I’m sorry, Mr. Bond, but resistance really IS futile

As long-suffering readers of this column might remember, our editorial office at REFIRE looks out upon the towering behemoth that is to become the new headquarters of the European Central Bank. We’ve followed its development, metre by tortuous metre, as the edifice has soared into the stratosphere, blocking out more and more of the daylight that used to stream through our windows.

Down below, behind a fenced-off barrier resembling Stalag 17, thousands of hard-hatted workers swarm around lower-level buildings on a muddy site surrounding the conjoined twin towers, where most of the actual offices will be located. The site surrounds the base of the complex, and is itself the size of a small town. The lower echelons of the new bank headquarters houses what was once Frankfurt’s fruit and vegetable wholesale market which itself, in its time, was the largest free-standing building in the world. It is a formidable construction.

Until early last year we admit we held out hope that reason would prevail. We prayed that the egregious folly that is a one-size-fits-all euro currency, without the accompanying political integration, could be at least held in check, if not reversed, to protect those currency members sleepwalking into disaster.

Alas, Mario Draghi’s offer to “do whatever it takes” to prevent any backtracking on the euro commitment, and buying a breather by kicking the ball into touch, has had the effect of quelling the natives, steamrolling over dissenting voices, and even – in the past six months - encouraging the illusion of the resumption of net real growth across the eurozone.

Although the colossus that is the new headquarters of the ECB is still a full year from completion, such is the size of the superstructure that office furniture and other deliveries are already taking place on a staggered basis, fighting their way up temporary elevators through the latticework of scaffolding that criss-crosses the inner atriums and entrance halls, to furnish the luxury office accommodation of bank staff whose numbers are expected to double from their current level.

Last week REFIRE joined the hardhat brigade for our own guided tour of the raw, unfinished complex. We were inevitably reminded of the obligatory scenes where an unarmed James Bond is being shown around the archvillain’s futuristic headquarters, before being despatched to his (expected) grisly demise. Our (not quite so megalomaniacal) guides displayed their righteous pride in the magnificence of their construction, the uniqueness of the architectural achievement, and the sheer awesomeness of the building to exude wealth and power.

Palaces like these are indeed designed to shock and awe, and we were suitably chastened by the 360 degree view from the vast council room at the top. Here is where the convening central bankers and their minions will report into their SMERSH-like masters on happenings in their far-flung corner of the empire. The effect was instantaneous. We could see it straight away. If you sit in this office, you will NOT be for turning. That’s why this building, all €1.4bn and counting of it, exists.

We felt our heart sinking as we realised that, once this building comes into daily operation, the egos that sink into its plushly-upholstered armchairs and gaze out this window - not incognisant of course of their own personal good fortune (and index-linked pensions) - will NEVER countenance any internal realignment of their members’ currencies.

We had to concede that it simply won’t happen, at least not voluntarily. We just can’t see it. Our wishful thinking had come to an abrupt halt. Our illusions finally vanished. Resistance, we realised, really IS futile.

Of course, all of this in the short term must continue to benefit Germany. It’s like having a 10-metre advantage over your competitors in a long-distance race – no matter what they do to catch up, you’re always 10 metres ahead of them. Because Germany benefits from a weaker currency than its own imports and exports should dictate, its creditor position is always exaggerated. By contrast, the periphery countries in the eurozone will still suffer from the opposite effect, which means that while pockets of their economies will match or even exceed German growth rates, their overall lack of competitiveness will condemn them to years, possibly decades, of underemployment and emigration.

Many, particularly Spaniards and Greeks, are indeed emigrating - to Germany, in most cases - adding further to demand for German housing in urban areas. In a sense, it’s a virtuous circle from a German point of view, and as long as other neighbouring countries have bigger problems, Germany’s relative position as a safe haven destination for real estate capital is likely to consolidate.

While the politicians in Berlin are still struggling to build a workable coalition, more than ten weeks after the elections, a new more restrictive regime to curb soaring residential rent levels is now being seen as a given. As we suggested some months ago in this column, the lack of a mere five seats for an overall majority for Frau Merkel may come to represent the disproportionate leveraging of the forces of the left, as the left-of-centre SPD extracts more than its pound of flesh as the price of coalition partnership.

It won’t bother the bankers in the ECB, of whom many more are scheduled to arrive in Frankfurt to enjoy Brussels-like immunity from the harsh winds of trade. But property investors will be keeping a close eye out for signals from the new government that the good times won’t last forever.