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The ECB's sovereign debt crisis response is...

stupid   5 votes - 19 %
incompetent   4 votes - 15 %
evil   12 votes - 46 %
other (please explain)   5 votes - 19 %
 
26 Total Votes
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If you read the article you will recognise many of the point made from earlier discussions here on ET.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 02:41:39 AM EST
Excellent! Congratulations.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 03:07:31 AM EST
Very good article, to the point, understandable and informative.

And also very, very depressing. This constant bias against anything that is based in the collective is terrible (I have a diary in mind about something related but probably no time until the 28th to write it).

Just as someone who doesn't believe in government shouldn't run for it, so a central bank (a public institution) should not favour the private sector against the public one. Of course, in that case you are right, it's to force an agenda on governments. Which probably reeks even more.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Nov 15th, 2011 at 05:15:17 AM EST
Eurointelligence - The role of ideology in this crisis
in fact the ECB has engaged in a massive program of private bond purchases.

What sort of private bonds are purchased? Big corporate stuff, financing productive investment in the EU? What are the criteria, are they transparent?

Just some ignorant musing (please slap me down if I'm barking up the wrong tree) : I suppose the ECB, in this way, is contributing to the investment capacity of big companies within the EU, who might otherwise find it hard to raise money (from banks, or by issuing stock, notably).

This would seem, intrinsically, to favour the companies which are big enough to issue bonds, biasing the economic climate against the rest (it's a very bad time to try to obtain investment money through IPOs, for example).

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

by eurogreen on Tue Nov 15th, 2011 at 06:29:37 AM EST
See here: 4 June 2009 - Purchase programme for covered bonds
Following-up on its decision of 7 May 2009 to purchase euro-denominated covered bonds issued in the euro area, the Governing Council of the European Central Bank (ECB) decided upon the technical modalities today. These modalities are as follows:

...

In order to be eligible for purchase under the programme, covered bonds must:

  • be eligible for use as collateral for Eurosystem credit operations;
  • comply with the criteria set out in Article 22(4) of the Directive on undertakings for collective investment in transferable securities (UCITS) or similar safeguards for non-UCITS-compliant covered bonds;
  • have, as a rule, an issue volume of about EUR 500 million or more and, in any case, not lower than EUR 100 million;
  • have, as a rule, been given a minimum rating of AA or equivalent by at least one of the major rating agencies (Fitch, Moody's, S&P or DBRS) and, in any case, not lower than BBB-/Baa3; and
  • have underlying assets that include exposure to private and/or public entities.
See Pfandbriefe and Covered Bonds on Wikipedia.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 06:54:32 AM EST
[ Parent ]
It's just a bailout of German banks, really.

Trichet's poisonous farewell to Weber

Frankfurter Allgemeine Zeitung points out that Jean-Claude Trichet could not help but send a last poisonous farewell greeting to Axel Weber who is now on his way to a teaching assignment in Chicago. The financial establishment assembled at the Frankfurt ceremony was too polite to mention explicitly the bitter public fight over the ECB's bond purchase program that opposed Trichet and Weber in the past 12 months. Trichet, however, delightfully explained that the ECB had engaged into another bond stabilization program of German Pfandbriefe, a financial product that dates back the Frederic the Great. In this issue of crucial importance to German economic interest Weber never raised any public doubts. So Trichet, who repeatedly referred to "lieber Axel" in German, added with visible pleasure: "I think we followed your advice on this."


To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 06:56:48 AM EST
[ Parent ]
they could just start dumping their stock of Pfandbreife...?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Nov 15th, 2011 at 07:11:55 AM EST
[ Parent ]
The point is they already bought them from the banks who presumably were unable to place them among investors. So the banks already have the money.

As a side note: a "covered bond" or "Pfandbrief" is a form of non-toxic securitization because the underlying assets remain on the issuer's balance sheet.

Under American-style securitization, a "special purpose vehicle" is created to transfer the assets to it in such a way that they cease to be consolidated with the balance sheet of the original issuer. In terms of bank regulation, this is truly toxic.

If you securitize a loan and take it off balance sheet, there are not balance sheet, regulatory or capital constraints on issuing a new loan for the same amount. If the original loan remains on the balance sheet, the covered bond provides the bank with new liquidity, but the asset still weighs down on the issuer's balance sheet and it may not be possible to issue a new loan while maintaining solvency, regulatory compliance, or soundness as a going concern.

That's why one can argue Covered Bonds are non-toxic secutitizations.

It still doesn't mean the market will lap them up on demand in the midst of a fligh-to-safety crisis and impending global recession, as was the environment in 2009.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:17:02 AM EST
[ Parent ]
With all these maneuvers to hide debt one wonders what the ruckus is over Greece.
by Upstate NY on Tue Nov 15th, 2011 at 08:56:59 AM EST
[ Parent ]
Scapegoating and weak links.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 08:57:30 AM EST
[ Parent ]
ECB: Economic and Monetary Union: What we have achieved and what we must do next
And we launched a programme to purchase euro-denominated covered bonds, i.e. Pfandbriefe, issued in the euro area. The aim was to jump-start this market, which had suffered considerably in the crisis and which is so important for Europe. Overall, the Eurosystem - the ECB and the national central banks - purchased EUR 60 billion of Pfandbriefe across the euro area. This has provided an important contribution to revitalising this market after the crisis. We will hold the bonds to maturity and the profits will be distributed to our shareholders.

My emphasis.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Nov 15th, 2011 at 09:06:06 AM EST
[ Parent ]
If the ECB needs money they can just create it ex nihilo.

The problem is that the ECB behaves as if each Euro is a gold ingot that the Central bankers have to shit out.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 09:10:42 AM EST
[ Parent ]
Here is the offficial version:

ECB: Short Address in honour of Axel Weber

Again, Bundesbank expertise proved immensely valuable, for example in the design of our new payment system TARGET2 but also in the design of our non-standard monetary policy measures, most notably our covered bonds purchase programme, which as you know are a German innovation dating back to the time of Friedrich des Großen. Their success over hundreds of years shows that asset-backed securities need not be toxic. Pfandbriefe are a prime example of finance at the service of people's well-being. Therefore the Governing Council in May 2009 decided to lend its support to this asset class, following Axel's advice.


*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Nov 15th, 2011 at 09:10:36 AM EST
[ Parent ]
What do you make of the first diagram on page 21 (pdf page 22) of  this longer report? It would appear that some runaway process was stopped in France with the covered bonds purchase; just what, I couldn't figure out (my brain stopped where it said "spreads"). There is a similar diagram on page 19 (pdf page 20), with a different resolution and extent along the time axis. This one shows bumps in the "spreads" for all four countries shown, that's Germany, France, Spain and Ireland (in increasing order of the peak before the start of the programme), and only France and Germany stabilising on the long term.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Nov 15th, 2011 at 09:38:08 AM EST
[ Parent ]
Chart 8 presents covered bond spreads over the yields of French and German governmentguaranteed agency bonds. This choice of a benchmark has two important advantages. First, it allows control for country-specific effects. Second, agency yields are characterised by market liquidity more comparable to covered bonds, and are unlikely to be strongly affected by "flights to liquidity"
What I make of this is what I way in the Eurointelligence article:
The evidence is overwhelming that the ECB has not (despite recent expert commentary to the contrary) shied away from its role as lender of last resort and even as market maker of last resort in a wide array of markets and asset classes.
The action in the sovereign debt market has never been seen as the ECB as a market stability action, which is presumably why no comparable report to this one has been produced. The report you link to is basically the ECB arguing that its market maker of last resort action in the Covered Bond program has(*) been successful in stabilizing the market. So not only they don't shy away from acting as MMoLR but they trumpet it as a success!

(*) has, or had? - the need to repeat the 2009 exercise after the October 2011 ECB meeting might indicate that the intended stabilization was only temporary or that the worsening of the crisis since July 2011 has destabilised the market again.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 09:46:20 AM EST
[ Parent ]
The action in the sovereign debt market has never been seen as the ECB as a market stability action, which is presumably why no comparable report to this one has been produced.

And also why it hasn't been effective: it has been timid (too little too late), apologetic (the ECB all along protesting that they're not intending to intervene in the market but just "ensure the transmission of monetary policy") and has been made worse by draining liquidity to compensate for nonexistent inflationary effects of the purchases ("sterilization").

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 09:50:58 AM EST
[ Parent ]
I got that conclusion as I read your Eurointelligence piece; I was asking to ponder what this covered bond purchase programme was really about in layman terms, in particular in the light of your and the quoted Eurointelligence piece's implication that this was about German banks, and my expressed cluelessness about what the "spreads" in those diagrams are and mean. If this is the only or the main field where the ECB bought private assets (which was a news to me), the details count.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Nov 15th, 2011 at 10:03:25 AM EST
[ Parent ]
Covered bonds were purchased by the various National Central Banks in proportion to their GDP. So, the Bundesbank got 20-something percent of the original €60bn. Presumably each National Central Bank bought bonds in their domestic market.

Also, the size of the covered bond markets varies a lot across countries. By far the biggest market is the German one, much larger than Germany's share of GDP.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:08:42 AM EST
[ Parent ]
Yes, I read somewhere while Googling that covered bonds issued in Germany consitute over 50% of the whole EU market, though I'd be more curious about who are the buyers.

Either way, 20-something-percent seems a weak footing for an argument that this is all about those, and the diagrams in the report show the weakest pre-CBPP crisis and weakest CBPP effect for just the covered bond spreads in Germany. Meanwhile, I don't get what's on the diagrams. Are "spreads" the difference between average yields? If so, why are the runaway yields before the CBPP a bad thing; is it because they represent a risk premium? Even if so, how is a cooling off of the market, in the case of Germany to yields below government bond yields, good for the market?

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Nov 15th, 2011 at 10:34:52 AM EST
[ Parent ]
Runaway yields represent

  1. expensive funding for the "real economy" activities underlying the covered bonds
  2. a symptom of liquidity problems in the bond market itself

It is basically "a run on covered bonds". Also, if banks are used to funding themselves by issuing covered bonds, liquidity problems in the market for bonds quickly translate into liquidity problems for the banks themselves, and eventually into insolvencies. Also, the more expensive terms of finance for the underlying activities may lead to liquidity and solvency problems for "real economy" entities.

See The Central Bank as the Market Maker of last Resort: From lender of last resort to market maker of last resort by Buiter and Sibert (13 August 2007):

These days are gone in the globally integrated modern financial systems characterising all advanced industrial countries and an increasing number of emerging markets.

Today, external finance to non-financial corporations and to financial institutions is increasingly provided not through banks but through the issuance of tradable financial instruments directly to the financial markets or indirectly to the financial markets through banks and other financial institutions whose assets are, thanks to securitisation and similar techniques, liquid in normal times.  Now that financial markets (and non-bank financial institutions) have increasingly taken over the function of providing credit and all forms of finance to deficit spending units, a credit crunch or liquidity crunch manifests itself in a different way from the world described by Walter Bagehot's lender of last resort (see Walter Bagehot (1873), Lombard Street: A Description of the Money Market).

Today, a credit crunch or liquidity squeeze manifests itself as disorderly financial markets. Because of pervasive Knightian uncertainty (risk that is perceived as immeasurable and not possible to calculate or quantify), fear and in the limit, panic, little or no trade occurs in certain classes of financial instruments (say subprime mortgage-backed `collateralised debt obligations' CDOs) because there is no market maker with both the knowledge to price these financial instruments and the deep pockets to credibly post buying and selling prices. The precise way in which such micro-market failure (the failure to match willing buyers and sellers at prices acceptable to both) occurs differs for exchange-traded instruments and over-the-counter financial instruments (instruments for which bilateral bargaining over a deal is the normal exchange mechanism), but the solution is the same: the central bank has to become the market maker of last resort.



To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:49:51 AM EST
[ Parent ]
A comparison of "financial innovation" circa 1865-85 with what has happened since 1980 might be instructive. Bagehot's Lombard Street would be a good place to start.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 18th, 2011 at 01:26:12 PM EST
[ Parent ]
Outstanding, according to the FT Alphaville table:

Belgium has no covered bonds, and Finland, Greece, Luxembourg, Netherlands and Portugal have small CB markets.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 10:57:19 AM EST
[ Parent ]
Look at this, from the ECB report (pp. 10-11)
2.3 THEORETICAL RATIONALE FOR CENTRAL BANK ASSET PURCHASES

This section considers the economic theory underlying outright asset purchases by central banks, including a discussion on asset purchase programmes implemented by central banks outside the Eurosystem. From a theoretical perspective, an asset purchase facility, regardless of the economy in which it is carried out, follows the same principles. The main goals may include injecting money into the economy (possibly targeted at specific sectors thereof) in order to revive spending and/or to address market functioning concerns in particular market segments.

There are four main channels through which a purchase programme is transmitted to the real economy. The primary channels are via the so-called "announcement" effect (which affects investor expectations), the "portfolio balance" effect (which transmits through both expectations on the announcement of an asset purchase scheme and/or the actual period of purchasing itself), the liquidity premium effect (whereby central bank purchases can restore market liquidity through stimulating two-way market flows) and the "real economy" effect (whereby proceeds from central bank purchases are injected into the real economy).

...

The fourth channel could be termed the "real economy" effect. Indeed, when a central bank purchases an asset, it credits the account of the seller with the proceeds of the transaction. The expectation is that this amount of money, irrespective of whether the total amount of money injected by the central bank remains unchanged or not (sterilisation), is then injected into the real economy, in a direction and manner which may depend upon the type of asset purchased and the counterparty to the central bank's purchase transaction.

This is, by the way, the only occurrence of the word "sterilization" in the whole document.

So, the ECB is not stupid. It is ideologically blinkered in the way it treats public assets differently from private ones.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:04:10 AM EST
[ Parent ]
I tried to make sense of that last paragraph for minutes, but just failed. Is "credits the account of the seller with the proceeds of the transaction" central-banqueske for "money wanders into the pocket of the seller"? Or is this something about the income of the ECB as security holder? Then what does the unchanging-or-not state of the amount of money injected by the central bank mean? Injected over a given period of time? Or as a balance of buy and sell?

Either way, with these covered bond purchases, is there a selection in place? Because if these stablilise a whole market, as opposed to the bonds of some named companies in trouble, it would appear to me that there is a difference with the purchase of sovereign bonds of a state in trouble. (Not that that would lessen the stupidity of the ECB's refusal to play lender of last resort to states.)

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Tue Nov 15th, 2011 at 10:19:59 AM EST
[ Parent ]
No, it means that when the ECB buys assets, it pays the asset holder money for it, and now the former asset holder has cash it can spend into the "real economy".

Apparently all this works for private bonds but not for public bonds, which are automatically inflationary and have no real economy stimulus effect. Or something.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:25:01 AM EST
[ Parent ]
Rather than "public bonds" I'd say sovereign debt, because covered bonds may be public-sector. In fact, according to statistics offered by the European Covered Bond Council here, and summarized in a table in this FT Alphaville post, roughly 2 out of 3 eurozone covered bonds are public-sector.

The same FT Alphaville post relays an interesting question from a Barclays analyst:

FT Alphaville » The ECB and covered bonds - the next chapter?

A crucial question would also be whether the ECB would be ready to support the covered bond market to an extent where covered bond funding could become cheaper than the funding of the underlying sovereign.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 10:44:30 AM EST
[ Parent ]
That should be 2 out of 3 German covered bonds are public-sector. It's closer to 2 out of 5 for the whole eurozone.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 10:51:42 AM EST
[ Parent ]
covered bonds may be public-sector

Covered bonds may be backed by loans to the public sector, but a bond is issued by the financial institution that made the loan. Whether a loan-maker and covered-bond issuer is public or privately owned is immaterial as far as the ECB is concerned. For instance, see paragraph 2 of the infamous article 123 of the Treaty of Lisbon:

Article 123
(ex Article 101 TEC)
1.    Overdraft facilities or any other type of credit facility with the European Central Bank or with the central banks of the Member States (hereinafter referred to as `national central banks') in favour of Union institutions, bodies, offices or agencies, central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of Member States shall be prohibited, as shall the purchase directly from them by the European Central Bank or national central banks of debt instruments.
2.    Paragraph 1 shall not apply to publicly owned credit institutions which, in the context of the supply of reserves by central banks, shall be given the same treatment by national central banks and the European Central Bank as private credit institutions.
Of course, if the EU's competition authorities argue that a public bank is unfairly distorting competition or if the Serious™ people insist that all private firms be privatised, starting with the banks (as was done in much of Europe in the past 20 years), then...

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:06:22 PM EST
[ Parent ]
insist that all privatepublic firms be privatised

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 02:37:38 AM EST
[ Parent ]
Either way, with these covered bond purchases, is there a selection in place? Because if these stablilise a whole market, as opposed to the bonds of some named companies in trouble, it would appear to me that there is a difference with the purchase of sovereign bonds of a state in trouble. (Not that that would lessen the stupidity of the ECB's refusal to play lender of last resort to states.)

I contend that, if the ECB had bought Greek bonds in quantity in February of 2010, the whole crisis would have been averted and all sovereign bond markets would have been stabilised.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:29:58 AM EST
[ Parent ]
Again, no debate there.

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Tue Nov 15th, 2011 at 11:29:10 AM EST
[ Parent ]
Either way, with these covered bond purchases, is there a selection in place? Because if these stablilise a whole market, as opposed to the bonds of some named companies in trouble, it would appear to me that there is a difference with the purchase of sovereign bonds of a state in trouble.

Well, if they consistently stabilise markets that some banks (and countries) are exposed to while refusing to stabilise markets that other banks (and countries) are exposed to, then one can hardly help thinking...

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 15th, 2011 at 05:02:36 PM EST
[ Parent ]
I had gone off looking stuff up, came back and found you and DoDo discussing the same report as I had found.

Note, a bit further on that page:

The theoretical rationale outlined is relevant not only for the CBPP, but also for the Eurosystem's Securities Markets Programme or for asset purchases by other central banks

The theoretical rationale = the "four channels".

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 10:34:43 AM EST
[ Parent ]
Eurointelligence - The role of ideology in this crisis
The EFSF is also being hamstrung by the recently discovered requirement that sovereign bond purchases in the secondary market must be approved by the Bundestag

How can the actions of an EU institution be explicitly subject to the control of the Parliament of one member state? Is the ESFS an EU or a German institution, or technically, neither?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 15th, 2011 at 06:32:44 AM EST
If I understand correctly, the German constitutional court made an interpretation of the powers that could be delegated to the ESFS, and ruled that they were insufficient to allow sovereign bond purchases without case-by-case authorisation from Germany.

If this were true, it would be true for all 17 sovereign nations concerned (unless German exceptionalism is embodied in a treaty somewhere?), so the other 16 national parliaments would logically need to be consulted too.

However, it doesn't make any sort of sense that this interpretation should be decided by a German court. It's as if a US court interpreted WTO rules to favour US interests, and expected trading partners to be bound by it [admittedly, this is how it works out in practice, but at least they go through the motions of WTO arbitration].

There must be an EU instance which can rule on such EU constitutionality issues. However, I suspect that the ruling would be in line with the German court's, the treaties having been written to protect German obsessions in the first place.

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

by eurogreen on Tue Nov 15th, 2011 at 06:56:36 AM EST
[ Parent ]
I don't actually know what autonomy of action the EFSF has. When it was first set up it was only to lend to states in need of "rescue" so it's entirely possible that unanimous agreement of the 17 was required. Then, the Bundestag can instruct Merkel to refuse to agree.

The German fundamentalist faction is trying to prevent an agreement to give the EFSF autonomy of action, which may have been part of the July 21 agreement.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:05:35 AM EST
[ Parent ]
The German Constitutional Court made a point on the separation of powers. Only parliament can decide on the budget. The ESFS can do what they please, but if they want money, Merkel and Schäuble can't hand it over, only the Bundestag can. Even better: only a referendum on a new constitution can change that.

I wouldn't see it in the context of "German obsessions" if I were you. For me this decision is the hope to retain some democracy despite Lisbon Treaty.  

by Katrin on Tue Nov 15th, 2011 at 08:46:43 AM EST
[ Parent ]
The ESFS was an emergency mechanism, a jury-rigged affair in order to have an instrument to address a crisis. The Bundestag blew the whistle on it, rendering it virtually useless. From a legalist point of view, this is no doubt sound; but it sure makes crisis management harder.

I agree that democracy is problematic in the context of the Lisbon treaty, which hands far too much power to the European Council. But taking power away from the Council and handing it back to national parliaments will be the end of the EU. The answer, in terms of democracy, is empowering the European parliament. In particular, with the power to levy taxes. A parliament without this power will always be sidelined.

The "German obsession" I alluded to is the refusal to monetize debt. In the current context, this will destroy the euro; the "austerity-only" option will do for Italy, then France, what it has done for Greece.

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

by eurogreen on Tue Nov 15th, 2011 at 09:24:53 AM EST
[ Parent ]
The "German obsession" I alluded to is the refusal to monetize debt. In the current context, this will destroy the euro; the "austerity-only" option will do for Italy, then France, what it has done for Greece.

Why do you say "will do for France" and not "has done for France"?

If anyone needed any evidence that France has been toast since the Summer...

(Blomberg: FRENCH GERMAN 10-YR YIELD SPREAD)

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 09:30:27 AM EST
[ Parent ]
We might as well enjoy the "Wile E Coyote" moment...

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Tue Nov 15th, 2011 at 12:03:58 PM EST
[ Parent ]
In other news, the Swedish 10 year sovereign debt hit the lowest yield ever: 1.6%. The main preoccupation of the government seems to be to utilize the record low rates to borrow heavily to invest in world class infrastructure and energy efficiency to prepare Sweden for the future pay down the notoriously high government debt, currently about 30 % of GDP.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 15th, 2011 at 02:03:48 PM EST
[ Parent ]
And the low yield has triggered warnings about pension funds taking on to much risk as government bonds are rejected for yielding to little.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!
by A swedish kind of death on Tue Nov 15th, 2011 at 02:14:35 PM EST
[ Parent ]
That's some truly bat-shit crazy, do you have any sources on that? Meanwhile, sanity seems to prevail at E24/SvD/Schibsted, where journalist Andreas Cervenka has forcefully argued that the state-owned pension funds should invest their money in stable long-term Swedish utilities that scream for maintenance, like the grid, railroads, sewer&water, power plants, harbours and so on. Instead they invest in private equity funds which buy these assets, strip them for assets, load them with debt and flip them to new owners, meanwhile taking 2 % of managed assets and 20 % of all returns above Stibor as fees.

A massive and scandalous rip-off that makes me so angry I want to howl.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Nov 15th, 2011 at 06:32:57 PM EST
[ Parent ]
The article is gone as I read it on SVT Text (and they store nothing), but it appears to be based on the same report as this article that has a different take on it:

Ökade risker i finansiella systemet | Näringsliv | SvD

När det gäller livbolagen konstaterar FI att buffertarna i branschen har krympt under hösten, då svenska statsobligationsräntor sjunkit till historiskt låga nivåer. Artikeln fortsätter...

"FI anser att alla livförsäkringsföretag vid behov måste vara villiga att se över sina garanterade åtaganden för att skydda sina försäkringstagare i framtiden", skriver inspektionen.

Därutöver oroas FI av att konsumenter i dessa osäkra tider kan förmås att placera sina tillgångar "i komplexa och olämpliga produkter".

"Risken finns att aktörerna på marknaden leder konsumenter till den här typen av produkter då de ger mest provision till förmedlarna", skriver FI.

To find out what was actually said I recommend finding the report.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Wed Nov 16th, 2011 at 04:51:59 AM EST
[ Parent ]
The Danish papers claim that the Danish pension funds are going into emerging markets since government bond subsidies are at rock bottom and stocks are tanking.

I just hope someone told these chaps about "ForEx risk" and how it can make your business go tits-up in several different interesting ways.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 16th, 2011 at 03:33:49 PM EST
[ Parent ]
Hopefully they know how to hedge against currency swings. Or possibly their investment horizon is so long (yeah, right) that the currency swings even out over time.

The entire idea of pension funds is seeming more and more stupid to me, for every passing day. I think it might work a lot better if we had a different system. Like a basic tax-financed pension system, and then private savings in the form of a) private stock/bond ownership for those who think they know what they are doing, or b) people generally own the houses they live in, and save through paying down their mortages (which is what I tell people to do whenever they ask me for investment advice: you'll never get a better risk-free interest rate than the opportunity cost of paying down your mortage). The latter would result in very low living costs for retirees. You could have tax incentives for this in the form of progressive instead of flat taxation of capital income, and some kind of tax credit for paying down mortages.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Nov 16th, 2011 at 06:21:55 PM EST
[ Parent ]
retirement funds are ideologically based, and that's why they are such a dangerous thing. The amazing thing is that they have been discredited repeatedly by market crashes, yet those countries (such as France) which still have predominantly tax-based (in a broad sense) systems are under constant assault by the "experts" who tell us we must go to an investment-based system.

This is a sure sign that :

  1. we are being rolled
  2. we are buying the ideology of the rollers.

Maybe I'm being excessively mystical, but for me, the wealth that you pay out in pensions to the retired in any given year, can only be the wealth that you create in that same year. On a macro level, there is no sense in which you can store your excess wealth, then pay it out decades later. This seems to me to be basic thermodynamics (or something).

Therefore, all investment-based retirement schemes in which the underlying assumption is that you can pay in $100 over your career and draw out $150 or $200 during your retirement, are either :

  1. based on unverifiable (to put it politely) assumptions about future economic growth, and/or
  2. Ponzi schemes.


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Thu Nov 17th, 2011 at 04:43:56 AM EST
[ Parent ]
Pension payments (and pension contributions) should be indexed to GDP or median income. That way they could never be an "unsustainable unfunded liability".

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 04:51:11 AM EST
[ Parent ]
Is there a reason why indexing to average income would not be sustainable?
by gk (gk) on Thu Nov 17th, 2011 at 04:59:45 AM EST
[ Parent ]
I can't think of one.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 05:16:02 AM EST
[ Parent ]
That's what GDP indexing does, except that GDP indexing also includes all the income being hidden from the tax man.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 17th, 2011 at 06:42:15 AM EST
[ Parent ]
demographics I think. Of course, that can be modeled into the index.

IMHO, generally a tax based pension system is better unless you need capital formation in your country. But I think capital is not really a scarce good these days (not wanting to start a huge debate on the financial crisis).

by crankykarsten (cranky (where?) gmx dot organisation) on Mon Nov 21st, 2011 at 07:22:31 AM EST
[ Parent ]
... which cannot take place because private lenders will not lend to the people who need to accumulate real productive capital, and those are in reality credit-worthy borrowers, then the government could lend to those people, eg, via a national bank.

If they cannot receive credit to buy physical capital because there is some factor that makes them less than credit-worthy borrowers, then attention has to be paid to removing that factor.

This is, Of course, reading "capital formation" as "phsical capital formation", not as "financial capital formation". Financial capital is not something that a country needs as an end in itself.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Nov 21st, 2011 at 01:40:11 PM EST
[ Parent ]
Make that a diary.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 05:38:24 AM EST
[ Parent ]
to provide growth in your pension funds is an interesting model, philosophically. Just another variant on neo-colonialism : Europe's economies are not generating enough growth to enable retirees to get more in pay-outs than they paid in (which is the founding expectation of all these investment-based retirement systems). Some other sucker can pay.

Which raises the prospect of how the Chinese and Brazilian retirees are going to fund their pensions in a couple of decades. Investment in the developing economies of the moon and Mars?

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

by eurogreen on Thu Nov 17th, 2011 at 04:48:25 AM EST
[ Parent ]
Ponzi retirement finance.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 04:51:47 AM EST
[ Parent ]
Don't forget the moondust pixies.
by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 17th, 2011 at 08:49:58 AM EST
[ Parent ]
The US Social Security System was a "pay as you go" system until the "reforms" under Carter and Reagan. These "reforms" increased the witholding rates significantly so as to "fully fund" future retirements. But TPTB saw to it that these funds effectively got safely diverted into defense expenditures and tax breaks for the rich. That way taking several percent of national income out of the economy every year wouldn't tank the economy. This, of course, was praised as behaving responsibly. Now we are back to "Social Security will soon be insolvent!"

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 17th, 2011 at 11:01:00 AM EST
[ Parent ]
Were truly led by deflationary idiots.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 06:33:39 PM EST
[ Parent ]

Eurozone bonds hit by mass sell-off

Eurozone bond markets suffered a mass sell-off on Tuesday as investor fears spread beyond Italy and Spain to triple A rated France, Austria, Finland and the Netherlands.

The premium that France and Austria pay over Germany to borrow rose to euro-era records of 192 basis points and 184bp respectively, levels investors say are no longer consistent with top credit ratings.

"Markets are losing patience so they are going for the jugular, which is the core countries and not the periphery," said Neil Williams, chief economist at Hermes, the UK fund manager. "There is convergence but it is convergence on the ­weakest."




Wind power
by Jerome a Paris (etg@eurotrib.com) on Tue Nov 15th, 2011 at 05:02:01 PM EST
[ Parent ]
Finland and the Netherlands as well? Why would they be hit by contagion?! It's almost like Germany itself being speculated against by the markets. It makes no sense really. And meanwhile, Swedish 10-years are at a record low 1.6 %. A lot of people are kicking themselves for voting "yes" in our referendum back in 2003, even though pretty much all Swedish establishment forces, social democrats, "conservatives" and especially liberals, still say they think we should have joined, and still want to join. Incredible. It's a bit like asking for admittance to the Warsaw pact in 1990.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 15th, 2011 at 06:27:49 PM EST
[ Parent ]
Finland, because their main engine (Nokia) has some issues with the Elop-Effect.

6 years to go !
by pi (etrib@opsec.eu) on Wed Nov 16th, 2011 at 06:41:13 AM EST
[ Parent ]
... after all, they've hitched their wagon to Microsoft, and surely no firm has ever regretted hitching its wagon to Microsoft {NITBAFS}?

{NITBAFS: Not intended to be a factual statement.}

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 16th, 2011 at 01:10:18 PM EST
[ Parent ]
Speculation that Germany will leave?

Or just some kind of pump-and-dump to use volatility to make more quick bucks?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Wed Nov 16th, 2011 at 02:14:44 PM EST
[ Parent ]
It's now more expensive to buy a CDS for Italy than for Iceland (!!!) and also more expensive to buy a CDS for Germany than for Siemens (!!!).

Great work you guys at the ECB!

To insure a 10 million dollar 5 year loan to Italy, you have to pay an annual $601,000.

Spain: $487k
Iceland: $347k
France: $223k
Germany: $98k
Siemens: $84k

I remember a few years ago when I mentioned here at the ET why I couldn't understand why people would rather lend money to governments than to for example Exxon. Seems I'm not the only one who's thinking like that now.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Nov 16th, 2011 at 06:29:32 PM EST
[ Parent ]
Reasonable question for non-sovereign public borrowers like Eurozone countries, or US states.

The answer for US states is due to the income tax deduction (a Constitutional matter, as the power to tax is the power to destroy) ... which has been undermined over the past thirty years by constant reductions in top marginal tax rates.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Nov 21st, 2011 at 01:42:05 PM EST
[ Parent ]
Actually, that's only a reasonable question for Eurozone countries when the firm you're lending money to is not a resident of the Eurozone country in question.

Because if it is, the government can always tax your corporate bonds to pay off its government bonds.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 21st, 2011 at 01:49:11 PM EST
[ Parent ]
Why would they do that? I don't see any benefit that could come from transnational corporations with subsidiaries in those countries that would emerge from such a policy.

Unless you are suggesting there is some alternative objective that a national government could adopt ... well, I guess in theory there may be, but nothing pops into my head right now.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon Nov 21st, 2011 at 01:57:00 PM EST
[ Parent ]
If bonds are being massively sold, there must be some massive buyers out there, right?

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 06:58:43 PM EST
[ Parent ]
Well, French bonds at 4% when the German bonds are at 2% should look attractive to a lot of people not worried about short term movements...

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Nov 16th, 2011 at 03:14:15 AM EST
[ Parent ]
Anticipating Bundesbank commentary:
The Bundesbank with its commitment to price stability had refused to lower interest rates massively. The partner countries are forcibly reminded of their responsibility for their currencies; the process of convergence needed for monetary union is strengthened.
(European monetary integration - Chronology 1950 - 1998: 16 September 1992-2 August 1993)

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:15:36 PM EST
[ Parent ]
Completely agree on your criticism of the "German obsession", and it drives me mad too. The decision of the German Constitutional Court can't be seen in this context, though. It is the democratic emergency brake. The Court's decision wasn't completely unexpected either. Slowing down an emergency mechanism is awkward, but our government had been warned.

As a rule the judges don't give interviews explaining their decisions, but in this case judge Huber did exactly that emphasising that they mean what they say. And in case this wasn't enough, Voßkuhle, the president of the Constitutional Court gave an interview a few days later, saying that they mean what they say. The court sees a violation of Article 20 (2) (I see a violation of 20(1) too, because we are no longer a social republic, but hey...). Article 20 cannot be altered. If we want more European integration, we must have a new constitution BY REFERENDUM. There is no other way. I find that very thrilling, and I suspect Merkel has some well-deserved nightmares because of it.

by Katrin on Tue Nov 15th, 2011 at 10:32:57 AM EST
[ Parent ]
Be careful what you wish for: Merkel Eyes Constitution Revamp to Boost EU Powers
Germany's constitution is highly respected, but it also obstructs the transfer of power from Berlin to Brussels -- a fact that has hindered the rescue of Europe's common currency. At the CDU's party conference this week, Angela Merkel may push for an overhaul of the Basic Law in order to hasten euro bailout efforts.

...

This operation to amend the constitution has already become one of the government's most delicate political initiatives. If it succeeds, it would remove one of the euro's biggest problems: The 17 euro-zone countries have a common currency but do not have a common finance policy, a fact which partly explains why the euro is teetering at the edge of an abyss. This is tackled in the key sentence of the new paper. "We need more Europe in key policy areas," it says.

Merkel hesitated for a long time before making such a statement in public. It was three quarters of a year ago that German Finance Minister Wolfgang Schäuble reportedly took the chancellor aside and explained to her that the euro crisis could not be resolved with spur-of-the-moment policies. He told the chancellor that he was in favor of using the crisis to advance Europe's political unity.



To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 10:57:12 AM EST
[ Parent ]
Cute, Der Spiegel. Important politicians discussing weighty matters: "It was three quarters of a year ago that German Finance Minister Wolfgang Schäuble reportedly took the chancellor aside..."

I don't mind transferring more power from the member states to the EU, that much I agree even with Merkel. She wants to shift power from people and parliaments to the executive, especially to herself, but this wouldn't survive a referendum. The German voter may be stupid (that's why she is chancillor), but not that stupid, I hope. So the only thing that is fairly sure to get a majority is an initiative shifting powers of the Bundestag to the European Parliament. The EP wouldn't let Merkel strip "debt-sinners" from voting rights or funds, I guess.

The Spiegel got it wrong too, btw.: it wouldn't be an "overhaul" of the Basic Law. It would be adopting a new constitution (which would then get that name too). Article 20 can't be overhauled. We would be aware of what we are doing when we vote on that.

by Katrin on Thu Nov 17th, 2011 at 01:30:25 PM EST
[ Parent ]
In this outstanding speech by Cohn Bendit yesterday he warned the Council that the European Parliament's Federalist groups will oppose tooth and nail any attempt by the Council to reform the treaties through an intergovernmental process (as opposed to a parliamentary convention).

English voiceover:

German voiceover:

French original:



To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 06:05:56 PM EST
[ Parent ]
(starting at 5'25")

But the rest of the speech is extraordinary.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 06:08:53 PM EST
[ Parent ]
Yes, if the teeth and nails don't give too quickly. We'll see.
by Katrin on Thu Nov 17th, 2011 at 06:42:06 PM EST
[ Parent ]
Well, I don't know who he speaks for when he says "the federalist groups". The EPP group would definitely side with the Council and the PES and ALDE cannot be trusted.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 06:43:52 PM EST
[ Parent ]
Greens can't be trusted either. We have a bit of a problem, haven't we?
by Katrin on Thu Nov 17th, 2011 at 06:53:49 PM EST
[ Parent ]
Yes.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 06:56:08 PM EST
[ Parent ]
Yikes, the Greens can't be trusted? Why is that? If true, that's really disappointing (at least to me).
by sgr2 on Fri Nov 18th, 2011 at 01:55:23 PM EST
[ Parent ]
The Greens can't be trusted because they've had thirty years of indoctrination telling them that they can only be serious if they get with the far-right program.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 18th, 2011 at 01:57:18 PM EST
[ Parent ]
The Greens didn't need thirty years of indoctrination, they were learning a lot quicker how to, er, adapt.
by Katrin on Fri Nov 18th, 2011 at 02:32:43 PM EST
[ Parent ]
Okay, my ignorance is definitely showing its true colors, but truthfully, I had no idea of any of this.

My understanding was that the Greens by definition had an extremely left-leaning ideology. That they cared about protecting the environment and stood for social justice and equality. In other words, tree-hugging, peace-loving hippies, and that the last thing in the world they would want to do would be part of NATO or would wish to support a war, any war.

The Greens of which you speak have nothing in common with the Green Party philosophy I support, or am familiar with in the U.S.  A party which has never gained traction because of the already set-in-stone two-party system and the fact that so far they've been unable to produced a viable candidate.

What you've related here Jake is truly a disappointing and disgusting surprise. But thanks for taking the time to explain it anyway.

by sgr2 on Fri Nov 18th, 2011 at 05:07:41 PM EST
[ Parent ]
The German Greens had roots in the environmental movement, in the peace movement, and in the emancipatory movement. This bridged a very wide spectrum and from the beginning on there was a conflict between conservatives (Protection of the environment IS a conservative issue!) and leftists. The German peace movement has always had a conservative arm too.
Soon there was another conflict too: where can one  compromise and which topics are core values, which was of course important when the greens started coalition negotiations.
by Katrin on Fri Nov 18th, 2011 at 05:39:13 PM EST
[ Parent ]
If, as you say, "protection of the environment is a conservative issue) I wish someone would explain that to the conservative (Republican) party in America who have seemed hell-bent on destroying the environment for about as long as I can remember.
by sgr2 on Sat Nov 19th, 2011 at 08:04:15 AM EST
[ Parent ]
See evangelical environmentalism, clearly not to be confused with the drill, baby, drill pro-business faction.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Sat Nov 19th, 2011 at 08:16:04 AM EST
[ Parent ]
Holy moly.
by sgr2 on Sat Nov 19th, 2011 at 09:22:34 AM EST
[ Parent ]
as far as i can tell, rebug conservatism is mostly preserving hunting ranches for cheney to shoot furry animals, like pristine game parks.

same as the uppah crusties in the UK wanting their grouse moors and such.

they love the land alright, but for the wrong reasons...

"I would rather have questions that can't be answered than answers that can't be questioned." - Richard Feynman

by melo (melometa4(at)gmail.com) on Sat Nov 19th, 2011 at 09:32:30 AM EST
[ Parent ]
Evangelical environmentalism at its finest.
by sgr2 on Sat Nov 19th, 2011 at 09:49:58 AM EST
[ Parent ]
Theodore Roosevelt WAS the Progressive Republican President who first emphasized the importance of conserving the natural heritage of the USA while using it responsibly. From Wiki:
 
One of his most lasting legacies was his significant role in the creation of 5 national parks, 18 national monuments, and 150 National Forests, among other works of conservation. Roosevelt was instrumental in conserving about 230 million acres (930,000 km2) of American soil among various parks and other federal projects.

The Progressives mostly moved to the Democratic Party by the time of the 1932 campaign.


As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 19th, 2011 at 10:58:59 AM EST
[ Parent ]
Conservative as in actually conservative, not "conservative" as a brand name for radical reactionaries.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Mon Nov 21st, 2011 at 02:00:56 PM EST
[ Parent ]
No party of fucking warmongers will ever have my trust or my vote or even a tiny bit of understanding. And that's only their worst sin, but not their only one.
by Katrin on Fri Nov 18th, 2011 at 02:36:00 PM EST
[ Parent ]
I can't really recall what country they invaded?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 18th, 2011 at 03:17:52 PM EST
[ Parent ]
Alliance '90/The Greens - Wikipedia, the free encyclopedia

In the 1998 federal election, despite a slight fall in their percentage of the vote (6.7%), the Greens retained 47 seats and joined the federal government for the first time in 'Red-Green' coalition government with the Social Democratic Party of Germany (SPD). Joschka Fischer became Vice-Chancellor of Germany and foreign minister in the new government, which had two other Green ministers (Andrea Fischer, later Renate Künast, and Jürgen Trittin). Almost immediately the party was plunged into a crisis by the question of German participation in the NATO actions in Kosovo. Numerous anti-war party members resigned their party membership when the first post-war deployment of German troops in a military conflict abroad occurred under a Red-Green government, and the party began to experience a long string of defeats in local and state-level elections. [...]

In 2001, the party experienced a further crisis as some Green Members of Parliament refused to back the government's plan of sending military personnel to help with the 2001 invasion of Afghanistan. Chancellor Gerhard Schröder called a vote of confidence, tying it to his strategy on the war. Four Green MPs and one Social Democrat voted against the government, but Schröder was still able to command a majority.

Sending German troops abroad is as I understand it a big deal.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Fri Nov 18th, 2011 at 03:27:43 PM EST
[ Parent ]
Oh come on...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 18th, 2011 at 03:29:38 PM EST
[ Parent ]
They helped bombing Serbs and they took part in the invasion of Afghanistan.
by Katrin on Fri Nov 18th, 2011 at 03:28:35 PM EST
[ Parent ]
See Fundi (politics) from Wikipedia.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 05:09:58 PM EST
[ Parent ]
That was an eye-opener. I never would have dreamed of putting the words  'green' and 'fundamentalist' together. Ever.
by sgr2 on Sat Nov 19th, 2011 at 08:07:53 AM EST
[ Parent ]
As with all politics there's a potential for religious thinking, sectarianism and so on. And for part of the green movement being "green" is a way of life, not just about policy. So again it lends itself to fundamentalism. Vegetarianism and animal rights also lend themselves to religious thinking.

Just look at debates on nuclear power among anti-coal advocates where both sides, pro- and anti-nuke will accuse the other side of harboring a death wish because they oppose the one true way to get rid of coal.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Sat Nov 19th, 2011 at 08:14:27 AM EST
[ Parent ]
Quite. And with all politics there is a potential for spineless opportunism too. In the Greens the latter can most clearly be seen in their position towards war and peace.
by Katrin on Sat Nov 19th, 2011 at 11:17:22 AM EST
[ Parent ]
I think many on the left side of the SPD and Die Linke would accuse the Greens of being bourgeois liberals in the final analysis.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Sat Nov 19th, 2011 at 08:19:15 AM EST
[ Parent ]
Left-liberals. They never were - and I think never claimed to be - a working class party. But in eighties they were more of left wing party. But since the mid nineties, having ditched pacifism, left-liberal would fit.

I always suspect that other green parties only seem further left by being further from power. The irish greens in government didn't seem that different.

There are worse things in life then a left-liberal party, though.

by IM on Sat Nov 19th, 2011 at 11:37:48 AM EST
[ Parent ]
The European Social Democrats have also colonised the left-liberal space.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Sat Nov 19th, 2011 at 03:27:21 PM EST
[ Parent ]
Welcome to ET, Katrin!
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 15th, 2011 at 10:31:11 AM EST
[ Parent ]
thank you.
by Katrin on Tue Nov 15th, 2011 at 10:33:19 AM EST
[ Parent ]
Eurointelligence - The role of ideology in this crisis
Also at the October 2001 board meeting the ECB decided to expand its existing Covered Bond purchase program by €40bn which, together with the purchases undertaken in 2009, brings the total volume to €100bn with primary market purchases explicitly allowed.

Should this not read October 2011?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 15th, 2011 at 06:33:37 AM EST
Yes!

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 06:51:33 AM EST
[ Parent ]
The resignations of Axel Weber and Jurgen Stark might be taken as evidence that the ECB has not been sufficiently "pure" in its adherence to the ideology you decry - for some "Austerian" tastes at least. My sense is that the ECB is trying a delicate balancing act: to act, as far as it can, as a central bank and lender of last resort without upsetting German sensibilities too much - in other words by claiming an ideological purity it does not always, in practice, actually adhere too.  

On the other hand, the ECB's open ended support of virtually insolvent private Irish banks is in stark contrast to its treatment of the Irish Sovereign - who it has demanded must reimburse bondholders in Anglo Irish Bank in full despite the fact that those bonds are not secured or covered by Government guarantee in any way. These potential costs to the Irish state -I have seen figures as high as 70 Billion Euro mentioned (after interest) - which are sufficient to create a very significant risk of Irish Sovereign default.

The mantra appears to be: all private debts must be repaid, by the taxpayer if necessary if the relevant private banks are insolvent. And if, as is currently the case with Greece, this proves to be impossible, they must be punished egregiously as a warning to all others.

What we may be seeing is EU integration by the back door.  The EU is now directly imposing its people - ex commissioners and ECB vice Presidents) Monti and Papademos (father of the people!?!) on national polities without regard to popular democracy.

This is only doing in public what they have been doing behind closed doors in countries such as Ireland, where the government was directly threatened with a withdrawal of all ECB liquidity - resulting in  shut down of the banks and ATMs) if approved austerity measures and the bail-out of private bondholders was not sanctioned.

The result of this ideological bias against public vs. private debt is that private economic interests (chiefly German and "core" EU elite) can override public political interests - chiefly peripheral and the 99% non-elite popular interests. It is neo-liberal ideological in origin, but also explicitly globalising and anti-national in effect. Perhaps the intention is that electorates will become so disgusted with their national politicians, they will welcome direct EU rule by comparison.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 15th, 2011 at 07:12:32 AM EST
The resignations of Axel Weber and Jurgen Stark might be taken as evidence that the ECB has not been sufficiently "pure" in its adherence to the ideology you decry - for some "Austerian" tastes at least.

See the parallel thread on Covered Bonds, and report back on the internal consistency of Weber's and Stark's positions, even on their own terms.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:18:39 AM EST
[ Parent ]
Weber and Stark have been entirely consistent. Chermany is alvays right. You vill do zis our vay!

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 15th, 2011 at 07:23:13 AM EST
[ Parent ]
Ok, so the ECB is not stupid - it can understand stopping the buck when it comes to everything except government debt. Should we then not consider that the problem with government debt is not that they are ideologically opposed to being lender of last resort and rather that they prefer this course of action?

Since the crisis begun the ECB has grabbed the power to set national policy in attacked states and used it to destory the welfare system and demand that creditors always shall be paid in import-countries. Perhaps they simply see this as an opportunity to bypass the populistic democracy and finally get to turn those countries "competitive" - which as always means low wages, lower economic activity and power to the owners?

This of course does not mean that they prefer the export-countries to have a welfare system, just that they can not attack export-countries welfare systems right now. The Shock Doctrine does include a large amount of opportunism when it comes to crisis.

In short: if the ECB is proven not to be stupid can we assume they are evil and doing this intentionally?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Tue Nov 15th, 2011 at 10:39:49 AM EST
Should we then not consider that the problem with government debt is not that they are ideologically opposed to being lender of last resort and rather that they prefer this course of action?

My point is that the Eurozone as a whole is ideologically (and structurally, given the ideology of those who wrote and rewrite the rules) opposed to the public sector.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 10:51:06 AM EST
[ Parent ]
And that is a good point.

My point is that there is a difference between an ECB (acting in an ideologically and structurally setting that is opposed to the public sector) that refuses to understand or contemplate the way to stop the crisis and an ECB (acting in an ideologically and structurally setting that is opposed to the public sector) that knows how to stop the crisis but instead prolongs it as it is the basis of ECB:s ongoing power-grab and dismantling of social protections.

For one, it is the difference between not re-appointing the central bank managers in deficit countries and prosecuting them for treason. It also gives different answers to the question of what ECB does if a deficit country seriously moves to default. If they are stupid they crash their banks and force them out - removing the basis for ECB:s power in that country - if they are powerhungry they quickly renegotiate a deal that keeps up appearances while in reality letting the country a bit of the hook.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Tue Nov 15th, 2011 at 02:23:12 PM EST
[ Parent ]
How do you propose to distinguish between the two alternatives "empirically"?

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Tue Nov 15th, 2011 at 07:01:04 PM EST
[ Parent ]
Speaking from taking history I would say that diaries, internal memorandums, classified communication and so on would probably be the best sources. That is direct documentation of the on-going work. But, unless we have a Bradley Manning working at ECB I guess we the public will not have access to such sources until lots of time have passed (but a government investigating treason could).

If the data so far support both alternatives (and I was half expecting the answer to my first post be "you missed that this and that happened which does not fit with ECB doing a power-grab"), I guess we have no good way to seperate the alternatives (of course, they could both partially be true, given that there are many people involved).

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Wed Nov 16th, 2011 at 07:57:57 AM EST
[ Parent ]
Of course it's all consistent with a power grab.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 09:25:24 AM EST
[ Parent ]
Why the Euro Doomsayers Are Wrong   by Jacob Funk Kirkegaard

In light of recent events in the euro area, in which "nuclear threats" of euro expulsion have been issued to Greece and borrowing costs have spiked to unsustainable levels for Italy, the European political and economic situation can perhaps best be understood through the game-theory analysis for which Schelling and Robert Aumann won their Nobel Prize.

The key issue is how the European Central Bank (ECB)--noncommittal in its intentions but still the only institution in Europe (or elsewhere) with the resources to credibly prevent financial contagion--plays its hand.

Recall that it took a nuclear threat to expel Greece from the euro area, forcing political leaders in Athens to unite and agree to the program of austerity and reform pushed by the International Monetary Fund (IMF). In addition, only after Italian 10-year interest rates went past the 7 percent "nuclear threshold" did financial demands bring about a new government in Rome.1 Thus has "regime change" installing new technocratic-led governments occurred in two democratic states, resulting from financial market pressure unchecked by the ECB.

The crisis-driven lineup is similar elsewhere. Ireland and Portugal, after elections earlier this year, are led by majority governments committed to IMF programs,2 and in Spain the center-right Partido Popular (PP) is expected to win the election on November 20 and form a government without the votes of regional parties, a development that could enforce fiscal discipline on local governments.

He thinks the ECB is doing great. If they are doing this to force through a political agenda they may, like Icarus, find their wings coming off as they approach their objective. How successively putting the weakest economies into death spirals is going to improve the stability of the Euro Zone escapes me. It may well escape the market as well.

I recall Joseph Campbell describing the mythical German Dragon as a creature in a cave that guarded a huge treasure of gold and gems for which it had no apparent use. Heroes would steal some of the treasure to bring wealth to the people, or some such. The elites who benefit from the current structure want to keep the wealth they have accumulated but have increasingly less that they can profitably do with this wealth. This is like a game of Monopoly, where one player ends up with all the assets and money, but these elites don't understand that that ends the game. This is not to say that all of the elites are German, but the game does appear to be played by German rules.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 17th, 2011 at 10:23:23 PM EST
[ Parent ]
This is potent stuff:
It is now clear that the ECB under the new presidency of Mario Draghi, the former governor of the Bank of Italy, has been vindicated in its strategy of refusing to defend Italian bond spreads around the 400-450 basis points, thereby forcing Italy to implement the reforms the central bank sought in August. In the end, it was the Italian political class that blinked first in this latest game of chicken and pushed Berlusconi out.

If there were any doubts about the ECB's use of markets to force actions, they were dispelled by Bundesbank President Jens Weidman, who told the Financial Times: "There's also a risk that you mute the incentives that come from the market. Recent experience has shown that market interest rates do play a role in pushing governments towards reforms. You have seen that in the case of Italy quite clearly.3"

Such is the extraordinary power of the ECB, a supranational and wholly independent central bank, that it can orchestrate the fall of elected leaders through its power to intervene and support highly indebted euro area sovereigns. No wonder Nicolas Sarkozy has been so intent on getting a Frenchman back on the ECB Executive Board.



To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 06:12:18 AM EST
[ Parent ]
And here I used to think that back in 2003 in the run-up to our referendum on eurozone membership, the leftists who claimed that the EMU was nothing but a supernational conspiracy to circumvent democracy and force countries to implement rightwing economic policies, where just full of it.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Fri Nov 18th, 2011 at 11:08:47 AM EST
[ Parent ]
what can the ECB say about increasing taxes on the rich?

There are other ways to reduce deficits than by cutting social services.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 18th, 2011 at 02:22:24 PM EST
[ Parent ]
Has any country with ECB minders increased taxes on the rich?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!
by A swedish kind of death on Fri Nov 18th, 2011 at 03:30:28 PM EST
[ Parent ]
We know what the ECB thinks about how to reduce deficits. They've outlined their thinking in considerable detail.

And even if they hadn't, just look at the extremist agenda they're foisting on the Greek under conditions which would be called a coup d'etat if the Russians had done it to an ex-Soviet republic.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 18th, 2011 at 04:39:13 PM EST
[ Parent ]
Apparently they could say whatever they damn well pleased, regardless of the fact that tax policy is none of their mandate.
... the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters.  It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.
(Willem Buiter's maverecon, May 5 2009)

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 04:43:42 PM EST
[ Parent ]
Maverecon blog: What's left of central bank independence? (May 5, 2009)
President Trichet of the ECB is already so far down the road of telling governments what to do and what not to do in the fiscal and structural reform domains, that one is hardly surprised by yet another lecture on budgetary policy from the Eurotower.  Traditionally, continental European central bankers speak very little about monetary policy in public, and are often unwilling to engage in public debate or answer questions about their monetary duties, but carry on endlessly about budgetary and structural reform matters.  It's always easier to speak about things you have no responsibility for, that are not part of your mandate and about which you probably don't know very much.


To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 08:39:52 AM EST
[ Parent ]
... multi-pick? That is, every time I added another appropriate response, the prior appropriate response was erased, when clearly the ECB is stupid, incompetent, evil, and much more besides.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Nov 15th, 2011 at 02:29:11 PM EST
True. I encountered the same thing. I was hoping for the option of "all of the above" or better still, "all of the above and then some."
by sgr2 on Tue Nov 15th, 2011 at 04:17:15 PM EST
[ Parent ]
How about...
  • stupid
  • incompetent
  • all of the above
  • evil
  • all of the above
  • stupid and evil
  • incompetent and evil
  • none of the above


To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 02:40:09 AM EST
[ Parent ]
is (a) "stupid" and "incompetent" and "all of the above" and "evil" the same as (b) "stupid" and "incompetent" and "evil" or does that mean that you vote for a double dose of stupid and incompetent and a smaller single dose of evil?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Nov 16th, 2011 at 03:18:13 AM EST
[ Parent ]
This is set theory, not multiset theory.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 04:32:37 AM EST
[ Parent ]
eggs, beans and spam.

With a side order of French toast.

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

by eurogreen on Wed Nov 16th, 2011 at 07:23:04 AM EST
[ Parent ]
You forgot "true believers who think they're doing the right thing".

Which is probably the truth.

by Colman (colman at eurotrib.com) on Wed Nov 16th, 2011 at 04:56:15 AM EST
[ Parent ]
I call that stupid and voted accordingly.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 04:58:51 AM EST
[ Parent ]
Aha, so the poll answers are in part about our theory of institutional structure. If institutions are epiphenomena that transparently reflect the habits and intentions of the individuals playing different roles in the institutions, than the question of what "the ECB is" boils down to what the individuals that make up the institution are and what that implies when they get together.

As individuals, they are not stupid so much as having a trained incompetence that prevents them from reaching inconvenient conclusions.

The consequence of having such individuals make up an institution, though, would be that as an institution, it would be incapable of learning that the picture it has of the way that the world works is fatally flawed ~ and, sure, "stupid" is a foin word for that, isn't it just?

OTOH, if the structure of an institution creates a bias toward certain institutional actions, which does not strictly depend on the views of the individuals filling the various roles that make up the institution, then we could describe it as something in its own right. And given the malignant effects of the ECB over the past year, I'd say that "evil" is not overstating its role as a thing in its own right.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 16th, 2011 at 01:00:30 PM EST
[ Parent ]
I'll note a point that just occurred to me. The "stupidity" as an institution is not due to the fact that each role-incumbent is in some way incompetent. We are each of us, after all, incompetent in some way, and if our role in an institution competence were we are competent and allows us to defer to someone else where we are incompetent, the institution can be more like the union of competencies of its members, rather than the intersection of competencies.

The problem here is that most members have received similar training which creates common trained incompetencies, so the "let Fred do that" solution fails, both for the blinders of the people who ought to be letting "Fred" do that, and for the lack of people who can be "Fred", because they do not share the trained incompetence.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Nov 16th, 2011 at 03:42:07 PM EST
[ Parent ]
for diversity on the ECB.

For example :
One banker
One politician
One farmer
One factory worker
One small business owner

... to be completed.

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

by eurogreen on Thu Nov 17th, 2011 at 04:52:50 AM EST
[ Parent ]
Now this is foggy, but years ago I talked with a South African student active in his student union, who told me that their university board was set up something along the lines you describe, with big national organisations (unions, employer organisations, farmer organisations) each getting to fill a seat. Something to use as a model perhaps?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!
by A swedish kind of death on Thu Nov 17th, 2011 at 02:59:45 PM EST
[ Parent ]
Isn't that basically good old fascist corporativism?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Nov 17th, 2011 at 03:17:28 PM EST
[ Parent ]
If so, Sweden was fascist in the 50ies and 60ies when LO, SAF and LRF for all practical terms held seats in parliament :)

But yes, fascism includes representation by organisations. However, it also includes a lot more, and considering the alternatives (like we have today in Sweden, where for all practical purposes the principal picks his board, or the one we used to have where the leading parties filled the boards) I would not mind a decent representation from national organisations as long as they fairly well balance each others institutional interests out.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES!

by A swedish kind of death on Thu Nov 17th, 2011 at 03:29:51 PM EST
[ Parent ]
If so, Sweden was fascist in the 50ies and 60ies when LO, SAF and LRF for all practical terms held seats in parliament :)

I usually joke that period was basically national socialism with a human face. ;p

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Thu Nov 17th, 2011 at 05:34:17 PM EST
[ Parent ]
When I saw capable, well intentioned people in LAUSD reliably engaging in actions that undermined their intent I called that phenomenon "Institutional Incompetence".

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 17th, 2011 at 11:12:38 AM EST
[ Parent ]
"trained incompetence" is Veblen's, not mine, but it is perennially useful.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Thu Nov 17th, 2011 at 11:48:19 AM EST
[ Parent ]
At the time of the observation The Theory of the Leisure Class and The Higher Education in America were the only works of Veblen with which I was familiar.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 17th, 2011 at 09:34:46 PM EST
[ Parent ]
I voted "other" meaning "all of the above"

"Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband
by Kostis Papadimitriou on Thu Nov 17th, 2011 at 06:10:48 AM EST
[ Parent ]
by kjr63 on Wed Nov 16th, 2011 at 05:04:34 AM EST
Eurozone crisis: New Italian government announced - 16 November 2011 | Business | guardian.co.uk

My colleague Andrew Sparrow has also been watching the Mervyn King press conference, and reports that the Governor issued a rebuke to those (including the media) who suggest the European Central Bank should simply act as a "lender of last resort".

King said:

This phrase lender of last resort has been bandied around by people who, it seems to me, have no idea what lender of last resort actually means, to be perfectly honest. It is very clear from its origin that lender of last resort by a central bank is intended to be lending to individual banking institutions and to institutions that are clearly regarded as solvent. And it is done against good collateral, and at a penalty rate. That's what lender of last resort means.

That is a million miles away from the ECB buying sovereign debt of national countries, which is used and seen as a mechanism for financing the current account deficit of those countries, which inevitably, if things go wrong, will create liabilities for the surplus countries. In other words, it would be a mechanism of transfers from the surplus to the deficit countries. That's why the European Central Bank feels, and with total justification, that it is not the job of a central bank to do something which a government could perfectly well do itself but doesn't particularly want to admit to doing.

I think it's very important to recognise that there are circumstances where governments will try and put pressure on central banks to do things that they would like central banks to do in order to avoid their having to own up to the actions that they actually would like someone else to carry out. So I have every sympathy with the European Central Bank in this predicament ...

The only circumstance in which looking at the data for the euro area as a whole has merit is in realising that actually the euro area does have the resources, if you were to regard it as a single country, to make appropriate transfers within itself. It doesn't actually need transfers from the rest of the world. But the whole issue is, do they wish to make transfers within the euro area or not? That is not something that a central bank can decide for itself. It is something that only the governments of the euro area can come to a conclusion on. And that is the big challenge that they face.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Nov 16th, 2011 at 05:59:10 PM EST
Metatone:
if you were to regard it as a single country, to make appropriate transfers within itself.

belgium and italy can't even do that...

stands to reason brussels should set such an example, lol.

"I would rather have questions that can't be answered than answers that can't be questioned." - Richard Feynman

by melo (melometa4(at)gmail.com) on Wed Nov 16th, 2011 at 06:41:53 PM EST
[ Parent ]
That is true. But, if you also admit that, say, Italy is insolvent with a bond yield of 7% but solvent at 4% then the ECB, by acting (or failing to act) to cap bond yields at a particular level can actually decide whether Italy is solvent or not. In which case, Italy is solvent but illiquid.

On the other hand, King has a point on lending "on good collateral and at penalty rates". But then, if a bank doesn't have good collateral or can't pay the penalty rate, the bank goes bust and defaults on its obligations. So the ECB insisting on no defaults rather seems like wanting to have its cake, and eat it too.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Wed Nov 16th, 2011 at 07:54:35 PM EST
[ Parent ]
That is the consequence of the ECB being the heir of the Bundesbank and being morally constrained - by German "financial morality", what ever that truly is.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Nov 17th, 2011 at 11:16:10 AM EST
[ Parent ]
Zero Hedge: Citi Chief Economist Willem Buiter: A Spanish Or Italian Default Could Happen In A Few Short Days
On why the ECB hasn't acted yet:

"Because [being the heir?] of the Bundesbank, they consider central banks purchasing sovereign debt outright to be like swearing in church.  It's just not done.  This has been in fact to a certain extent embedded in the treaty which forbids the ECB from lending directly to governments or buying stuff in the primary market.  But there is no restriction at all on them buying any amount of sovereign debt at any time in the secondary market, so they can do it."

"This crisis is the result of the failure to provide the minimal institutional underpinning for a monetary union in the euro area and also a result of the ECB unfortunately being the heir of the Bundesbank and therefore not understanding and rejecting the role of central bank as lenders' last resort to sovereigns.  They certainly are a central bank.  They just are a central bank that prefers to fight with both hands behind their back.  If they just let go of one hand, that would be enough."

(h/t ARGeezer)

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 02:45:26 AM EST
Am I reading this wrong to say that it appears Buiter and Mervyn King fundamentally disagree about the role of the central bank regarding sovereigns?
by Metatone (metatone [a|t] gmail (dot) com) on Thu Nov 17th, 2011 at 04:28:14 PM EST
[ Parent ]
After all Buiter hasn't been part of the Bank of England's Monetary Policy Committee for over 10 years...

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Thu Nov 17th, 2011 at 05:48:14 PM EST
[ Parent ]
they'll probably make him a Lord when it's all burned out...

A UK Recovery Program: Go Keynesian (Part 1)

In a speech on 17 November, the leader of the UK Labour Party urged the Prime Minister to "change course" on economic policy or have another recession or worse.  What would be a "new course" that effectively revived the economy?

The answer derives from the cause.  The stagnation of the UK economy is the result of a collapse in private investment and a depressed world market, whose knock-on effects has been unemployment and lower household consumption.  The solution is a substantial fiscal stimulus to restore aggregate demand.

The Coalition government has repeatedly stated that its rejection of this obvious route to recovery is not ideological.  Their spokespeople claim that the size of the overall fiscal deficit, about ten percent of gross national product, precludes any further public expenditure.  On the contrary, the urgent need is to reduce public expenditure to close that deficit.  Let us suspend disbelief and momentarily accept the hypothesis that the government is not cutting out of ideological zeal.

If the cuts are not ideological, then the question immediately presents itself, what danger does a deficit of ten percent of GDP create?  A search turns up four "deficit danger" arguments:  1) people will expect the government to raise taxes in the future to payoff the debt and they reduce current expenditure in anticipation (so-called Ricardian Equivalence);  2) the interest on the deficit presents an unmanageable burden now and "for our children"; 3) deficits push up interest rates, crowding out private spending;  or/and 4) unless the deficit is reduced, financial markets (aka speculators) will drive up the interest rates on UK bonds, as has happen to Greek, Italian and Spanish bonds.

The first argument is simply silly, literally silly in a simplistic way. It is flawed economic logic based on a series of assumptions so unrealistic that they are absurd (for example, continuous full employment). 



"I would rather have questions that can't be answered than answers that can't be questioned." - Richard Feynman
by melo (melometa4(at)gmail.com) on Fri Nov 18th, 2011 at 03:34:09 AM EST
[ Parent ]
Richard Koo has cogently made the point that NOT providing stimulus in a major downturn costs significantly more than providing stimulus. This is especially true if the stimulus goes to pay people to provide needed services, to create needed infrastructure or, in fact, to create anything that will provide a revenue stream with which to repay the investment.

The problem is that so many of the possible useful targets for beneficial stimulus do not provide the sorts of returns the financial sector needs to keep their Ponzi going. And they are offensive to elites who see the only legitimate use of public enterprises is to be privatized so as to provide a windfall to an elite, (while the enterprise is being milked dry and looted), only to be dumped back on the public when no more quick cash can be extracted. Passenger rail in Britain is a classic example.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 18th, 2011 at 01:46:32 PM EST
[ Parent ]
Buiter's reading of the matter is indeed the most commonly held view among US policymakers regarding the ECB and the European crisis.  I had the opportunity to spend a day with one of the Federal Reserve presidents, and the topic of Europe came up quite a bit for discussion, and this was largely his and the other Fed economists' view as well. The whole crisis is something easily, and almost costlessly in terms of total European wealth, resolved by ECB action, but that an international dispute over the distribution of wealth in Europe is preventing action.

I think there may be more to it than that, however, if we take into account the value-based conviction on the part of European policymakers to maintain the euro as an institution for peace and political unity among European nations, over and above the economics at hand.  It's not unlike the conviction that held the Holy Roman Empire, another German-dominated institution, together for so long. German bankers and investors are able to take advantage of the value-based consensus of so many policymakers throughout Europe for their own economic well-being. Pax Germania.

by santiago on Fri Nov 18th, 2011 at 12:25:20 PM EST
[ Parent ]
I'm not clear how reducing European populations to penury and destroying any semblance of practical non-corporate democracy counts as 'maintaining the Euro as an institution for peace and political unity.'

Or is this an example of 'It was necessary to destroy the Euro in order to save it'?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 18th, 2011 at 01:21:04 PM EST
[ Parent ]
I think it's more like, "It was necessary to destroy European working people in order to save the Euro."  And that's been a recurring theme in the history of grand pan-European political projects since the fall of Rome.
by santiago on Fri Nov 18th, 2011 at 01:25:56 PM EST
[ Parent ]
And, of course, There Is No Alternative!

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 19th, 2011 at 11:09:51 AM EST
[ Parent ]
It's more of a matter that the political commitment to European integration allows Germany to hold the rest of the Euro countries hostage because certain policies become nigh-unfathomable as they are incompatible with continued Eurozone existence.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 04:08:48 PM EST
[ Parent ]
http://www.aljazeera.com/indepth/opinion/2011/11/20111115142561955.html

We could be living through the last days of the euro.
...The current low inflation rate in Germany requires that Spain, Italy and other peripheral countries actually have deflation to improve their competitiveness.
...While the basic logic of the situation should be apparent even to people without formal training in economics, the ECB seems oblivious to it. The preferred path from the ECB, along with its partners the International Monetary Fund (IMF) and the European Union, is to require that the heavily indebted countries just keep cutting their deficits. This leads to further reductions in demand, which causes higher unemployment. As the unemployment rate rises, tax collections fall and payment for transfer programmes like unemployment benefits increase. The result is that the deficits get larger and the debt to GDP ratio rises.
...Support from the BRICs?

This is truly a remarkable story since the per capita income of all of these countries is far below the average in the ECB. In Russia, the richest of the group, per capita income is just under $17,000 per year - slightly more than half of the eurozone average. In India, per capita income is under $4,000 - less than 15 per cent of the average for the EU. In short, we have a confederation that includes many of the richest countries on the planet asking for handouts from countries that are much poorer.



Science without religion is lame, religion without science is blind...Albert Einstein
by vbo on Fri Nov 18th, 2011 at 12:37:26 AM EST
Peterson Institute: Why the Euro Doomsayers Are Wrong
This fate need not be a self-fulfilling prophecy for several reasons. With respect to bank funding pressures, in the presence of persistent market illiquidity, the ECB can act to improve the situation. The weekend comment by Bundesbank President Weidman offered a novel dual definition of the ECB mandate, stating: "I will just confirm to you that we will act according to our mandate and provide liquidity to solvent banks and ensure price stability--this is our task."

The ECB can, for instance, offer unlimited liquidity beyond one year, expanding further its covered bond purchase program or adjusting the eligibility criteria for ECB collateral. Meanwhile euro area governments must enforce gradually higher capital requirements and that this be achieved not merely by reduced lending.

In the sovereign bond markets, however, the market's unwillingness to fund peripheral euro area governments at lower interest rates, despite reform implementation and euro area institutional integration, will clearly not be alleviated by the ECB--even as it remains ready to prevent yields from rising to catastrophic levels for "good reformers."



To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis
by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 06:21:50 AM EST
BusinessTimes: Officials mull ECB loan to IMF for eurozone rescue
'Some discussions on this have taken place . . . It could be one way of getting around the legal restrictions on the ECB,' a official with knowledge of the talks said. A second official said that ECB lending to the IMF was being explored.

The idea appears as the rising severity of the eurozone debt crisis, which now threatens to engulf Italy, or even France, makes policymakers desperate to get the ECB, with its limitless resources as a central bank, more involved in the rescue efforts to buy governments time for reforms.

Economists say that only the ECB now can offer a credible guarantee to markets, as plans to leverage the firepower of the eurozone bailout European Financial Stability Facility (EFSF) to one trillion euros (S$1.7 trillion) were unlikely to fully materialise or, even if they do, to be sufficient.

It's also a way to use the IMF for political cover for the imposition of austerity...

Now, what was that about the IMF not getting its ugly hands on Germany's gold reserves that we heard after the latest G20 summit?

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 10:44:27 AM EST
It was about the EFSF rather than the IMF.

And why and how would the ECB call on Bundesbank gold reserves (that Germany doesn't want to sell off) to lend to the IMF?

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 18th, 2011 at 11:05:34 AM EST
[ Parent ]
This is truly bizarre. I guess this is just hiring the IMF to be the hatched man. Why else would the ECB create money to give to the IMF to rescue eurozone states?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 18th, 2011 at 01:50:43 PM EST
[ Parent ]
Because they are insane.

The EU has spent the last 20 months devising Rube Goldberg machines to avoid doing the easy thing.

To err is of course human. But to mess things up spectacularly, we need an elite — Yanis Varoufakis

by Migeru (migeru at eurotrib dot com) on Fri Nov 18th, 2011 at 04:05:41 PM EST
[ Parent ]
Zoellick Says Europe May Get Support From Developing Nations, U.S. Via IMF - Bloomberg

Countries from China to the U.S. may be willing to support Europe through the International Monetary Fund if the region's policy makers agree on a plan to stem their debt crisis, World Bank President Robert Zoellick said.

The 17-nation euro region is "at a tipping point," Zoellick said, with the turmoil affecting the U.S. as well as developing economies. The IMF can help "backstop the European system" as countries such as Italy adopt new policies to reassure investors, he said.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 18th, 2011 at 02:55:14 PM EST
[ Parent ]
http://online.wsj.com/article/BT-CO-20111119-701709.html

If Ackermann and Schauble agree, then ideology not only plays a role, but it's all and only about ideology.

by Upstate NY on Sun Nov 20th, 2011 at 11:05:41 AM EST
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