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Progressing Eurozone development

by Frank Schnittger Thu Feb 18th, 2010 at 05:30:30 AM EST

Update: Title changed to more accurately reflect the point of this post.

Much of the debate about the future of the EU and the Eurozone has been driven by nationalist European euroceptics, and US neo-liberal economic globalists opposed to corporate regulation and social provision.  The europhile response has been largely a defensive one, arguing that compared to the USA and the UK, the Eurozone hasn't been doing at all badly, always excepting the current difficulties being experienced by the PIIGS countries. Perhaps it is time for europhiles to go on the offensive and start arguing that the problem with the Eurozone is not that there is too much integration, regulation and social provision, but that there isn't enough.

Marco has a well recommended diary out detailing how Krugman has criticised the EU for forming a currency Union well before the continent is ready for one.  Krugman's argument is that without the fiscal and economic integration that the US enjoys, the project for a common EU currency zone is fraught, at best.  Whereas a US state like Florida can look forward to continuing support in the form of Federal spending on infrastructure, heath and social welfare if it gets itself into a severe recession and its own tax take and budgetary position tanks; Greece as part of the Eurozone can look forward to no such automatic stabilisers and supports for their economy from the EU Budget.

The first thing to note about this argument is that it is not your typical neo-lib [Europe.Is.Doomed™ Alert] argument because the EU hasn't "reformed" its economies enough by slashing wages, regulation of business, taxes on the rich, and spending on social welfare.  If anything, Krugman is arguing that the EU hasn't done enough to integrate its economies (e.g. through greater labour mobility) and provide a sufficiently large centralised EU budget to provide more support for member states in trouble.  Whilst obviously taking the US as his comparator, if not his model, Krugman appears to be arguing that the Euro is not a long term viable project without a lot more political, economic and fiscal integration within the EU.  Given that he is not arguing for the dismantling of the Euro project, Krugman is therefore arguing for more EU integration and transnational social provision, not less.

frontpaged - Nomad


Having just finished the Lisbon Treaty ratification process, most EU citizens, even Europhiles, might have hoped that that would be that as far as institutional reform of the EU has to go for at least a decade to come.  The political appetite for a further EU Treaty could not be less.  What has become clear with the global economic crisis, however, is that even with the Lisbon Treaty now in force, further measures may be required to enable the Eurozone, if not the EU as a whole to function more effectively.  Given that the Euro is not universal within the EU, perhaps the best way to achieve this further integration and enhanced social provision is through the enhanced cooperation provisions of the Nice Treaty now subsumed into Lisbon.  So how could the EU, and particularly the Eurozone improve its performance and help countries like Greece which get into severe economic difficulty - always assuming that grandstanding and moralising about dodgy statistics is not a solution?

At the moment EU Finance Ministers have this to say to Greece:
EU says Greece may face more cuts

European ministers told Greece today it may need to take further steps to bring a swollen debt under control and calm "irrational" financial markets, as wage cuts already announced by Athens sparked another strike.

At a European Union meeting, finance ministers from Germany, Austria and Sweden led the charge, with Germany's deputy finance minister saying Greece should mimic Ireland and Latvia, both of which are slashing spending and wages savagely.

However the classic Keynesian response to a severely deflationary situation is to develop some kind of stimulus spending programme to maintain economic activity and employment.  This is how Obama has averted a second Great Depression in the USA.  So why are we currently, at the behest of "irrational markets", trying to exacerbate an already severe recession in Greece and other peripheral Eurozone members - one that might well spread to the central Eurozone members themselves?  Greece obviously cannot afford to fund a stimulus package itself, so the only alternative is an EU or Eurozone wide response.  So what might such a response look like?

The US Stimulus programme looked like this:
American Recovery and Reinvestment Act of 2009

The measures are nominally worth $787 billion. The Act includes federal tax cuts, expansion of unemployment benefits and other social welfare provisions, and domestic spending in education, health care, and infrastructure, including the energy sector. The Act also includes numerous non-economic recovery related items that were either part of longer-term plans (e.g. a study of the effectiveness of medical treatments) or desired by Congress (e.g. a limitation on executive compensation in federally aided banks added by Senator Dodd and Rep. Frank).

No Republicans in the House and only three Republican Senators voted for the bill.[1][2][3] The bill was signed into law on February 17 by President Obama at an economic forum he was hosting in Denver, Colorado.[4]

If even some moderate Republicans can vote for such an Act, we are hardly talking left wing ideology here. So what could the EU/Eurozone/ECB do? Initially many of the measures would be specific to Greece to tackle the immediate crisis there, but many should also be considered for broader implementation throughout the Eurozone/enhanced cooperation area.

  1. Guarantee Greek Sovereign debt so that interest rates on Greek Sovereign debt converge with the European norm.  This could make the biggest single contribution towards reducing Greek interest payments (and thus reduce their budget deficit) going forward.

  2. Encourage greater worker mobility by harmonising educational and training qualification and certification regimes throughout the EU.  This might also require investment in education and training in some countries to ensure that qualifications are harmonised up rather than down.

  3. Harmonise public health care entitlements throughout the EU so that the treatment you get is not dependent on where you happen to reside.  Again, this might require significant budgetary transfers to those member states which currently have lesser public healthcare provision and would also stimulate their economies by requiring the expansion of their public healthcare services and facilities.

  4. The development of an enhanced EU wide electricity grid to facilitate and maximise the integration of wind, solar, wave and other renewable power sources and enable the EU to achieve enhanced carbon emission reduction targets.

  5. Enhancement of an EU wide energy efficient goods and public transport systems including high speed rail, shipping (particularly helpful to Greece), and a public infrastructure for charging plug-in electric cars.

  6. Convergence of an integrated income tax rates and social welfare benefits system throughout the EU - again requiring transfers to poorer member states to ensure the harmonisation is upward rather than downwards.

Obviously all of this will not come cheap and would require massive transfers from richer to poorer regions which would be resisted by taxpayers in richer states.  But how about funding such a harmonisation of benefits EU wide through the introduction of an equalised EU tax?  Anyone for a Tobin tax on all financial transactions within the EU, and particularly on speculative transactions in the Euro?  Should not the costs be borne by those who have benefited most from the derivatives, currency and interest rate turmoil which has, in large measure, been responsible for the crisis in the first place?

It is time for europhiles to come off the defensive and start projecting a more positive vision of a more integrated, harmonised and egalitarian EU.  It is also time to stop the pace of EU development being determined by its most recalcitrant members.  If this means a two speed Europe, then so be it.  The Eurozone effectively constitutes that in any case.  It is time that the Eurozone members started building on their considerable achievements to date.  We've got the Euro, and we're proud of it.  And we are going to build a more just and efficient economy, polity and society around it.

Display:
This is a most interesting diary. I have been asking myself many of these questions. The whole history of the EU has been a movement in the direction of integration. It has always been difficult and run against the tide of nationalist resistance.

Certainly politics and economic policy are more or less inseparably connected. However, the task of economic analysis is is to try to look at the economic impact of alternative policy positions regardless of their political popularity. On the US scene Krugman has been strongly arguing that Obama settled for too small a stimulus. Obama's faithful supporters have been dismissing Krugman's economic arguments solely on the basis of the political difficulties that Obama faced in congress.

I can certainly understand the resentment of europhiles at being constantly compared to the US. However, economic systems do not operate in a vacuum and on the present global stage there are only a few major players. One of the reasons that players on this field need to be efficiently structured is to have the ability to respond effectively to the moves of the other players. Most of the discussion about the EU seems to still be focused almost entirely on its relationship with the US. In my view China is rapidly becoming as pressing a reality for Europe as it is for the US.    

by Richard Lyon (rllyon@gmail.com) on Tue Feb 16th, 2010 at 01:57:55 PM EST
Much of the early driving force and philosophy behind the EU project came from a rejection of Nationalism in the wake of Nazism and WW2.  Now, 65 years later, those memories have faded and nationalism is in the resurgence - chiefly as a political reaction to economic globalisation.

However europhile resentment at being compared to the US is not based on the Federalism of the US constitution per se - many would like the EU develop more toward a Federal model with greater central EU power.  The reaction against the US is two-fold - against the militarism and imperialism that US dominance has spawned, and against the US neo-liberal hostility towards state intervention and social provision which is at the heart of the European social model.  Let us not forget the central role of socialists in developing the European project.

The challenge now for europhiles is to get the message across that economic globalisation is now a done deal, and irreversible in the immediate future whether we like it or not, and that the correct political response is not to retreat to a narrow xenophobic nationalism, but to embrace a greater transnational polity which is the only body with enough clout and scale to effectively regulate the global economic behemoths and ensure they serve the public interest.

Economic globalisation requires a degree of political globalisation to manage and control it.  If you don't like economic globalisation you should embrace political globalisation as the only effective means of controlling it.  A strengthening EU is thus in the vital national interest of its member states.  A eurosceptic retreat from the EU just hands the entire playing field to global corporations effectively beyond all national control - unless you happen to have the power and scale of the US, China, or potentially, the EU.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Feb 16th, 2010 at 02:49:21 PM EST
[ Parent ]
To the extent that the EU project has contributed to the absence of a major European war for over 60 years, and I think it has, then the vision of Monet and others has certainly been justified.

My view of globalization is that it is a process that has been going on at least since the Portuguese started sailing down the coast of Africa. Nobody can fill the moat and pull up the draw bridge.

The aspiration of the EU becoming a countervailing global force certainly seems to be fairly prevalent. I really don't see how that goal can possibly be attained without a great deal more integration. It will require considerably more than just providing a shining moral example.

by Richard Lyon (rllyon@gmail.com) on Tue Feb 16th, 2010 at 03:03:43 PM EST
[ Parent ]
Up until relatively recently, the driving forces behind EU integration and enlargement seemed largely internal - peace across the fractures of WW2 and the Cold War etc. with very little thought being given to the larger global picture.  The notion that when Kissinger wanted to call Europe he didn't know who to call was largely a problem for Americans, not Europeans.  

We were happy that the EU could never become a military/political superpower and didn't want it to try to compete with the US on that basis.  The very diffuse and inchoate nature of political power within the EU was actually a protection against a return to Messianic politics a la Hitler, Mussolini, Franco et al.

Lisbon is perhaps the first Treaty which wasn't dominated by internal economic concerns and even it was largely a response to enlargement and the impossibility of maintaining unanimity as a basis for decision making amongst an EU of c. 30 members.

Competing with the US (or China) politically as well as economically is only very dimly on the agenda - and then often in response to US imperialistic over-reach as in Afghanistan/Iraq or the need to respond to global challenges like Climate Change or Financial regulation.

In short, the EU, collectively, is being dragged kicking and screaming onto a quasi- Superpower role - one it never really wanted, which its more powerful members like the UK and France would much prefer to maintain on their own independent account, and one for which its structures and peoples are poorly adapted.

It would take a global crisis on a truly epic scale - think WW3 or a climate catastrophe to force the EU to take on a much more super-power like role and structure - and then only against the opposition of many of its peoples and Members.  We have had enough of power politics in Europe to last us for a few generations.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Feb 16th, 2010 at 03:39:52 PM EST
[ Parent ]
I am an American who wishes devoutly that we could get over our addiction to power. I can certainly understand the desires of people anywhere who want to be left alone to get on with the business of their lives and loves. Unfortunately there are many forces which interfere with that.
by Richard Lyon (rllyon@gmail.com) on Tue Feb 16th, 2010 at 04:58:09 PM EST
[ Parent ]
We will, probably the same way that Britain did--bankruptcy...
by asdf on Tue Feb 16th, 2010 at 11:48:04 PM EST
[ Parent ]
I have long felt that the long decline of the British Empire offers a pretty good guide to the road that is ahead for the US. The US is a larger geographical body than the British Isles and thus will probably never fall to quite the same level of insignificance, but the days of hegemony are numbered. I think that the economic forces bringing this about are going to come much more from Asia than from Europe.
by Richard Lyon (rllyon@gmail.com) on Wed Feb 17th, 2010 at 09:47:16 AM EST
[ Parent ]
Europe has an ageing and (in relative terms) declining population which has declined from 25% of World population 100 years ago to c. 12% now. So it is not surprising that its economic and political importance is declining in relative terms even if per capita incomes and the quality of living rise.  Many in Europe do not see this as a problem for them even if global population increases are becoming a global problem.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Feb 17th, 2010 at 11:43:12 AM EST
[ Parent ]
Is the ageing part that relevant? China will have a delayed version of exactly the same problem a bit later, which may be even more extreme thanks to their 1-child policy.
by gk (g k quattro due due sette "at" gmail.com) on Wed Feb 17th, 2010 at 11:53:25 AM EST
[ Parent ]
The decline of the British Empire had a lot more to do with being chronically over extended than with an aging population. That is the way in which I think that the US is following in its path.
by Richard Lyon (rllyon@gmail.com) on Wed Feb 17th, 2010 at 11:57:48 AM EST
[ Parent ]
All I'm saying is that the "Europe is declining" narrative is based on false assumptions.  If your population is static and reasonably prosperous and with a reasonably equitable distribution of wealth you don't need 5% growth rates and not having them is not a symptom of decline.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Feb 17th, 2010 at 12:03:02 PM EST
[ Parent ]
I was talking about the decline of the British Empire that occurred prior to the 1950s. That doesn't have any direct connection to some current notion of general European decline.

Most industrialized nations in the 21st C are dealing with the demographics of an aging population. Whether or not they will be able to hold onto their present shares of the global economic pie is an open question.

by Richard Lyon (rllyon@gmail.com) on Wed Feb 17th, 2010 at 12:16:13 PM EST
[ Parent ]
From the point of view of RealPolitik, the UK wasn't so much overextended as under-vicious. When you have colonies, you either have to exploit them ruthless with fascist determination, or you have to let them go.

The UK did plenty of fascist exploitation in the run-up to WWI, but competition with the other European powers abroad, and an interest in progressive politics at home, meant that Victorian values didn't fit with 20th century political aspirations. Between those two reasons, and the rise of Wall St and worker solidarity, the UK's prospects gradually faded, until Suez killed them altogether.

The US has been more effective through its support for fascist terrorist dictators around the world, its more powerful propaganda machinery, and its ability to wage intellectual and economic war and enforce an economic consensus on the rest of the world - and have the rest of the world believe it.

What's happening now is that Europe as a colony is starting to break away almost involuntarily, and challenge all of the existing assumptions about US hegemony.

There isn't a clear anti-US goal, but financially the Euro is the single strongest long-term threat to the dollar. Politically, the existence of the EU makes it much harder for the US to interfere and pick off individual european countries - as has been happening since WWII.

Greece is a very clumsy attempt at old-style interference, and the constant anti-Euro propaganda is an attempt to make its success more likely.

But it's really not clear any more that the EU is going to accept this kind of interference. Or that Washington has realised that the game has changed, and US supremacy by diktat is no longer a given.

Usually what happens around now is a war while the players realign themselves. That may be a while off yet, but some kind of drastic dislocation is looking increasingly likely.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Thu Feb 18th, 2010 at 08:20:07 AM EST
[ Parent ]
ThatBritGuy:
The UK did plenty of fascist exploitation in the run-up to WWI, but competition with the other European powers abroad, and an interest in progressive politics at home, meant that Victorian values didn't fit with 20th century political aspirations.

There was perhaps a third factor:  Old style direct imperial rule wasn't very cost effective.  It cost more in lives and cash than it brought in in booty.

The US had a far smarter neo-colonial model necessitated by its own anti-imperial origins: Indirect rule through ideological and corrupt control of local elites who did most of the exploiting and repression for them.  This proved far more cost effective except that the local elites weren't always up to the job - necessitating many CIA engineered coups and more direct US military interventions in Cuba, Vietnam, Afghanistan, Iraq which have invariably ended up in disaster.  Far better to let local elites or regional powers like Saudi or Israel or Apartheid SA or the UK to do your dirty work for you.

Nice company the UK keeps.  Damn those yurpians for not playing ball.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 08:34:00 AM EST
[ Parent ]
Frank Schnittger:
Old style direct imperial rule wasn't very cost effective.  It cost more in lives and cash than it brought in in booty.

Not too sure how many ex-colonial countries will agree to that.

I've no contention with the idea that a modern equivalent of superpower as run by the USA would be more effective, though.

by Nomad on Thu Feb 18th, 2010 at 11:02:34 AM EST
[ Parent ]
That comment is obviously written from the perspective of the colonisers rather than the colonised.  The UK lost its pre-eminant place in the world because of imperial over-reach - it couldn't sustain the net costs involved.  

However that is not to say that colonised countries were net gainers. The problem was that colonial relationships were worse than zero sum - both sides lost as resistance to colonialism increased.  There were instances of massive (mostly private) gains - witness the appalling Belgian occupation of the Congo - but increasingly, in most instances, colonial relationships became very suboptimal from an economic point of view for all involved.

The same could be said for modern US military adventures, and if there is one factor which may destroy US hegemony, it is the cost of those adventures - for the US as well as for their victims.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 11:12:37 AM EST
[ Parent ]
I see that as the major present pitfall for the US. It needs to make basic investments in its intellectual and technological capital in order to remain competitive. Instead the money that could accomplish that is being spent on neo-colonialist adventures. WWII and to some extent to cold war did produce some valuable technological spinnoffs. These wars are producing nothing but destruction and animosity.
by Richard Lyon (rllyon@gmail.com) on Thu Feb 18th, 2010 at 11:37:40 AM EST
[ Parent ]
The US had a far smarter neo-colonial model necessitated by its own anti-imperial origins: Indirect rule through ideological and corrupt control of local elites

Why do you use the past tense? Neoliberalism is an American project, and European elites (corrupt or not) have embraced it.

And what is NATO if not an imperial institution? After the collapse of the USSR, the sole purpose of NATO became to keep the US in Europe, and to prevent Europe (led by France and Germany) from developing its own foreign policy.

I agree with your take on Krugman's argument, however. Where I think Krugman is wrong is in saying that creating the euro without integrating Europe fiscally and politically was a mistake. As Jerome has observed, creating the euro was a political act as much as anything else, and was seen in Maastricht as a step toward further integration. Unfortunately, today's European leaders appear to be less visionary than those in 1992.

A bomb, H bomb, Minuteman / The names get more attractive / The decisions are made by NATO / The press call it British opinion -- The Three Johns

by Alexander on Thu Feb 18th, 2010 at 01:33:53 PM EST
[ Parent ]
I used the past tense because, under Bush, the US seemed to embrace a much more direct old-style military/imperial model rather than the more subtle ideological indirect political colonisation and rule by global corporations.  The neo-colonial model depends for much of its success on not appearing to be direct  rule at all.  Hence the use of corporations, coups, and media/ideological tools to ensure the colonised actually agree with their colonisation because of their need for foreign investment, expertise, jobs, tourism, military "protection" etc.

I also agree that the founders of the Euro project knew that its adoption would also result in a need for far closer political/economic integration in due course and part of the reason for introducing it was to make that a necessity.  Thus if it was a "mistake", it was a deliberate one.  Now further integration seems the only natural and obvious solution to the problems the Eurozone is confronted with.

They could have waited for a much more fully intergrated EU before introducing the Euro - and we might never have gotten there.  The Euro is a tangible and popular symbol of European unity and common purpose and also means there is almost no going back to "National" Sovereignty and Currency.  

I think nationalist Brits are actually correct in seeing the Euro as the thin end of the wedge towards further political and economic integration, and so will continue to oppose it even if it is clearly against the economic interests of the UK to do so.  The picture of the Queen on Sterling notes is their symbol of continued nominal, empotional and notional independence which they cling on to even if they might as well be using the $ at this stage...

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 19th, 2010 at 07:11:21 AM EST
[ Parent ]
There has been a continuity in how America runs its empire from Bush 1, to Clinton, to Bush 2, to Obama. Obama has embraced Bush's doctrine that the US has the right to wage "preemptive" wars, continuing Bush's disregard for international law.

The difference between Bush 2 and the others is style, not substance. Obama's escalation in Afghanistan is not significantly more rational than Bush's invasion of Iraq.

I agree with you about the Brits, but I think their concern is less about independence (if they wanted to be independent, would they have joined America in invading Iraq?) then acting in America's interests. Identifying with America allows them, on an emotional level, to recall their imperial past, and so feel that they still matter as an actor on the world's stage.

A bomb, H bomb, Minuteman / The names get more attractive / The decisions are made by NATO / The press call it British opinion -- The Three Johns

by Alexander on Fri Feb 19th, 2010 at 02:39:50 PM EST
[ Parent ]
Right On!

Nothing about US foreign policy has changed with Obama. Giving him the Nobel Peace Prize just for getting elected was a very sick joke IMO.

The British are still infected by their dreams of imperial glory. While they French have not entirely let go of it, it doesn't nearly so much influence on practical policy now that Charles XI has passed on.

by Richard Lyon (rllyon@gmail.com) on Fri Feb 19th, 2010 at 03:01:50 PM EST
[ Parent ]
Frankly I see China and India as posing a much greater challenge to US hegemony than the EU. They are also posing one for the EU. The 21st C looks like the time when white folks will have to start living more like the rest of the world.
by Richard Lyon (rllyon@gmail.com) on Thu Feb 18th, 2010 at 10:04:21 AM EST
[ Parent ]
We've moved from a multi-polar world order pre-WW! when Britain, US, France, Germany, Spain,  Austro-Hungary and Russia vied for dominance through unstable and shifting alliances to a bi-polar USA/USSR world order and now, since the 1980's to a Uni-polar world order aka pax Americana.

Now it looks like we may, slowly, be moving back towards a multi-polar world order, with the US, EU, China, India, Russia, Saudi, Brazil etc. all becoming more important global as well as regional players.  Hopefully this will not prove to be as unstable as the previous multi-polar order which spawned two world wars.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 11:04:12 AM EST
[ Parent ]
And yet the poodlefactor has increased in the last few years.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Thu Feb 18th, 2010 at 03:28:19 PM EST
[ Parent ]
That is largely a function of the UK thinking its future lay with the US in a Unipolar world order when the reality is that its interests are far more likely to be better served by a stronger EU in a multi-polar world order where it actually has some prospect of influencing EU decisions and which also recognises the reality of declining US hegemony.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 19th, 2010 at 07:17:01 AM EST
[ Parent ]
But it's not just the UK. France reintegrates into NATO, the German government is the most pro US they had in ages. Hell the assembled ministers winked through the all-your-data-are-belong-to-us Swift deal unanimously.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Fri Feb 19th, 2010 at 08:21:06 AM EST
[ Parent ]
I suppose that is what you get with the decline of the left in Europe.  They don't have to appease the bogeyman USSR or their own socialists any more.  The Greens are easy to appease by comparison...

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Feb 19th, 2010 at 08:33:09 AM EST
[ Parent ]
Richard Lyon:
I think that the economic forces bringing this about are going to come much more from Asia than from Europe.

eggs-actly!

we are not puuling america to her demise, but she seems to want to pull us down with her, whereas the rest of the world (and global gambler slush funds) capitalise on the division, willing dissolution, because the EU stands for soft power, and politics-by-inclusion, not the old realpolitik power-over paradigm.

and speaking as a european who grew up here in the cold war, i was never conscious of people around me blessing the yanks for protecting us from russki invasions. what was common was 'yankees go home' grafitti, and the gutchurning awareness that we were plonked right in the middle between two global powers playing with nuclear brinkmanship.

that nightmare has left as many with PTSD, as WWII did the generation before us, but in a different, more psychological way.

reductive, nihilistic philosophies like existentialism can only make sense when the shadow of instant annihilation colours every breath you breathe.

the boom years of consumerism and the advent of the chattering classes have only put a thin veneer over the denial inherent in that historic antagonism, one whose potential destructiveness dwarfed even the carnage and chaos of hitler's reich.

but it did make us yearn (and commence imagining) for a better way...

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

by melo (melometa4(at)gmail.com) on Thu Feb 18th, 2010 at 08:49:45 AM EST
[ Parent ]
I'm not so sure about the Far East. In 1900, America still had huge amounts of unexploited natural resources (oil, in particular) that helped her gain economic power. China is not in that situation...

South America is a different story, and I had always hoped that Bush would try to improve US relations with Brazil et al. I suppose that's still a possibility--if China doesn't get there first...

by asdf on Thu Feb 18th, 2010 at 02:56:21 PM EST
[ Parent ]
China is already there big time. While the US has been occupied with trying to be the reincarnation of the British Empire in southwest Asia, China has been making huge inroads into the global south in pursuit of natural resources. They have a complex strategy for dealing with their deficiencies along those lines.  
by Richard Lyon (rllyon@gmail.com) on Thu Feb 18th, 2010 at 03:15:20 PM EST
[ Parent ]
Frank:
Competing with the US (or China) politically as well as economically is only very dimly on the agenda - and then often in response to US imperialistic over-reach as in Afghanistan/Iraq or the need to respond to global challenges like Climate Change or Financial regulation.

Politics is inseparable from economics, all of the pretensions of Neo-Classical Economics and Neo-Conservative politics aside. And make no mistake, you are in a competition with the US financial industry and that brings along, wittingly or unwittingly, the reporting of MSM newspapers and the comments of high profile pundits. The EU does not have to defeat the USA militarily, but it does have to frustrate the ongoing attempt to subvert the whole project of business that can co-exits with social welfare.

I am concerned with your prospects here, as, like Richard, I want you to succeed where the citizens of the USA have failed. One front is modulating the extent to which EU nations allow their economies to be exposed to low labor cost competition from China, etc. It is not a question of "filling the moat and raising the draw bridge", rather more one of insisting on terms of trade that take into consideration the environment and the social welfare needs of the citizens of the EU. I see no reason, aside from the self-interest of certain (mostly US) financiers and business people, why the EU countries, ex the U.K., should allow their own countries' industries to be broken up and shipped to China wholesale, as was done to the US consumer products industry.

But I do not see a coherent response to the insidious infiltration of NCE oriented bureaucrats with their "reform" agendas into the heart of the EU. The lack of a coherent response is likely due to the seductive charm of NCE to specific interests in specific countries. This needs to be countered effectively by clearly showing what have been the effects of such policies in the USA, Britain and, to a lesser extent, in Germany.

Perhaps the true successor to Stop Blair should be Stop Neo-Classical Economics from subverting European social values.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Feb 17th, 2010 at 08:39:04 PM EST
[ Parent ]
Thanks ARG.  IK think we are singing from the same hymn-sheet.  The whole point of this diary was to argue that it is time to stop responding defensively to NCE analysis and start boldly mapping out a new agenda based on a different social/trans national philosophy - as I suggested in my 6 points on how to help Greece and strengthen the Eurozone in the Diary.  I am disappointed that those 6 points - and the pan Eurozone context in which they are framed - has not generated more discussion here.

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed Feb 17th, 2010 at 09:03:09 PM EST
[ Parent ]
The Shanghai World Expo coming up in the summer will speed up the process of the EU facing the reality of China. Finland, for instance, is pouring a rare amount of money into its pavilion and programs.

There's long been a strong connection between Finland and China, perhaps launched into its more recent stronger phase by the big deals Nokia Networks (as it was then) made there in the last decade or so. The business styles seem complementary: Finland is a much less egocentric society than say the UK or the US.

Today China is often recognized in the policy statements of large Finnish companies, research institutions etc - whereas the US is not. China does not get as much attention in the general media though, too dry for that. But my work involves tracking the communications of large organizations.

You can't be me, I'm taken

by Sven Triloqvist on Tue Feb 16th, 2010 at 03:07:46 PM EST
[ Parent ]
really enjoying your contributions to ET, Richard!

it occurs to me that if europe took its reparational and humanitarian responsibilities more seriously regarding africa, we would have a continent full of resources much more easily and sustainably accessible by european capital, than american, chinese or any sovereign fund.

i think it would have been immeasurably more profitable - and compassionate! - to try and raise the poorest of the africans' level of survival in large numbers, rather than try and make first-world consumers out of eastern europeans, no matter their relative propinquity.

so now the euro risks weakening because of PIIGS, but where did eurobanks' (our) investments go? trying to open up new markets, and exploiting cheaper labour and lower enviro-standards in eastern europe, which is unsustainable.

africa is our backyard, like s. america to the USA, for good or ill. why are we wasting such great opportunities to invest in tomorrow's china of economic growth, (africa) and leaving others to enter the vacuum and 're-colonialise' it, in ways we abjured long ago?

tossing aid to africa entrenches the present reality, why aren't we exporting more PV science and intellectual capital to where it will do most good, as well as helping to stem future illegal immigration here?

thanks again for your input, i hope you will continue posting here.

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

by melo (melometa4(at)gmail.com) on Thu Feb 18th, 2010 at 08:33:58 AM EST
[ Parent ]
Thank you.
by Richard Lyon (rllyon@gmail.com) on Thu Feb 18th, 2010 at 10:08:18 AM EST
[ Parent ]
Anatole Kaletsky, in an artical referenced by Richard Lyons, has noted that the EU already has the borrowing capacity to bail out the Greeks but goes on to note that:
Greek tragedy won't end in the euro's death | Anatole Kaletsky - Times Online

Which leads to the third item of cheerful euro-news. Because of the EU's essentially unlimited borrowing powers, a rescue plan along the lines above would never have to be implemented once it was announced. If investors knew that Greek government debt had an EU safety net, they would be delighted to keep lending money to Athens at almost double the interest they are getting from Berlin or Paris. Greece would, therefore, have no trouble in refinancing its borrowings and the crisis would be over without any EU money actually flowing to Greece.

Where, then, is the catch? The answer lies in that old central bankers' bugbear from the long forgotten days before Lehman and Northern Rock, "moral hazard". If all the profligate politicians and voters in Southern Europe (or indeed in Westminster, Paris and Dublin) were offered unlimited EU guarantees, there would be no end to the fiscal debauchery.

Thus the current crisis is all about teaching the profligate and Greeks a lesson?  Better economic Governance in Member states (and coordination at EU level) are certainly a benefit which could flow from this.  But my first suggested action in #1 above - guaranteeing Greek Sovereign Debt - seems to be clearly within the powers the EU already has under the Lisbon Treaty, and the costs need not be borne by German taxpayers, but rather by all those who benefit from the Euro project and the size and security it brings.  The losers will ultimately be be the international financiers who benefit from higher interest rates by hyping up perceived risks through induced crises.

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 07:13:03 AM EST
Frank Schnittger:
has noted that the EU already has the borrowing capacity to bail out the Greeks

They don't need to borrow.

It may be conventional, but as Alastair Darling has demonstrated to the tune of £200bn, it's not necessary. They should, and should, use QE.

They could easily create public credit - they already have hundreds of billions of public credit issued as banknotes, most of it 4500 notes under Spanish beds, in fact - and they use QE to acquire debt from member states if they wish.

In fact what they should do is create a few hundred billion - for starters - and use it for the purpose of investing in productive assets throughout the EU.

If the banking system cannot or will not create credit then the public sector must do so. Governments have abdicated credit creation to the private sector for far too long.

The ideological - and entirely baseless - critcism of public credit is that it is 'inflationary'. But in fact it is LESS inflationary than private credit, because it does not have the overhead of dividends to shareholders in respect of regulatory capital.

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

by ChrisCook (cojockathotmaildotcom) on Thu Feb 18th, 2010 at 09:05:44 AM EST
[ Parent ]
That's €500 notes,and 'could and should'...clumsy finger time...

Also, for the sake of clarity, QE should be used for the creation of productive assets, rather than investment in existing ones....

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

by ChrisCook (cojockathotmaildotcom) on Thu Feb 18th, 2010 at 09:08:46 AM EST
[ Parent ]
I've never seen a €500 note.  I must move in the wrong circles.  QE, as I understand it, has already been used by the ECB to bail out the Irish Banks - not exactly my definition of new productive assets.  However my understanding was that the ECB had already started to rein this back in?

Given that inflation is hardly an issue at the moment, and the Official ECB interest rates are near zero, what is the cost of Guaranteeing member states Sovereign debt provided the member states take approved actions to return to 3% Public borrowing requirement in the medium term?

notes from no w here

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 10:48:52 AM EST
[ Parent ]
PS - the losers from this scenario seem obvious - capital markets (i.e. rich people) who have to make do with 3% rather than 6% interest rate returns...  Is this not where we can leverage the sheer size of the Eurozone to benefit individual member states?  Is this not a pay off that member states should expect in return for their loss of control over their own monetary policy/currency valuations?

notes from no w here
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Thu Feb 18th, 2010 at 10:52:05 AM EST
[ Parent ]
Frank Schnittger:
PS - the losers from this scenario seem obvious - capital markets (i.e. rich people) who have to make do with 3% rather than 6% interest rate returns...

Firstly, what I am proposing re QE as public credit relates only to liquidity provision ie that 'dynamic' credit needed for the circulation of goods and services and the creation of new productive assets.

In fact, bank shareholders in such a credit service provision model may well do better than in the conventional model, because they will only be providing the capital necessary for operating costs, not the BIS regulatory capital underpinning the banks' implicit guarantee.

Depositors are not in fact required for liquidity  provision at all if a clearing union architecture if used.

By way of example, I am in close contact with a South American Central Bank which (yesterday) launched the beta version of a system whereby VAT-registered businesses may discount their VAT invoices directly with the Central Bank, and thereby access working capital without private bank intermediation.

If it works - and it should - then it won't be long before the other South American banks jump on the band-wagon. The stranglehold of private banks here would prevent such a Retail Repo system in the UK unless they could think of a way in which they could own, control, or otherwise leech off it.

Secondly, and where investors-formerly-known-as-depositors would come in is the (static) credit embedded - through the legal protocols of conventional equity and secured debt - in existing or newly created productive assets, particularly developed land.

That's where property Unitisation comes in, and the resulting

 
Debt/Equity Swap
could well be the game-changer identified as necessary by Taleb and Buiter, among others.

 

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

by ChrisCook (cojockathotmaildotcom) on Thu Feb 18th, 2010 at 11:55:50 AM EST
[ Parent ]
What I really want to know is why did Germany allow Greeks  to takeover German banks and buy up credit default swaps, thereby creating Germany's huge exposure to Greece. I'm amazed that they allowed this since clearly, the genetic deficiencies inherent in Greeks, would also cause the ruin of German banks, therefore forcing the German taxpayers to be on the hook for Greeks.
by Upstate NY on Thu Feb 18th, 2010 at 01:59:06 PM EST
[ Parent ]
Because they believe that Greece will be there when they need them? If so, they obviously haven't been reading yesterday's Guardian:
Yet when Governor Schwarzenegger asked the federal government for a return on that long-term support, the White House shut the door and the Republican states long subsidised by California were unsympathetic. Memories are short, as is gratitude. Wouldn't it be ironic if one day, Germany asked the EU for a helping hand and was told "nein" by its erstwhile beneficiaries?
No comment.
by gk (g k quattro due due sette "at" gmail.com) on Thu Feb 18th, 2010 at 02:07:20 PM EST
[ Parent ]


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