Germany should learn about economic miracles from Cyprus

Back in the 1950s Germany’s economy did a Phoenix by rising from its RAF- and SAC-produced ashes. This rags to riches story is often referred to as ‘the economic miracle’ (Wirtschaftswunder for short as I, unable to conceal my admiration for the morphology of the German language, always add).

They call that a miracle? Really. What’s miraculous about it? A miracle is something one doesn’t understand, something solely attributable to supernatural forces. Germany’s recovery, on the other hand, is an illustration to basic economics taught in the first year at every decent university.

Konrad Adenauer and his economics advisor (later the Federal Republic’s Economics Minister, then Chancellor) Ludwig Erhard exceeded their authority under the law imposed by the occupying powers. Rejecting the Keynesian practices mandated by the Anglo-Saxons, Erhard freed up the economy in one fell swoop by removing price controls and introducing a stable currency.

He took that plunge on a Sunday, when American and British Keynesians had a day off and were thus in no position to stop him, as they surely would have done on any other day of the week. At the same time, Adenauer and Erhard told the Germans in no uncertain terms that there would be no huge deficit spending on a Bismarck-type welfare state, not in the immediate future at any rate.

This would come when the economy got up on its feet. Until then the Germans were told to tighten their belts, work hard and count their pfennigs. The ploy worked to perfection, and within a few years of low inflation and rapid industrial growth the country climbed to the economic summit where it has more or less stayed to this day.

Hence there was nothing miraculous about it at all – just applying the values and practices of good housekeeping to a national economy, something our FT analysts insist we must never do. Now if you want to know what a real economic miracle is, answer this question: which foreign country is the biggest investor into the Russian economy?

Is it a) China, b) the USA, c) Germany? The answer is d) none of the above. By far the greatest influx of foreign capital into Russia comes from Cyprus, a country of 1.1 million population whose economy, one is led to believe, isn’t exactly shipshape.

According to Rosstat, Russian state statistics agency, in 2011 alone Cyprus-based businesses invested £52 billion in Russia. That is almost four times Cyprus’s GDP, and surely Russia isn’t the only conduit for the Cypriots’ enterprising spirit.

The spirit is formidable. No other country has ever managed to invest abroad several times the amount of wealth it produces. In fact, those cynics among you who don’t believe in miracles might question these data.

‘O ye of little faith…’ as St Matthew once wrote, in Greek as it happens. The information is absolutely kosher, to borrow a term from another Abrahamic religion.

The cynics should take their cue not from economics but from biochemistry, specifically from the circulation of oxygen in nature. Plants and animals breathe in oxygen and exhale it to the air and water as carbon dioxide (CO2). Algae and green plants then take the CO2 and convert it into carbohydrates, with oxygen being a by-product. The world lives on.

For plants and animals, read Cyprus. For oxygen, read the flow into Cyprus of the ill-gotten money of Russian ‘businessmen’ and ‘politicians’ (all their money is ill-gotten by definition). For CO2, read reinvestment into the Russian ‘businesses’ that had produced the ill-gotten gains. For by-product oxygen, read more money then laundered again through Cyprus banks.

This is a bright example of how one science can elucidate another, a bit like physics and metaphysics or else philosophy and theology. In fact, it’s to theology that we must turn next to understand the Cypriots’ eagerness to act as a player in a game that is proscribed by criminal laws in just about every country on earth.

For there is an authority much higher than men’s law. Both Cyprus and Russia are Orthodox, and it must be their denominational solidarity that accounts for this show of Christian cooperation, so rare in our heathen times. Surely there can be no other explanation? And if you think there is, it’s you who are heathen (I know I am, at least in this context).

Now imagine the same story unfolding in countries that are less devout, say Germany and Luxembourg. What if it became public knowledge that tiny Luxembourg is by far the greatest foreign contributor to Germany’s on-going Wirtschaftswunder?  One can’t help thinking that the questions asked under such circumstances would be somewhat more probing than those posed about Cyprus and Russia.

Even as we speak, the Cyprus finance minister is in Moscow, doing an Oliver Twist. Please, Comrades, can we have more? All in the spirit of Orthodox solidarity of course. ‘More!?!’ scream the Russians, scaring the poor lad out of his wits. ‘What’s in it for us?’ they demand in the same Christian spirit.

What’s in it for them is the possibility of acquiring a Mediterranean colony, complete with sizeable gas reserves, but then I already suggested this a couple of days ago. So I’m sure the Russians will come round one way or the other.













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