If it takes two successive quarters of falling GDP to enter a recession, how can a country emerge from recession with only one quarter of growth?  In the past week or so, journalists have declared the recession over in France, Germany and now Japan.  Of course, most reports rightly ask how long this will last and stress that a genuine recovery is far from certain.

Some people regard the two quarters definition of a recession as arbitrary and a bit silly, something supposedly cooked up by one of Lyndon Johnson’s economic advisers  to avoid acknowledging a downturn until after the next election.

But it does serve a serious purpose: At least it reduces the risk that we’ll be misled by a statistical blip in one quarter’s data which might be revised away in the next release.

Regardless of its murky origins, economists and lay people around the world use the two quarters recession rule. So why not be consistent?  Why not wait another quarter before we declare the French, German and Japanese recessions over?

As the German election approaches and with it a chance he may not hold onto his job, Finance Minister Peer Steinbrueck took a long shot this week to try and boost his legacy as the man who took on the tax dodgers and won. While some of the new rules he proposed in a now trademark campaign against tax fraud failed to pass, the 62-year-old Social Democrat can only have boosted his popularity with voters and upped his chances of holding onto the Finance portfolio after the September 27 vote.

The idea was to give the Finance Ministry a “free hand” in drawing up its own list of countries and jurisdictions it deems uncooperative in efforts to crack down on tax evasion. Finance would thus have a bigger stick to wield as it signs new bi-lateral tax agreements next year, since the threat of sanctions on operations in Germany would have been immediate and easier to execute without the hurdle of consensus in Berlin. Or so the thinking went.

The proposal managed to stand its ground for a day. After supporting the plan on Monday, the Finance Ministry was forced to retreat under a hail of criticism from business lobbies, and when cabinet outlined its new procedures on Wednesday, it was clear that any future sanctions decisions will also have to be agreed by the Foreign and Economy ministries.

Steinbrueck has led Germany’s drive to stamp out international tax evasion with a swagger that’s made many a headline. So whatever happens come election day, the public will likely remember him for the provocative image he cultivated. Who can forget last year’s call for a “carrot and stick” approach to Switzerland over the tax issue, and to his comparison of Germany’s southern neighbour to “Indians” running scared from the cavalry – presumably Steinbrueck himself. Or captain-of-industry Klaus Zumwinkel, once chief executive of Deutsche Post, who had his house raided as part of a tax-dodging probe. Liechtenstein, the tiny Alpine nation where he had hidden money in a trust, signed a tax information deal with Germany in July.

Had Steinbrueck’s plan been approved, it would have effectively given the Finance Ministry a fast track to impose sanctions that would have extended to future occupiers of the office. In that sense it was a bold gamble, although one probably doomed to failure from the start. While the threat of sanctions is essential to push rampant offenders in line with OECD tax transparency standards, it’s hard to imagine a central government granting one of its cabinet positions – potentially occupied by an anti-tax evasion crusader – carte blanche to fight independent battles.

Steinbrueck took on the finance job with plans to balance Germany’s budget by 2011. At one point, before the financial crisis sent that idea to the shredder, it had even looked possible for 2008. What’s left for legacy is the battle against tax fraud. With the OECD guidelines he championed now seen internationally as close to sacrosanct, Steinbrueck’s reputation looks secure. But the cavalry will not have free reign.

It may not be legislation, but a recently passed “pension guarantee” has re-kindled debate over a pillar of Germany’s welfare state – the notion of “inter-generational justice”.

The agreement, which basically calls for nationally funded retirement benefits to be locked in at current levels for all eternity, has not gone down as smoothly as its sponsors would have liked, since many nowadays see the country’s sagging birth rate as a sign coming generations will struggle to support their predecessors in old age. Two years ago when elections were far off, the government headed in a different direction, deciding to gradually expand the retirement age to 67 from 65 in order to offset both the birth rate and rising life expectancy.

While the agreement had already been supported by both parties in the awkward left/right governing coalition, some policymakers cried hypocrisy last week when it passed a final hurdle in parliament.

Outspoken Finance Minister Peer Steinbrueck kicked off the generational sparring when he called the agreement “absurd” and pointed out that the current generation of pensioners is doing better than any other in the past. Increases in retirement benefits outpaced salaries in July in one of their fastest jumps since reunification almost two decades ago, he noted. The statements could hardly have pleased his fellow SPD party member Frank-Walter Steinmeier, the Social Democrat candidate for Chancellor who had supported the idea.

Economy Minister Karl-Theodor zu Guttenberg, a rising star from the conservative CSU/CDU bloc also took his own pot shots at the agreement, calling it nothing but a “pure declaration”.

Underlying these comments and others that followed in a succession of headlines lies Germany’s demographic time-bomb. With one of the world’s oldest populations and a birth rate among Europe’s lowest, the theory goes, benefits will have to be cut as the number of contributors to the pension system falls and the number of recipients rises.

There is a possible alternative – but it would involve substantial tax hikes at a time when the opposite is in vogue. With companies are all too eager to move to countries with low taxes, cheaper labour, and fewer questions asked about social responsibility, a tax hike of this order looks like a no-starter for politicians trying to keep the economy competitive.

Thus arises the question of fairness between generations, or Generationengerechtigkeit. Why should this generation of workers pay for relatively lavish packages next to which their own retirement will probably pale in comparison? How fair can such a system be? Steinbrueck himself has said: “The ones being pinched are the 25- to 35-year-olds who want to have children.”

“People will always be making babies,” goes the famous quote from an architect of the current system, Chancellor Konrad Adenauer. But even back then in 1957 when the idea was fresh and German demographics were in a fruitful postwar upswing, some had voiced warnings. Now, with the economy floundering in its deepest recession since the war, the greatest test for “dynamic pensions”, as they were called back then, could lie in the years ahead.

Agreement aside, pension rules are already locked in for the coming years. And with the September election just around the corner, politicians may try to sweep this one under the carpet. But with some 20 million German retirees getting ready to vote, it’d be interesting to keep an eye on the polls to see which party is seen as a stronger defender of pensioners.

Has German Finance Minister Peer Steinbrueck finally said what many world leaders think but are afraid to say? That the British government won't sign up to meaningful reform of financial markets because it is too worried about what it would mean for the country’s most famous cash cow, the City of London.

The City, which accounts for around 35 percent of global foreign exchange turnover, has been a popular target for critics of capitalism for years. But it has rarely been singled out so bluntly as a problem by one of Britain’s close allies.

Even for a man not known for holding his tongue, Steinbrueck’s remark on Wednesday that Downing Street was impeding reform because it had “practically aligned” its interests with the City, was unusually undiplomatic. Just days before global leaders meet at a Group of Eight summit in Italy, Steinbrueck suggested the British government was plotting a “restoration” of the pre-crisis order to protect its own interests. The United States, by contrast, was now open to reform, he said.

Rather than attempting to smooth ruffled feathers when she addressed parliament on Thursday, Chancellor Angela Merkel picked up the thread, saying she would not tolerate efforts to stall reform at the G8 summit, though she did not name Britain.

Steinbrueck’s comments generated a strong response on German websites. Though he belongs to the centre-left Social Democrats, many readers of conservative daily Die Welt wrote in to praise him. “Finally the truth”, “genius” and “backbone” were some of the remarks his stance provoked. Across the channel, the most popular reader’s comment posted online in an article by Eurosceptic British newspaper the Daily Mail also backed the 62-year-old. “I’m with the German finance minister,” it begins.

Whether one agrees with his approach or not, Steinbrueck knows he is not talking into a vacuum. Large swathes of the commentariat believe not enough has been done to stabilise financial markets over the long term. Martin Wolf, chief economics commentator of the Financial Times, wrote on Wednesday that without radical changes, another banking crisis is inevitable.

PHOTO: German Finance Minister Peer Steinbrueck addresses a news conference in Berlin, May 13, 2009. Steinbrueck said on Wednesday Germany's interbank lending sector was still suffering from weak confidence. REUTERS/Fabrizio Bensch

Automatic teller machines (ATMs) — 500 of them — dispensing pieces of gold will be available around Germany, Switzerland and Austria by the end of this year.

That at least is the plan of German precious metals online trading company TG-Gold-Super-Markt.de. The ATMs, to be located at airports, railway stations and shopping malls, are intended to accustom ordinary people to the idea of investing in a physical asset such as gold, the thinking goes.
 
Thomas Geissler, the company’s chief executive, said the gold ATMs might even improve relations between the sexes.
 
“I have yet to meet a woman who does not like a gift of gold. It’s better than flowers. Flowers are more expensive. They wilt and you (as a man) don’t get as many points at home as if you bring gold,” he said.
 
A prototype ATM on display for a one-day marketing test at the main railway station in Frankfurt, Germany’s financial capital, did indeed reward your correspondent with a 1-gramme (0.0353 ounce) piece of gold.
 
It cost the equivalent of $42.25 — a 30 percent premium over the spot market price.

The European Central Bank’s decision to buy up covered bonds is one in the eye for the Bundesbank’s Axel Weber.

Alongside fellow German Juergen Stark, he had led a campaign urging his colleagues to shun the current craze among central banks of effectively printing money by buying up debt or loans from their holders, banks. Unfortunately for him, they didn’t agree.

But while he may have lost the war, he certainly scored a substantial victory for his country during the battle. Covered bonds – bonds backed by mortgage loans or public debt - originated in Germany and the country’s banks still dominate the market, meaning they are likely to benefit the most.

“He was not one of the winners yesterday, but it’s a nice loss, let’s put it that way,” said UniCredit euro zone economist Aurelio Maccario. “I think in exchange to have the Bundesbank on board, they have chosen to buy covered bonds which are financial assets from the German banking system.”

ECB watchers speculate that Weber is one of the frontrunners to replace Jean-Claude Trichet in the ECB top job when his term expires in 2011.

The defeat over asset purchases is unlikely to have helped his election chances, but in what may turn out to be strange twist of fate, the ECB has revealed Trichet’s last meeting in charge, on October 6, 2011, will be hosted by the Bundesbank in Germany’s capital Berlin.

The steady stream of less-bad-than-expected economic data has evidently been working as a builder of optimism. Confidence in improved economies and financlal market conditions is growing.

One of the biggest surprises has been Germany’s ZEW economic sentiment survey — which polls analysts and economists in Europe’s largest economy. Not only did the index jump this month, it entered positive territory for the first time since July 2007. That was before the credit crisis hit.

U.S. financial services firm State Street also reports that the mood among institutional investors in North America, Europe and Asia is at a nine month high. The main point about this survey is that it is extraplolated from the actual buying and selling patterns within $12 trillion that State Street holds for investors as a custodian.

So, things are on the up. But would that not be expected given the huge amount of money being pumped into the world economy by governments and central banks? Or after global stocks have risen close to 30 percent on a period of about six weeks?

What is always unclear when it comes to sentiment indicators is whether they point to someting new or just reflect exisiting circumstances.

But maybe it does not matter. If people think that things are going to get better, doesn’t that just mean they are more likely to?

(Photo: Jeremy Gaunt)

At first glance, Germany appears to be feeling the global economic downturn harder than many of its European peers: Industrial output fell by nearly a quarter on the year in February — taking a bigger hit than Britain, France and even Italy — and economists expect the economy to contract by as much as 7 percent this year.

Yet two government policy measures are helping insulate ‘Otto Normalverbraucher’ (Joe Public) from the full impact of the downturn: ‘Kurzarbeit’, or short-term work, and the ‘Abwrackpraemie’ — a ‘cash-for clunkers’ car subsidy plan.

By taking advantage of legislation that promotes shortened　hours, many German firms have avoided lay-offs, helping limit a　rise in the unemployment rate, which now stands at 8.1 percent.　And the car subsidy has given a boost to the auto sector, to　which close to one in five jobs are linked in Germany.

Both are short-term measures that can only stave off the　worst of the economic downturn for so long — employers can use　the shortened-hours facility for up to 18 months and the car subsidy　will expire by the end of 2009. But the measures represent a　policy gamble that might just pay off for Germany: just as they　fade out, global demand could start to take off — a scenario　that is shaping up well. The VDMA engineering sector association says Germany’s plant and equipment industry is seeing early signs of stabilisation, and Bundesbank President Axel Weber expects the economy to make a gradual recovery next year.

“So far it looks like everything is running according to plan,” said DekaBank economist Sebastian Wanke. Yet there was a risk global demand would not take off in time, he added.

“The question is will the global economy stabilise again and help us, via our exports. Or will it remain subdued, meaning we’ll see a sustained weak phase? In which case, at some point these measures won’t work any more… It’s a tightrope walk, without an alternative.”

With a federal election due in September, the new government will have a mess to clean up if the gamble doesn’t pay off.

Neil Dwane, fund firm RCM’s chief investment officer in Europe, has an interesting take on the current spat between Germany and the United States over printing money to get out of trouble. You can see Juergen Stark for the latest volley.

Dwane reckons it is all a matter of history. The American psyche, he says, is scarred by the Great Depression of the 1930s. It is up there with the Civil War. Think John Steinbeck or John Boy Walton.

For Germans, however, the 1930s mean something else. It was the era that the Nazis took over, leading to the country’s great nightmare. But that, the German psyche has it, was bred in the 1920s when incompetent government led to hyperinflation and worthless money. Think one trillion marks to the dollar. Think wheelbarrows.

Be careful this week about buying wholeheartedy into any G20-related spin about supposedly savvy, free-spending Britain and America doing more to combat the world economic crisis than supposedly stubborn, overly cautious Germany and France. The actual figures show it is much more complex than that.

A Reuters calculation on discretionary fiscal stumuli and the International Monetary Fund’s assessment show that, if anything, Britain is the significant laggard and that German spending almost matches the United States over the next two years. Here are the IMF’s numbers (% of GDP):

                                                          2009                     2010

 Germany                                             1.5                       2.0
 France                                                 0.7                      0.7
 UK                                                      1.4                     - 0.1
 US                                                      2.0                       1.8

Just to add to the complexity, discretionary spending estimates do not include bank bailouts (which would boost UK and U.S. anti-crisis spending numbers)  But nor do they include automatic economic stabilisers such as existing social welfare schemes and safety nets (which would boost Germany and France versus the U.S.  where such things are rare to non-existant).

There is bound to be some squabble over who is doing what when the G20 starts on Wednesday. Just remember the numbers.

(Reuters photo: Juan Medina)