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The fiscal stalemate derives in part from the frictions in Franco-German relations

A few weeks ago, Germany’s ruling Christian Democratic party put out a tweet that, depending on your viewpoint, was either naively sincere or shamelessly provocative. Above what looked like a pair of bondage items, the CDU said: “We have a small fetish: solid finances without new debts.”

Fiscal rectitude, the tweet went on to say, represents justice between older and younger generations and is a precondition of investments in society’s future. Here, in a nutshell, is everything that France, Italy and other eurozone governments find frustrating about Germany’s economic policies and its approach to reforming the 19-nation currency union.

Reform is much too slow on three fronts: a common eurozone budget, completing the banking union and strengthening the European Stability Mechanism, the area’s crisis-fighting instrument. It is unfair and inaccurate to blame Germany alone. Yet unless Berlin and other capitals break the deadlock, the eurozone will find itself little better equipped to tackle the next crisis, whenever that may come, than it was to handle sovereign debt and banking sector emergencies in 2010-12.

The stalemate is symptomatic of a deeper malaise in European integration. Whether it be migration policies, attitudes to Russia or the size and focus of the EU’s 2021-27 budget, the Europeans are divided. In some cases, it is west versus east; in others, north versus south; in still others, left versus right. The divisions cut through every national political system and society as well as between governments, making it a truly Herculean task to find solutions.

In staving off the last crisis, which threatened the eurozone’s survival, governments and banks relied to a great extent on the unconventional initiatives of the European Central Bank and Mario Draghi, its former president. This earned the ECB scant praise in Germany. For years, German politicians, bankers, economists and the press have lashed out at the ECB as a robber of savings, a breaker of EU treaties and a friend to profligate southern Europe.

Such criticisms skim over the political logic behind the ECB’s monetary easing policies and the lenient enforcement of EU fiscal rules that went with them. The thinking was that eurozone governments should use the time bought by this assistance to make fundamental improvements in the currency union’s architecture. In this way, the Europeans would be strong enough in the next crisis not to rely so much on the help of others, notably the US government, the Federal Reserve and the IMF.

Although the Europeans have taken some measures, a great deal remains to be done. For example, they have committed themselves to building a “budgetary instrument for convergence and competitiveness”, exclusive to eurozone countries. But resistance from Germany and its northern allies means that the small sum envisaged for 2021 to 2027 — and even this is not yet agreed — will never be enough to stabilise the eurozone economy in a downturn, as urged by France and its supporters.

Progress on banking union appeared possible in November after Olaf Scholz, Germany’s finance minister, proposed a common deposit insurance scheme. Although he attached strict conditions, there has been an encouraging response from the central bank of Italy, normally a country suspicious of Germany’s views on how to treat banks’ ownership of government bonds.

However, Mr Scholz’s initiative does not represent an agreed line of the Christian Democrat-Social Democrat “grand coalition” government to which he belongs. His political authority has suffered from being defeated in the contest for the SPD’s leadership, a race won by a pair of little-known regional leftwingers. As for the substance, disputes over deposit insurance are in turn tangled up with efforts to strengthen the ESM, with domestic Italian political rivalries playing a part in the muddle.

The eurozone’s deadlock also derives from the frictions in Franco-German relations since Emmanuel Macron was elected French president and the waning of Chancellor Angela Merkel’s authority in Germany. Mr Macron’s looser fiscal policy since last year’s gilets-jaunes protests, and the strikes and demonstrations against his pension reform proposals, have aroused doubts in Berlin about his commitment to budgetary discipline and domestic reform. Worse, the Germans see Mr Macron as impetuous and prone to unveiling grand initiatives without first consulting allies.

Conversely, Paris sees Ms Merkel’s government as stubbornly reluctant to engage with French ideas for eurozone reform. This caution is attributable partly to never-ending quarrels in the grand coalition, and to Germany’s deep-seated shared conservatism on economic policy encapsulated in the CDU’s tweet.

In some respects, the mood is changing. The BDI, Germany’s main business lobby, and trade unions are calling for a €450bn public investment programme. Impatience with the CDU’s “small fetish” for balanced budgets is growing, including at the Bundesbank. The grand coalition may give up the ghost before September 2021. A power shift in Germany is probably coming, and it may pave the way for a more energetic effort at eurozone reform. Whether it will be too late is another matter.

Its weakening relationship with the rest of the UK is a cautionary tale

London is not used to feeling vulnerable. The capital of the former British empire has reinvented itself in the last 25 years or so as the economic capital of Europe, and the very model of a dynamic, cosmopolitan world city. Even as the rest of the UK struggled to compete in the new global economy, London flourished. Investors, workers, oligarchs and “creatives” from around the world beat their way to the banks of the Thames. The capital consistently scored top on global city league tables — especially on culture and creativity. London universities crept up the international rankings.

Londoners patted themselves on the back, content to be at the centre of the universe and secure in the knowledge that they were creating jobs and spreading tax revenues across the country.

But in a cautionary tale for other global cities, the rest of the country was not persuaded. Yes, London’s contribution to the national tax take has grown steadily. Yes, it has boosted the UK’s international brand or soft power no end. And yes, it has become an increasingly tough place to live for most residents, as earnings have stalled and the cost of housing gone up.

But the growing sense that the capital no longer understood the nation, and the contrast between its world-beating public transport system and glamorous new cultural institutions, and the apparent neglect of poorer “left behind” areas, became too much to bear.

No doubt London’s role as the seat of the UK’s exceptionally centralised system of government did not help. Nor did its status as the home of the much-mistrusted and bailed-out banking system.

The tensions have been evident for some time. Research by Centre for London and Centre for Cities in 2014 found that only 24 per cent of city dwellers outside London thought it made a positive economic contribution to their area — in Hull, Liverpool and Sheffield the number was less than 10 per cent.

A separate poll found that 70 per cent of adults thought “London gets preferential treatment over most other parts of the UK”. But the Brexit referendum revealed the divisions for all to see — Kingston upon Hull voted 68 per cent to leave, and Kingston up Thames voted 62 per cent to remain. And the recent general election threw these divisions into even sharper relief.

Both the Conservatives and Labour campaigned on a promise to “level-up” regions beyond London and the south-east. Where, in 2017, the manifestos of both parties made commitments to push forward a new high-speed London railway (Crossrail 2), the 2019 manifestos were silent. Boris Johnson rode to victory on the back of a new coalition of traditional Tory heartlands and working-class communities in the Midlands and the North that previously voted Labour. He has since reiterated that he will prioritise these places. But the capital’s young, more highly educated and migrant population stuck with Labour.

So where will it all end? There is a happy scenario. London learns to think of itself just as much a national as a global capital. Mr Johnson, who, as former mayor, knows and loves the city, includes it in a nationwide programme of devolution and investment. This takes some of the bitterness out of regional rivalries and perhaps even narrows inequalities between regions. Fiscal devolution could not only spur growth through strategies better adapted to local needs, but reduce the extent to which regions find themselves competing against one another for central government largesse.

But one can equally imagine a less benign set of developments. London is probably best positioned of all the regions of the UK to ride the Brexit wave. It is the least dependent on EU trade and most integrated into the broader global economy. As a consequence, Brexit exacerbates the UK’s already yawning regional disparities. The new government follows its “levelling-up” rhetoric, keeps a tight grip over London’s funding and services and declines to invest in its future. The capital continues to grow more unequal. Spurned by its nation, London falls back on its global identity.

Which scenario plays out will depend on the judgment of the new government and London’s own leaders.

Future of finance: banks operating in Asia are nervy, and they are right to be so

HSBC and Standard Chartered branches line the streets of Asia’s big cities. But in China, without a single branch or plastic credit card issued, tech giants have been growing their shares in loans, wealth management and digital commercial payments. The latter is dominated by Alibaba and Tencent payment platforms. With banking in China going increasingly digital, current valuations of these fintech leaders will soon seem cheap.

Alibaba payment affiliate Ant Financial, using its dominant position in ecommerce, leads in online payments with more than half of China’s market. Tencent’s strength lies in offline transactions, with upwards of 1.1bn users of its social media platform WeChat. Through its stake in WeBank, the online-only bank, wealth management has been a growing business with third-quarter fintech revenue up more than a third to $3.3bn. Its fintech business accounted for more than a quarter of revenue last quarter.

Even so, these fintech units have largely been lossmaking until now. Low fees to lure in new sign-ups have not offset operating costs. But as the oligopoly grows stronger, the two will be able to charge higher fees for transactions and banking services. Profits from payments alone could account for in excess of a third of Tencent’s 2018 profit in three years, estimates Bernstein. This would value its fintech business at up to $230bn, more than half of Tencent’s current value, without accounting for its core gaming and social media units. The same estimates for Ant Financial, valued at $150bn during its June fundraising last year, would give it a much higher valuation when it goes public.

The two have started supporting Visa and Mastercard on their platforms, meaning foreign users in China can utilise its platforms. With oceans of data, technology and more than 1bn users in China any new inroads made in other countries would further increase profit potential and lead to a re-rating of share prices. Banks operating in Asia and their investors are nervous. They are right to be so.

Here’s one thing that unites local pols across the political divide — a gentrification tax.

A bipartisan group of city lawmakers is pushing Albany to approve tweaks to the state tax laws that would allow them to hit new homebuyers with tax bills based on the actual market prices of their properties.

The coalition of 13 Republican and Democratic city council members says that taxes would not go up for existing owners.

New York’s famously opaque property tax system offers big breaks to new homebuyers by taxing them at assessed values that are often millions of dollars less than the market price.

For instance, a buyer who snapped up a Clinton Hill brownstone for $3 million in 2017 only has to pay taxes on a sliver of that amount — $24,000, leaving the lucky owner with a tax bill of just $4,297 a year.

Meanwhile, the owner of a relatively modest half-million-dollar Bergen Beach bungalow pays nearly an identical amount, despite being worth just one-sixth the price on the market.

The current system amounts to a giant giveaway for gentrifiers, Staten Island Councilman Joe Borelli told The Post.

“People are just getting fed up with the loophole, and they’re demanding action,” the GOP politician added.

The bipartisan coalition also includes Park Slope Democrat Brad Lander and Bay Ridge Democrat Justin Brannan.

They’re backing a resolution that calls on state lawmakers to change the tax law to require new homebuyers to pay property taxes on the market rate instead of the heavily discounted assessed value.

The change would boost the Clinton Hill gentrifiers bill by $1,600 a year while keeping the Bergen Beach old timer’s costs the same.

“Borelli’s plan to reset the tax cap whenever a new owner purchases a property would bring a small drop of fairness to a system that is just completely screwed and totally unfair,” Brannan said.

Borelli sent the proposed resolution to City Council Speaker Corey Johnson and state Assembly Speaker Carl Heastie earlier this month with a letter asking for the change.

Reps for Heastie did not return calls.

Johnson’s spokeswoman, Jennifer Fermino, said, the speaker is awaiting the preliminary report from a property tax reform commission he convened with Mayor Bill de Blasio in 2018.

“The Advisory Commission is looking at Real Property Tax Law 1805 as part of its review of our broken system,” Fermino added. “Any recommendations for changes will be part of the commission’s preliminary report. The Speaker is looking forward to reviewing their recommendations when the report is ready.

There’s no deadline for the initial tax overhaul report, which has been reportedly near release since July.

A spokeswoman for de Blasio also punted on Borelli’s plan, referring to the overdue tax study.

“The property tax system is complex, and we appreciate Council Member Borelli’s interest in reforming the Real Property Tax Law,” said Marcy Miranda, press secretary for the city’s Department of Finance.