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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

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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 [email protected].

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

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Table of Contents | Global Edition

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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

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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

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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

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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.

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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

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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

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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.

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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

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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

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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.

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BY FRANZ ROTHER AND STEFAN THEIL

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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.

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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

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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

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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

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2006

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Sam Owens

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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

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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

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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.

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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

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May 2014 The U.S. Environmental Protection Agency (EPA) and the California Air Resources Board begin to investigate Volkswagen

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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.

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New CEO Matthias Müller, who was previously chief at Porsche, needs to turn Volkswagen around after the scandal.

Dominik Butzmann/laif

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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

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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

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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.

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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

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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

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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

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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

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October 21, 2015 VW halts sales of car models containing the cheat software

Global Edition | Interviews

imago/Xinhua

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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

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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.

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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.

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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.

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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

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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

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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.

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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

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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

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Global Edition | Interviews

Mayor Michael Müller promises to slow down the steep rent increases that have Berliners worried.

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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.

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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

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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

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Global Edition | Big Reads

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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.

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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

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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

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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

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At 73, German Finance Minister Wolfgang Schäuble no longer has anything to lose by speaking his mind.

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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

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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.

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Mr. Schäuble’s insistence on reforms in return for aid did not go over well in Greece.

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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

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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-

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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,

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In a wheelchair since a 1990 assassination attempt, Mr. Schäuble was one of the architects of German reunification.

Wolfgang Wilde

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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.

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Oliver Tjaden/laif

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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

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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

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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.

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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.

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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.

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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.

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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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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

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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.

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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.

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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.

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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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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

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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.

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Anne Deppe, Bert Bostelmann / bildfolio

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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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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.

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Corbis [M] Handelsblatt

Investors will be happier when Volkswagen and other companies have fewer subsidiaries.

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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

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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.

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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.

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BY DANA HEIDE AND MIRIAM SCHRÖDER

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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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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

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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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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

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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.

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Albert Kriemler has grown Akris’ sales by focusing on high-end businesswear for women.

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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

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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.

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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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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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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

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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.

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Frank Beer

Markus Lüpertz helped define an era in contemporary German art, along with painters like Georg Baselitz, Anselm Kiefer and A. R. Penck.

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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.

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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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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

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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

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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

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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

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Dirk Nowitzki has played for the Dallas Mavericks since 1998. He’s the highest-scoring foreign player in NBA history.

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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

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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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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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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.”

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Foto: Andreas Fechner

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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.