
costs],” Mr. Klais says of his bookkeeper.
Long-term planning can also be a problem. In Singapore, Mr. Klais built an organ
for a concert house that was not completed for years. Mr. Klais had negotiated a
fixed price in dollars. While he waited, his
employees’ wages grew and the exchange
rate changed. Suddenly, he was losing
money on the contract.
Even though Mr. Klais spends half the
year flying around the globe to inspect organs and negotiate with clients, at his
workshop in Bonn he remains down-toearth. At noon, he and his workers gather
in the workshop library, surrounded by
shelves full of trade magazines and walls
covered with posters of church naves.
They sit at one long table eating lentil stew
brought by a delivery service. Like old
married couples who don’t need words to
understand each other, the workers barely
speak as they eat. Most of them started at
Klais as young apprentices and have
worked for the company their entire working lives.
Lately, a substantial share of Mr. Klais’
business has involved repairing and refurbishing old, historic organs. In the past,
organs didn’t need much maintenance.
But today, as church windows are sealed
and insulated to meet modern standards
of comfort, the lack of natural ventilation
causes the wood to deteriorate faster. In
Germany, many church organs are centuries old and in need of renovation. Some
of the repairs can be as complex as constructing a new organ, requiring the instrument to be disassembled and shipped
to the Klais workshop in Bonn.
Despite practicing such an antiquated
craft, Mr. Klais doesn’t worry about his
family company’s future. Churches and
concert halls will keep getting built, and
the organs in Europe’s ancient cathedrals
will need experts like Mr. Klais to keep
them in good repair. The masterpieces
built by four generations of Klaises will
still tell the story of their craft, hundreds
of years from now.
This article originally appeared
in the newspaper Die Zeit.
97
Global Edition | Culture and Lifestyle
Albert Kriemler has
grown Akris’ sales by
focusing on high-end
businesswear for
women.
AFP/Getty Images, interTOPICS/Photoshot
98
Culture and Lifestyle | Global Edition
SWISS SWANK
Dressing for Power
The Swiss fashion house Akris clothes some of the
world’s most influential women. Chief designer Albert
Kriemler tells Handelsblatt how he dresses his clients,
from Marissa Mayer to Cameron Diaz.
BY THOMAS TUMA
S
t. Gallen is no global fashion
center. But Akris, a fashion house
based in the small Swiss town, has
attracted high-earning fashionistas
from around the world. Chief designer Albert Kriemler has expanded his company
by focusing on the U.S. market, where highend department stores such as Bergdorf
Goodman and Neiman Marcus do brisk
business with the label. As the 55-year-old
prepared to show his new prêt-à-porter collection at the Paris Fashion Week, he discussed how he caters to women power
brokers.
Handelsblatt: You saw early on that women
were striving to get to the very top and
needed the appropriate attire to do it.
Yves Saint-Laurent, Jil Sander, and Giorgio
Armani recognized it as well. With us it developed very gradually, maybe because
early on our fashions went to the United
States, where women were already a step
ahead career-wise. The legendary department store, Bergdorf Goodman in New
York, for example, strongly promotes
women’s business fashion. I quickly
learned that I shouldn’t plan a fashion
show without suits.
Is there a global dress code for
women professionals like there is
for men, or is there a difference between countries?
There are cultural differences
even between the East and West
coasts of America, or between Houston and Washington. The part of Europe with
a Latin-influenced culture
has more people with taste,
with a sense for colors and
fabrics. On the other hand, there is a kind
of global [fashion] canon that has helped
cultivate better taste.
Has this global canon also leveled differences?
I took a trip through Asia this summer, to
get a feel for how people live in the major
cities of China, Korea and Japan. Not only
are our customers there 20 years younger
on average than in Europe. There were
many differences having to do with a
passion for color, or with the climate. So I
imagine there will be differences for a long
time to come. This is exciting and desirable.
What does dress code even mean for
women today?
It’s about exuding confidence on the job
and in public, while at the same time embracing femininity. Right now, we’re experiencing for the very first time the emergence of a dress code for powerful women
that doesn’t mimic men’s clothes, but is
both genuinely feminine and fashionable.
Fashion competence is simply expected
from women at this level, as part of the soft
skills that are so very significant
today. You can trace this development in the European royals.
What the Queen and the Duchess
of Cornwall wear is feminine,
but not necessarily fashion.
[The younger royals] are shaping their image through
fashion.
Yahoo CEO Marissa
Mayer dons Akris at
the World Economic
Forum in Davos.
99
Global Edition | Culture and Lifestyle
WHY IT MATTERS
Swiss fashion house Akris has
made it big by focusing on
high-end power fashion for
women professionals.
FACTS
Founded in 1922 by Alice
Kriemler-Schloch, the fashion
label in St. Gallen has been run
for the past quarter-century by
her grandson, Albert Kriemler.
Akris makes most of its sales in
the U.S. and Asia. At the New
York department store Bergdorf Goodman, Akris is one of
the best-selling labels.
Clients include Yahoo CEO Marissa Mayer, former secretary
of state Condoleezza Rice and
Princess Charlène of Monaco.
Read the latest news on fashion:
http://hbge.net/kndq3
When you talk about fashion and power,
why not simply call it authority?
I think power is the better term. Authority
has something very hierarchical, very antiquated about it. Power means more. It’s
about an attitude of determination and empathy manifested in a self-confident
woman.
Where do women have a particularly difficult time moving up the ladder?
They are still perceived differently for the
simple reason that they still represent a minority in management circles. Clothing is
much more a part of judging women than it
is for men, who wear suits like a uniform.
But in many industries women executives
also wear a kind of uniform, just like men.
The rules are stricter in the world of lawyers and bankers. In the creative professions, there are more opportunities for differentiation. And there are role models,
women who have adopted their very own
code of dress.
For example?
Angela Merkel. She has formulated her
very own personal style. In fashion, too,
there is the principle of being consistent.
Politicians such as Madeleine Albright and
Condoleezza Rice are among your customers. What can one learn from their fashion
sense?
Ms. Albright has written history, as a politician and a fashion icon. She likes to make
statements with her vast collection of animal brooches, from frogs to leopards. They
fit this brilliant woman. Condoleezza Rice
always emphasized her femininity when
she was in a male-dominated environment.
Only when she was among other women or
traveling did she appear in a suit.
Is fashion a political tool?
It is certainly a tool of diplomacy. There
have always been strong women in politics
who consciously made use of their looks,
from Margaret Thatcher’s hairdo and handbag to Indira Gandhi’s saris. When Michelle
Obama attends a state banquet with the
president of Korea, she searches out a Korean designer ahead of time in New York.
With this, the First Lady sets subtle accents.
How can a fashion label set itself apart
from the others?
If it wants to have a say globally, it must
have its own unique and original identity,
like the women who wear it. And it has to
contribute to the development of fashion.
Charles Platiau/Reuters/Corbis, Agency People Image (2), Splash News/Corbis
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Culture and Lifestyle | Global Edition
At the Paris Fashion
Show, an Akris
model presents one
of the designer’s
latest creations.
Cameron Diaz, Angelina
Jolie and Alicia Keys are all
Akris clients. But not when
they’re showing off on the
red carpet - Kriemler’s
fashions tend to be elegantly
understated.
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102
Global Edition | Culture and Lifestyle
MARKUS LÜPERTZ
Am I a genius? Yes!
The German painter and sculptor Markus Lüpertz is
no fan of humility. He spoke to Handelsblatt about
avoiding creative crises, the nature of genius, and why
an artist should never befriend his collectors.
BY SUSANNE SCHREIBER AND OLIVER STOCK
M
arkus Lüpertz is known for his
flamboyant suits, merciless
work ethic as well as a vast and
prolific output of paintings and
sculptures. Along with other artists of his
generation like Georg Baselitz, Sigmar
Polke, A. R. Penck and Gerhard Richter,
he helped define the renaissance of German art since the 1960s. Never short of
self-confidence, the 74-year-old unabashedly celebrates his own artistic genius. Handelsblatt visited the artist in his
Düsseldorf studio.
received his talent from God and taken
on the mission of creating art. Nothing
must cloud these waters. As an artist
you must be obsessed. If you let a crisis
get to you, then as an artist you are
weak.
Handelsblatt: Mr. Lüpertz, executives
sometimes look to artists for advice on
how to master a crisis. How do you approach a crisis?
What is a crisis? I’ve never had a creative
crisis, and personal crises are unimportant. Everybody has to deal with those. Naturally, some things don’t work out in one’s
art. But then you just work on them until
they do.
You have several studios, one of
them in Berlin. Is the capital a trendsetter for art?
I have been a Berliner since 1960. The
capital’s culture is too superficially
oriented towards fashion and hipness,
with too little depth and strength. The
city does not nourish itself. My friend
[former Berlin mayor] Klaus Wowereit described it well: “Poor, but sexy.”
That’s fun as far as entertainment goes
and I don’t want to live anywhere else.
But the city has not yet figured out how
it can exist.
74 years old and not a single creative
crisis?
On the contrary, I have too many ideas in
my head. Painting is like watering flowers.
Forget it once, the flowers die. You must
stay at it constantly. If I couldn’t do that,
then I’d have a crisis. Great painters are
professionals. We’re crisis-proof.
And personal crises don’t find an echo
in your work?
Not if I’m a professional artist. If I were to
mix these things up in my life, then I
would become vulnerable. An artist has
We had the impression that, for an
artist, life and work are closely intertwined.
An artist is not a person. He’s an artist –
that’s something different. He lives differently, behaves differently.
But many international artists are
moving to Berlin.
International art is like international
cuisine. It has no meaning. Viennese
cuisine cannot be internationalized, it
can only be internationally known.
We don’t believe that. Viennese cuisine
is easily modernized with smaller
dumplings and some lemon grass.
Culture and Lifestyle | Global Edition
103
Frank Beer
Markus Lüpertz helped
define an era in contemporary German art, along
with painters like Georg
Baselitz, Anselm Kiefer
and A. R. Penck.
104
Global Edition | Culture and Lifestyle
WHY IT MATTERS
German painter and sculptor
Markus Lüpertz is one of the
country’s best-known contemporary artists.
FACTS
Mr. Lüpertz has studios in
Berlin and Düsseldorf.
His sculpture “Woman philosopher,” a 2.5-meter nude,
adorns the foyer of the Chancellery in Berlin.
Mr. Lüpertz was born in
Bohemia in 1941.
People claim I’m
brutal, malicious,
arrogant and
elegantly dressed.
Culture and Lifestyle | Global Edition
There are traitors everywhere. The secret
of fine art is that it makes the national recognizable internationally.
Everything is global – and you emphasize
the national. Can business learn from art
and also make the national recognizable?
Not just business, but all of society should
learn from art how to be better humans –
how to be wiser, more tolerant, more generous. Because art contains these values.
In business everyone is betting on the
same trends: big data and digitalization,
for example. Art has individuality, is that
something we can learn from it?
Can one learn individuality?
One can be a model.
Art lives on individuality. There is nothing
new in fine art, only individual things
from people who contribute something of
their own. They do not have to reinvent
the wheel, but they have to make it beautiful. In business or art, what matters is
being voluntary, generous, democratic,
self-conquering. For that you need educated people who don’t dumb down from
their cell phones and digital crap.
What do you mean by “dumb down”?
Look at the language children use when
they communicate on their cell phones.
We have an education problem and an
aesthetic problem. Have you seen the way
people run around in the summer?
Cropped pants, T-shirts over their fat
bellies, and always a phone in their
hands.
How do you create your works?
From the unfinished last one. There must
be a reason to continue painting. It’s a
never-ending chain.
Frank Beer for Handelsblatt
Mr. Lüpertz creates sculptures
at this Düsseldorf foundry.
Another of the artist’s sculptures
stands in the German Chancellery.
When is a painting finished?
You never decide, you just know. Sometimes you paint a picture for so long it destroys itself. A work is finished when the
inability to create perfection is perfectly
expressed.
Are you afraid of perfection?
No. I am afraid that I have not been given
enough lifetime to work at it.
105
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Global
Global Edition
Edition||Mittelstand
Culture and Lifestyle
Frank Beer for Handelsblatt
Even at 74, Mr. Lüpertz
manages a prolific output.
Artists must be
disciplined and obsessed,
he says.
Mr. Lüpertz, have you shaped an artistic
era?
I’m sure I have. But you cannot shape an
era alone. We, my artist friends and I,
made history and are still making it.
Uta Wagner
History has taught us
that art can only exist
where there is
money. Where there’s
a lot of extra money,
there are artists and
collectors.
Is your walking stick an image thing?
No. I just didn’t want to walk out of the
orthopedics store on a crutch.
This image you created of yourself looks
like it was dreamed up by a marketing
strategist.
And as a result I get bad press. People
claim I’m brutal, malicious, arrogant
and elegantly dressed. But why
shouldn’t an older man be elegantly
dressed? I find it silly that it’s even worth
mentioning.
Did you create a certain image for yourself, complete with a tailored suit, custom-made shoes and a pocket square?
One day I began inventing myself. Are
you a genius? Yes! Are you a handsome,
intelligent man? Yes! Are you generous?
Yes! Are you stingy? No. I work on these
things diligently.
One of your five children, Anna Jill, owns
an art gallery in Berlin. What did you
teach her?
Anna grew up in the art scene and found
her profession in it. I can’t give her advice because she represents another generation. I try to give her love, affection
and a certain degree of security.
Hot off
the press:
an exclusive
Lüpertz print
edition for
Handelsblatt
readers
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107
Frank Beer for Handelsblatt
At his Düsseldorf studio,
Mr. Lüpertz talks with
Handelsblatt journalists
Susanne Schreiber and
Oliver Stock.
How close do you get to your collectors?
That’s my big mistake. I quickly become
friends with my collectors. A lot of times
that’s bad. Then they act like buddies
and get more frivolous in their dealings
with me. I can only live with friends, but
that is bad for business. You lose your
mystique to the collectors.
What do you think of Germany’s proposed “culture protection law” that
would prevent important art from being
sold abroad?
[To keep art in Germany] is not a job for
politicians, but for domestic collectors. If
collectors in Germany don’t keep this art
in the country, then it will happen to go
abroad. Politicians shouldn’t interfere
with business under the pretext of art
having to stay in the country.
But if something is sold into private
hands, the public is usually deprived of it.
Do you know how much art disappears
into museum basements? Art is a matter
of the public’s enthusiasm, not a matter
of politics. Educate people and get them
excited about art, then art will stay in the
country.
Art is an investment asset. At the same
time museums get closed down for lack
of visitors.
Fine art is the most successful business
of the last 50 years. No stock market
share can beat fine art. Yet you still don’t
see people flooding into museums to see
art. And just look at all the things being
done to lure people into museums. Think
of those horrible museum nights that
make them look like decorated nightclubs. What’s missing is education, the
same lack of education that leads to xenophobia.
Do such issues influence your work?
No. But horrible [things] like the 71
people who suffocated in the refrigerated
truck in Austria – it’s possible that this will
find a way into my work. When I imagine
the person responsible for the deaths in
the truck I get afraid. What kind of place
are we living in?
Can art be created in unfree countries?
That depends on the definition of freedom. History has taught us that art can
only exist where there is money. Where
there’s a lot of extra money, there are artists and collectors, and art and culture develop. Art lives on money. Art must be financed.
Is there exciting art coming from China?
I do not know what exciting art is. There
is only art.
Do your children share your values?
Not in everything. But they know that art
is the most important thing in our relationships. That art ranks first.
Are your children also artists?
No. One genius in the family is enough.
As an artist you must
be obsessed. If you
let a crisis get to you,
then as an artist you
are weak.
Global Edition | Culture and Lifestyle
Dennis Schöder, born and
raised in Braunschweig,
hopes to make it big in the
NBA, where he plays for the
Atlanta Hawks.
NBAE/Getty Images
108
Culture and Lifestyle | Global Edition
GERMAN BASKETBALL
Hoping for
a Slam Dunk
For years, German professional basketball languished
in obscurity. Now, a steady crop of homegrown talent
plus the draw of German NBA stars like Dirk Nowitzki
and Dennis Schröder could finally put the game on
the national sporting map.
BY ALEXANDER MÖTHE
G
erman basketball star Dirk Nowitzki had an unusual introduction to the U.S. National Basketball Association. In 1997, the German under-21 national team played an exhibition game against a team of NBA
players.
During the game, the lanky 18-year-old –
then playing with lowly Würzburg in the
second tier of Germany’s professional basketball league – slammed home a ball over
the head of NBA legend Charles Barkley.
Afterwards, Mr. Barkley asked him what
college he was going to. Mr. Nowitzki
answered that he was about to start his
Bundeswehr service. “You’re not going into
the army, you’re going to Auburn,” Mr.
Barkley said, referring to his own alma
mater.
He later urged Nike, a sponsor, to take
the young German to the United States,
where Mr. Nowitzki skipped Auburn and
signed up with the Dallas Mavericks. The
rest is sporting history.
Mr. Nowitzki, currently number seven on
the NBA’s all-time scoring list, is the best
basketball player that Germany has ever
produced. Another fast-rising German NBA
star is Braunschweig-born Dennis
Schröder, 22, who is in his third season
with the Atlanta Hawks. Yet another German, 26-year-old Bergisch Gladbach native
Tibor Pleiss, just made his NBA debut with
the Utah Jazz on October 30. He scored a
one-handed dunk against the Philadelphia
76ers during a brief two-minute appearance.
While playing in the NBA is still the biggest prize for any German player, their successes there are also helping the sport at
home. The German Basketball Bundesliga
(BBL) has struggled for years to escape
from obscurity in a country where the
national sporting passions are soccer,
soccer and – did we fail to mention it? –
soccer. But the attention German NBA stars
are getting back home – plus a fresh crop of
talented new players in Germany – is helping the sport raise its profile.
German basketball is still a niche sport,
but the Basketball Bundesliga has recently
enjoyed some success. The BBL’s 18 clubs
have tripled their income over the past decade, from €34.1 million ($38.3 million) to
€95 million. Average audiences at games
have risen to 4,655 – a gain of 20 percent in
the last six years.
The fact that there are now two new,
young German faces in the NBA is a sign
that the German clubs are doing a better
job identifying and training home-grown
talent – even if they end up losing their best
players to the United States. “Together with
the clubs, we have raised standards in the
league such as in public relations, marketing, the arenas and the athletics,” says Jens
109
Global Edition | Culture and Lifestyle
WHY IT MATTERS
Basketball is a niche sport in
this soccer nation, but the Basketball Bundesliga is hoping to
tap into the game’s rising popularity.
FACTS
Germany’s Basketball Bundesliga is the country’s top professional league and is made up of
18 teams.
In 2014, the league’s 18 teams
had a total income of €95 million ($107 million).
The national team finished 18th
out of 24 teams in the 2015
European Championships. German NBA player Dennis
Schröder was Germany’s best
scorer.
Read our latest sports stories:
http://hbge.net/cz4eb
Staudenmayer, an official with the BBL. “As
a comparatively small league, we have to
be creative and act clever,” Mr. Staudenmayer explains.
One such clever move came when FC
Bayern Munich, Germany’s most successful
soccer club, set up a new team to play in
the BBL. The glamorous and wealthy
soccer club diversifying into another sport
sparked interest, including at the team’s
away games all over the country.
The league has ambitious goals. By 2020,
BBL wants to replace Spain as the strongest
national basketball league in Europe. To
get there, the clubs have adopted a fiveyear business plan. It is also a matter of
seizing the moment, now that the league is
beginning to be more financially attractive,
says Mr. Staudenmayer. This, he says, includes simple things like the clubs’ ability
to finally pay players’ wages on time. Besides Spain, the other strong leagues are in
France, Italy and Turkey. Beyond these
countries, Mr. Staudenmayer says, there
are “hardly any functioning national
leagues” in Europe.
Growth is purely organic, Mr. Staudenmayer says. There are virtually no investors, wealthy patrons or government subsidies. The league reinvests the income it
generates. “The clubs are also increasingly
able to find funds for developing young talent,” says Mr. Staudenmayer.
German basketball has had false starts
before. The league failed to take advantage
of the sudden rise in popularity of the
sport in the early 1990s, when the U.S.
Dream Team’s legendary Olympic debut at
the 1992 Barcelona Games riveted German
sports fans, and streetball, an outdoor version of basketball, became a national fad. It
also didn’t help that Germany’s national
team – on which Mr. Nowitzki, Mr.
Schröder and Mr. Pleiss play because of
their German citizenship – had a terrible
showing at September’s European championships, coming in 18th out of 24 teams.
For the sport that was bad news, because
the national team’s success is a crucial
driver of audience interest. Hopefully for
German basketball, this was just a case of
two steps forward, one step back.
Witters
110
Culture and Lifestyle | Global Edition
Dirk Nowitzki has played
for the Dallas Mavericks
since 1998. He’s the
highest-scoring foreign
player in NBA history.
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Global Edition | Culture and Lifestyle
PR
Burgers with fancy
toppings are the latest
foodie fad in Berlin.
GOURMET CRAZE
Hold the Wurst,
Let’s Have a Burger
Germany, the home of the original hamburger, is in the
midst of a gourmet burger boom. In Berlin, the number
of high-end joints has jumped from 1 to 100.
BY JOHN BLAU
F
or decades, Germans never knew
what they were missing. Even
though the original hamburger
came to America via German
settlers, most Germans only knew industrial fast food or their own dry and pasty
version, called frikadellen.
Now, Germans are flocking to gourmet
burger joints quickly popping up all over
the country. There, they find a new take
on an old American favorite: a juicy,
dripping burger made of quality beef,
often organic or free-range or both, creatively crafted and topped with exotic
vegetables and sauces – all locally
sourced with vegan options, of course.
Some even bake their own buns. And nowhere is this gourmet burger craze
changing the culinary landscape more
than in Berlin. Walk around the capital
today and you’ll find restaurant names
such as Burgermeister, Burgeramt and
Westburger – all plays on the German
word Bürger, or citizen.
Culture and Lifestyle | Global Edition
The burger’s chintzy, down-market
image was shaped by a generation of
consumers who wolfed down
factory-made Big Macs in over-lit dining
areas filled with plastic furniture.
Just about every week, a community
website or foodie blog – like Stil in Berlin
or Berlin Food Stories – publishes another
top 10 list of Berlin gourmet burgers.
There’s even a regular food event dedicated to the famous patty – Burgers & Hip
Hop. Thousands of hungry hipsters join a
block party in Kreuzberg district every
few months to find out who makes the
best burgers in the German capital. Sometimes, foreign chefs fly in for the event.
“The best thing about the burger is that
it’s a democratic food,” opines the event’s
founder, Kavita Meelu. “No matter how
old or educated you are, you know what
makes a good burger.”
Berliners have ever more burger restaurants to choose from. Some estimates
put the number at around 80, others at
more than 100. No one knows for sure.
This embarrassment of riches compares
with just one high-end burger joint in
2006: The Bird, opened by two Americans in Prenzlauer Berg, a formerly rundown district in eastern Berlin that has
become the city’s epicenter of gentrification. These silver-plated burger flippers
hope to improve the burger’s chintzy,
down-market image in Germany, shaped
by a generation of consumers who wolfed
down factory-made Big Macs in over-lit
dining areas filled with plastic furniture.
The burger explosion is fueled by
entrepreneurial Berliners and expats who
see a golden opportunity to make a
splash in the food scene without all that
much ado. Jakob Schottstadt and Louis
Shapus knew nothing about burgers
when they opened Heat & Beat in 2014.
Mr. Schottstadt, who studied theater, and
Mr. Shapus, a former architect, chose a
location in Neukölln, a district with low
rents and a rapidly gentrifying popu-
lation. “We both liked burgers and decided to give it a shot,” Mr. Shapus says.
Since opening, they’ve seen 15 rivals
sprout up within walking distance. To set
themselves apart from the competition,
the owners serve Aberdeen Angus beef
with toppings such as gorgonzola, pears
and roasted onions. To avoid scaring
away Berlin’s large and vocal vegetarian
community, Heat & Beat’s “Bunker”
burger has a patty made from kidney
beans, olives and spices. “On a good day,
we can sell as many as 200,” Mr. Schottstadt says. His team of eight feeds their
customers seven days a week.
Some of the new gourmet burger joints
have become small, local chains, including one in Berlin called Kreuzburger – a
play on the district where the chain originated. They’re not exactly putting pressure on the burger giants. McDonald’s
hasn’t lost any market share in Germany,
but the company’s steady growth is slowing down. It’s responding to the gourmet
trend with new products. Those 100-odd
burger joints are also no competition for
Berlin’s more established fast foods, like
the 1,400 places serving Turkish Döner –
meat and salad in a flatbread for around
€3 ($3.30), compared to between €5 and
€8 for a burger. Stands serving Currywurst – a bland sausage covered with
spicy sauce – are almost as ubiquitous.
Some food experts see gourmet
burgers as just another trendy hype that
will soon peak. Branislav Cuziz, head
cook and organizer of burger-eating
events at the catering company Kofler,
predicts some will go out of business
while others will branch out to other
American-style foods that are gaining in
popularity in Germany, such as barbecue
ribs. Until then, enjoy that juicy burger.
WHY IT MATTERS
Berlin has become a laboratory
for the latest foodie trends. One
of the newest crazes is highend burgers with creative toppings.
FACTS
German-style meat patties, traditionally mixed with onion
and bread, were brought to
America by emigrants leaving
from the port of Hamburg,
hence hamburger.
Berlin’s first gourmet burger
restaurant, The Bird, opened in
2006.
The city now has some 100
such American-inspired burger
joints.
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114
Global Edition | Opinions
WHICH WAY NOW?
Migration Crisis and
Opportunity
Europe has the opportunity to turn today’s refugee crisis
into a catalyst for renewal and progress, writes Allianz
Chief Economist Mohamed El-Erian.
T
here is a simple truth beneath the
growing human tragedy of Europe’s refugee crisis, and the European Union cannot address the
massive influx of exhausted, desperate
people in a manner compatible with its
values unless governments and citizens acknowledge this truth. Simply put, the historic challenge confronting Europe also
offers historic opportunities.
The question is whether Europe’s politicians – who have failed to deliver on far less
complicated issues over which they had a
lot more control – can seize the moment.
The scale of the challenge is immense, with
the flow of refugees extremely difficult to
monitor and channel, let alone limit.
Fleeing war and oppression, tens of thousands of people are risking life and limb to
find refuge in Europe. This will continue as
long as chaos persists in countries of origin, such as Syria, and countries facilitating
transit, such as Iraq and Libya.
In the meantime, Europe’s transport networks are under stress, as are shelters,
border crossings and registration centers.
Common asylum policies – including the
basic rule that applicants should be registered at their point of entry into the European Union – are not functioning or are
being bypassed. And the cherished concept
of effortless travel within the border-free
Schengen Area is under threat.
These problems are aggravated by coordination failures. Attitudes toward refugees
vary widely across countries, with Germany taking a particularly enlightened approach that contrasts sharply with Hungary’s notably heartless one. Some countries, such as the Czech Republic, have
blocked deals to share the burden fairly
among European Union members, including through mandatory quotas.
Add to that the preferences of the refugees – who, after risking everything to get
to Europe, have strong feelings about
where they would like to settle – and the
policy challenges are enormous, especially
in the short run. European politicians have
yet to catch up with the reality on the
ground, let alone get ahead of it. And their
failure is exacerbating the risks to the European Union’s political cohesion that emerged over the Greek crisis.
Politicians have a powerful incentive to
get Europe’s response to the refugee crisis right. Beyond the need to alleviate the
human misery that fills television
screens and newspapers lies the imperative not to miss the significant mediumterm opportunities that migration provides.
Although there are pockets of high unemployment in Europe today, the ratio
of workers to the elderly will drop considerably in the longer term. And, already, labor-market flexibility has been
undermined by structural inertia, including difficulties in retraining workers,
particularly the long-term unemployed.
As the German government and some
corporate leaders, including the CEO of
Daimler-Benz, have already recognized,
an open-minded approach to refugee absorption and integration can help to mitigate some of Europe’s protracted structural problems. After all, a significant
proportion of the incoming refugee
population is said to be educated, motivated and committed to building a better
future in their new homes. Capitalizing
Opinions | Global Edition
WHY IT MATTERS
The migration crisis is straining
European unity as the flow of
arrivals shows no signs of slowing down.
FACTS
Over one million migrants and
refugees from the Middle East
and Africa will arrive in Germany this year.
Bloomberg [M] Handelsblatt
The European Union estimates
that another three million will
cross into Europe by the end of
2016.
Mohamed El-Erian is chief economic adviser at Allianz and the chairman
of U.S. President Barack Obama’s Global Development Council.
on this, European decision makers can
turn a severe short-term challenge into a
powerful long-term advantage.
An enlightened policy response to the
refugee crisis could help Europe in other
ways as well. Already, it is unlocking additional fiscal outlays in countries like
Germany – which, despite having the
means, did not previously have the will
to spend – thereby helping to alleviate an
aggregate-demand imbalance that, together with structural impediments to
growth and excessive indebtedness in
some countries, has held back the region’s recovery.
The current situation could also provide the catalyst needed to make decisive
progress on the European Union’s incomplete political, institutional, and financial
architecture. And it could compel Europe to overcome the political obstacles
blocking solutions to longstanding problems, such as providing the cover needed
for certain European creditors to grant
deeper debt relief for Greece, whose already massive fiscal and employment
problems are being exacerbated by the
influx of refugees. It can even drive Europe to modernize its governance framework, which allows a few small countries to derail decisions supported by
the vast majority of E.U. members.
Pessimists would immediately point
out that Europe has struggled to come
together on far less complex and more
controllable issues, such as the protracted economic and financial crisis in
Greece. Yet history also suggests that
shocks of the scale and scope of the current refugee crisis have the potential to
spur remarkable policy responses.
Europe has the opportunity to turn
today’s refugee crisis into a catalyst for
renewal and progress. Let us hope that
its politicians stop bickering and start
working together to take advantage of
this opening. If they fail, the momentum
behind regional integration – which has
brought peace, prosperity and hope to
hundreds of millions of people – will
weaken considerably, to the detriment
of all.
© Project Syndicate
Germany faces massive challenges organizing housing, language training and the integration of new arrivals into the
economy.
115
116
Global Edition | Opinions
CORPORATE SCANDALS
Honesty Isn’t Just for
Suckers Anymore
Business ethics have come a long way since the 1970s.
The millennial generation is driving change, writes
Princeton ethics professor Peter Singer.
I
f you used the term “business ethics”
in the 1970s, when the field was just
starting to develop, a common response was: “Isn’t that an oxymoron?” That quip would often be followed
by a recitation of Milton Friedman’s famous dictum that corporate executives’
only social responsibility is to make as
much money for shareholders as is
legally possible.
Over the next 40 years, however, businesspeople stopped quoting Mr. Friedman
and began to talk of their responsibilities
to their companies’ stakeholders, a group
that includes not only shareholders, but
also customers, employees and members
of the communities in which they operate.
In 2009, an oath circulated among the
first class of Harvard Business School to
graduate after the global financial crisis.
Those who took it – admittedly, a minority
– swore to pursue their work “in an ethical
manner.” They promised to run their enterprises “in good faith, guarding against
decisions and behavior that advance my
own narrow ambitions but harm the enterprise and the societies it serves.”
Since then, the idea has spread, with
students from 250 business schools taking
a similar oath. This year, all Dutch bankers, 90,000 of them, are swearing that
they will act with integrity, put the interests of customers ahead of others (including shareholders), and behave openly,
transparently and in accordance with their
responsibilities to society. Australia has a
voluntary Banking and Finance Oath,
which obliges those taking it to speak out
against wrongdoing and encourage others
to do the same.
In August, one chief executive, Véronique Laury, said that her professional
ambition is to have “a positive impact in
the wider world.” You might think she
heads a charity, rather than Kingfisher, a
home-improvement retailer with some
1,200 stores across Europe and Asia. In
September, McDonald’s, the largest purchaser of eggs in the United States,
showed that it, too, can contribute to ethical progress, by announcing that its U.S.
and Canadian operations would phase out
the use of eggs from caged hens. According to Paul Shapiro, the U.S. Humane So-
ciety’s vice president for farm animal protection, the move signals the beginning of
the end for the cruel battery cages that
have, until now, dominated America’s egg
industry.
Then came the revelations that Volkswagen installed software on 11 million diesel cars that reduced emissions of nitrogen
oxides only when the cars were undergoing
emissions tests, while emissions during normal driving greatly exceeded permitted levels. In the wake of the scandal, the New
York Times invited experts to comment on
whether “the pervasiveness of cheating”
has made moral behavior passé. The newspaper published their responses under the
headline: “Is Honesty for Suckers?”
Cynics would say that nothing has
changed in the last 40 years, and nothing
will change, because in business, any talk
of ethics only camouflages the ultimate
aim of profit maximization. Yet Volkswagen’s cheating is odd, because, even –
or especially – by the standard of profit
maximization, it was an extraordinarily
reckless gamble. Anyone at Volkswagen
who knew what the software was doing
Opinions | Global Edition
WHY IT MATTERS
Business ethics have developed
as a discipline since the 1970s.
Many corporations today acknowledge their responsibilities to stakeholders and the
communities in which they operate.
FACTS
ddp images/Eamonn McCabe [M] Handelsblatt
In 2009, in the wake of the financial crisis, Harvard Business School graduates signed a
first-ever ethics pledge.
Students from 250 business
schools have made similar
vows.
Peter Singer is professor of bioethics at Princeton University.
His latest book is Animal Liberation.
should have been able to predict the company was likely to lose.
Indeed, all that was required to lose the
bet was any attempt to compare the
emissions measured during tests to those
resulting from normal driving. In 2014, the
International Council on Clean Transportation commissioned West Virginia University’s Center for Alternative Fuels, Engines
and Emissions to do just that. The software ruse quickly unraveled.
Volkswagen’s stock lost more than onethird of its value in the aftermath of the
scandal. The company will have to recall 11
million cars and the fines it will have to
pay in the United States alone could go as
high as $18 billion. Most costly of all, perhaps, will be the damage to the company’s
reputation.
The market is giving its own answer to
the question, “Is honesty for suckers?” Its
response is: “No, honesty is for those who
want to maximize value over the long
term.” Of course, some companies will get
away with cheating. But the risk is always
there that they will be caught. And often –
especially for corporations whose brand
reputation is a major asset – the risk just
isn’t worth taking.
Honesty maximizes value over the long
term, even if by “value” we mean only the
monetary return to shareholders. It is
even more obviously true if value includes
the sense of satisfaction that all those involved take from their work. Several
studies have shown that members of the
generation that has come of age in the new
millennium are more interested in having
an impact on the world than in earning
money for its own sake. This is the generation that has embraced “effective altruism,” which encourages giving money
away -- as long as it is done efficiently.
So we have grounds to hope that as millennials begin to outnumber those still
running Volkswagen and other major corporations, ethics will become more firmly
established as an essential component of
maximizing the kinds of value that really
matter. At least among big companies,
scandals like the one at Volkswagen
would then become increasingly rare.
© Project Syndicate
This year, 90,000 Dutch financial-sector employees signed
an ethics pledge promising
openness and transparency.
117
118
Global Edition | Opinions
GLOBAL RISK
Middle East Meltdown
Millions of refugees produced by the globe’s most
dangerous region will destabilize Europe economically
and socially, argues Nouriel Roubini.
A
mong today’s geopolitical risks,
none is greater than the long arc
of instability stretching from the
Maghreb in the north west corner
of Africa to the Afghanistan-Pakistan
border. With the Arab Spring an increasingly distant memory, the instability along
this arc is deepening. Of the three countries where the Arab Spring first began,
Libya has become a failed state, Egypt has
returned to authoritarian rule, and Tunisia
is being economically and politically destabilized by terrorist attacks.
The violence and instability of North Africa is now spreading into sub-Saharan Africa, with the Sahel – one of the world’s
poorest and most environmentally damaged regions – now gripped by jihadism,
which is also seeping into the Horn of Africa to its east. And, as in Libya, civil wars
are raging in Iraq, Syria, Yemen and Somalia, all of which increasingly look like failed
states.
The region’s turmoil – which the United
States and its allies helped to fuel in their
pursuit of regime change in Iraq, Libya,
Egypt, Syria and elsewhere – is also undermining previously secure states. The influx
of refugees from Syria and Iraq is destabilizing Jordan, Lebanon, and now even Turkey, which is becoming increasingly authoritarian under president Recep Tayyip Erdogan. Meanwhile, with the conflict
between Israel and the Palestinians unresolved, Hamas in Gaza and Hezbollah in
Lebanon represent a chronic threat of violent clashes with Israel.
In this fluid regional environment, a
great proxy struggle for regional dominance between Sunni Saudi Arabia and
Shia Iran is playing out violently in Iraq,
Syria, Yemen, Bahrain and Lebanon. And
while the recent nuclear deal with Iran may
reduce the proliferation risk, lifting economic sanctions on Iran will provide its
leaders with more financial resources to
support their Shia proxies. Further east,
Afghanistan (where the resurgent Taliban
could return to power) and Pakistan
(where Islamists pose a continued security
threat) risk becoming semi-failed states.
And yet, remarkably, even as most of the
region began to burn, oil prices collapsed.
In the past, geopolitical instability in the
region triggered three global recessions.
The 1973 Yom Kippur War between Israel
and the Arab states caused an oil embargo
that tripled prices and led to the stagflation of 1974–1975. The Iranian revolution
of 1979 led to another embargo and price
shock that triggered another global stagflation between 1980 and 1982. And the
Iraqi invasion of Kuwait in 1990 led to another spike in oil prices that triggered the
global recession of 1990–1991.
This time around, instability in the
Middle East is far more severe and widespread. But there appears to be no “fear
premium” on oil prices; on the contrary,
oil prices have declined sharply since
2014. Why?
Perhaps the most important reason is
that, unlike in the past, the turmoil in the
Middle East has not caused a supply
shock. Even in the parts of Iraq now controlled by the Islamic State, oil production
continues, with output smuggled and sold
in foreign markets. And the prospect that
Opinions | Global Edition
WHY IT MATTERS
War, poverty and violent extremism in the Middle East are
sending waves of refugees surging toward Europe.
FACTS
The region’s violent upheavals
have not affected oil prices,
which have declined sharply
since 2014.
Kai Nedden [M] Handelsblatt
A worsening of the wars in
Syria, Yemen, Afghanistan and
Iraq could send millions more
refugees toward Europe.
Nouriel Roubini is a professor at New York University’s Stern School of Business
and chairman of Roubini Global Economics.
sanctions on Iran’s oil exports will be
phased out implies future increases in production and export.
Indeed, there is a global glut of oil. In
North America, the shale revolution in the
United States, Canada’s oil sands, and the
opening of Mexico’s energy sector to private and foreign investment have made the
continent less dependent on Middle Eastern oil. Moreover, South America holds
vast hydrocarbon reserves, from Colombia
all the way to Argentina, as does East Africa, from Kenya all the way to Mozambique.
With the United States on the way to
achieving energy independence, there is a
risk that America and its Western allies will
consider the Middle East less strategically
important. That belief is wishful thinking:
A burning Middle East can destabilize the
world in many ways. First, some of these
conflicts may yet lead to an actual supply
disruption, as in 1973, 1979 and 1990.
Second, civil wars that turn millions of
people into refugees will destabilize Europe economically and socially, which is
bound to hit the global economy hard. And
the economies and societies of frontline
states like Lebanon, Jordan and Turkey,
already under severe stress from absorbing millions of such refugees, face even
greater risks.
Third, prolonged misery and hopelessness for millions of Arab young people
will create a new generation of desperate
jihadists who blame the West for their
despair. Some will undoubtedly find their
way to Europe and the United States and
stage terrorist attacks.
So, if the West ignores the Middle East
or addresses the region’s problems only
through military means (the United States
has spent $2 trillion in its Afghan and
Iraqi wars, only to create more instability), rather than relying on diplomacy
and financial resources to support growth
and job creation, the region’s instability
will only worsen. Such a choice would
haunt the United States and Europe – and
thus the global economy – for decades to
come.
© Project Syndicate
Europe and the United States
have not agreed on how to
handle the crisis.
119
120
Global Edition | Opinions
HOPE AND CHANGE
Three Leaders to
Watch in 2016
The leaders of India, Nigeria and Italy have broken once
unsurmountable barriers. They will surprise the world with
positive change, argues Ian Bremmer.
W
e still live in a world where
individual leaders can substantially change the lives
and prospects of their
peoples. From Germany’s Angela Merkel
to Russia’s Vladimir Putin, from Japan’s
Shinzõ Abe to Brazil’s Dilma Rousseff to
Turkey’s Recep Tayyip Erdogan, leaders
dominate news coverage. Their ability to
manage crises and exploit opportunities to
move their countries forward separate
winners from losers on the international
stage and in the global economy. Other
leaders making headlines these days, like
Greece’s Alexis Tsipras and Syria’s Bashar
al-Assad, are remarkable mainly for their
political survival skills.
But there are three other leaders who
deserve much more attention than they
usually get. Their impact could change not
just their own countries’ fortunes, but
have a lasting positive effect far beyond
national borders.
Begin with India’s Narendra Modi,
prime minister of a country better known
for its potential than its performance. Con-
ventional wisdom has been that no one
can build lasting momentum behind economic reform in India and raise the
country’s international profile. Yet since
taking office in May 2014, following the
most resounding parliamentary election
victory in thirty years, Mr. Modi has built
broad popular support for reforms to improve the country’s business climate,
trigger rapid economic development and
establish much more efficient governance,
attracting a surge of foreign investment in
the process. He has raised India’s global
profile and enhanced its influence with a
series of successful bilateral state visits
around the world.
Mr. Modi has surprised critics by directly engaging India’s surging population
of lower-middle-class youth through the
innovative use of new media. In high-profile and emotional speeches, Mr. Modi has
taken the unprecedented, highly popular
step of addressing social issues ranging
from gender inequality to the country’s
shortage of proper toilets. Finally, he has
stepped beyond the Hindu nationalism
often associated with his party to improve
relations with neighboring Pakistan.
Another leader embracing important
change is Muhammadu Buhari, the president of Nigeria, Africa’s largest economy
and most populous country. There too, a
leader faces seemingly intractable problems, from endemic corruption to the
brutal Islamist insurgency of Boko Haram.
In office only since May 2015, Mr. Buhari
has already made history. Not only did his
election victory over former president
Goodluck Jonathan mark the first peaceful
transfer of power from one political party
to another since Nigeria became a democracy in 1999. It was also a transfer of the
presidency from the country’s mainly
Christian south to its Muslim north. The
lack of violence before, during and after
the election was cause for celebration, and
both men deserve credit.
Mr. Buhari has been slow to form a cabinet. But among his nominations for ministers, the most significant is his intention
to retain the post of oil minister for himself, demonstrating that cleaning up the oil
Opinions | Global Edition
WHY IT MATTERS
Leaders like Germany’s Angela
Merkel and Russia’s Vladimir
Putin may dominate news
coverage, but there are other
leaders to watch with great potential for positive impact.
FACTS
India’s Prime Minister Narendra Modi is trying to reform the
underperforming economy of
the world’s second-most populous nation.
Bloomberg [M] Handelsblatt
The recent election of Nigeria’s
President Muhammadu Buhari
marked the first peaceful
transfer of power. Now, he has
signaled steps to fight the
country’s crippling corruption.
Ian Bremmer is president of Eurasia Group and author of Superpower:
Three Choices for America’s Role in the World.
sector will be an early priority. Nigeria is
among the world’s ten largest oil exporters, but the sector has been plagued
with corruption and inefficiency for years.
Mr. Buhari is about to launch a major
crackdown on graft. He also plans to restructure the country’s national oil company, the Nigerian National Oil Corporation, and reform the oil sector to attract
more involvement and investment from
international oil companies.
In addition, Mr. Buhari, a Muslim and
former army general, will likely have more
success than his predecessor in fighting
Boko Haram militants in the country’s
northeast, including by partnering with
other countries in the region to attack the
group on multiple fronts.
Then there is Italian prime minister Matteo Renzi. Few people ever believed that
anyone could liberalize Italy’s economy
and reform its politics. Yet Renzi has
fought his way through external and domestic challenges and navigated Italy’s byzantine political bureaucracy to bring new
momentum to economic reform after
more than a decade of economic stagnation, policy inertia and ever-rising levels
of public debt. So far, his most important
achievement has been a far-reaching,
once-unimaginable labor reform plan that
will go a long way toward liberalizing
Italy’s sclerotic labor market. Renzi has
also resisted pressure from across the Italian political spectrum to spend more
money that the Italian government doesn’t
have, thereby restoring much of Italy’s damaged credibility within the European
Union. To finally put an end to Italy’s long
history of unstable and short-lived coalition governments, he is pushing to strip
the parliament’s upper house of most of
its gridlock-producing powers and to introduce a new electoral system that favors
larger parties.
All three of these leaders are just getting
started. All have yet to prove their staying
power. But their early successes and the
barriers they’ve broken have already redefined what we once thought possible. They
deserve much more of the world’s attention than they have gotten so far.
Italian Prime Minister Matteo
Renzi is working on a historic
constitutional reform to end
the country’s permanent political gridlock.
121
Global Edition | Last Word
Nor|mal|i|ty: [noun]: a state of stability, which
is transforming itself into something fluid before
our very eyes; see also “modernity.”
N
Foto: Andreas Fechner
122
ormality is one of the most underrated concepts in our lives. Everyone longs for what’s
new, for change, distraction, spontaneity
and inspiration. No one has an urge for routine, regularity or – gasp! – monotony.
Yet normality is a great necessity in our lives. It’s
the fabric of what is self-evident and familiar, what we
can fall back on when we lack orientation. The significance of normality becomes obvious when you realize
that everything truly important is repetitive and regular: breathing, eating, sleeping. Our body needs and
craves normality.
What is true for the individual also holds for the society around him. The long push and pull toward a
common set of Western values – democracy, humanism, Christianity – created the foundation of our
society. We have turned routines into rules that give us
Europeans our identity. We send children to school,
not into a coalmine. The environment doesn’t just
have a price, it also has rights. We have delegated the
monopoly of power to government, which is subject
to no dynasty or party, but to the rule of law. This fundamentally Western sentiment is the platform of our
life. Another aspect of our Western normality was and
is that we meet others with curiosity, not hate. Western normality is multicolored.
Ever since the industrial revolution began, we have
been in the process of dispensing with various
normalities. The life of our ancestors has
ceased to exist. One changes one’s profession, families are broken up, one joins or
leaves a church as readily as one changes
membership in a gym.
In place of one grand reality, there is now
a multitude of fleeting and unstable moments. New groups and circumstances form,
moods and convictions rise and subside and
are then reconfigured. The individual has
the option of radically differentiating
himself from others – and makes use
of that option. Sociologists speak of
pastiche biographies. There is a
right to be different, an embrace
of the non-standard.
What’s new, exciting and characteristic for the start
of our millennium is that the old forces ordering our
lives haven’t been replaced by new ones. We are experiencing an inflation of realities, the peaceful coexistence of contradictions. Society is switching its aggregate state from solid to fleeting.
Coming from an ancient state of servility, feudal
rule and divine rights, passing through an era of industrialism and collectivism, our societies are again
on the move. Barely have we learned the answers that
the questions once again change. This process of detachment is different from anything we’ve experienced before. Change was not brought by any revolutionary, industrialist or religious leader. This time,
our society has overthrown itself. It is accelerating
and producing change at such breathtaking speed
that even a person of middle age now looks on their
childhood as belonging to a distant epoch. Richard
Rorty, the American philosopher, speaks of a “process
of self-creation.”
This is a disturbing yet uplifting message for the individual: he and she are free. There is no longer a predictable future. The great social molding machine has
released us from its iron claws.
The end of the old normality does not mean the
end of humanity as we know it, but the start of a new
era with all that it entails: uncertainty and insecurity,
but also curiosity, adventure and countless opportunities yet to be explored. We suffer a loss of
stability but gain the gift of self-determination.
Most likely, the fact that nothing is self-evident anymore will be self-evident to the next
generation. That nothing is normal will be the
new normal. It won’t be much longer until the
life we have left behind – with our secure government pensions, true friends (not followers)
and a life defined by family – has utterly disappeared into the museum of anthropological
history. If our children are kind, they will
hire us as museum guides.
Gabor Steingart
is the publisher of Handelsblatt.