Only Germany Can Save Europe

The euro crisis is back with a vengeance -- and only Berlin can pull the continent from its economic doldrums.

The crisis in the eurozone is rearing its ugly head again. European markets tumbled early this week in what one investor called a "perfect storm" of bad economic news, dragging the U.S. stock market down with it. And the fundamentals of many European economies remain weak: Yields on Italian and Spanish 10-year bonds are way above 5 percent -- despite a successful Spanish bond auction last week. It's a far cry from the 3 to 4 percent range that Italy and Spain need for their considerable debt burdens to be sustainable.

The immediate provocation for the flare-up of the crisis seems to have been a bearish note on Spain -- and a few dour media appearances -- by Citigroup chief economist Willem Buiter. According to Buiter, Spanish Prime Minister Mariano Rajoy's new government is doing too little too late in terms of fiscal and structural measures to avoid sovereign default. Spain, he believes, therefore looks likely to enter some form of an IMF program this year.

The shifting political landscape in France could also stunt its economic recovery. Socialist Party candidate François Hollande emerged victorious in the first round of the French presidential election on Sunday, April 22, and is in a strong position to win the second round on May 6. The prospect of a Socialist Party takeover does little to reassure financial markets: The economic plans that Hollande has unfolded during the election campaign -- lowering the minimum legal retirement age of 62 and raising the top income tax rate to 75 percent -- seem utterly untenable in the eyes of many a mainstream economist, let alone global financial markets.

The euro crisis is also having political repercussions beyond the countries that experienced the worst of the downturn. The Dutch coalition government of Mark Rutte collapsed after anti-immigration firebrand Geert Wilders withdrew his support over negotiations on budget cuts needed to bring next year's budget deficit in line with the 3 percent ceiling required under the EU Stability and Growth Pact. Financial markets have also shown signs of strain, with yields on Dutch government bonds mounting steadily. The Dutch government has championed austerity so vigorously in the past year that there must be a healthy dose of glee in Southern European capitals that it now tripped over its own feet. The Netherlands is up for elections that will be held in September, but financial markets don't seem overly confident that Rutte's outgoing government will garner sufficient political support to bring the 2013 budget under control.

Eurozone watchers are no doubt exasperated over this latest set of crises, but there is no reason for despair. Sure, the prospects of a default in Spain -- a country that is both too big to fail and too big to rescue -- and a Socialist takeover in core European countries are enough to guarantee financial turmoil in the weeks, if not months, to come. Investors, however, are not abandoning the eurozone completely, and Germany still has a unique opportunity to rescue Europe's faltering economies.

Investors may be fleeing Spain and Italy in droves, but the same is not true for the eurozone as a whole. Witness the overvalued euro, which still stands above $1.30. That's because investors who flee the eurozone periphery are seeking refuge in German government bonds. As a result, the yield on 10-year German government bonds has dropped to a record low of 1.70 percent, while a yield of 3 percent would have been more appropriate given the European Central Bank's short-term interest rate of 1 percent. The low yields on German bonds only in part reflect the muted economic growth outlook for Germany and the eurozone as a whole. But the ultralow yields mostly reflect Germany's status as a relative safe haven.

Economists like Paul Krugman have argued that the reason the yield on 10-year British government bonds is much lower than the yield on 10-year Spanish government bonds, even though the state of Britain's public finances is direr than Spain's, is that Britain has its own central bank to act as a lender of last resort. While Spain is dependent on the European Central Bank for its monetary policy, the Bank of England can always print more pounds to prevent Britain from defaulting on its financial obligations. Of course, a country that abuses this privilege runs the risk of resembling Zimbabwe.

A more plausible explanation for the yield gap, however, is the absence of exchange-rate risk between Spain and Germany. It is, after all, only wise to hold investments in the same currency as you have financial obligations. Let's say you invest your savings in a foreign currency. If that currency depreciates, you run the risk of coming up short when the next mortgage payment comes due. From the perspective of an investor -- for example, any eurozone pension fund -- German government bonds are a perfect substitute for Spanish government bonds. As soon as doubt arises about whether the Spanish government will be able to service its debt, the money is quickly channeled to Berlin's coffers, potentially setting off a self-fulfilling default in Madrid. From the perspective of a British pension fund, there is no such substitute for British bonds, and that is what keeps rates low.

Even though German economic growth continues to be modest, the unemployment rate hits new record lows each month -- the adjusted rate currently stands at 6.7 percent, a two-decade low. And the squeeze on the labor market is starting to translate into higher wages. Just last month, the country's 2 million civil servants secured a 6.3 percent pay raise for this year and next, which will most likely serve as the lower bound for private-sector pay raises. German carmakers already dole out cash bonuses of more than $10,000 per employee for the entire workforce. German politicians may wince at the prospect of rising inflation, and the old Bundesbank, Germany's cautious central bank, surely would have raised interest rates to get it under control. It is the European Central Bank (ECB) that is in the driver's seat in the new Europe, however, not the Bundesbank, and experts expect the ECB to cut, not raise, the short-term interest rate before the end of 2013.

Even if the ECB were to raise its short-term interest rate, the rate hike would likely fail to raise the yield on longer-term German bonds, which drives investment and consumer demand. Investors would probably see a rate hike as the death knell for Italy's and Spain's growth prospects, adding fuel to the debt crisis and causing investors to flock in even greater numbers to the safe haven of German government bonds. That's at least what happened last year, when the ECB's rate hike coincided with the earthquake in Japan and the unrest in Libya, and the yield on longer-term German bonds dropped like a brick. It is unclear what caused the euro crisis to flare up then, but it is possible that the ECB's rate hike did have something to do with it.

Unless the unemployed youths from the eurozone's outer boroughs flock to the German labor market, there is little the German government can do to halt Germany's domestic wage growth. And that's good news: Rising German wages may in turn help to restore the competitiveness of Portugal, Italy, Greece, and Spain (known as the PIGS), which will still have to do their part by implementing fiscal and structural measures to bring labor costs down. The same financial markets that failed to discipline governments in the 2000s for their profligacy will now serve as a powerful stick to bring about the much-needed structural reforms in the eurozone's southern regions.

Thanks to the ultralow yields on German bonds, the treasury in Berlin each year has a windfall that I have estimated at upwards of $15 billion. Because some of this windfall comes at the expense of the eurozone's periphery, Germany should consider reinvesting some of these funds in the economically stricken countries surrounding it. They could be used, for example, to fund loans or risk capital for enterprises in Portugal, Italy, Greece, and Spain. With those countries' banks depleted and probably insolvent due to the debt crisis, business investment in these countries has suffered tremendously. Along with the money -- which could also be channeled through the German-led European Investment Bank, as World Bank President Robert Zoellick has suggested -- Germany might pass on some good economic advice to the PIGS as well.

The German government, especially Chancellor Angela Merkel, has been vilified in the past two years by fellow Europeans and Americans alike for not moving aggressively enough to resolve the debt crisis. Germany, however, actually does have something to show for its caution: namely, economic success. With few natural resources and no tourism industry to speak of, there has been no easy way for the German economy to generate growth. But through innovation, moderation, and sheer hard work, Germany turned itself from the sick man of Europe at the end of the 1990s into one of the few Western economies that seems truly globalization-proof. Now Berlin has an opportunity to use its newfound economic leadership to rescue its neighbors from the worst of the euro crisis.



How Not to Write About Africa

The media shamefully neglects Africa -- until it decides to swarm a story with terrible coverage.

It's hard out here for us old Africa hands. We are desperate to see more coverage of important stories from the continent and for our neighbors to become more educated about the places where we study and work. Yet when we get that coverage, it tends to make us cringe.

Take, for instance, the current violence in northern Mali. In the last six weeks, Mali has experienced a coup d'état and a declaration of independence from rebels who now loosely control half its territory. The recent conflict has displaced approximately 268,000 people as various groups of Islamists and separatist rebels jostle for control of desert oasis cities as a drought-driven food crisis looms with the arrival of the country's hot season. The situation in Mali is by far the worst unfolding humanitarian crisis in the world today, but compared with say, Syria or Afghanistan, you probably haven't heard much about it.

Or consider the flurry of coverage of Central Africa that followed March's "Kony 2012" phenomenon. First of all, it is frustrating that it takes a viral Internet video or the involvement of Hollywood celebrities to bring attention to the depredations of groups like the Lord's Resistance Army. Even worse, many Africa correspondents file stories that fall prey to pernicious stereotypes and tropes that dehumanize Africans. Mainstream news outlets frequently run stories under headlines like "Land of Mangoes and Joseph Kony," seemingly without thinking how condescending and racist such framing sounds.

Western reporting on Africa is often fraught with factual errors, incomplete analysis, and stereotyping that would not pass editorial muster in coverage of China, Pakistan, France, or Mexico. A journalist who printed blatantly offensive stereotypes about German politicians or violated ethical norms regarding protection of child-abuse victims in Ohio would at the least be sanctioned and might even lose his or her job. When it comes to Africa, however, these problems are tolerated and, in some cases, celebrated. A quick search of the Google News archives for "Congo" and "heart of darkness" yields nearly 4,000 hits, the vast majority of which are not works of literary criticism, but are instead used to exoticize the Democratic Republic of the Congo while conjuring up stereotypes of race and savagery. Could we imagine a serious publication ever using similar terminology to describe the south side of Chicago, Baltimore, or another predominately African-American city?

To Africa-watchers, there is a clear double standard for journalistic quality, integrity, and ethics when it comes to reporting on the continent. It's enough to make us want to scream, or at least crawl into a corner and long for the days when Howard French covered West and Central Africa for the New York Times. Although he had to cover some of the continent's worst post-Cold War violence, French's mid-1990s reporting for the Times was nuanced and balanced, and reflected the reality of Africa as a place that is not simply a land of war and poverty, but rather a complex system of societies like any others filled with normal people doing their best to make a life.

Why is there so much bad reporting on Africa? Part of the problem has to do with the limited number of journalists assigned to cover the continent. Many major Western media outlets assign one correspondent for the entire continent -- more than 11 million square miles. He or she will be based in Johannesburg or Nairobi, but be expected to parachute into Niger, Somalia, or wherever the next crisis is unfolding, on a moment's notice. At best, larger publications will have two or three regional Africa correspondents who are each responsible for covering 10 to 15 countries. The wire services tend to have broader reach, but even they cannot station a correspondent in every country.

This is insane. Africa is a continent of 54 distinct states, all with multiple languages and ethnic groups and unique political dynamics. Nowhere else in the world -- not even in undercovered Latin America -- would one person be expected to report on so many complicated situations. Yet in Western media coverage of Africa, such a state of affairs is common. It could be argued that these limits are the product of declining revenues for traditional media outlets in the age of the Internet. It is true that foreign correspondents are expensive and revenues are down, but that ignores the fact that Western media coverage of Africa has always been done this way. Twenty years ago, most major Western media outlets also only had one to three Africa correspondents. Very little has changed.

There is an easy solution to this problem: Hire local reporters. One notable exception to the history of poor coverage of Africa is the BBC, whose World Service has long maintained correspondents in most of the continent's capital cities. Although the World Service's budget has been slashed repeatedly due to declining government support, the BBC has managed to keep much of its Africa coverage afloat by relying largely on local reporters to get the story. This has been particularly important in Somalia. For two decades, it has been nearly impossible for Western reporters to fully and freely report from Somalia due to safety concerns, but the BBC Somali Service's team of local correspondents and producers do an excellent job of getting the news out from their own country. There's no reason that other major media providers couldn't hire local reporters to improve their coverage as well. Rather than relegating them to second-tier or co-author status, why not hire Africans as country or regional correspondents? A reporter does not have to be Caucasian to provide objective and well-written reporting from the continent, and in many cases, this reporting is more nuanced than that of an international correspondent who spends five days reporting a story. For example, by far the most thoughtful reporting and analysis on Ugandan reactions to the Kony 2012 viral video came not from American journalists, but from Ugandan reporter Angelo Izama who, to the New York Times' credit, was able to publish an opinion article in its pages. Why can't the Times hire Izama or someone equally qualified to report on Uganda full time?

Hiring local reporters also addresses the problem of language barriers, another key reason so much reporting on Africa is so bad. This is evident in the Anglophone-Francophone divide: Coverage of the Mali crisis by outlets such as Agence France-Presse and France 24 has been considerably better than that of much of the English-language media. They had the best information from the battlefront and were able to interview non-Anglophone Malians with ease. The problem is not simply that reporters cannot be expected to speak all of Africa's 3,000-plus languages; it is that foreign correspondents tend to rely on the same small group of fixers to arrange interviews, interpret, and manage logistics.

Yet fixers tend to take reporters to talk to the same subjects, over and over and over again. An echo chamber often results, as the same interviews are done with essentially the same questions and the same answers. The echo-chamber problem is much worse in conflict zones, where NGOs often arrange safe travel for reporters in a bid to get their stories out (and to raise funds for their humanitarian operations). Given the challenges of reporting in the midst of open conflict, this symbiotic relationship works well for both parties: The journalist gets the story, and the NGO gets good press for its campaign.

The problem is that this tends to produce very one-sided and nonobjective reporting. For example, much of the recent coverage of the conflict in Sudan's Nuba Mountains has been facilitated by the U.S.-based NGO Samaritan's Purse. Many of the reporters traveling with Samaritan's Purse have used the same fixer for their stories, Ryan Boyette, a former employee of the group who is married to a Nuba woman and runs a local effort to document atrocities occurring there. In the space of just a few weeks, Boyette also became the subject of a fawning New York Times profile by Nicholas Kristof, was a centerpiece of Jeffrey Gettleman's reporting for the same publication, and was interviewed by Ann Curry for NBC's Today. This is not to question Boyette's credibility or challenge his analysis (though he is far from a neutral observer), but rather to point out one of many examples of the way the West's Africa reporting becomes biased due to a lack of access and local language skills. As Karen Rothmyer noted in a Columbia Journalism Review article, many reporters working on Africa rely "heavily, and uncritically, on aid organizations for statistics, subjects, stories, and sources." It is thus no wonder that much reporting on Africa is so heavily focused on crises and that many pieces read like little more than NGO promotional materials.

Another major issue many Africa hands have with media coverage of the continent is the lack of journalistic ethics employed by some reporters working in the continent. Standards for the depiction and identification of victims of conflict, rape, and child abuse are frequently handled very differently from how they would be were the victims American or European. It is very common to see pictures of starving children or rape victims in the pages of Western newspapers. The most egregious example was Kristof's 2010 identification of a 9-year-old Congolese girl who had been gang-raped. The New York Times printed the girl's real name along with a facial photograph and even a video of her online. After a firestorm of controversy, Kristof blogged a response in which he promised not to do it again, but disagreed with critics who accused him of putting the child in danger by identifying her. He acknowledged, however, that printing her name violated Times policy, even though he obtained permission from a woman acting as her guardian.

It is hard to imagine a situation in which any editor would have let such a "slip" occur had the story been about a Western child-rape victim. Such a story never would -- or should -- have made it to the publication stage without changing the name to an alias, removing the photograph, or replacing it with a non-identifiable shot and noting that the Times does not print rape victims' names as a matter of policy.

It is precisely these kinds of double standards that infuriate Africa-watchers and those who care about the ethics of reporting on victims of violence. Yet such abuses are too often tolerated in the Western media when it comes to Africa. Is it because Africa is still in many Western minds the exotic "other" of movies and imagination? Or perhaps because many Western reporters still approach Africa with a mixed sense of excitement at being somewhere so "unique" and fear of the Heart of Darkness? Or is it simple ignorance about an Africa that, as Kenyan author Binyavanga Wainaina notes, is never going to look like what the West wants it to look like? I don't have a definitive answer. But I do think we can do better.

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