Both. But, in fact... Read this and that.

Economics is politics by other means

The Bundesbank are losing because they can't win as their ideas, if implemented, would destroy the Euro, but they are taking the rest of the Euro down with them.

Do you remember what happened on August 4-8 with Trichet's press conference, the market meltdown, the weekend conference calls and the Black Monday that wasn't?

All that would have been avoided if Weidmann had accepted on the 4th what he agreed to on the 7th.

Economics is politics by other means

Do you really think it is wrong that the largest economy in the Eurozone has some influence?

I think it is wrong that incompetent fuckwit ideologues have any influence at all, let alone disproportionate influence.

And the highest concentration of incompetent fuckwit ideologues East of London happens to be in the BuBa.

And capital doesn't vote the heads of the central bank do.

Yeah, yeah, on paper.

Just like, on paper, every NATO member has veto rights over foreign adventures.

The Americans call that sort of kabuki theatre "legal fiction."

In your hate of the Bundesbank you don't seem to see what is happening here: They are losing and try to use extraordinary means to compensate for the fact that at the regular CBE decisison nobody listens to them.

On what planet do you spend most of your time?

The ECB's playbook for this crisis has been a virtual carbon copy of the Bundesbank's playbook for the 1993 ERM breakup. And every single time the ECB has deviated a single millimeter from the BuBa 1993 playbook, the incompetent fuckwit ideologues at the BuBa have pitched a public hissy fit. In direct violation of the rules of confidentiality that the same incompetent fuckwit ideologues insisted on to begin with.

If the ECB had consistently overruled the BuBa, not a week would have gone by without a BuBa hissy fit. The fact that we only have about one hysterical tantrum a month demonstrates that the other 22 business days in each month the ECB is toeing the BuBa line to the letter.

You mean Trichet.

Yeah, him too.

But the thing about responsibility for fuckups is that it does not become more diluted by being spread out over more people.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Nobody here is engaging in nationalist attacks on "Germany", a "foreign country". Or if they are, they are doing so from about nine distinct national chauvinist positions, which would be quite extraordinary. We are all convinced European federalists here (any dissenters will be taken outside and shot...)

Would it help if we only criticized bloody-minded austerian policies by quoting German sources?

Eurointelligence Daily Briefing, 7 de Setembro de 2011. Enviado por Domenico Mario Nuti. - aviagemdosargonautas

Writing an Op-ed in mass circulation daily Bild FDP's honorary chairman Hans-Dietrich Genscher launches an emotional appeal to the Angela Merkel's coalition to vote for the German law enhancing the EFSF. "Whenever Europe was confronted with a crisis in the past the answer was: with more Europe out of the crisis", the former foreign minister writes. Confronting the eurosceptics whom Genscher calls the "paymaster-agitators" he writes: "As Europeans we have been able to reach a so far unknown wealth in a common internal market with a stable currency", he goes on. He reminds them that because of Europe, Western Europeans were able to overcome the cold war divisions and invite in the Eastern neighbours. "All parliamentarians in Bundestag should be aware of the decision's significance for future generations", he concludes.

Poor old Genscher. The current FDP doesn't much resemble that of the seventies.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

Nobody's "Blaming 'Germany' for everything" - I always say who said what that is being objected to. But, taken as a whole, a lot of the people calling the shots are German. For instance, I blame Merkel for a bunch of things. Just today:

"We must make it very clear to people that the current problem, namely of excessive debt built up over decades, cannot be solved in one blow, with things like euro bonds or debt restructurings that will suddenly make everything okay. No, this will be a long, hard path, but one that is right for the future of Europe."

According to reports, she actually proposed to introduce a Constitutional Debt Brake at the EU level.

In any case, the insistence that the current problem [is] excessive debt built up over decades is demonstrably false. But debating this point is like talking to a dining room table

We talk about the euro crisis. They say, "Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules." I say,

No fiscal rule would have constrained the Spanish housing bubble and its consequences.

And they say, "Thank you for your contribution. Clearly, this was about fiscal irresponsibility, and we need to enforce much stricter rules."

...

The blue line is Germany; the red line is Spain.

And, yes, this is mostly coming from Germany and it's coming from everyone who is anyone in Germany. Hey, even you agree that the problem is debt. More Krugman

A correspondent informs me that Wolfgang Schaeuble, the German finance minister, has just given a speech asserting that excessive public debt caused the 2008 crisis. In fact, I'm told, he said that

It's actually undisputed among economists worldwide that one of the main causes - if not the main cause - of the turbulence - not just now, but already in 2008 - was excessive public debt everywhere in the world.

OK, we can prove that wrong immediately: I dispute it, Brad DeLong disputes it, Christy Romer disputes it, and I think we fall into the category of "economists worldwide".

As Wolfgang Münchau put it in 2009: Berlin weaves a deficit hair-shirt for us all - yeah, that's right, none of this forced march to constitutional balanced budget reforms would have happened if Germany hadn't gotten the ball rolling and, moreover, continued to argue for its necessity and used the Euro crisis as a stick to force other countries to do it.

A decision was taken recently in Berlin to introduce a balanced-budget law in the German constitution. It was a hugely important decision. It may not have received due attention outside Germany given the flood of other economic and financial news. From 2016, it will be illegal for the federal government to run a deficit of more than 0.35 per cent of gross domestic product. From 2020, the federal states will not be allowed to run any deficit at all. Unlike Europeâ€^TMs stability and growth pact, which was first circumvented, later softened and then ignored, this unilateral constitutional law will stick. I would expect that for the next 20 or 30 years, deficit reduction will be the first, second and third priority of German economic policy.

...

I am a little surprised not to hear howls of protests from France and other European countries. Germany has not consulted its European partners in a systematic way. While the Maastricht treaty says countries should treat economic policy as a matter of common concern, this was an example of policy unilateralism at its most extreme.

...

While the balanced budget law is economically illiterate, it is also universally popular. ...

This general level of debt-aversion is bizarre. Many ordinary Germans regard debt as morally objectionable, even if it is put to proper use. They see the financial crisis primarily as a moral crisis of Anglo-Saxon capitalism. The balanced budget constitutional law is therefore not about economics. It is a moral crusade, and it is the last thing, Germany, the eurozone and the world need right now.

Economics is politics by other means

I was more thinking of the years past 1980.

Germany no longer had a CA deficit by then.

Now you are shifting the goalposts a bit.

No. If conditions change, what is unsustainable can become sustainable, and vice versa. But given no growth, any CA deficit is unsustainable.

Is there even zero nominal growth in any european country?

On average over the past half decade? Yes.

But of course the peak-to-trough part of the business cycle is an outlier...

So if assume zero nominal growth for  a decade, then even a small current account deficit year after year is not sustainable. But that rest on two assumptions. How is this relevant regarding France or Belgium or even Italy?

It's relevant because you have an implicit assumption of zero interest rates stuffed in there. The actual sustainability condition is that total hard currency liabilities normalised to GDP must not diverge when time goes to infinity. It is not difficult to derive the sustainable CA deficit given exogenous nominal growth rates and nominal interest rates, but I have a train to catch now so I'll leave the algebra to the reader.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

That is the immediate question. I say that isn't the case and Jake tries to disprove this by talking about what happens with a CA deficit and no nominal growth in infinite time period.

A straw man, since I am talking about right now. And of course a small CA deficit is sustainable about a long time period. The data you researched regarding Germany show that Germany had a CA deficit from 1990 until 2002 without any trouble.

So my thesis is that a moderate CA deficit like France or Slovakia or Italy is no reason for worry.      

sigh

You are not even looking at my hypothesis, which is that this is a currency crisis, not a debt crisis. You are playing silly gotcha games based on nothing but your total ignorance of elementary econometrics.

I did dare to assume that since you were arguing a point on economics, you possessed at least rudimentary schooling in, y'know, actual economics. But this is not in evidence anywhere in your argument - you argue more like a lawyer or a theologian than a scientist (or even an economist).

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

No, I said that this was a currency crisis.

Currency crises are caused by structural CA imbalances (note: Imbalances include CA surpluses - the surplus country is as responsible for the imbalance as the deficit country).

They are triggered by all sorts of things, and there is a substantial component of black magic in divining when a vulnerability to a currency run will translate into an actual run (though in this case it was real easy: Just sort the structural CA deficit countries in ascending order of political power).

Really, the distinction between fundamental and proximate cause is not a novel concept or arbitrary imposition. It has been a recognised concept in every school of epistemology (except perhaps the radical social constructivists) since Aristotle. And I did dare to presume - wrongly, apparently - that you had paid attention to epistemology at some point in the last three or four thousand years.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

You keep bringing up NAMA...

Economics is politics by other means

A bailout of a country involves guaranteeing non-usurious interest rates on new issues during the 18-24 months it takes for the hysterical children to calm down after a sovereign default.

A bailout of the bondholders involves having other countries roll over the bonds so the current bondholders get their money back.

I will leave it to the reader to decide which of the two descriptions is the more apt for what the ECBuBa, EFSF, et al have been doing

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

Hasn't happened yet?

Economics is politics by other means

But lets talk about structural CA deficits. All I claimed is that structural CA deficits in Italy and France - not to talk about Ireland and Belgium - are low. A lot lower than in Spain and Greece and Portugal. Isn't that a bit of a problem to your CA hypothesis?

No, the prediction is that the endgame in all this is that all the deficit countries including France will end up on the other side of the fracture from Germany when the Euro blows up. (Cue in the discussion of Jerome's Niemöller moment)

The only reason why France migth be included in "core Europe" is the political prejudice of the Francogerman axis, but if France insists on hoisting itself to a new faux gold standard alongside Germany and the Netherlands, their economy will first suffer a private debt bubble and then get blown out of the water in the next business cycle.

Economics is politics by other means

(This whole usurious debt is nonsensical. Greece still pays whatever interest rate it did got quite prior to the crisis on most of its debt.

That is an extraordinary claim - you are arguing that the bulk of Greek foreign debt had a maturity greater than two years in 2009. I find that very difficult to believe, but perhaps you are better informed?

Wait a moment. You are saying all the time that everything depends on CA deficits. But whatever, lets say it was only 8.0% in 2007. So what?

Structural CA deficits. And more like 5 %, since in 2007 the ECBuBa hadn't destroyed a quarter of the Greek GDP yet.

Of course it is nonsense! Tell that to Migeru and his famous table!

I did. You missed the part where I noted that Ireland did not belong in the table?

Oh right, you didn't. You used it to play silly gotcha games with Mig.

But lets talk about structural CA deficits. All I claimed is that structural CA deficits in Italy and France - not to talk about Ireland and Belgium - are low. A lot lower than in Spain and Greece and Portugal. Isn't that a bit of a problem to your CA hypothesis?

No. Italy has had a cycle-averaged nominal GDP growth in the ballpark of 3 % of GDP, and a structural CA deficit in the ballpark of 1½ % of GDP, and the ECBuBa is targeting a "long-run" overnight rate in the ballpark of 1-2 %. This is at risk of blowing up if the average markup over the risk-free rate exceeds 1½ percentage points for any length of time.

If the banks that are lending to Italy are gearing 10:1 and require 7½ % nominal return on their equity, then all other overheads can amount to no more than 75 basis points before the whole edifice becomes unstable.

- Jake

If you only spend 20 minutes of the rest of your life on economics, go spend them here.

No, no. Everything is peachy in Switzerland! They still have their own currency after all and didn't join the cursed euro!

"Ireland fits in the small country with large internationally active banking sector category alongside Iceland and Switzerland"

Yes. Nothing to do with CA deficits.

I didn't mention Cyprus because there seems to be an genuine non-economic reason: the power plant explosion.