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Germany running Ireland?

by Frank Schnittger Thu Nov 11th, 2010 at 09:12:23 AM EST

My old friend, Morgan Kelly,  has been sharpening his rhetorical tools again...The Irish Times - Mon, Nov 08, 2010

SAD NEWS just in from Our Lady of the Eurozone Hospital: After a sudden worsening in her condition, the Irish Patient, formerly known as the Irish Republic, has been moved into intensive care and put on artificial ventilation. While a hospital spokesman, Jean-Claude Trichet, tried to sound upbeat, there is no prospect that the Patient will recover. 

It will be remembered that, after a lengthy period of poverty following her acrimonious divorce from her English partner, in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job. Although her increasingly riotous lifestyle over the last decade had raised some concerns, the Irish Patient's fate was sealed by a botched emergency intervention on September 29th, 2008 followed by repeated misdiagnoses of the ensuing complications. 

With the Irish Patient now clinically dead, her grieving European relatives face the melancholy task of deciding when to remove her from life support, and how to deal with the extraordinary debts she ran up in the last months of her life . .


Morgan Kelly puts the blame for the fiasco firmly at the feet of the Irish Government..

The Irish Times - Mon, Nov 08, 2010

Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act. The way would then have been open to pass legislation along the lines of the UK's Bank Resolution Regime, to turn the roughly €75 billion of outstanding bank debt into shares in those banks, and so end the banking crisis at a stroke.

With the €55 billion repaid, the possibility of resolving the bank crisis by sharing costs with the bondholders is now water under the bridge. Instead of the unpleasant showdown with the European Central Bank that a bank resolution would have entailed, everyone is a winner. Or everyone who matters, at least.

The German and French banks whose solvency is the overriding concern of the ECB get their money back. Senior Irish policymakers get to roll over and have their tummies tickled by their European overlords and be told what good sports they have been. And best of all, apart from some token departures of executives too old and rich to care less, the senior management of the banks that caused this crisis continue to enjoy their richly earned rewards. The only difficulty is that the Government's open-ended commitment to cover the bank losses far exceeds the fiscal capacity of the Irish State.

Others do not see the European influence as being quite so benign...

Letting these Eurocrats push us around is just not on - The Irish Times - Thu, Nov 11, 2010

However, Morgan "Morale Buster" Kelly confirms that actual Germans have occupied the Department of Finance and, unexpectedly, I had a moment of compassion for our civil servants who must endure the indignity.

Just because these Eurocrats are providing the cash to keep our banks afloat, I wouldn't be on for letting them push us around. I know we made our own mistakes, but let's face it, the Germans haven't really helped. In fact, keeping them happy has made our situation considerably worse

Sarah Carey's argument in the above piece is that the Government was forced to act as it did because the ECB was terrified of a Lehman style bank collapse, wants to keep the Euro strong, and was adamant that the Irish bank Bond-holders - chiefly German and French banks - had to be repaid in full.  However all of these things are not necessarily in the interests of the Irish people.

The Irish economy needs a weak Euro to help recover competitiveness, and Anglo-Irish bank was never a systemically important bank as far as the Irish economy was concerned. In fact it's influence was almost wholly negative: it created an asset price bubble, pushed up private sector borrowing to an unsustainable level, and resulted in a wholly disproportionate dependence on the building industry to keep the appearance of the Celtic Tiger going whilst the inflation it was creating was making the real economy in Ireland steadily less competitive.

Far from being the saviours of the Irish economy, Sarah Carey argues that the EU has been acting in the interests of its larger members...

Letting these Eurocrats push us around is just not on - The Irish Times - Thu, Nov 11, 2010

They are providing us with cashflow: just enough to pay back their bondholding credit unions and banks, but not enough to get lending going again to help our domestic economy. This talk of "good Europeans standing by their weaker friends" coats a considerable degree of self-interest.

Remember, in Greece, the government had to cut all kinds of public spending - but not the €1 billion for two submarines contracted to a German manufacturer. Meanwhile, Frau Merkel's comments that sovereign bondholders might have to take a hit were a significant factor in those 8 per cent yields that scared the bejaysus out of everyone.

Not everyone is quite so downbeat.  

Rumours of the nation's demise greatly exaggerated - The Irish Times - Thu, Nov 11, 2010

As the Irish Business Employers Confederation (Ibec) told EU commissioner for economic affairs Olli Rehn this week, we firmly believe business will deliver those numbers and that our growth potential far surpasses that of other peripheral EU states.

Our industry base remains strong, deep and dynamic, with a good spread between high-end manufacturing activity, services and increasingly research and development-driven activity.

Major global brands in key sectors, such as food and drink, medical devices, information and communications technology, pharmaceutical and financial services, have based themselves here because it remains a strategic export platform, servicing global markets.

Foreign direct investment (FDI) continues to make a very important contribution to our economy and the continued strength of the FDI pipeline demonstrates the extent to which investors remain confident. However, the scale of indigenous industry is less well recognised.

The problem is that the more productive sectors of the Irish economy are being swamped by the sea of debt being created by the Government's socialising the losses of the private banking sector.

The EU Economic and Monetary Affairs Commissioner Oli Rehn has been meeting with Government and Opposition parties, the trade union and the employer organisations over the past few days.  His presence may be symbolic of the fact that the EU now runs Ireland.  He has spoken in the past of Ireland having to give up its low corporate tax regime - a thorn in the side of bigger EU members, but perhaps the one remaining factor which allows Ireland to attract inward investment at the present time.  

Certainly the Opposition parties and the trade union movement are under enormous pressure to agree to the Government's 15 Billion four year public expenditure cuts programme - 6 Billion of which is to be achieved in the next year.  Why they should agree to take ownership of the Government's mistakes and compromise their own chance of winning the next election is less than clear.  They will probably end up doing more or less the same thing once elected, but bailing out the current Government would be an endorsement of some of the most disastrous Government decisions ever made.

The Government has lost its moral authority to govern, even as it further reduces the options available to any successor Government. The old, sick and poor will pay for the mendacity of a few members of the Irish financial elite, the neglect of the regulators, and the naïveté of the politicians. Having had their exposure to losses in Irish banks covered off for them, there is no reason why the European elite should care less.  

Ireland is too small to effect the overall balance of the Eurozone.  Indeed, Morgan Kelly opines that the real EU agenda is to use Ireland and Greece as salutary lessons for the countries they are really worried about - Italy and Spain.  Germany does not want to be left holding those rather big babies, and if Ireland goes down the tubes because of the totally unsustainable interest rates now being forced on it by Sovereign debt markets, then hopefully that will stop other countries from going down the same road.

There is only one problem with this scenario. If the Lehman default was indeed as toxic to the global financial system as has been argued, a Sovereign default by Ireland would be much more toxic to the EU, and particularly Eurozone.  Whether they like it or not, the major Eurozone players will have to intervene to prevent Irish sovereign debt interest rates going above a sustainable level (defined as long term growth plus inflation trends).  In practice this ceiling is somewhere less than 5% - much less than the current 8%.  The only way this can be done is for the ECB to develop some real capabilities, and for the German polity to accept that this must be done.  We live in interesting times...

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European Tribune - Germany running Ireland?
Until September, Ireland had the legal option of terminating the bank guarantee on the grounds that three of the guaranteed banks had withheld material information about their solvency, in direct breach of the 1971 Central Bank Act.
Why "until September"?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 09:36:01 AM EST
I think he means that terminating now wouldn't help because the bank bonds have become government bonds by now.
by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:10:14 PM EST
[ Parent ]
Yep - basically the bondholders have been paid off and what was private debt is now sovereign debt - and the sovereign has become almost as crappy an investment prospect as the bank once was - hence the high intereest rates.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 11th, 2010 at 12:28:33 PM EST
[ Parent ]
One Currency to rule them all, One Currency to find them,
One Currency to bring them all and in the darkness bind them

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 09:38:01 AM EST
European Tribune - Germany running Ireland?
The Irish economy needs a weak Euro to help recover competitiveness
Not necessarily, it just needs the ability to stimulate economic activity through money creation.

Which doesn't make "a weak Euro" - since given the economic conditions money creation wouldn't be inflationary.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 09:39:29 AM EST
Either will do -  a weaker Euro will help stimulate non-Euro exports whilst increased liquidity could stimulate the economy more generally. ECB policy curently supports neither.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 11th, 2010 at 12:40:25 PM EST
[ Parent ]
European Tribune - Germany running Ireland?
Ireland is too small to effect the overall balance of the Eurozone.  Indeed, Morgan Kelly opines that the real EU agenda is to use Ireland and Greece as salutary lessons for the countries they are really worried about - Italy and Spain.  Germany does not want to be left holding those rather big babies, and if Ireland goes down the tubes because of the totally unsustainable interest rates now being forced on it by Sovereign debt markets, then hopefully that will stop other countries from going down the same road.
I can't see how, to be honest. It's not like these countries have a lot of economic autonomy and Ireland has enforced the budget austerity required by the German orthodoxy.

The inflation hawks are simply mad and need to be unseated.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 09:45:49 AM EST
My most optimistic assessment of the situation is that Ireland did the bank bailout to protect the German and French banking systems from a high risk of collapse in a back-room deal. Once we've been seen to suffer enough the EU is going to lend us enough money at a suitable rate, and this has all already been agreed. The current goings on are bread and circuses for the plebs - to reassure the voters in Germany and so on that only the virtuous will get help and to frighten the other countries.

I don't have much faith in this assessment, however.

by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:16:57 PM EST
[ Parent ]
This is our central bank governor:
RELAND has to "jump" to meet the expectations of the international markets even though they are "greatly exaggerating" the country's economic problems, Central Bank governor Patrick Honohan has said.

The markets have yet to be convinced that Ireland can resolve its difficulties and so the Government has no other choice but to implement the austerity measures necessary to reassure them, he indicated.

Dr Honohan said he strongly endorsed both the Government's decision to set out a four-year plan to tackle the deficit and to begin that work with an initial adjustment of €6bn in next month's budget.

The four-year plan would put the country on a credible path to getting the debt under control and help "restore domestic and international confidence".

His comments came as the rates demanded by the markets to lend money to Ireland hit record highs and Goldman Sachs said the likelihood of the country resorting to an EU/IMF bailout had increased.

A bailout of both Ireland and Portugal would resolve current market tension and not lead to contagion in the wider EU, Goldman suggested.

But Dr Honohan said an IMF bailout wouldn't be necessary, as the organisation would probably take the same actions already being identified by the Government.

Read more: Examinaer

Why worry about the IMF when your government is just as bad? And why are we enduring the cuts without even the pay-off of cheap loans? WTF?

by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:22:46 PM EST
[ Parent ]
Central Bankers, Central Wankers.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 12:27:25 PM EST
[ Parent ]
Totally irrelevant wankers at that.

The steering wheel has come off in their hands.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Nov 11th, 2010 at 02:43:37 PM EST
[ Parent ]
Oh, they are relevant, they still have the power to fuck entire economies over. So they also have the power to help.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 05:12:07 PM EST
[ Parent ]
Migeru:
So they also have the power to help.

I can't see that this follows.

While Central Banks have the destructive power to fuck economies over, I do not think that at the zero bound there is much that they can do which is constructive.

The only solution IMHO is systemic fiscal reform: the best Central Banks can do is maintain a watching brief as monetary authority.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Nov 11th, 2010 at 05:22:42 PM EST
[ Parent ]
While Central Banks have the destructive power to fuck economies over, I do not think that at the zero bound there is much that they can do which is constructive.

They can monetize sovereign debt to fund stimulus.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 02:18:51 AM EST
[ Parent ]
Funding is not enough.

Spending is necessary - which is fiscal action, not monetary.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 05:45:50 AM EST
[ Parent ]
I said fund stimulus.

If the spending has to be funded by issuing bonds in the open market there will be none.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 06:30:19 AM EST
[ Parent ]
the problem is not how to fund it, but to have a stimulus. So again the problem is one of fiscal policy, not monetary policy.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 07:24:41 AM EST
[ Parent ]
You can't have a stimulus if the imperative is to reduce deficit in the middle of a recession. And the monetary authorities are not helping in their fiscal pronouncements.

By the way, do you think "price stability" should be defined as "2% inflation" regardless of the macroeconomic conditions?

Do you know about the Wörgl experiment?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 08:23:44 AM EST
[ Parent ]
Migeru:
You can't have a stimulus if the imperative is to reduce deficit in the middle of a recession.

Of course you can.

The Treasury simply spends (under professional management by professionals with a stake in the outcome) on creating productive assets, and on increasing the capacity of people to create them. The Central Bank creates the necessary credit on behalf of the Treasury.

When the productive assets are complete they are re-'funded' by investors in credit based directly on the use value of the assets, and the public credit which financed development is then retired and recycled. The newly productive people pay more tax, and this also retires the public credit which financed their increased productivity.

Spending money into existence is precisely what private banks do already when they credit the accounts of suppliers; staff; management; shareholders (dividend payments). Also when they buy assets.

The only difference between public and private bank credit is that the former has an added burden of excessive payments to management and unnecessary payments to shareholders, and this combination means that private credit is by definition more inflationary as money(to the extent of rentier profit) than public credit.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 09:27:10 AM EST
[ Parent ]
ChrisCook:
The Treasury simply spends (under professional management by professionals with a stake in the outcome) on creating productive assets, and on increasing the capacity of people to create them. The Central Bank creates the necessary credit on behalf of the Treasury.
Not in the Eurozone you don't.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:32:44 AM EST
[ Parent ]
Sad, but true.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 11:43:13 AM EST
[ Parent ]
So they also have the power to help.

I can't see that this follows.

They can help by stopping their rape of the real economy.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 12:19:36 PM EST
[ Parent ]
That makes sense. I don't know why anyone outside France and Germany would go along with it.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 12:26:57 PM EST
[ Parent ]
Never underestimate the deference of Irish politicians to their betters.
by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:33:18 PM EST
[ Parent ]
And this case "betters" covers almost everyone.
by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:43:00 PM EST
[ Parent ]
about who owns (or owned) the Irish bonds?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 05:48:47 AM EST
[ Parent ]
No. There was something I linked to a while back, but that was for the subordinate debt and it was being pushed by Ganley and Fawkes.

I'm working off rumour here, more or less. I'd love some real data, but have no idea how to get it.

On another point: am I right in thinking that, given Ireland isn't holding bond auctions right now, the price of debt is more or less meaningless?

by Colman (colman at eurotrib.com) on Fri Nov 12th, 2010 at 06:25:26 AM EST
[ Parent ]
Colman:
am I right in thinking that, given Ireland isn't holding bond auctions right now, the price of debt is more or less meaningless?
It may hurt bondholders who use mark-to-market accounting for their assets.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 06:27:17 AM EST
[ Parent ]
probalby the most recent:


Ireland Worries Persist Despite Successful Bond Sale

23 September 2010

LONDON (Dow Jones)--The Irish government bought itself months of breathing room this week by selling all the bonds it needs to for 2010, but that hasn't been enough to allay concerns among some investors about the country's ability to repay its debts.

The auction Tuesday of EUR1.5 billion worth of bonds enabled the government to complete the EUR20 billion bond funding it planned for 2010. Furthermore, when taking into account cash balances, retail debt and the long-term funding carried over from last year, Ireland is now fully funded through the first half of 2011.

(...)

ts funding costs remain comfortably below the levels that would prompt the use of the EFSF. On Tuesday, the National Treasury Management Agency, or NTMA, sold EUR500 million of the 4% January 2014 bond at an average yield of 4.767% and EUR1 billion of the 4.5% October 2018 bond at an average yield of 6.023%.

So, 4.75% for 4 year debt, and 6% for 10 year debt. Doesn't sound so horrible.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 06:32:11 AM EST
[ Parent ]
Even that's too high to be sustained, especially in the context of death-spiral budget cuts pushing growth down to a couple of percent for the next couple of years or decade or whatever horror they manage to perpetrate.
by Colman (colman at eurotrib.com) on Fri Nov 12th, 2010 at 06:49:58 AM EST
[ Parent ]
You know, defaulting on the debt would save the same amount in interest payments as the budget cuts.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 07:10:12 AM EST
[ Parent ]
This is such a transparent pump and dump operation it hurts... 6 weeks ago Ireland bought itself "months of breathing room by selling all the bonds it needs for 2010" at moderate interest rates and now we're talking about a coordinated EU rescue?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 08:48:07 AM EST
[ Parent ]
Europe's web of debt - who owes who and how much. | The charts of business and finance



"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Fri Nov 12th, 2010 at 12:10:28 PM EST
[ Parent ]
not France and Germany, which are the major creditors of Ireland... that's reassuring (or something)

As it would be difficult, for historical reasons, to name a British viceroy in Ireland, they'll have to make do with a German one...

What alarms me the most in that diagram is the France/Italy equation. What is to be done? Debt/equity? Infrastructure?

Perhaps the French could keep the Italian motorways in good repair, and make the trains run on time?

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

by eurogreen on Sat Nov 13th, 2010 at 05:50:51 AM EST
[ Parent ]
This presumes a degree of prescience and forward planning that has been entirely lack from the "crisis management" exhibited to date.  There may have been a hope that, if the worst came to the worst, there would be some quid pro quo from "Europe" if the Irish Government did the decent thing. The overwhelming sense I have, however, is that, in their wildest dreams, Lenihan/Cowen never thought it could come to this.  They saw the Guarantee as a handy little earner which would never be called in...a bit like the bankers before them when it came to all those loans backed by dodgy collateral.  

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 11th, 2010 at 02:54:34 PM EST
[ Parent ]
What would stop a new Irish government from declaring those debts taken form the bank as null and void?

If they no longer can borrow (for a while, the markets have had their ferret memory destroyed by to much crack), then issue scrip good for paying 100 euros of tax to the irish government and pay the expenses with that.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Thu Nov 11th, 2010 at 11:59:18 AM EST
Several of my friends are convinced the bond markets are pushing up rates because they're afraid to lend to people too stupid to hang them out to dry when things go wrong.
by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:44:44 PM EST
[ Parent ]
Im not especially impressed by any of the analysis you cite. Kelly is another one who makes his money doom-mongering and being right for the wrong reasons, Carey's piece doesn't rise to the level of analysis, and I only have rude things to say about IBEC.

Although:

Morgan Kelly puts the blame for the fiasco firmly at the feet of the Irish Government..

Well, duh.

by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:09:14 PM EST
His presence may be symbolic of the fact that the EU now runs Ireland.

Did I miss a treaty?

The Irish government still runs Ireland. The question is whether they can afford to borrow enough money to run their budget next year. Even if we decide to default they're still running the place.

The whole buzz about economic sovereignty is bullcrap: an effort to push the blame for the stupid budget they're about to try to pass on the Germans and the Commission.

by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:13:23 PM EST
What budget would you try to pass?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 12:25:41 PM EST
[ Parent ]
by Colman (colman at eurotrib.com) on Thu Nov 11th, 2010 at 12:29:13 PM EST
[ Parent ]
* capping all public service salaries at €100,000, raising €450 million.

That's an extraordinary number of "top civil servants" for such a small country.

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

by eurogreen on Thu Nov 11th, 2010 at 12:59:30 PM EST
[ Parent ]
It is called Lebensraum (avec un petit peu de Français).

We will join you (formally, because informally we are already there) in a week or so.

by t-------------- on Thu Nov 11th, 2010 at 12:45:39 PM EST
Just to add that my hope lies with the Greeks and the Spaniards. Portuguese and Irish have proven beyond reasonable doubt that they are joyfully obedient to their masters (local or international).
by t-------------- on Thu Nov 11th, 2010 at 12:48:45 PM EST
[ Parent ]
What has Portugal done?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 12:49:49 PM EST
[ Parent ]
I don't know why peripheral Europe (both in and outside the Euro) doesn't default en masse and be done with it.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 12:49:28 PM EST
[ Parent ]
Look, when we entered the EU we produced 80% of what we eat. Now we produce 20%. If we default, what would you think would happen to us?

This is a mix of Ricardian economics (country specialization) with "progressive" technocracy.

We are indentured slaves. If we default on debt, most probably we will be put to death by starvation.

by t-------------- on Thu Nov 11th, 2010 at 12:54:50 PM EST
[ Parent ]
But even if we were near self-sufficiency we would not default.

We are, as a nation, a bunch of obedient pussies (well, dogs is a more apt metaphor). It is, in some sense, deserved.

by t-------------- on Thu Nov 11th, 2010 at 12:56:45 PM EST
[ Parent ]
We are, as a nation, a bunch of obedient pussies ...

Someone who talks like I do.  LOL

The good news ... it's only a life sentence. You eventually leave this planet of idiots.

by THE Twank (yatta blah blah @ blah.com) on Thu Nov 11th, 2010 at 04:44:17 PM EST
[ Parent ]
I can only see good things in talking like you.

The fucking political correct/serious way of talking is completely crippling of intellectual freedom.

The shackles that people put (voluntarily) on their language will trickle up to their minds.

Show me the boobs!

by t-------------- on Fri Nov 12th, 2010 at 09:43:07 AM EST
[ Parent ]
This is turning into one hell of a day. First I get Monte-whatever's attention because of my reference to Calitics and now this.  

The good news ... it's only a life sentence. You eventually leave this planet of idiots.
by THE Twank (yatta blah blah @ blah.com) on Fri Nov 12th, 2010 at 09:52:09 AM EST
[ Parent ]
THE Twank:
This is turning into one hell of a day.

You poor martyr. Boo-fucking-hoo!

The other poster's name is Montereyan. You made a thoroughly insulting comment about Calitics, you were served a moderate response. Boo-fucking-hoo all over again.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 12th, 2010 at 10:33:12 AM EST
[ Parent ]
Total fucking bollocks.

There are guidelines on this site that ask posters not to be offensive. Twank doesn't give a flying fuck and has been known to post antisemitic drivel, for instance. And if you want boobs, try the Sun.

The guidelines will be applied, and fuck both of you.

Is that fucking clear?

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 12th, 2010 at 10:28:32 AM EST
[ Parent ]
Yep,

Is there any way to erase my area here? When I mean erase, I just do not mean remove access to it, but deletion of all the content that I have produced.

Just fucking shove it up your ass.

by t-------------- on Fri Nov 12th, 2010 at 10:39:09 AM EST
[ Parent ]
What's wrong, can't take a few straight fucking words in your direction?

Go and search for the place on Internet where you have complete freedom to post anything you feel like AND have more signal than noise.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 12th, 2010 at 10:51:16 AM EST
[ Parent ]
I can take a few fucking words in my direction.

The problem, is the lack of signal. There has been little interesting things to read here. That is the main reason for the (sincere) request.

You fucking political correctness is just the catalyst.

I would appreciate removal. The reason I like removal is that I did the (mistake) of signing with my real name.

If technically possible I would appreciate it. I am aware it might not be possible. Maybe a change of user name, then.

I ask this as a sincere favour.

by t-------------- on Fri Nov 12th, 2010 at 10:55:41 AM EST
[ Parent ]
I'm not fucking politically correct, I'm just reminding you there are guidelines here and they are not there to be chucked out just because you and Twank feel like being brave and libertarian.

If it didn't bother you to write "show us the boobs" under your name, why are you bothered about it being associated with other content? But if you really want, the user name can be modified.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 12th, 2010 at 11:06:53 AM EST
[ Parent ]
Your account can be renamed to whatever - usually a collection of dashes

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 11:44:57 AM EST
[ Parent ]
This as not just rhetorical speech, but a sincere request. I would appreciate and thank if somebody could delete the area. Not just cancel access, but also remove my content.

As I can see it, I cannot do it myself (especially remove content).

by t-------------- on Fri Nov 12th, 2010 at 10:51:56 AM EST
[ Parent ]
Best we can do is change your username, I think.
by Colman (colman at eurotrib.com) on Fri Nov 12th, 2010 at 11:02:08 AM EST
[ Parent ]
This is why the CAP funds needs to be re-directed towards horticulture and mixed farming and away from field crop production.

The EU doesn't have the land area in the required climatic zone necessary to grow wheat and etc. for it's population.  Trying to do it is a waste of money.  Better to accept facts and maximize food value.

This is also why I occasionally state the UK is in dire need of Land Reform.  From here:

In his book, 'Who Owns Britain' (2001), Kevin Cahill takes a long, hard look at UK land ownership. His findings surprised many: the Royal Family for instance owns UK land equivalent to an average-sized county. Just six thousand people own two-thirds of the entire supply of UK land - forty million of the sixty million acres of UK land are owned by a clique comprised of the Crown, aristocrats and a few institutions.

Or, put another way, 70% of UK land is owned by 1% of the population.



Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Thu Nov 11th, 2010 at 02:15:05 PM EST
[ Parent ]
I've just bought - at the launch party, since I've known the author for a few years - what I believe is one of the fairly few and far between 'important' books: certainly for the average Scot....

Andy Wightman: The Poor Had No Lawyers - Who Owns Scotland (And How They Got It) (Birlinn) - Herald Scotland | Arts & Ents | Non-Fiction Reviews

A provocative book doesn't hold back its criticism of how Scotland's land have been divvied up by the rich and powerful.

A few years ago I was sitting next to a leading Scottish builder at a black tie function. He explained his work succinctly: "Any fool can build houses. Any fool can sell them. Ninety per cent of our work is getting hold of the right land at the right price."

Those three sentences have reverberated round my mind ever since. Now, at last, I can put them in context, having read Andy Wightman's devastating new book. He notes that across Scotland volume builders own land that was acquired some time ago: the so-called land banks. Once planning permission is granted, this land's value multiplies by tenfold or more, and when you come to buy a new house, the land represents around 40% of the cost.



"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Thu Nov 11th, 2010 at 02:40:40 PM EST
[ Parent ]
The EU doesn't have the land area in the required climatic zone necessary to grow wheat and etc. for it's population.

Uh, yes we do. I did the calculation recently. The EU produces enough wheat alone to sustain our entire population and then some. And wheat is only half the food crop.

Now, the fact that we waste a whole lot of this perfectly fine wheat by pouring it down the gullets of our livestock is another issue entirely. But yes we can grow our own food if it comes to that.

Now, there are plenty of excellent reasons to cut back on the monocropping. But an inability to use it to feed our population isn't one of them.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 12:29:37 PM EST
[ Parent ]
Would you mind posting your calculations?

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Fri Nov 12th, 2010 at 12:53:14 PM EST
[ Parent ]
I only have it in Danish:

Et menneske skal bruge imellem 8 og 12 MJ pr. døgn, afhængigt af hvor fysisk krævende hans aktivitetsmønster er. Det giver 3-4.5 GJ pr. år pr. person. Hvede indeholder 15 kJ/g. EU producerede i 2007 120 mio. tons hvede, eller 120 Tg. Det giver 1.8 EJ/år i hvede alene, hvilket er tilstrækkeligt til at brødføde mellem 400-600 mio. mennesker. EU har ca. 500 mio. indbyggere.

Nu bliver hvede også brugt til andet end mad, men til gengæld udgør hvede også kun halvdelen af EUs kornproduktion. Så hvis vi, konservativt, siger at en fjerdedel af EUs kornproduktion går til andre anvendelser end fødevareproduktion, så kan hver EU-borger indtage ca. 15 MJ/dag, eller mellem 30 og 100 % mere end han har behov for. Hvis vi regner med at EU-borgere, der som bekendt lever i moderne industristater, har behov for ca. 9 MJ/dag i gennemsnit betyder det at vi (med en omregningsfaktor på 10:1 for vegetabilske til animalske fødemidler) kan indtage ca. 6 % af vore kalorier i animalske produkter fremstillet ved fodring med menneskeføde. Dertil kommer fisk og den del af vort husdyrfoder der ikke er egnet til menneskeføde (græsning på braklagte marker, etc.).

At vi i øjeblikket spiser væsentligt flere animalske produkter end vort eget landbrug er i stand til at oppebære med den nuværende produktion ændrer ikke på at EU ville kunne brødføde sig selv hvis vor mulighed for at importere fødevarer blev fjernet. Hvis derimod vi mister muligheden for at importere kunstgødning og energi til produktion af kunstgødning, så er vi på spanden.

But the brief version is that a human needs between 3 and 4.5 GJ pr. year. Wheat contains 15 kJ/g. The EU's 2007 wheat production was 120 MT, or 120 Tg. This gives 1.8 PJ, or sufficient energy to power 400-600 million people on wheat alone, if we do not use it for anything else. The current EU population is around 500 million.

The problems with European agriculture are:

a) Using perfectly good human food to feed livestock.

b) Monoculture.

c) Irresponsible use of antibiotics, fertiliser and pesticides.

d) Energy intensity.

Lack of suitable farmland, however, is not on the list.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 01:09:35 PM EST
[ Parent ]
Interesting description of today's problems. Now, about tomorrow's problems :

  1. The "fertiliser" factor should be in the same group as the "energy intensity" factor, since Nitrogen is made out of electricity. As energy becomes scarce and expensive, food prices will follow energy prices... The consequences will be rather explosive.

  2. There is another rather large problem, which is the slow destruction of land under concrete, asphalt, railways, etc. At the current rate in France (one "département" every 7 years, continually increasing), there will be no land left for agriculture in around 80 years.

I do not have the necessary knowledge to draw a long term scenario , but I am convinced the food problem will be quite destructive for our societies. This century.
by balbuz on Tue Nov 16th, 2010 at 06:40:10 AM EST
[ Parent ]
The "fertiliser" factor should be in the same group as the "energy intensity" factor, since Nitrogen is made out of electricity. As energy becomes scarce and expensive, food prices will follow energy prices... The consequences will be rather explosive.

Could be, but not necessarily. We can afford to let around half our agricultural productive capacity lie fallow. Even without synthetic fertilisers, some of that land will produce some food. And in the event that fertiliser becomes the binding constraint, we'll hopefully have the good sense to start by abandoning the fields that require the largest fertiliser input per calorie of output. Assuming that we are willing to adjust our diets to consume less animal products, and stop using perfectly good human food for stuff that's not related to feeding people, it would therefore take more than a 50 % reduction in fertiliser use to cause food shortages (in the absence of distributional problems).

There is another rather large problem, which is the slow destruction of land under concrete, asphalt, railways, etc. At the current rate in France (one "département" every 7 years, continually increasing), there will be no land left for agriculture in around 80 years.

But energy scarcity actually discourages this trend. Energy scarcity discourages sprawl, and encourages modes of transportation that take up less space (not because of any inherent connection between spaciousness and energy use - that's just the way the cookie happens to crumble).

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 09:50:50 AM EST
[ Parent ]
Because they're running huge primary deficits.  Over the longer term it would probably be less bad for the average Greek, Irish, etc., but in the immediate term it would be an utter disaster. The governments would have no access to credit, the local banking systems, or whatever is left of them, would likely collapse, and the public sector would have no ability to step into the gap because they themselves would have no access to cash.  If they left the Euro their new currencies would also get a huge devaluation, this in countries where a large part of consumption comes from imported goods, i.e. a sudden large further reduction in real wages.  All in all there are no good options here, the only question is which policy sucks less.
by MarekNYC on Thu Nov 11th, 2010 at 01:03:08 PM EST
[ Parent ]
It's not all bad! When the Irish economy collapses, we Irish-Americans can come in with our newly minted Irish passports and our somewhat less devalued dollars and buy those Irish vacation cottages we have been longing for...
by asdf on Thu Nov 11th, 2010 at 01:26:05 PM EST
[ Parent ]
The EU is then revealed as a wretched deal... Especially when the position of the EU's net  exporters is basically 'you shouldn't have been importing so much from us'.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 01:28:01 PM EST
[ Parent ]
I don't understand the logic here.  How does the fact that a country which ends up in a horrible economic crisis have no good options mean the EU is a bad deal.  Would Ireland have been better off if they'd stayed out of the EU and pursued similar policies?  I don't see it. The only difference would have been that they'd be somewhat poorer when the chickens came home to roost.  Or do you mean the Euro?  That's not quite the same think, though I do think that overall you're right as far as the post bubble period goes, or at least up to a point.  The Euro has made things somewhat worse over the past two years, but even without it Ireland would be in a godawful mess and still having to figure out whether to default or knuckle under to foreign interests in order to maintain a flow of credit.
by MarekNYC on Thu Nov 11th, 2010 at 01:38:58 PM EST
[ Parent ]
Because there is a perfectly good solution involving intra-EU solidarity. Instead, the EU acts like the IMF in crashing its own countries' economies after demanding deindustrialization and import dependence as a condition of membership. If at the first crisis it hits the EU turns into a zero sum game, it is a disaster me an institution. But here we are, the Brussels Consensus leaves EU non-exporters no good policy options, but as a whole the EU enjoys balanced trade and negligible foreign-denominated debt so the failure is entirely political.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 02:13:55 PM EST
[ Parent ]
For that to work you'd need a genuine federal Europe. That would be one where the Irish themselves, as a tiny minority in the EU, would have little say over non-local matters, where they accept that their income taxes and welfare state polices are set in Brussels, where they send their kids to Afghanistan if the European Parliament so decides.  And one where the exchange rate would be set on the basis of the EU interest as a whole, regardless of whether it fucks the interests of the inhabitants of a minor province.
by MarekNYC on Thu Nov 11th, 2010 at 02:20:22 PM EST
[ Parent ]
My point stands: without solidarity, the EU is a wretched deal.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 05:08:51 PM EST
[ Parent ]
why Ireland's situation outside the euro would be any better than it is now inside.

The harsh reality is that it lived over its means for years on the back of a debt bubble (and that has also happened in non euro countries) and no has to pay for that.

The fact that those that benefitted from the bubble and those who pay for it now are not the same people is an internal distribution policy problem (or one linked to the free-rider capital tax games Irealnd played within the EU, which France and Germany tolerated for way too long, btw), not a currency problem.

Yes, EU solidarity would be better, but then there wouldn't have been such free-riding in the first place if there had been real EU policies.

The problem is not the EU or the euro, it is that the rich everywhere are making the poor and middle class pay for their follies. Monetary policy is largely irrelevant at that point. The fact that public money is funneled to the financial system rather than to the real economy is the real problem.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 05:55:19 AM EST
[ Parent ]
Except that it's becoming clear that elements of the EU project were always about the financial system and the rich, not the poor and the middle class.

The EU has become a trojan horse designed to subvert 70s-style social democracy and convert it into 10s-style fascist financialism.

A lot of us expected something better than an excuse for USian values with a more cosmopolitan accent.

As for Irish debt - can you remember when that used to be Irish investment?

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 12th, 2010 at 06:09:14 AM EST
[ Parent ]
EU policies reflect the politicians we keep on voting for: the right or the neolib left.

Just like our governments are not necessarily geared towards neolib policies at the national level, but are delivering these consistently because we've kept on voting for these (even if under false pretenses).

Maybe there's a case that too large a slice of our elites (ie those in power irrespective of left and right) have become neolib themselves - and that they benefit from it on a personal level disporportionately, and that creates a vicious circle, but again that's a consequences of lower taxes on the rich.

There's very little wrong at the EU or national or elite level that cannot be solved by higher taxes on the rich.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 07:15:15 AM EST
[ Parent ]
Jerome a Paris:
EU policies reflect the politicians we keep on voting for: the right or the neolib left.
You labour under the delusion that the influence is limited to policy. Eventually it filters to the institutional makeup, and in the EU it actually has, after 15 to 20 years of neolib policy.

In Globalization and its Discontents, Stiglitz explains how after Reagan came to power and throughout the 80's, first the US Treasury and then the IMF had their staffs replaced with market fundamentalists. In the case of the EU, not only the bureaucracy in increasingly staffed by neoliberals (compare an economist trained in the 1970's with one trained in the 1990's and you'll see changes in the bureaucracy are a natural consequence), but also the successive treaties and agreements governing the EU's economic institutions are ever more neoliberal until you get a system where governments actually have no ability to carry out fiscal policy, just like neoliberal dogma taught that it should be the case.

Oh, and "fiscal policy" does not reduce to setting the tax level.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 08:29:04 AM EST
[ Parent ]
Jerome a Paris:
you still haven't explained (none / 0) why Ireland's situation outside the euro would be any better than it is now inside.
Compare Iceland and the Baltics...

They Have Made a Desert - NYTimes.com

Yes, that's right: the oh-so-virtuous Baltics have done worse than Iceland.

But their money is sound.



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 06:31:42 AM EST
[ Parent ]
I don't think comparisons of different countries is that relevant. Is there a recent example of austerity or default in Greece before the euro? Was the pain then that different, or did the international media did not care because it couldn't be used to slam "Europe" yet again.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 07:16:33 AM EST
[ Parent ]
Forget about the comparisons: the EU has ruined the Baltics.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 08:29:44 AM EST
[ Parent ]
It has only "ruined" them if you accept that the previous prosperity was real and not imaginary or illusory.

Or it has just switched the lights on on what was happening.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 09:29:52 AM EST
[ Parent ]
Well, if you look at employment figures there was employment and now there is none.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:31:53 AM EST
[ Parent ]
A large part of the reason that the prosperity was illusory was that they pursued a policy of de-industrialisation because the EU told them that this was a criterion for membership.

Now, it is possible that they would have pursued a policy of de-industrialisation of their own volition, or because Russian mafiosi or OECD American economic hit men would have convinced them to do so. Both those groups have certainly demonstrated their ability and desire to destroy Eastern European economies wholesale, and I don't precisely have the liveliest of confidence in the integrity and competence of the political classes of a country where, for obvious historical reasons, "socialist" is considered a four-letter word. But as it actually happened, it was the EU that played the role of economic hit man.

"If I hadn't done it, somebody else would have" was not considered a valid excuse at Nürnberg. And even if it were a valid excuse, it would not magically undo the institutional damage created by those precedents.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 01:18:06 PM EST
[ Parent ]
The Baltics have lost, what, 5 years of illusory economic growth? 3 years? Losing 25 % of GDP isn't all that bad when wages grew 10-20 % per annum for years before that. Those Balts I've talked to are kinda relaxed. Hey, 20 years ago they were dirt poor and occupied by Russia, so what's a little 25 % decrease in GDP?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 15th, 2010 at 07:01:02 PM EST
[ Parent ]
Jerome a Paris:
The fact that those that benefitted from the bubble and those who pay for it now are not the same people is an internal distribution policy problem (or one linked to the free-rider capital tax games Irealnd played within the EU, which France and Germany tolerated for way too long, btw), not a currency problem.
When I mention "a perfectly good solution involving intra-EU solidarity" I'm referring to collectively taking responsibility for the Eurozone sovereign debt, and beating the ECB into accommodating it.

As I have been pointing out for... uh... over 9 months, the Eurozone as a whole has balanced trade and negligible foreign-denominated debt so there is no reason whatsoever for a fiscal crisis in the Eurozone if the ECB is accomodative. So any problems are monetary (non-accomodative ECB) or redistributional at the EU level (not redistributional within Ireland - Ireland could tell its bondholders to take a hike but allegedly that would hurt France and Germany - again an EU-level redistribution problem). Political pressure is brought to bear to ensure that the redistributional pain is felt domestically only, as well as German authorities being supremely unhelpful in order to depress the Euro so they can replace their dying Eurozone export markets with extra-EU markets (you've called this "the EU's blilliant China policy").

The fact that we've been in crisis mode since February means that there is an EU-level political and monetary problem because, given solidarity, the EU-level fundamentals don't justify the crisis.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 06:39:47 AM EST
[ Parent ]
but then we can blame the 'widening before deepening' choice of the EU in the 90s - something explicitly pushed by the UK, Scandinavian and other English speaking members of the EU.

And again, this is a topic about EU fiscal policies, not monetary policies.

It's been clear for a long time that Germany would not accept looser monetary policies (and quite frankly, the demonstration made with QE and QE2 shows they are largely right), but nothing prevented a push for a real (and more effective) EU-level budgetary policy - except of course the UK veto on the topic. And despite that, cohesion funds have provided significant funds to the countries now in difficulties, and have helped them catch up to a good extent (when they used them reasonably effectively, like Spain).


Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 07:22:39 AM EST
[ Parent ]
Jerome a Paris:
again, this is a topic about EU fiscal policies, not monetary policies
In a deep recession, when the zero lower bound is hit, there is no distinction between fiscal and monetary policy. In addition, in a deep recession, where capacity utilization is very low, the main obstacle to increasing employment is lack of money: there is no distinction between employment and monetary policy.

At the risk of beating a dead horse:

Migeru:

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 under takings 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.
What kind of central bank is legally barred from assisting fiscal policy?
BruceMcF:
A central bank in the alternative fantasy universe of neoliberal belief.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 08:36:47 AM EST
[ Parent ]
Jerome a Paris:
It's been clear for a long time that Germany would not accept looser monetary policies (and quite frankly, the demonstration made with QE and QE2 shows they are largely right)
Why, has QE caused inflationary pressures? Only in the fevered imagination of the ECB
Have you seen the inflation monster?



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:11:20 AM EST
[ Parent ]
but no economic activity either.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 09:30:31 AM EST
[ Parent ]
There are other looser monetary policies than QE in any case.

QE is just a bank bailout. Funding a reduction of soverign debt so that you don't have to have contractionary fiscal policies in a recession hasn't been tried.

In fact, it's only "loose monetary policy" from certain ideological perspectives.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:35:58 AM EST
[ Parent ]
but then we can blame the 'widening before deepening' choice of the EU in the 90s - something explicitly pushed by the UK, Scandinavian and other English speaking members of the EU.

Partly. But the simple reality is that the € can't work as long as Germany pursues a mercantilist policy. Fixed-rate currency systems are not sustainable if major members pursue mercantilist policies.

And I don't see how it changes what needs to be done going forward. Even if you expel the members who were brought in too soon and too fast, it would not undo the de-industrialisation that has happened, it would not undo the institutional damage to the European Union from pursuing de-industrialisation of our peripheral members, and it would not undo the institutional damage from having the ECB enforce IMF-style neoliberal dogma during the worst economic and constitutional crisis in the lifetime of the Union. So even if we grant that part of the problem is that the EU was expanded too far too fast, the problem is still how to most expediently run Trichet and all the other IMF wannabes out of Bruxelles on a rail. Preferably covered in tar and feathers.

And again, this is a topic about EU fiscal policies, not monetary policies.

No.

The inability to monetise sovereign debt is a fiscal, not a monetary constraint. Nothing about monetising sovereign debt prevents the central bank from pursuing whatever monetary (read: interest-rate) policy it wants. The central bank can, under a floating fiat currency, even run its desired interest rate policy without sovereign debt issues at all.

It's been clear for a long time that Germany would not accept looser monetary policies

Then the € will not work.

(and quite frankly, the demonstration made with QE and QE2 shows they are largely right)

It does no such thing.

QE and QE2 are about monetising private debt. Given that the private sector is insolvent, and therefore cannot spend, this is at best useless. What Mig has been agitating for since February, and what I have been agitating for since sometime in late Spring, is to monetise sovereign debts. That's different, because sovereign spending isn't constrained by solvency (sovereign states are by definition never insolvent), it is not constrained by the need to be profitable under market conditions (sovereigns have arbitrarily long planning horizons, and anyway hiring the unemployed is much less expensive for the sovereign than for the private sector, since the sovereign has to pay unemployment benefits anyway), and it is not constrained by the creditworthiness of the projects being done for it (because the sovereign is infinitely creditworthy, by definition). So the fact that QE and QE2 (predictably) did nothing but take junk bonds off the hands of private banks at par says nothing about what fiscal policy could accomplish when directed by a sovereign state.

but nothing prevented a push for a real (and more effective) EU-level budgetary policy - except of course the UK veto on the topic.

I find that hard to believe.

Oh, the UK has been a pain in the ass all along, but Germany would never, ever in a million years have accepted a responsible EU fiscal policy. Because a responsible EU fiscal policy would have involved taking Germany's intra-€-zone trade surplus away and giving it to the member states that had an intra-€-zone trade deficit. It is possible to dance various sorts of kabuki around this fact, but the net result of any sustainable EU fiscal policy would be to rebalance the intra-€-zone balances of payments. Because otherwise it would not be sustainable.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 01:42:01 PM EST
[ Parent ]
JakeS:
QE and QE2 are about monetising private debt. Given that the private sector is insolvent, and therefore cannot spend, this is at best useless. What Mig has been agitating for since February, and what I have been agitating for since sometime in late Spring, is to monetise sovereign debts.

The UK's QE is about monetising gilts to the tune of £200bn, and what this achieves is exchanging one financial asset for another. This Public Credit does not get out into the real world, because it is being neither lent or spent into circulation.  

It does have the effect of giving the UK Treasury a £200bn overdraft from the private banks - via the BoE - at the 0.5% rate paid on reserves, so it does cut government funding costs of gilts, but this financial pornography is never referred to in decent publications.

Other than receiving this benefit of seigniorage, to monetise public debt is necessary, but not sufficient. The only solution - as I have been saying for some considerable time, is for QE to be spent into circulation - ie fiscal action - through professionally managed investment in productive assets eg affordable housing; renewable energy; energy savings; infrastructure - and above all on the domestic 'human capital' capacity necessary to create those assets.

The increase in use value of completed assets may then be monetised through suitable long term investment, and this will enable the Public Credit which created these assets to be retired and recycled. In the case of the newly productive population, the tax they pay on earnings would also retire and recycle the Public Credit which paid for their increased productivity.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 07:54:29 PM EST
[ Parent ]
Because a responsible EU fiscal policy would have involved taking Germany's intra-€-zone trade surplus away and giving it to the member states that had an intra-€-zone trade deficit.

Color me stupid, but I've never really understood what all these trade imbalance issues are about. Let's say Germany has a massive trade surplus and receive massive amounts of currency. So let the aquire capital assets in the countries with which they have a trade surplus. It's no law of nature that Düsseldorf must buy exotic toxic shit like MBS's and the rest of the alphabet soup. Go buy Exxon Mobil instead or something, or if we're speaking about intra-European trade, buy Banco Santander and Enel. How is this a problem?

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

by Starvid on Mon Nov 15th, 2010 at 07:12:56 PM EST
[ Parent ]
Eventually, you run out of capital assets to buy.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 15th, 2010 at 08:26:48 PM EST
[ Parent ]
Yeah, and eventually we will have so much windpower that it will destabilize the grid. But this is no problem now, and it will not be a problem for at least ten years. Call me when Banco Santander, Endesa and Enel have a German majority ownership.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 05:49:46 AM EST
[ Parent ]
I though German banks were more interested in buying derivatives rather than real assets abroad? Certainly German FDI in Ireland is a small proportion of the total.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 16th, 2010 at 06:07:51 AM EST
[ Parent ]
It's not my fault Düsseldorf behaves in stupid ways... If these surpluses were put in the hands of ordinary middle class people instead of faceless institutions, I think it might work much better. For example through higher wages in Germany and a big capital income basic discount, so capital taxation becomes proggresive.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 06:14:18 AM EST
[ Parent ]
If the surpluses were put in the hands of ordinary people, they would disappear - those ordinary people would either be using them to do things that they find enjoyable, thus increasing imports and reducing the surplus in question; or they'd invest them abroad, thus also eliminating the surpluses (but possibly causing a bigger surplus down the road, which would need to be eliminated).

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 10:56:25 AM EST
[ Parent ]
Exactly. Neither of those situations are problematic.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 11:06:51 AM EST
[ Parent ]
When I mention "a perfectly good solution involving intra-EU solidarity" I'm referring to collectively taking responsibility for the Eurozone sovereign debt, and beating the ECB into accommodating it.

Why should those countries who have actually balanced their books and kept their houses in order be punished by having the wasteful countries debts dumped on them? That's sure going to make the EU popular... And imagine the perverse incentives: next time everyone will behave like Greece, and then there will be no one to ride to the rescue. There is after all such a thing as moral hazard, remember that one?

No, give us wholesale default and let the banks feel the pain. Those who were stupid enough to buy sovereign debt from these countries deserve what they get.

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

by Starvid on Mon Nov 15th, 2010 at 07:05:51 PM EST
[ Parent ]
Why should those countries who have actually balanced their books and kept their houses in order be punished by having the wasteful countries debts dumped on them?

Uh, because they've been running a mercantilist inflation target while in a fixed-rate ForEx regime. Oh and they've been suppressing wages. Seems like the sort of thing that should be punished, not rewarded.

That's sure going to make the EU popular... And imagine the perverse incentives: next time everyone will behave like Greece, and then there will be no one to ride to the rescue.

If Germany had behaved more like Greece, there'd be no crisis in the first place.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 15th, 2010 at 08:33:15 PM EST
[ Parent ]
Supressing wages, sure, that IS true. And for that we should blame the German labour unions for their weakness. But mercantilist inflation target? Pretty much the entire developed world has got a 2 % target.

If Germany had been more like Greece, you gotta be kidding me?! We would be better off if more European nations were corrupt tax-dodging data falsifying basket cases, as compared to solid hi-tech industrial powerhouses?

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

by Starvid on Tue Nov 16th, 2010 at 05:55:52 AM EST
[ Parent ]
We wouldn't have the current crisis. Not necessarily the same thing.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Tue Nov 16th, 2010 at 07:18:44 AM EST
[ Parent ]
We would have another, even worse, structural crisis. The current crisis is not really bad. People just think it is bad because they refuse to see the only reasonable solution: sovereign default.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 08:42:45 AM EST
[ Parent ]
Sovereign default is also an issue of intra-EU solidarity.

Suppose Italy defaulted on its debt. Then it is quite possible a number of French institutions would have to be bailed out (or not, but at least France's deposit insurance would have to be tapped).

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 09:10:31 AM EST
[ Parent ]
Yes. But that's no problem either. Deposit insurance is insurance against exactly these kinds of events, and no one should be surprised that deposit insurances actually have to be tapped now and then.

There's no reason at all to bailout French institutions. Tell them to launch rights issues, even if it means diluting the current owners into kingdom come. If they disagree, pull their banking license and nationalize them without compensation. Use any remaining assets to pay the senior bondholders, and if there's any money left, pay it to the rest of the bondholders.

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

by Starvid on Tue Nov 16th, 2010 at 09:28:27 AM EST
[ Parent ]
If a rights issue is impossible, one could wipe out the shareholders and perform a debt to equity swap where the bondholders take the full ownership of the new debt-less bank.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 10:01:56 AM EST
[ Parent ]
In the short term, yes.

In the long term, unless the structural imbalances are removed, you'll have one of these crises every few years.

And since higher German inflation is much, much less painful than deflation in the periphery, my recommended solution to the imbalances involves higher German inflation.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 11:00:08 AM EST
[ Parent ]
We will not have crises like this if we geld the financial sector and make it boring. Credit analysis should be the heart and soul of boring banking. With good credit analysis, credit losses will either be small, or the lenders will demand such high interest rates on risky projects that they can afford the credit losses.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 11:08:57 AM EST
[ Parent ]
That doesn't matter for the balance of payments crises.

If a major €-zone economy runs a 2 % inflation target, then the rest of the €-zone will have to either accept a 2 % inflation target as well, thus imposing €-zone-wide mass unemployment (since a 2 % inflation target is incompatible with full employment), or they will have to accept a loss of competitiveness against the inflation targeting economy, thus creating - eventually - a balance of payments crisis.

The only acceptable solutions are to have countries with intra-€-zone surpluses target a higher inflation than those with intra-€-zone balance of payments deficits or have some mechanism in place to redistribute wealth from the mercantilist economies to the full-employment economies.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 12:06:30 PM EST
[ Parent ]
I don't understand why a 2% inflation target is inherently deflationary or must result in high unemployment.  Surely all inflation targets must be understood in relative terms to other inflation rates.  Thus if Eurozone inflation is consistently below US inflation, you would expect the Euro to gradually rise in value against the Dollar - all other things being equal.

Within the Eurozone,if Irish inflation is consistently above German rates, I would expect Irish exports to gradually become uncompetitive and for the Irish balance of payments to suffer.  This happened, to some degree, during the asset price bubble but has been corrected since.  The only exception to this rule is if Irish unit competitiveness is also rising relative to German rates - and this is also happening now, but may actually be reversed by tax increases forced on the Irish Government by the bank bail-out..

Off course there are all sorts of financial manipulations which can distort such "structural" trends in the short and even medium term - as is allegedly the case with Chinese Yuan exchange rate management, and perhaps even with German mercantilist policies within the EU.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 16th, 2010 at 01:39:10 PM EST
[ Parent ]
I don't understand why a 2% inflation target is inherently deflationary or must result in high unemployment.

There's no a priori reason to believe that pursuing a 2 % inflation target causes unemployment. It just happens to be the case that, empirically, nobody has ever been able to keep to a 2 % inflation target without employing wage suppression, which requires less than full employment in order to have a credible threat with which to suppress wages.

Within the Eurozone,if Irish inflation is consistently above German rates, I would expect Irish exports to gradually become uncompetitive and for the Irish balance of payments to suffer.

This is indeed what you should expect.

The only exception to this rule is if Irish unit competitiveness is also rising relative to German rates

That's just stating that if inflation falls or goes negative, you become more competitive (within a fixed-rate ForEx system). "Change in unit competitiveness" is just the inverse of inflation.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 01:45:29 PM EST
[ Parent ]
I don't think it has to be, but the way inflation is fought is by making sure there is unemployment to keep down wages. I am not even sure that increasing rates - that the central banks use for fighting inflation - actually lowers inflation.

I also have a nagging suspicion that real world inflation has a lot to do with increasing demand for decreasing natural resources, with knock-on effects through all production. But as far as I know, economics does not do natural resources.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Nov 16th, 2010 at 01:52:56 PM EST
[ Parent ]
The trouble with inflation is that it deals with the intersection between physical production (the need to be able to obtain raw materials and capital and dispose of product at prices and in quantities that make the whole process remunerative), the institution of money (all the trades are denominated in money), the institutions which set prices, and people's expectations of what all these things will do in the future.

Inflation and deflation can come from any or all of these. So any theory of inflation that claims to have found the cause of inflation is wrong. Inflation has no single root cause that can be pinned down.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 02:20:30 PM EST
[ Parent ]
But France doesn't want to do any of those things.

In any case, the point is that France and Italy are joined by the hip and to pretend that one of them is virtuous while the other is wasteful is not very helpful.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 11:29:08 AM EST
[ Parent ]
Supressing wages, sure, that IS true. And for that we should blame the German labour unions for their weakness. But mercantilist inflation target? Pretty much the entire developed world has got a 2 % target.

Pretty much the entire developed world has floating exchange rates. Under a floating rate system a 2 % inflation target is just stupid, not mercantilist, because under a floating rate system no inflation target can ever be mercantilist. Germany is special, because their stupidity vis-a-vis inflation targeting causes pain in other countries, who are wholly innocent of the inflation-targeting stupidity.

If Germany had been more like Greece, you gotta be kidding me?! We would be better off if more European nations were corrupt tax-dodging data falsifying basket cases, as compared to solid hi-tech industrial powerhouses?

Those are not the issue here. The point you were making was about perverse incentives, and rescuing Greece from Germany's determined desire to pursue stupid monetary policy and even dumber fiscal non-policy does nothing to incentivise data fudging, corruption or a tolerant attitude towards tax dodging. Nobody is going to adopt Greek standards of governance just to be able to avail themselves of a bailout. Unless, of course, you similarly believe that free medical care encourages people to jump off tall buildings, because they know that they will be able to call on the public health care infrastructure to patch them back together again.

The question pertains specifically to the balance of payments and (relative) inflation. For a government that actively maintains full employment, inflation is, at least partly, dictated by this policy. And yes, we do want to reward countries like Greece that accept inflation in order to boost employment, and punish countries like Germany that do the opposite. Because the latter sort of countries cause either unnecessary unemployment or structural balance of payments crises like the one we are experiencing now. We would all be better off if Germany got over their price stability neurosis and accepted that in the real world full employment is not compatible with a 2 % inflation target, and that in a fixed exchange rate system Germany's pursuit of unemployment-causing inflation targets causes wholly unnecessary harm to other members of said fixed exchange rate regime.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 09:02:37 AM EST
[ Parent ]
Unfortunately having a common currency is a half-assed measure if you don't also have a common sovereign and a common fiscal policy.

Otherwise all you're doing is putting a lot of cats in a small bag, and being surprised when they start fighting.

It doesn't help that there are bad, bad people outside the bag waving catnip around and tutting about how badly behaved the animals are.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 16th, 2010 at 09:11:42 AM EST
[ Parent ]
ThatBritGuy:
Unfortunately having a common currency is a half-assed measure if you don't also have a common sovereign and a common fiscal policy.

this is becoming increasingly obvious, even to an econo-dumbo like me...

anyone see that happening in the near future?

no, me neither, shame? how many countries have to default and go grovel to the germans, IMF etc before that can occur?

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Tue Nov 16th, 2010 at 09:52:20 AM EST
[ Parent ]
Ireland's Big Mistake - Paul Krugman Blog - NYTimes.com
It should have been Texas.

Think about it: the savings and loan crisis was about runaway banks, which had to be bailed out at (huge) taxpayer expense. And as best I can figure, about half the taxpayer cost came from just one state: Texas. Yet the burden was borne nationally. So it was as if the European Union as a whole were taking responsibility for Anglo Irish etc., which would of course make the whole Irish situation much less serious.

The Irish just picked the wrong continent on which to engage in crony capitalism.



"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet
by Melanchthon on Tue Nov 16th, 2010 at 11:37:39 AM EST
[ Parent ]
Krugman likes him some facile observations every now and then.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Nov 16th, 2010 at 12:29:23 PM EST
[ Parent ]
Starvid:
Pretty much the entire developed world has got a 2 % target.
And that policy comes from the same book as other failed policies that caused the current crisis engulfing pretty much the entire developed world.

Quite an endorsement.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 09:22:19 AM EST
[ Parent ]
This crisis was hardly caused by adhering to a 2 % inflation target. Sure, when you're in a liquidity trap it makes sense it makes to push inflation up as a way to reduce the real interest rate, but otherwise price stability is a cornerstone to a reliable and solid economy. And I might add, high inflation increases inequality.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 09:32:54 AM EST
[ Parent ]
This crisis was hardly caused by adhering to a 2 % inflation target.

Yes it was.

A 2 % inflation target is incompatible with full employment. Which means that a 2 % inflation target will result in increased private indebtedness, because when people are unemployed, they will go into debt in order to avoid deprivation (and the same package of FAIL that brought us inflation targeting also brought us the notion that unemployment benefits should not be sufficient in themselves to prevent deprivation).

Excessive private indebtedness caused the current crisis. So yes, the 2 % inflation target is partly responsible.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 10:28:21 AM EST
[ Parent ]
Low inflation is code for 'We don't pay our workers.'

So low inflation doesn't just mean the unemployed go into debt, but the employed do too.

Don't forget that a house price or consumer credit bubble isn't inflationary, but a wage increase is.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 16th, 2010 at 10:36:45 AM EST
[ Parent ]
Low inflation is code for "we inflate away our workers wages, benefits and pensions, and screw our long term competitivity at the same time".

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 11:12:25 AM EST
[ Parent ]
You mean 'high inflation', surely?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 11:25:03 AM EST
[ Parent ]
Yes, yes of course. Sorry about that one.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 12:51:57 PM EST
[ Parent ]
Nothing wrong with 8 % pr. year inflation that can't be solved by a floating currency and inflation-indexed wages and benefits.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 12:08:56 PM EST
[ Parent ]
The excessive private indebtedness was caused not by low inflation, but by too low interest rates and stagnant real wages. Mix this with a corrupt financial sector and you have the explosive mix which, well, exploded.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 11:11:55 AM EST
[ Parent ]
But the stagnant real wages were caused by destroying union power, in which (the threat of) mass unemployment played an important role. And the threat of mass unemployment only existed because of the inflation-first policies.

Had full-employment policies been followed consistently, and inflation been dealt with by devaluing the € in tandem with the inflation, there would have been no pressure on real wages, because there would have been no credibly threat with which to back up such pressure.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 12:11:09 PM EST
[ Parent ]
But real wage growth causes inflation.

A swedish kind of death:

To illustrate, an item presented in the Salon two years ago.

Riksbanken var oenig om räntebeslutet - Ekot | Sveriges Radio
Förklaringen finns bland annat i högre priser på livsmedel och energi, och i Riksbankens egna räntehöjningar. The explanation [to higher inflation] is partly found in increased prices on food and energy and also in the increased interest rates of the Central Bank.
Men till det kommer ett problem med att effektiviseringen av produktionen sjunkit, att produktiviteten blivit sämre än väntat. Något som i sin tur delvis bottnar i att det är goda tider på arbetsmarknaden med fler jobb och högre löner.But adding to that is the problem that the efficiency increase in production has declined, the productivity is worse then expected. That in turn is related to the good times on the labor market with more jobs and higher salaries.
Det är de problemen som vice riksbankschefen Svante Öberg i redan i december ville stävja med höjd styrränta.These are the problems deputy chairman Svante Öberg already in december wanted to stop by increased interest rate.

More jobs and higher salaries demands a solution in increased interest rates, because it can not be tolerated. That higher interest rates was a driving force in creating inflation is irrelevant.



A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!
by A swedish kind of death on Tue Nov 16th, 2010 at 12:35:50 PM EST
[ Parent ]
Starvid:
Why should those countries who have actually balanced their books and kept their houses in order be punished by having the wasteful countries debts dumped on them?
Do I have to remind people again that Spain's Debt-to-GDP ratio is still lower than Germany's?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 08:24:16 AM EST
[ Parent ]
No, you don't, I'm quite aware of that situation. Do you argue that Germany's debt should be shouldered by Spain??

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 08:39:03 AM EST
[ Parent ]
Can you spell out who
Why should those countries who have actually balanced their books and kept their houses in order
and
the wasteful countries
are?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 09:17:32 AM EST
[ Parent ]
the wasteful countries
Those with shitty national balance sheets, either due to greed, fakery and laziness on the hand of the state(like Greece) and those with a greedy lazy private sector and an INSANE government which decides to nationalize the private debts while socialising the profits (like Ireland and the US).

those countries who have actually balanced their books and kept their houses in order

The non-pink ones.

   

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

by Starvid on Tue Nov 16th, 2010 at 09:43:24 AM EST
[ Parent ]
I'm still waiting for someone to explain to me how every country in the EU can be a net exporter, quarter after quarter.

I suppose in the happy world of Ricardo free trade means more trade for everyone, Big Brother decrees an increased chocolate ration, and the proles lift their happy faces to the shining capitalist sun.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue Nov 16th, 2010 at 10:40:45 AM EST
[ Parent ]
Are all EU members net exporters? Then I suppose they have a trade surplus with non-EU nations.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 11:15:41 AM EST
[ Parent ]
Looking at that chart, can anyone explain why Portugal is in trouble right now?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 12:16:16 PM EST
[ Parent ]
They're a bit swarthy and a bit far away.
by Colman (colman at eurotrib.com) on Tue Nov 16th, 2010 at 12:25:05 PM EST
[ Parent ]
No.

Because that chart only measures sovereign debt and sovereign budget outcomes, both of which are wholly irrelevant to the present crisis.

I'll repeat my criteria for being targeted by the money market piranhas:

  • You must be big enough to be worth going after - so Malta and Cypern are probably safe.

  • You must not be big enough to suffer from imperial phantom limb pain - that might make you cut the banksters off at the knees, and we can't have that.

  • You must be populated by brown people or Russians.

It helps if you have a current accounts deficit and are in the €-zone, and it helps if your government is Iceland- or Ireland-level stupid. But those are not essential.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 12:29:40 PM EST
[ Parent ]
Paddys still count as brown then?
by Colman (colman at eurotrib.com) on Tue Nov 16th, 2010 at 12:31:18 PM EST
[ Parent ]
No, but when you deliberately stick your head into a wood chipper and turn it on, you win a Darwin award. Similarly, if you deliberately take on a boatloat of ShitpileTM from your banks, are in a fixed-rate currency regime and adamantly refuse to simply default on those debts, then your economy dies.

Ireland is assisted suicide, Portugal is assassination.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 12:36:04 PM EST
[ Parent ]
Apparently.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 12:39:31 PM EST
[ Parent ]
why Ireland's situation outside the euro would be any better than it is now inside.

Maybe you're right that Ireland is better off than it would have been. Maybe you're wrong, and Ireland would have been better off it it had stayed out of the €.

But from where I'm sitting, it's actually a secondary consideration. Because the primary consideration is that right now, the EU is the institution giving Ireland the IMF treatment.

Every single "austerity" package being rammed down the throat of a peripheral economy is a bloody cloth that will be waved in front of every left-wing Eurosceptic on the continent. And it's gonna be really, really hard to gainsay that, because there's no good reason what so ever for those "austerity" packages. Worse, every "austerity" package rammed down the throat of a peripheral economy creates a precedent, reinforces the institutional mindset of stupidity and venality that is neoliberal economics. The "austerity" packages are harming the European Union at a fundamental, constitutional level.

Trichet is setting back European integration by a generation, almost single-handedly.

The harsh reality is that it lived over its means for years on the back of a debt bubble (and that has also happened in non euro countries) and no has to pay for that.

No, the harsh reality is that as long as Germany is pursuing depression-level inflation targets, then nobody who wants to pursue sanity-based economic policy can afford to be in a currency union with them. The € will never work on a 2 % pr. year inflation target. It will have to go up to 8-10 % for the economies with an internal trade surplus, and 4-6 % for those with an internal trade deficit. That's not negotiable, that's just the reality of it.

If Germany wants to be in a currency union, Germany has to accept four times the inflation it currently targets. If Germany wants to target 2 % inflation, then it will have to do it in splendid isolation, so everybody else can protect themselves from the insanity by devaluing their currencies in concert with the German deflation.

The fact that those that benefitted from the bubble and those who pay for it now are not the same people is an internal distribution policy problem

Because France and Germany never benefited from being able to export their products to Ireland in excess of what it was prudent for Ireland to import?

I suppose that's a claim that one could make.

Monetary policy is largely irrelevant at that point.

The problem is not the monetary policy. The problem is that the treaties governing the € bar member states from effective fiscal policy.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 12:55:42 PM EST
[ Parent ]
Good post.

My only quibble is to say that for all of the countries caught up in property bubbles the problem is a solvency issue, since 90% of the population are in debt to the other 10% who also own virtually all of the unencumbered productive assets.

For as long as this solvency issue persists, the purchasing power necessary to generate inflation domestically will never be there - although inflation could be imported through external price rises and cause stagflation.

A rise in interest rates would be deflationary, but there is nothing central banks can do to cause inflation, since monetary action is useless at the zero bound.

Only systemic fiscal reform can work, and then only of a type not even conceived of by any form of mainstream Economics, all of whom have the polarity of money reversed: it is a credit instrument, not a debt instrument.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 08:04:53 PM EST
[ Parent ]
For as long as this solvency issue persists, the purchasing power necessary to generate inflation domestically will never be there

In extremis, the sovereign has sufficient purchasing power to obtain every product for sale within its borders.

Lack of purchasing power is not the problem. Lack of political will to use it is.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 08:14:35 PM EST
[ Parent ]
Well, that's an interesting route to nationalisation....;-)

I think we agree that the state could technically - but, I suggest, never politically - get things moving by fiscal action injecting purchasing power into the economy.  

Unfortunately, with the current imbalance of wealth distribution, too much of such fiscal action would be captured by Capital, and too little by Labour.

For me, Systemic Fiscal Reform means a fundamental shift of taxation from earned income to the unearned income from privileged property rights.

Dream on.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Nov 12th, 2010 at 08:49:08 PM EST
[ Parent ]
The economic problem isn't difficult.

The political problem is slightly harder.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Nov 12th, 2010 at 09:07:51 PM EST
[ Parent ]
Well, there is that Lenin quote about seigniorage...

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 09:08:18 PM EST
[ Parent ]
I think we agree that the state could technically - but, I suggest, never politically - get things moving by fiscal action injecting purchasing power into the economy.

Ask the Hong Kong currency board... ;)

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

by Starvid on Mon Nov 15th, 2010 at 07:15:18 PM EST
[ Parent ]
It's not the EU which is the problem, but the euro. Without the euro the Irish currency would have collapsed which would have made the local industry competitive again. The psychological shock might well have led the Irish government to say "fuck this" and then defaulted. Clean slate, weak currency, a chance to start over.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 15th, 2010 at 06:57:05 PM EST
[ Parent ]
Well you forget that if
in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job.
it was thanks to being part of the European family and with some help from her European relatives...

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Thu Nov 11th, 2010 at 02:15:12 PM EST
[ Parent ]
Bullshit, Ireland engaged in a corporate tax race to the bottom.

It did benefit from being in the Euro and English-speaking so it could attract American corporate headquarters.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Thu Nov 11th, 2010 at 05:10:13 PM EST
[ Parent ]
Thanks for calling what I say bullshit.

Why did all these foreign investments started just when Ireland joined the EU? And are you going to tell me Ireland did not benefit from the EU structural funds, too?

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char

by Melanchthon on Thu Nov 11th, 2010 at 06:11:00 PM EST
[ Parent ]
No, this
in the 1990s Ireland succeeded in turning her life around, educating herself, and holding down a steady job.
is bullshit. The "Irish Tiger" was always a paper tiger.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 02:20:15 AM EST
[ Parent ]
FDI has been a major feature of the Irish economy since the 1960s, although joining the EU added another positive factor to the mix (access to markets and structural/cohesion/CAP funds) - along with free secondary education (also started in the 1960's), relatively cheap and widespread access to third level, proactive industrial policies, supportive state institutions, cultural/linguistic similarities and ties to the US, and yes, low corporate tax rates.  

However in the 1990's, and prior to the "financial services centre" and property asset based bubbles, the development this fostered was real enough - and increasingly characterised by Irish owned as well as foreign owned (US, German, other EU, Japanese etc.)  investment. In particular, the experience/skill base of the Irish workforce was enhanced to the point where it could compete well with "graduates" from any other advanced economy/educational system whether in Ireland or abroad.  Irish Companies also now own c. 190 Billion in foreign assets (more than Irish GDP) and a few have become global players (CRH, Smurfit Kappa, Ryanair, Kerry, Paddy Power, Tullow etc.)

Ireland was a third world country in the mid 19th. century and had suffered one of the world's greatest famines only a century previous to that.  It had come a long way and FDI was an essential part of that mix. Obviously things went badly off the rails since 2000 and different economic policies will be required in the future.  However calling the Celtic tiger a paper tiger is a gross over-simplification.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 12th, 2010 at 03:25:07 AM EST
[ Parent ]
That should should have read mid 20th. century!

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 12th, 2010 at 03:33:43 AM EST
[ Parent ]
One of the problems was confusing a windfall with wealth. Shooting up to one of the highest per-capita GDPs in the EU didn't make up for Ireland's sub-par infrastructure. As for the highly qualified workforce, they face the prospect me being a waste of the best trained generation so far, and if the trend to privatize education continues (when are Tory-style cuts coming to an Irish theatre near you?) they'll be the best trained generation ever.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 03:40:05 AM EST
[ Parent ]
Agreed, although Ireland was on the point of becoming a net contributor to the EU and there was public acceptance that it was right and proper that eastern European states should now be the net beneficaries.

The windfall/wealth argument applies to any bubble situation and the infrastructural defidit was being tackled by one of the highest public capital programme/GNP ratios in the world.

As for the highly trained workforce, they are emigrating.  I have 5 nephews/nieces - 1 is working in Germany (having previously managed a large business in Ireland which is now defunct), one in Scotland, one in Australia one has just exited a large bank in Ireland to retrain as a vet nurse and one is (still) trying to keep a small business in Ireland going.  My two daughters are just entering their first entry level jobs in Ireland (with Masters and Honours degrees) - I doubt they will be able to stay.  Ireland's loss will be somewhere elses gain.

(Sorry got to go off-line to a game reserve for a few days now)

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 12th, 2010 at 03:59:23 AM EST
[ Parent ]
I apologize. I am really angry.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 03:26:01 AM EST
[ Parent ]
So am I, but not at you.

"Ce qui vient au monde pour ne rien troubler ne mérite ni égards ni patience." René Char
by Melanchthon on Fri Nov 12th, 2010 at 01:33:02 PM EST
[ Parent ]
Bullshit? I have a not-so-vague memory of Ireland receiving gifts of considerable amounts of EU tax payer money, for infrastructure and the like... Likewise for Spain, Greece and some other countries. Germany had to foot the bill, of course.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 15th, 2010 at 07:17:29 PM EST
[ Parent ]
Yes but the larger question is whether "Germany" gained more than it lost through access to a larger market, larger stable currency zone and greater scale to compete with the US, China etc. on the global scene. If you abstract out the political treansfers, they certainly all seem to be going one way.  The larger economic benefits may not be quite so clear cut - as in the de-industrialisation of large sections of peripheral EU countries because their (smaller) industries cannot compete with German industrial behemoths in a "free" market.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 16th, 2010 at 02:35:07 AM EST
[ Parent ]
Maybe why should ask ourselves why they can't compete, and try to do something about that? Bad infrastructure, corruption, low productivity, bad education, high unit-labour costs...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 05:58:23 AM EST
[ Parent ]
They can all be factors, but in Ireland's case, higher transport costs and the lack of the economies of scale required to produce complex products (like cars) and the scale required to build global (or major) brands are more relevant factors.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 16th, 2010 at 06:09:47 AM EST
[ Parent ]
Why should transports costs be an issue? Sea-bound transportation is the cheapest kind. And lack of economies of scale? The place is next to the 60 million UK market.

Global brands? If a tiny country like Sweden can produce global brands, then so can Ireland.

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

by Starvid on Tue Nov 16th, 2010 at 06:16:16 AM EST
[ Parent ]
You forgot Bruxelles mandating pursuit of industrial non-policy as part of the "inner market" and Germany running a mercantilist inflation target (yes, they could accept the unemployment required to match German inflation - thus beggaring both their neighbours and themselves).

Which is not to say that I disagree that we should do something about infrastructure, corruption, education and productivity. But all of that, with the possible exception of reducing corruption, suffers from the perverse effects of pursuing industrial non-policy and having a mercantilist spoiler in the currency union. It is not totally obvious that the cohesion funds and other explicit transfers adequately compensate for the policies that cause de-industrialisation in the periphery. Nor is it totally obvious that they don't - but if the EU wants to be a viable project, then "it is not totally obvious that €-zone membership is a shitty deal" does not really suffice...

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 10:08:14 AM EST
[ Parent ]
Let's not forget that whatever else it may be, the Irish crisis is not a balane of payments or a declining exports crisis.  The productive economy is doing remarkably well considering the headwinds it is facing.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Nov 11th, 2010 at 02:59:32 PM EST
[ Parent ]
Yup. And let us not forget either that much of the public sector is just as 'productive' as is the private sector.

It's just that it's not productive of profit.

From the perspective of the entrepreneur; the producer; the consumer; the staff; and even (!?) the management, it is of course the landlord and the shareholder who are 'unproductive', although the assets they own and control may have that value in use which makes them 'productive'.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Thu Nov 11th, 2010 at 04:20:35 PM EST
[ Parent ]
Agreed, although there had been growing problems within the public sector - incl. huge cost inflation and managerial incompetence - even before the private financial services sector went so spectacularly off the rails.  (In deed the lack of regulation of the private financial services industry was one instance of those problems).

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Nov 12th, 2010 at 03:46:08 AM EST
[ Parent ]
Because they're running huge primary deficits.

Doesn't matter.

When you get right down to brass tacks, what does matter is the balance of trade. Everything else is domestic, and thus within the ambit of the sovereign state.

So the question is really how large their trade deficit is, and whether they are at risk for a hyperinflationary currency collapse if they exit the €.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 12:34:02 PM EST
[ Parent ]
Did some Googling.

PIIGS in order:
Portugal Balance of Trade

Portugal reported a balance of trade deficit equivalent to 1901.0 Million EUR in June of 2010. Portugal major exports are: clothing and footwear, machinery, chemicals, cork and paper products, hides, tungsten and wine. Portugal imports mostly machinery and transport equipment, chemicals, petroleum, textiles and agricultural products. European Union is by far its largest trading partner accounting for about 72% of total trade.

Stable deficit since 2008 (which is the end of the data series on that particular page)

Ireland Balance of Trade


Ireland Balance of TradeIreland reported a balance of trade surplus equivalent to 4062.0 EUR in May of 2010. Exports remain the primary engine for Ireland's robust growth. Ireland has achieved the highest trade surplus relative to GDP in the EU. Ireland exports mainly agri-food, cattle, beef, dairy products, zinc, lead and aluminum. Ireland's major imports are: data processing equipment, chemicals, petroleum and petroleum products, textiles and clothing. European Union is by far its largest trading partner, accounting for about 74% of exports and 60% of imports. Other major partners are U.S. and China.

Stable surplus since 2008.

Italy Balance of Trade

Italy reported a balance of trade deficit equivalent to 2721.1 Million EUR in May of 2010. Italy's major exports are food, clothing, precision machinery, motor vehicles, chemicals and electric goods. Italy imports mainly engineering products, chemicals, transport equipment, energy products, minerals, textiles and clothing; automobiles, electronics, food, beverages and tobacco. Italy's closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade. Italy's largest EU trade partners are Germany and France.

Mostly deficits since 2008.

Greece Balance of Trade

Greece reported a balance of trade deficit equivalent to 2247.2 Million EUR in May of 2010. Greece's main exports are fruit, vegetables, olive oil, textiles, steel, aluminum, cement, and various manufactured items such as clothing, foodstuffs, refined petroleum and petroleum-based products. Greece remains a net importer of industrial and capital goods, foodstuffs, and petroleum. The Trade with European Union countries (Germany, Italy, U.K.) accounts for 65% of Greek trade.

Deficits since 2008.

Spain Balance of Trade

Spain reported a balance of trade deficit equivalent to 4165.0 Millions EUR in May of 2010. Spain major exports are: wine, machinery, motor vehicles and foodstuffs. Spain imports mainly machinery and equipment, fuels, chemicals, semi finished goods, foodstuffs and consumer goods. The EU accounts for 70 percent of Spain's exports and 59 percent of imports, the most important trading partners being France and Germany.

Deficits since 2008.

In conclusion: if trade surpluses is what matters (and trade surpluses are well defined, and this site has got the right numbers) then Ireland does not have a problem, but Portugal, Greece, Spain and Italy does.

So should I take it that economically nothing stops Ireland from defaulting on all or part of their national debt, and if the bond markets protest pay salaries and other expenses with Irish Euro Scrip?

But trade deficits hinders Portugal, Spain, Italy and Greece from doing the same?

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Fri Nov 12th, 2010 at 05:27:31 PM EST
[ Parent ]
So should I take it that economically nothing stops Ireland from defaulting on all or part of their national debt, and if the bond markets protest pay salaries and other expenses with Irish Euro Scrip?

Precisely.

But trade deficits hinders Portugal, Spain, Italy and Greece from doing the same?

Trade deficits may hinder PIGS from doing the same.

But that depends on how necessary those imports are. If they can restore their balance of trade without having people starve in the streets or having the lights go out, then they have an alternative. May not be a very good one, but it'll be there. And the data you found, while good, can't really tell us that.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 05:48:31 PM EST
[ Parent ]
Also, defaulting on the debt frees up a lot of income from having to be dedicated to debt service. And
issuing scrip is not default, it's just a big fuck-you to the ECB. So the deficit doesn't really matter.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 06:04:19 PM EST
[ Parent ]
The trade deficit may matter, if it's caused by stuff you'd really rather not do without.

As long as you can barter for all the stuff you need from the rest of the world, their bond traders can go fuck themselves. But if you need, say, electricity and don't have enough stuff to buy it... well, then your bargaining position just isn't as strong.

The sovereign deficit is, of course, irrelevant. And anyway, under a full employment policy it's caused by the trade deficit, not the other way around.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 06:53:16 PM EST
[ Parent ]
Certain countries (ie Greece) could start plugging the holes in the budget by actually enforcing the tax laws...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 15th, 2010 at 06:54:11 PM EST
[ Parent ]
Well, after some nationalist bout let me get back to class arguments: The local running elites are committed to the current debt arrangement. If there were mass defaults our lovely banks would go bankrupt in a jiffy. Our lovely elites would be elites no more. No more bonuses, positions of power et al
by t-------------- on Thu Nov 11th, 2010 at 01:05:47 PM EST
[ Parent ]
Our Masters are coming to an XOR decision:

  1.  Crash the global financial system

  2.  Crash the global economic system and then watch the global financial system go under

The measure of their desperation to do #1 is the "Foward to the 19th Century!" policies being instituted in the UK and, IMHO, soon to be trotted-out in the US.  

Fundamentally, our financial system requires large numbers of people in the OCED countries purchasing on Credit and making the payments.  As the global economy shrinks both of those become problematical.  

Skepticism is the first step on the road to truth. -- Denis Diderot

by ATinNM on Thu Nov 11th, 2010 at 01:51:13 PM EST
[ Parent ]
European Tribune - Germany running Ireland?
the ECB was terrified of a Lehman style bank collapse, wants to keep the Euro strong, and was adamant that the Irish bank Bond-holders - chiefly German and French banks - had to be repaid in full.
Is that really true? Because if it is, it begs the question of who exactly the ECB is there to serve.
However all of these things are not necessarily in the interests of the Irish people.
Or of the German or French people, for that matter.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 04:06:00 AM EST

Whether they like it or not, the major Eurozone players will have to intervene to prevent Irish sovereign debt interest rates going above a sustainable level (defined as long term growth plus inflation trends).  In practice this ceiling is somewhere less than 5% - much less than the current 8%.

A number of European countries (largely the Club Med) has interest rates significantly higher than that prior to joining the euro. They got 10 years of free money, which they blew (or which the rich amongst them captured, much the same result if not the same intent), and now are back to where they were before.

The difference is that before they could devalue - ie a sneaky way to make the population poorer (which affected the rich to some extent as it impacted asset values as well) rather than the blatant policy priority given now to cutting public services which is more targeted.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 06:28:44 AM EST
They could always default.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 07:06:22 AM EST
[ Parent ]
I fully agree with that.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Fri Nov 12th, 2010 at 07:23:46 AM EST
[ Parent ]
A number of European countries (largely the Club Med) has interest rates significantly higher than that prior to joining the euro. They got 10 years of free money, which they blew (or which the rich amongst them captured, much the same result if not the same intent), and now are back to where they were before.

There's no good reason for a sovereign state with a floating fiat currency to pay interest on its sovereign debt at all. (This doesn't mean that private borrowing won't be facing an interest rate floor, just that it will not be set by the perceived risk of sovereign default, but by the expectation of inflation, regulatory uncertainty, the expectation of private sector default and the presence or absence of sovereign industrial credit lines.)

The difference is that before they could devalue - ie a sneaky way to make the population poorer (which affected the rich to some extent as it impacted asset values as well) rather than the blatant policy priority given now to cutting public services which is more targeted.

The distributional impacts are different.

The distributional impact of devaluation is to take wealth away from net importers and give it to net exporters. This is in any event a necessity if you have a balance of payments crisis. The distributional impact of IMF-style "austerity" is to take wealth away from the poor and give it to the wealthy, something that will not help you in a balance of payments crisis until you do it so hard that you create a generalised economic collapse (which will, of course, help you recover your balance of payments - if you stop all domestic economic activity, you put an effective stop to imports). The distributive impact of taxing the wealthy until they stop importing is to transfer wealth from the rich to the poor (or rather, to take fake wealth away from the rich and burn it). Which is a very roundabout way of addressing a balance of payments crisis.

Why the focus on addressing the balance of payments? Because if you don't have a balance of payments crisis, you don't have a crisis as long as you are willing to use the full range of options available to you under a modern monetary system.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 12th, 2010 at 01:58:03 PM EST
[ Parent ]
Ireland doesn't have balance of payments crisis, but it does have a foreign sovereign debt crisis becuase it socialised private bank losses. Howere it doesn't control its currency and can't therefore just devalue or create money to pay off its foreign criditors. If it can't borrow, or can't afford to borrow on foreign sovereign debt markets, what options does it have which do not involve the ECB/EU - other than to drastically cut public spending?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Nov 15th, 2010 at 04:59:02 AM EST
[ Parent ]
Ireland has two other options:

  1. Default. Ireland does not need to roll over its foreign debt, because it has a solid balance of payments surplus.

  2. Issue another legal tender running as a parallel currency. Trichet will not like that, but how many divisions does Trichet have?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 15th, 2010 at 09:25:52 AM EST
[ Parent ]
Except if foreign banks decide that the new currency is too risky and demand payment in hard currency.  At that point the Irish central bank needs to set up strict currency and capital controls, which in turn means it becomes more expensive for Irish firms to engage in trade and the Irish have a much harder time traveling abroad since the central bank has to take a hard line to prevent capital flight. To the extent that you have a devaluation, the Irish still see a significant reduction in their real wages above and beyond what's already happened.  Companies and individuals that owe money to foreign banks and companies suddenly owe more. Furthermore, while devaluation will eventually improve Ireland's balance of trade, the initial effect will be the reverse. And if the foreign banks and central bankers get pissed off enough they can effectively refuse to cooperate in trade altogether.  There is no solution available that's not going to badly hurt the Irish population at this point.  The best case scenario is something like Argentina, where ending a currency regime and telling foreign creditors to fuck off worked out quite well in the longer term, but the initial effects were quite gruesome.
by MarekNYC on Mon Nov 15th, 2010 at 10:55:52 AM EST
[ Parent ]
The fact that Ireland has a positive balance of trade means that it will, collectively, have enough hard currency to meet its demands for imports. As long as that doesn't change, there's no need to devalue either, although the currency will likely be traded at a slight discount relative to €, since it's not legal tender in other €-zone countries.

Firms and individuals can be given the option to convert their debts into the new currency at par when it is issued. This is a form of default, but, well, that's the whole point of the exercise in the first place.

And if the foreign banks and central bankers get pissed off enough they can effectively refuse to cooperate in trade altogether.

They could. But that has never actually happened, AFAIK.

The best case scenario is something like Argentina, where ending a currency regime and telling foreign creditors to fuck off worked out quite well in the longer term, but the initial effects were quite gruesome.

Argentina had a negative trade balance, which means that part of their consumption was the result of other people accepting their IOUs as payment in place of goods and services. Of course, telling people that your IOUs are no good will stop that traffic dead.

Ireland is in the opposite situation - it is accepting other people's IOUs in exchange for real goods and services. Contrary to Argentina, where the foreign hard-currency debt was caused by structural problems in the real economy, Ireland's hard-currency debt (both foreign and domestic) is caused by the sovereign foolishly guaranteeing the losses from a speculative bubble. There's no real reason for austerity (unlike the case of, say, Greece, which will need to cut its current accounts deficit in some way before it can tell the international money markets to fuck off). Any austerity that is imposed in Ireland is purely a matter of not being willing to write off counterfeit debts.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 15th, 2010 at 01:38:43 PM EST
[ Parent ]
There's no good reason for a sovereign state with a floating fiat currency to pay interest on its sovereign debt at all.
There is a very good reason, because if you don't you'll lose access to the global credit markets.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Nov 15th, 2010 at 07:21:44 PM EST
[ Parent ]
So? The sovereign doesn't need credit from abroad. Just means that your private sector will have to service the foreign debt out of its own pocket. Might make it less inclined to pick up foreign debt, which isn't altogether a bad thing.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 15th, 2010 at 08:30:05 PM EST
[ Parent ]
If the sovereign borrows domestically you'll have massive crowding out for the private sector credits which will push up interest rates. Then they'll have to look for credit abroad, which means they'll have income in domestic currency and debt servicing in foreign currency. This is bad, just look at Migeru's recent thread about Croatia.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 06:02:22 AM EST
[ Parent ]
Except that the sovereign has no need to borrow at all.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Tue Nov 16th, 2010 at 08:11:31 AM EST
[ Parent ]
Yes it does, unless it want to raise taxes sky high or print money. The latter leads to inflation, which is essentially a flat tax on wages, pensions and imported goods and services. Not fun at all...

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 08:40:48 AM EST
[ Parent ]
And paying interest on debt is not a tax?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 09:11:06 AM EST
[ Parent ]
Interest is the fee you pay for doing investments now instead of doing them later. If you don't want to pay it, don't borrow in the first place.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 09:39:32 AM EST
[ Parent ]
"..or print money."

Isn't this what private banks are doing?

"The latter leads to inflation,"

But bank credit does not? (It is not WHO makes the credit. It is what the credit is used for.)

"which is essentially a flat tax on wages,"

If inflation eats away debts, it surely is a wage increase. Increase in the value of today's work versus yesterday's work.

"..imported goods and services."

But also increases exports. If the real value of production is fake, based on overvalued currency, isn't it better to fix it? And let the markets set the price?

by kjr63 on Tue Nov 16th, 2010 at 09:35:03 AM EST
[ Parent ]
Isn't this what private banks are doing?
No. Or well, Migeru argued convincingly some time back that the banks that used SIV's had actually been doing just that. Another crime, counterfeiting, gone unpunished.

But bank credit does not?
It doesn't, even though lax lending practices might lead to asset price bubbles. But as this discussion is omplex enough already, let's not talk about the "should asset prices be included in inflation"-argument here.

If inflation eats away debts, it surely is a wage increase.
Only for those who have debts. The Swedish multi-decade experience of this policy was that the upper middle-class took out huge loans at essentially negative interest rates while the poor saw all their bank account saving vaporize. The poor couldn't get any loans after all, and were much less likely to understand what a great deal it was. The fact that Swedish real estate prices haven't fallen since the crisis began means these people are still all millionaires.

But also increases exports
Nice for corporate profits, not workers, and only in the short run. In the long run constant currency devaluation reduces the competitive pressure on your industries, letting them fall behind without being outcompeted. That's not a good way to develop. We tried it in basically 1975-1995. Kjell-Olof Feldt, the then socialdemocratic minister of finance described it well: "It's like peeing your pants. First it feels nice and cozy. Then it doesn't."

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

by Starvid on Tue Nov 16th, 2010 at 09:54:08 AM EST
[ Parent ]
"No."

Banks make money from their keyboard. What else is that than printing money? They have only 10% of the money they lend out, that's 90% increase in money supply.

"let's not talk about the "should asset prices be included in inflation"-argument here."

Land rent is a production cost and a consumer price.

"..poor saw all their bank account saving vaporize."

Poor don't have savings, but debt. Rich have savings. In the USA top 10% owns 90% of the wealth.

by kjr63 on Wed Nov 17th, 2010 at 04:03:33 AM EST
[ Parent ]
Banks make money from their keyboard. What else is that than printing money? They have only 10% of the money they lend out, that's 90% increase in money supply.

That's not how banks work. If the central bank targets an overnight interest rate, member bank lending is constrained by equity, not reserves. The central bank can try to target money supply instead of interest rates (the monetarists advocated this for a while, before quietly backpedaling on it), but that has always resulted in massive FAIL when attempted.

So yes, private lending does increase the money supply. All debt (that third parties trust will be repaid) is money, so all lending (to creditworthy borrowers) increases the money supply. But banks don't increase the money supply in the way you imply.

And, incidentally, your math is off too. It would be a 900 % increase in the money supply. If banks worked that way. Which, however, they don't.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Nov 17th, 2010 at 06:05:18 AM EST
[ Parent ]
If inflation eats away debts, it surely is a wage increase. Increase in the value of today's work versus yesterday's work.

Not if wages are denominated in the inflated currency and fixed in nominal terms.

Of course, there's no inherent need to fix them in nominal terms - you can just index them to inflation... but for some reason that's considered politically unpalatable.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 10:12:03 AM EST
[ Parent ]
Doesn't work that way, unless you believe in the quantity theory of inflation.

Suppose that tomorrow, Sweden decided to retire of its sovereign debt. Sweden prints SKR in the appropriate amount, and deposits them in accounts with the Swedish central bank, in the names of the bondholders. If the Swedish government wants to keep it there, it can simply pay its overnight target rate of interest on them (assuming a normal yield curve, this will cause a loss of interest income for the bondholders, but on the other hand they will be protected against a capital loss in the event of interest rate changes - the net effect on total reserves is likely to be minimal, but it may alter who holds them).

But the gedankenexperiment was about setting risk-free interest rates to zero. So let's suppose the target rate goes all the way to zero.

Now, it is possible that the 3 % per year, or whatever the target rate used to be, made some holders of reserves with the central bank forgo consumption. To the extent that this is true, and assuming that you are already at full employment, you will have to tax out the excess purchasing power. This will not, however, cause taxes to go "sky high" in any realistic scenario: Assuming positive nominal net national product and that people wish to hold a constant share of their assets in legal tender (or bonds, if bonds have not been retired), the sovereign will still need to run an overall deficit in order to accommodate this desire (the only alternative, given the above behavioural assumption, is to not run a deficit and have people's desire to save money cause zero nominal net national product).

In any case, the vast majority of former bondholders will simply keep their newly acquired SKR in their accounts with the central bank, because they were using the bonds as a hedge or to cover their asses against margin calls - for which the interest paid is a nice bonus but not a vital consideration.

Finally, some people will invest money in projects that used to be unprofitable, or lend to projects which used to be not creditworthy. These are, however, wholly independent of the amount of reserves injected into the system by retiring the bonds - in a fiat currency system in which the central bank maintains an overnight target rate (0 %, 3 % or any other arbitrary number - it doesn't really matter), the ability to fund new investments and make new loans is a function only of your equity - the money supply adjusts in order to accommodate your investment (that's how the central bank keeps the overnight rate where it wants it to be).

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 09:39:36 AM EST
[ Parent ]
Starvid:
If the sovereign borrows domestically you'll have massive crowding out for the private sector credits which will push up interest rates.
Treasury view - Wikipedia, the free encyclopedia
In macroeconomics, particularly in the history of economic thought, the Treasury view is the assertion that fiscal policy has no effect on the total amount of economic activity and unemployment, even during times of economic recession. This view was most famously advanced in the 1930s (during the Great Depression) by the staff of the British Chancellor of the Exchequer. The position can be characterized as:[citation needed]
" Any increase in government spending necessarily crowds out an equal amount of private spending or investment, and thus has no net impact on economic activity. "

In his 1929 budget speech, Winston Churchill explained, "The orthodox Treasury view ... is that when the Government borrow[s] in the money market it becomes a new competitor with industry and engrosses to itself resources which would otherwise have been employed by private enterprise, and in the process raises the rent of money to all who have need of it."

Keynesian economists reject this view, and often use the term "Treasury view" when criticizing this and related arguments. The term is sometimes conflated with the related position that fiscal stimulus has negligible impact on economic activity, a view that is not incompatible with mainstream macroeconomic theory.



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 09:28:56 AM EST
[ Parent ]
Don't be silly Mig. Crowding out is real. It might not matter when we're talking about stuff that is needed anyway like schools, hospital and infrastructure, but otherwise... I don't fancy a situation where the government is vacuuming the domestic market for savings, pushing interest rates up for business. Not only that, but when the government decides to launch a policy of pro-cyclical (or non-cyclical) "spend beyond our means" then we end up, well, here. The UK is a prime example. Furthermore, such spending sprees often end up dumping money on more or less useless things which are done in an inefficient way. Just look at US military procurement, or Swedish social policy 1970-1990.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 09:40:10 AM EST
[ Parent ]
To clarify the above post, obviously I'm not claiming that there is no multiplicator effect at work: I don't agree with the treasury view. But in a non-recesssion situation, massive state borrowing in the domestic market will reduce the supply of credit to the private sector, pushing up rates.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 09:58:52 AM EST
[ Parent ]
Starvid:
I don't agree with the treasury view. But in a non-recesssion situation, massive state borrowing in the domestic market will reduce the supply of credit to the private sector
So does this comment above apply to the current recession situation?
If the sovereign borrows domestically you'll have massive crowding out for the private sector credits which will push up interest rates. Then they'll have to look for credit abroad, which means they'll have income in domestic currency and debt servicing in foreign currency. This is bad, just look at Migeru's recent thread about Croatia.
If it doesn't, then what was your point?

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Nov 16th, 2010 at 11:41:50 AM EST
[ Parent ]
I don't see any problem with taking extraordinary measures in extraordinary situations, like during this biggest crisis since the 30's. But you can't behave like that in normal times.

Still, I'd prefer raising taxes to finance stimulus efforts rather than absorbing all domestic savings, war bond style. Best is of course borrowing abroad, as long as you have access to the global credit markets. Best is ti never place yourself in a position where you might have to launch a sovereign default.

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

by Starvid on Tue Nov 16th, 2010 at 12:58:05 PM EST
[ Parent ]
Still, I'd prefer raising taxes to finance stimulus efforts rather than absorbing all domestic savings, war bond style.

Two things wrong with that logic.

  1. Bonds are not a fiscal policy instrument. Bonds are a monetary policy instrument. Issuing bonds does not "absorb domestic savings" - it just alters some portfolios a bit.

  2. You can't balance the budget and do stimulus at the same time: The private sector is deleverageing hard; they need the extra money. IF that money becomes a problem at some later date (which is far from assured, unless you believe in the quantity theory of inflation), you can tax it then.

- Jake

Austerity can only be implemented in the shadow of a concentration camp.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 01:14:30 PM EST
[ Parent ]
Reuters: Ireland not in position where it needs outside help-Fin Min
Ireland is fully funded until June 2011 and has substantial cash reserves so it would make no sense to apply to the European Financial Stability Facility (EFSF) for help, Finance Minister Brian Lenihan said on Friday.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Fri Nov 12th, 2010 at 09:02:42 AM EST
Goodbody Stockbrokers - News and Comment - Morning Meeting Wrap
It's been a weekend of rumours about high-level talks in Europe about the Irish situation, rebuttals from the Irish government that it has not applied for help, followed, finally, by a statement by the Irish Government last night that it is in "on-going" contact at an "official level with international colleagues in light of current market conditions". Obviously, not being privy to the conversations, one has to piece all the different reports together. It seems that EU officials may be keener to get Ireland to seek a funding backstop from the EU than Ireland is willing to do so. There are, of course, different incentives for the two sides here. For Ireland, the sovereign is already funded to the middle of next year, so market yields are largely irrelevant at the current time. It would be a huge step for any country to seek outside assistance and Ireland is correct to avoid it if it can. However, the issue is more important than just Ireland now, given the contagion risks that may affect countries such as Portugal and Spain next. How will this play out? There are three important issues to take into account over the coming days: (1) the reaction of the bond market to the latest speculation; while the clarification statement from the five big powers in the EU at the G20 summit managed to calm nerves somewhat on Friday, we will be watching the markets again closely this morning; (2) careful consideration will have to be given to the banking situation in Ireland, given the increasing reliance on ECB funding, and; (3) the Ecofin meeting, starting tomorrow, will be key and is likely to bring things to a head. Finance ministers from around Europe will be keen to see a resolution to Ireland's problems. We are in for a very interesting week


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Nov 15th, 2010 at 04:46:57 AM EST
Can I just say a big thank you to all the economics heavyweights who have contributed here.  Economics is a field I still struggle with - perhaps because I never formally studied it - and I have found the discussion here very helpful.

Perhaps the most significant insights I have taken from the discussion are:

  1. The Eurozone as a whole has no balance of payments or public finances crisis, so the problems of peripheral members could be resolved if there where strong central institutions and the political will to take corrective pan eurozone actions. (Migeru)

  2. Peripheral members taking strong deflationary measures in response to sovereign debt issues accentuate or exacerbate pan Eurozone imbalances

  3. Whereas peripheral Governments (especially Ireland's) are largely responsible for their own crises, the solutions are no longer necessarily in their own hands.

  4. The actions of peripheral Governments (especially Ireland) cannot be understood rationally in terms of their national interest - and have to be understood in terms of the national elites trying to cling on to power - both against their own people, and against pan-European responses which would render national elites largely irrelevant.

  5. The boundaries between fiscal and monetary policies become less clear in a crisis situation and the ECB charter seems totally inadequate to deal with severe economic crises in member states.

  6. The revenge for Versailles?  Is German EU policy - fear of inflation, fear of fiscal imbalances and seeking refuge in a strong exports policy still an atavistic morbid fear of what happened under Weimar and a revenge for the (even more stupid) policies imposed on Germany in the Treaty of Versailles?

I would appreciate it if any of the economic heavyweights here wrote a diary synthesising the insignts in the discussion above into a coherent theory of what is happening to Ireland (as an example) and what needs to be done to address the underling structural faults which we have seen emerging from the larger global neo-lib lunacies and their local manifestations in countries like Ireland  - just as they were adopting the neo-lib mantras of light touch regulation, free markets, limited state interventions, free flows of capital and Eurozone led monetray policies.  

Certainly I have not seen such an analysis emerging within Ireland and - as Colman has pointed out - the level of economic analysis in the texts I have quoted in the diary above is not impressive. So how about it Jake, Chris, ATinNM, Thatbritguy, t--, afew, Migeru, starvid, MarekNYC, Jerome et al?  A new project for ET?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Nov 16th, 2010 at 03:14:40 AM EST
I would quarrel with #2&5:

Peripheral members deflating themselves to death is one way to resolve the balance of payments crisis. Obviously, if you kill the economy, you remove the need to import stuff, and thus you remove the current accounts deficit - much the same way that killing the patient removes the need for a blood transfusion.

What we're saying here is not that it won't work to resolve the imbalances. We're saying is that it's about as sensible a way to resolve the imbalances as it would be to resolve the problem of a lack of blood for blood transfusions by killing the patients who need blood.

And it's not that the boundary between fiscal and monetary policy becomes sketchy in a crisis. It's that the way the boundary is drawn in orthodox economic theory is a fiction in the first place, perpetuated to justify an "independent" central bank (read: A central bank beholden to the financial sector rather than the democratically elected government). It's just that a crisis reveals that the emperor has no clothes, because a crisis is what happens when your picture of how the world works collides violently with how the world actually does work.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 10:28:33 AM EST
[ Parent ]
Frank Schnittger:
The actions of peripheral Governments (especially Ireland) cannot be understood rationally in terms of their national interest - and have to be understood in terms of the national elites trying to cling on to power - both against their own people, and against pan-European responses which would render national elites largely irrelevant.

This one is interesting.

They still have national options - defaulting or issue script - that is not used. These would strengthen the national political elite, but hurt those that hold the debt or EU cohesion.

A vote for PES is a vote for EPP! A vote for EPP is a vote for PES! Support the coalition, vote EPP-PES in 2009!

by A swedish kind of death on Tue Nov 16th, 2010 at 12:50:25 PM EST
[ Parent ]
What does issuing script mean? I'm not aquainted with that expression.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Nov 16th, 2010 at 12:59:08 PM EST
[ Parent ]
Originally, scrip means a private currency, but in this context it means to issue a parallel currency that would be legal tender.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Nov 16th, 2010 at 01:03:50 PM EST
[ Parent ]


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