October 12, 2005

Bizzy’s Business Briefs (101205)

Quick links for today:

Angela Merkel will become Chancellor in Germany

This is a relief, after Gerhard Schroder’s initial post-election pretense that he was still in charge.

But Ms. Merkel’s flexibility, particularly in economic matters, will be severely limited by the coalition she had to build to gain power after the close election result.

The Wall Street Journal (requires subscription) suggests that Ms. Merkel should at least work to rebuild frayed German-US relations after Gerhard Schroder’s government’s past 7 years of America-bashing:

The Chancellor had every right to oppose the war, which was unpopular among a majority of Germans. What was stunning, rather, was the aggressiveness with which he and his government expressed their opposition, never mind that there was never a chance of Germany assuming any kind of combat role.

Thus we had such spectacles as Foreign Minister Joschka Fischer lecturing Defense Secretary Donald Rumsfeld on the folly of American policy. Still worse was Mr. Schröder’s Justice Minister, Herta Däubler-Gmelin, explaining that Mr. Bush was using the war to distract attention from his domestic problems: “That is a popular method,” she reportedly said. “Hitler has done that before.” The Justice Minister lost her job for that remark, but Mr. Fischer kept his.

Since then, matters have scarcely improved. In the immediate wake of hurricane Katrina, Mr. Schröder’s Environment Minister, the former Maoist Jürgen Trittin, did not even stop to express his condolences before pointing an accusing finger at Mr. Bush: “The American president,” he wrote, “has closed his eyes to the economic and human damage that natural catastrophes such as Katrina — in other words, disasters caused by a lack of climate protection measures — can visit on his country.” And a recent Social Democrat election poster showed a photograph of flag-draped American caskets coming off a military transport plane. The caption: “She [Merkel] would have sent soldiers.”

All of this has helped contribute to a broader climate of anti-Americanism in Germany. Recent headlines from best-selling Stern magazine include: “How America Lied to the World”; “Somalia in America’s South”; Americans “could care less about the rest of humanity.” Meanwhile, one-third of German youngsters reportedly believe the U.S. was behind 9/11.

We often hear from senior German diplomats that they will “never forget” what the U.S. did for their country after World War II. If that’s true, then the first order of business for Ms. Merkel and her government is to drain this swamp of German paranoia and prejudice, grown to monstrous proportions during Mr. Schröder’s tenure.

All well and good, but if Germany doesn’t do something to address its long-term economic malaise, it will fall further behind the US and perhaps even other still-developing countries in standard of living. The resentment against economic inferiority may be just as likely to increase an anti-American backlash as it is to cause the German people to look inward for workable solutions.

Delphi vs. GM vs. US Taxpayers Pension Battle Looms

This will be a donnybrook (link requires registration; bolds are mine):

Delphi may cost GM $11B
Money would be owed for post-retirement benefits to former GM workers

General Motors Corp. says the amount of money it may be liable to pay toward post-retirement benefits of former GM employees who transferred to Delphi Corp., when it was spun off from GM in 1999, could range from nothing to as much as $11 billion.

GM’s contribution — and whether other entities, including the federal pension agency, will also pay in — looms as a major issue in the New York-based court that will preside over Delphi’s Chapter 11 bankruptcy reorganization. GM officials say it is too soon to determine what its contribution will be because of the uncertainties created by that case.

The haggling begins today when a federal bankruptcy judge is assigned the case and conducts an initial hearing. Lawyers for union interests are expected to attend, along with attorneys for Delphi, creditors and others.

It could be months before union-covered employees get a clear answer on exactly where the money for their pensions and post-retirement health care benefits will come from, Delphi spokeswoman Claudia Baucus said on Monday.

Union leaders say GM made an ironclad commitment in 1999 to guarantee the pensions and post-retirement health care of all union-covered Delphi employees who become eligible for retirement by October 2007, should Delphi become financially unable to provide those benefits.

“I don’t see that they have any choice,” Wes Wells, executive director of the AFL-CIO’s Dayton region, said Monday of GM.

The IUE-CWA will coordinate with the other unions to do all it can to protect the pensions, health care coverage and jobs of union workers, said Henry Reichard, chairman of the IUE-CWA Automotive Conference Board. His board represents IUE-CWA workers at eight Delphi plants nationwide, including two in the Dayton area.

GM says, however, that Delphi’s reorganization filing by itself didn’t trigger GM’s commitment to the unions to pay those benefits, and that the amount of GM’s liability — and who else pays — remains to be determined.

GM said, for instance, that it believes it would be liable to pay pension guarantees only to the extent that pension contributions from Delphi and the federal Pension Benefit Guaranty Corp. don’t add up to the amounts GM has guaranteed.

GM has a response if it ends up being on the hook for the whole $11 billion–it could file for bankuptcy. CNN reports that one analyst believes there is now a 30% chance of that happening.

Deductions for Mortgage Interest and Employer-Paid Health Insurance Set for Trimming?

A presidential commission thinks so:

Panel urges restrictions on certain tax breaks

WASHINGTON — Two of the nation’s most popular tax breaks — for home mortgage interest and employer-paid health insurance — should be narrowed, a federal panel appointed by President Bush suggested Tuesday.

The panel’s recommendations will be made in a report scheduled to go to the Treasury Department by Nov. 1. In addition, the panel will recommend giving all Americans who pay taxes the opportunity to deduct charitable donations, even if they don’t itemize their tax returns.

The most far-reaching proposal previously endorsed by the panel is the elimination of the alternative minimum tax, which would affect 20 million taxpayers next year unless changes are made. But the panel is charged with making revenue-neutral changes, so it must propose raising as much money as the AMT repeal would lose.

Neutral, schmeutral.

Trimming back the mortgage interest deduction at the peak of a housing boom could make the housing bubble a self-fulfilling prophecy. Employers who can’t deduct all of their health-insurance costs, especially smaller ones, will stop covering their employees. Getting rid of the AMT will enable people to arrange their financial lives rationally, instead of forcing them to arbitrarily arrange things for the mere purpose of avoiding the AMT.

The two deduction rollbacks will generate much less revenue than anticipated. Though this contention will be difficult to prove, AMT repeal will probably generate tax revenue through efficient resource allocation and the generation of more productive economic activity.

Back to the drawing board, guys.

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