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The End of the European Dream

by Frank Schnittger Mon May 9th, 2011 at 06:04:42 AM EST

I am one of those people who regard the EU as one of the greatest achievements of global politics, ever.  To bring together former warring imperial powers who, between them, caused and fought most of the worlds most brutal and widespread wars into a partnership that has provided 65 years of relative peace is one of the greatest achievements of statecraft of all time. Minor squabbles over British budget refunds, CAP reform, or the institutional ineptness of European leaders are very welcome alternatives to war.  A bit like the current Northern Ireland elections, where people are celebrating how boring the elections have become, given that the most recent alternative was a sectarian driven low intensity war.

So why have I headed this story with such a melodramatic title?  Is the current financial crisis in peripheral European states really such an existential threat to the future of the EU? Is my disillusion with he European project not as much a product of the unrealistically high expectations of the EU that I have articulated in the paragraph above as it is of any fundamental change in the nature of the EU itself? Are we not just witnessing the normal growing pains of the development of a European superstate?  Well, if we are, it is a very different EU to that envisaged by its founders, and one that has internalised a whole new concept of war - one in which the poor and peripheral are mercilessly and unscrupulously sacrificed to the interests of the central European elite.

frontpaged, with essential discussion in the comments - Nomad


Let me illustrate this thesis with a few pieces recently published in the Irish press. Exhibit A is today's article by Morgan Kelly, one of the few domestic economists who predicted the Irish property crash and subsequent economic collapse.

Ireland's future depends on breaking free from bailout

The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland's creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government's books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.

In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.

The bailout represents almost as much of a scandal for the IMF as it does for Ireland. The IMF found itself outmanoeuvred by ECB negotiators, their low opinion of whom they are not at pains to conceal. More importantly, the IMF was forced by the obduracy of Geithner and the spinelessness, or worse, of the Irish to lend their imprimatur, and €30 billion of their capital, to a deal that its negotiators privately admit will end in Irish bankruptcy. Lending to an insolvent state, which has no hope of reducing its debt enough to borrow in markets again, breaches the most fundamental rule of the IMF, and a heated debate continues there over the legality of the Irish deal.

Six months on, and with Irish government debt rated one notch above junk and the run on Irish banks starting to spread to household deposits, it might appear that the Irish bailout of last November has already ended in abject failure. On the contrary, as far as its ECB architects are concerned, the bailout has turned out to be an unqualified success.

The one thing you need to understand about the Irish bailout is that it had nothing to do with repairing Ireland's finances enough to allow the Irish Government to start borrowing again in the bond markets at reasonable rates: what people ordinarily think of a bailout as doing.

The finances of the Irish Government are like a bucket with a large hole in the form of the banking system. While any half-serious rescue would have focused on plugging this hole, the agreed bailout ostentatiously ignored the banks, except for reiterating the ECB-Honohan view that their losses would be borne by Irish taxpayers. Try to imagine the Bank of England's insisting that Northern Rock be rescued by Newcastle City Council and you have some idea of how seriously the ECB expects the Irish bailout to work.

Instead, the sole purpose of the Irish bailout was to frighten the Spanish into line with a vivid demonstration that EU rescues are not for the faint-hearted. And the ECB plan, so far anyway, has worked. Given a choice between being strung up like Ireland - an object of international ridicule, paying exorbitant rates on bailout funds, its government ministers answerable to a Hungarian university lecturer - or mending their ways, the Spanish have understandably chosen the latter.

The entire article is well worth a read - replete with references to the faintly dim former rugby players who ran the Irish banks - surely not a dig at Peter Sutherland, former chair of Ireland's then largest bank, AIB, as well as  a former EU Commissioner, Head of the WTO, and Chair of BP and Goldman Sacks - and a broadside at Patrick Honohan, current head of the Irish Central Bank, who is accused of "playing for the other side" as a Council member of the ECB.

So what "solution" does Morgan Kelly propose?

Ireland's future depends on breaking free from bailout - The Irish Times

This allows Ireland to walk away from the banking system by returning the Nama assets to the banks, and withdrawing its promissory notes in the banks. The ECB can then learn the basic economic truth that if you lend €160 billion to insolvent banks backed by an insolvent state, you are no longer a creditor: you are the owner. At some stage the ECB can take out an eraser and, where "Emergency Loan" is written in the accounts of Irish banks, write "Capital" instead. When it chooses to do so is its problem, not ours.

At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.

So the second strand of national survival is to bring the Government budget immediately into balance. The reason for governments to run deficits in recessions is to smooth out temporary dips in economic activity. However, our current slump is not temporary: Ireland bet everything that house prices would rise forever, and lost. To borrow so that senior civil servants like me can continue to enjoy salaries twice as much as our European counterparts makes no sense, macroeconomic or otherwise.

Cutting Government borrowing to zero immediately is not painless but it is the only way of disentangling ourselves from the loan sharks who are intent on making an example of us. In contrast, the new Government's current policy of lying on the ground with a begging bowl and hoping that someone takes pity on us does not make for a particularly strong negotiating position. By bringing our budget immediately into balance, we focus attention on the fact that Ireland's problems stem almost entirely from the activities of six privately owned banks, while freeing ourselves to walk away from these poisonous institutions. Just as importantly, it sends a signal to the rest of the world that Ireland - which 20 years ago showed how a small country could drag itself out of poverty through the energy and hard work of its inhabitants, but has since fallen among thieves and their political fixers - is back and means business.

Sticking the ECB with ownership of the Irish banks in return for the €160 Billion it has lent them will have political consequences, but things have come to the point where, Ireland as well as Greece, must seriously consider leaving the Eurozone if that is the price it must pay.  Unlike Greece, Ireland will have a €50 Billion trade surplus this year, so at least it can survive without the Euro if that is the price our "partners" demand for "restructuring" our debts. That trade surplus also provides scope for raising taxes to balance the national budget - as well as the expenditure cuts Morgan Kelly advocates - as argued by Daniel Gros recently (Exhibit B):

Low foreign debt means State will not go broke

IS IRELAND broke? Short answer: no. Long answer: The Government should be able to service its large debt because the external debt of Ireland is rather low, about 20 per cent of GDP.

The net external debt of Ireland can be measured easily by summing past current account balances. Since the country has run a surplus for many years, the sum of the current account balances over the last 20 years amounts only to about minus €30 billion, about 20 per cent of the Republic's GDP of €150 billion.

Greece and Portugal, by contrast, have foreign debt which, at about 100 per cent of GDP, is four times higher than Ireland's.

Why is foreign indebtedness more important than public debt - which is much higher now in Ireland than in Portugal?

The reason is that EU states retain their full taxing powers. This has a simple corollary if one takes a country with a high public debt but no external debt.

In this case, the public debt must be held by residents and the Government can always ensure the service of its debt by some form of lump sum taxation, such as a wealth tax.

For example, the Government could just pass a law which forces every holder of a government bond to pay a tax equivalent to 50 per cent of the face value of the bond or tax interest payments. The value of public debt would thus be halved, much in the same way as it would be if the Government ordered the Central Bank to double the money supply, which would presumably lead to a doubling of prices.

The nature of the tax needed to pay off public debt might be different if the public debt is held by pension funds because in this case the Government would have to tax either pensions or expropriate in some other ways these funds. This might be politically painful, but for the country it just represents a transfer from one set of residents (and voters) to another one. The workers and pensioners who have to pay higher taxes and see the value of their pensions reduced will of course object to being fleeced for the benefits of the holders of public debt, the rentiers . But if income and wealth are not too unevenly distributed, many will be at the same time both taxpayers and rentiers .

Moreover, this internal redistribution would not alter the consumption possibility of the entire economy and thus does not require an increase in exports or a reduction in overall consumption.

The key point thus remains: as long as a government retains its full taxing powers, it can always service its domestic debt, even without access to the printing press. However, this is not the case if the public debt is held by foreigners because the Government cannot tax them.

The government of a country whose public debt is held by foreign residents cannot simply expropriate them. It is thus foreign debt which constitutes the underlying problem for the solvency of a sovereign.

Things get of course more complicated if a large part of public debt is held by foreign residents but domestic residents have large foreign assets. If the government debt of a country with a balanced net foreign asset position is held by foreign residents its citizens have to hold net foreign assets of an equivalent amount. In principle then a government can still always service its debt by taxing away the foreign assets of its citizens.

However, in this case the Government faces the temptation to default on its foreign debt while its citizens can still enjoy the returns from their foreign assets. This temptation will be reinforced the more difficult it is for the Government to tax the foreign assets of its residents.

The importance of this point was illustrated by the case of Argentina where the country as such did not have a large net foreign debt. The private sector had large foreign assets while the government had about the same amount of foreign liabilities.

However, Argentina went bankrupt with little net foreign debt because wealthy Argentines had spirited their assets out of the country, and thus out of the reach of the government, while the poor Argentines refused to pay the taxes needed to satisfy the claims of the foreign creditors.

However, when the foreign assets of the country are held not by households, but by institutions, such as pension funds, they can be taxed. This seems to be the case for Ireland. If there is a political way there should be a way for the Government to service its debt.

Another indicator of the relatively comfortable solvency position of Ireland is that the external adjustment is already almost completed. This year Ireland should record a smallish current account surplus so that there is no immediate need for further cuts in consumption.

Exhibit C is another Irish Times article by Fintan O'Toole:

Treatment of Ireland a disaster for European project

EVEN IN the midst of an existential crisis, Irish politics can't shake off its addiction to false alternatives. At the moment, there's an apparent choice between two equally unpalatable approaches.

We can be "good Europeans" - take our medicine, behave responsibly and hope that somewhere down the road we will be rewarded. Or we can be "bad Europeans" - deny our responsibilities, kick up a fuss and cause trouble for our neighbours by talking of default.

What if, however, the real good Europeans are those who think that the crucifixion of Ireland is a disaster for the European project? What if the German philosopher Jürgen Habermas was right when he warned that present policies are leading to the "creeping death" of the EU and said that "we are currently going about sinking 50 years of European history"?

Does it not behove us as "good Europeans" to shout from the rooftops that the policies being imposed on Ireland are profoundly anti-European?

There is a grotesque irony at the heart of the European approach to Ireland. It relies entirely on the crudest form of nationalism. The basic proposition is that "the Irish" borrowed loads of money and "the Irish" must pay it back.

Each and every citizen of a particular nationality is responsible for the misdeeds of others who hold the same nationality. National identity trumps everything else. It doesn't matter that you didn't borrow the money or that you had no way of knowing what decisions private banks were making. You're Irish, the banks are Irish, so you're all guilty.

This applies even when none of the money originated in or was spent in Ireland. Take, for example, the way Anglo Irish Bank increased its UK loan book by a staggering £1 billion (sterling) in just six months between September 2004 and March 2005.

That billion quid was borrowed almost certainly from German and French banks. It was lent largely to British property funds such as St James Capital, Nomura and Warner Estate Holdings.

The money went from Germany to the UK, via an Irish intermediary. Somehow, this makes it "Irish" money, so the nurse in Ennis and the factory worker in Portlaoise have to pay it back.

The underlying assumption here is that of extreme nationalists everywhere: nationality defines everything. This is, in itself, extremely stupid. There's no such thing anymore as Irish money or German money or British money. There's just money, moving around the world in vast quantities. (Every day, about $4 trillion is traded on foreign exchange markets alone.)

The Irish bubble would not have been possible without the inflow of vast amounts of capital, including the €88.4 billion that German banks were owed by Irish banks and companies at the end of last year.

The idea that these international financial transactions carry a passport is, in the era of globalisation, innately absurd. But coming from the European Union, it is also staggeringly hypocritical. The EU has been driving the idea of a single European market for financial services since the 1960s.

Yet that is the sort of nationalism which is now driving German and EU institutional responses to the crisis.  The "nurse in Ennis" is indeed being held responsible for irresponsible German bank loans which inflated the Irish property bubble and which forced her to buy her house at inflated prices and for which s/he is now in negative equity.  To add insult to injury, s/he is now facing redundancy as a result of Government cutbacks, swinging reductions in income and interest rates increases at the behest of the ECB. Just how is this supposed to work without default at both the personal and national level?

The question of Ireland leaving the Eurozone could in any case be moot if an economic implosion in Spain leads to a a complete breakdown of the zone as suggested by Dan O'Brien recently (Exhibit D):

Future of the euro balanced on a Spanish knife edge

WITH THE three weakest peripheral Euro zone economies already on a lifeline, Spain is now closest to the precipice. A Spanish bailout would dramatically increase the chances of the Euro breaking up. The probability of a disorderly disintegration of the world's second-largest currency would rise from low to near even if Spain goes.

The capacity of the Spanish state to fund itself is a central question not only for Europe, but for the world. It is difficult to see how a global depression could be avoided in the wake of the utterly unprecedented levels of default that would accompany euro break-up.

Whilst extolling the Spanish economy as having many strengths, Dan O'Brien suggests that the true costs of the Spanish property bubble collapse have not yet been reflected in official figures:

Future of the euro balanced on a Spanish knife edge

According to the IMF, the net direct cost of the banking clean up in Spain has amounted to just 2 per cent of GDP - below the average for advanced economies and a fraction of Ireland's world-leading 28.7 per cent.

But such a small bill looks fishy. Could the authorities and institutions be hiding something? Far stranger things have happened. The forthcoming Europe-wide stress tests might give more certainty.

And even if nothing is awry, with further falls in residential property prices all but certain, a 20 per cent unemployment rate and rising interest rates, the amazingly low percentage of banks' loan books not performing looks certain to swell. If Spain were to see anything like the repeated upward revisions to its banking costs that Ireland has experienced, holders of its sovereign debt would drop it like a hot brick.

In the Financial Times Wolfgang Münchau has argued that Spanish property prices have a further 40% to fall and that Spanish debt restructuring and an existential crisis for the Eurozone is the all but inevitable consequence.

So how is it that Europe's Leaders, Principally Merkel and Sarkozy, have managed to allow a situation to develop where the future of the whole Eurozone is being put at risk for the sake of short term nationalist demagoguery?  Has the European dream already collapsed and the reality is gradually reflecting this change? I can't see another EU Treaty change being passed by an Irish referendum and yet a fundamental reform of the ECB - so that it regulates banks more effectively and has a broader remit including full employment and structural balance between periphery and core regions - looks like a key requirement for ensuring the Eurozone does survive.

Perhaps it will take a complete collapse of the Eurozone to drive home to Germany and France the importance of stability in that zone to their own economies.  Unfortunately that realisation will probably come much to late for peripheral members - who will be severely damaged before any such reforms are even considered. Unfortunately visionary leaders only seem to come to the fore at times of existential crisis.  You do not appreciate what you have until you are faced with the reality of losing it. The current generation of political leaders are not worthy of the rich political heritage of pan-European action they have inherited. We are governed by narrow nationalist bigots and spoofers. The dream has ended.

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I'd argue that ordinary citizens never had any concrete notion what a European dream or -as Helmut Kohl used to say- a 'House of Europe' would look like. They (me included) were probably happy to enjoy the benefits of open borders and trade but a 'European state' still seems utopian and not very desirable. Case in point the Euro: a common currency for a collection of economically very heterogenous nations with little mobility between them. How was that supposed to work?

Why force all those different nations into some European superstate? As you mentioned, after WW2 we were doing pretty well. I have a hunch people (like in Ireland) will lose their taste for the EU project because of the pains hoisted on them by 'forced' integration.

After all, the EU members are still nation states with different languages, cultures, identities, political systems etc. How close can they be? How close should they be? I think it was Washington who said something like "don't hate and don't love other countries too much". This arranged marriage will have spouses veering towards divorce if some stable marital conditions don't return. How good is that for European peace?

by epochepoque on Sat May 7th, 2011 at 03:04:32 PM EST
Because there are things which tin-pot little countries like France or Germany cannot possibly hope to manage on their own. Let alone polities the size of Ireland or Belgium, whose gross national product is on the same order of magnitude as CocaCola's advertising budget alone.

And if you create a network of European states that coordinate policy for all the major drainage areas on the subcontinent; coordinate their policies vis-a-vis transnats to withstand divide-and-conquer tactics; reduce the hassle of crossing internal European borders; streamline our rail net; build integrated rail and electricity corridors; and coordinate policy when dealing with other major powers like Russia, China and NATO...

... then it's going to look a whole lot like a "superstate."

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 7th, 2011 at 05:50:43 PM EST
[ Parent ]
Compelling arguments, but for the fact that the way that the monetary union has been done looks to be leaving more and more Eurozone countries in perpetual penury to no higher benefit than short term domestic political advantage of the "leaders" of export surplus countries. The economic structure and its proper functioning is basic. Screw that up and all the rest doesn't really matter.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 7th, 2011 at 06:56:57 PM EST
[ Parent ]
... its the job of the monetary authority to regulate the behavior of commercial banks creating purchasing power and to accommodate the needs of the fiscal authority. Since the Eurozone was created with a central bank uninterested in doing its first job, unwilling to do its second, and in any event without a Eurozone fiscal authority for it to accommodate ...

... the devil makes work for idle hands.

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

by BruceMcF (agila61 at netscape dot net) on Sun May 8th, 2011 at 08:01:36 PM EST
[ Parent ]
Since the Eurozone was created with a central bank uninterested in doing its first job, unwilling to do its second, and in any event without a Eurozone fiscal authority for it to accommodate ...

At least it has an excuse for one out of three! The USA had all three forty years ago but has lost all three to "intellectual" and regulatory capture, though it has, on paper, ample authority do do all that is needed. The problem is that, even if the EU pursued fiscal union, given the attitudes that prevail, the ECB might still fail or refuse to do all three and even be applauded for those acts of incompetence and incapacity. Geithner did not face any real heat for having denied that he was ever a regulator, (undisputed truth), after all, even though it is equally a part of his former and current job description.

The problem is deeper than statutory limitations or requirements. It doesn't seem to matter what the law says. The pirates are in control.

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 Sun May 8th, 2011 at 09:20:40 PM EST
[ Parent ]
Fair enough. The article by Helmut Schmidt (see below), one of the grandfathers of the Euro, has some of the same reasoning about dealing with other major [rising] powers. The EU as the twigs bound together.

It does have a faint [Europe.Is.Doomed™ Alert] aspect to it, numerically justified it may be. Schmidt mentions the demographic shift which will cause the EU to represent only a few percent of world population. He explicitly sees the danger of Europe being "overrun by other people and civilizations" if it doesn't get its act together. Fortress Europe, that's a new one. I'm afraid we will see more of that. A comprehensive immigration strategy would be helpful but don't expect any major initiative in these semi-xenophobic times.

And there is the rub, the "major drainage areas" touch on very sensitive areas of national sovereignty. Economic policy, budgets, immigration, foreign policy, security policy. I could see a little progress on the security policy front if they go beyond protecting the outer borders of the EU. Not much though in how to deal with security challenges South and East. Ditto for the budgets with the Euro clamp now in place.

Foreign policy is a disaster, see Libya, see Iraq etc. Immigration is the hottest button. Try making hard calls with 27 members when (somewhat) unanimous decisions are required, then try to sell it to the national parliaments and peoples. A 'superstate' could maybe do that but who wants to relinquish so much control?

The EU parliament would have to be so much more than what it is now (a muckraking club). There would have to be an explicit EU government beyond the commission. There is a big chance it would sooner or later become dysfunctional because of its own complexity.

'Union' vs. 'Superstate' vs. 'Alliance' vs... I'm all for technical integration, the political part will maybe come over time as a result of that (and the EU constitution etc.) or it probably won't happen at all.

A few weeks back there was the funny spectacle of the German defense minister resigning over his plagiarized PhD thesis (now officially pronounced intentional plagiarism by the university). In the thesis an article was 'quoted'/copied that contrasted the different reactions to the EU constitution on both sides of the Atlantic. The Americans saw the EU constitution as analogous to their union constitution -the founding document of the USA- while the European reaction was much more measured and skeptical. I'm a European.

by epochepoque on Mon May 9th, 2011 at 06:38:48 PM EST
[ Parent ]
The dream has ended.

And the nightmare has truly begun.

I was looking for a place for a comment based on a post by Yves Smith while you were posting this diary and while dojero was posting the Geither and Strauss-Kahn diary. I ended up posting the comment in today's Salon before I discovered these two new diaries, both of which are on the same topic. I cross-posted the comment on Geither and Strauss-Kahn and, at the risk of being totally ridiculous, will cross-post it here, as it adds to the excellent collection of sources you have assembeled:

Doing anything effective to increase employment, especially high wage employment, would be counter to the interests of the banks. This is something Geithner will not allow, even in Ireland, as this post by Yves Smith demonstrates:
Geithner Blocked IMF Deal to Haircut Irish Debt

(Yves first quotes Keynes on the intent and effect of the Treaty of Versailles on the German economy, particularly, the requirement that Germany export over a third of its annual coal production!)

Now what, pray tell, does this have to do with Ireland, and Geithner? Geithner is as doctrinaire and short-sighted a defender of bankers' privileges as the Allied Powers were of their rights to make Germany pay for the costly and bloody Great War.

We had noted that the Irish could have stared down the EU and held out for a bailout of its banks only, and were mystified at the quick capitulation.  Consider this section of a very instructive op-ed by Ireland's highly respected economist Morgan Kelly in the Irish Times (hat tip reader disgruntled observer):

   On November 16th, European finance ministers urged [finance minister Brian] Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan's refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown....

    Ireland's Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: "You are Ireland's salvation."

    The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.



An appropriate response by the Irish Government would be to give US debts a 95% haircut as a tribute to Timmy.

 

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 7th, 2011 at 04:12:20 PM EST
Obama is visiting Ireland in a couple of weeks - just after the Queen.  I wouldn't be surprised if some deal is done for Ireland to borrow from the Fed - and thus bypass penal ECB interest rates and the attempt to force Ireland to increase corporate tax rates - an increase which would impact disproportionately on US corporates.  Geithner may find himself trumped by Obama's need for the Irish American vote...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat May 7th, 2011 at 08:02:53 PM EST
[ Parent ]
It would be fitting were Obama subjected to a barrage of popular outrage at the consequences of Geithner's veto on the Irish population.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 7th, 2011 at 11:16:37 PM EST
[ Parent ]
The Irish way is to plámás him into thinking what a great guy he is and that great guys do great things and one good turn deserves another...

Interestingly the Irish American vote is a swing constituency and could be very useful to Obama in securing his own re-election and that of a dem congress. Visiting the oul sod won't do him a bit of harm and throwing a few billion Ireland's way by way of low interest loans won't cost him real money in terms of his budgetary and debt problems...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 09:09:48 AM EST
[ Parent ]
what a great guy he is

But he knows that! That is and has been his stock in trade.

Giethner not vetoing the haircut would have cost the US Government nothing -- it just would have angered the banksters who own the government. But loaning the Irish $50 billion would be no problem were it not for the debt cap. But the histrionics over raising the debt ceiling are likely to drag on towards August until or unless the Dems again cave on sanity, and even if they do, the self styled "fiscal conservatives" are likely to howl at "foreign aid"! Perhaps he can get Ben and Timmy to figure a way to slip a loan to Ireland that is similar to the AIG bailout. That is probably your best bet.

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 Sun May 8th, 2011 at 10:01:54 AM EST
[ Parent ]
I'm not sure that a loan to Ireland would constitute an addition to the USA's total debt (and debt ceiling).  It would be a credit on the books of the Fed and a provision of liquidity rather an asset transfer?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 10:08:54 AM EST
[ Parent ]
If it does not require selling more Treasury Bonds it is much more likely. I don't know. The Fed's Maiden Lane facilities are assets also....

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 Sun May 8th, 2011 at 10:34:32 AM EST
[ Parent ]
Then they'd have to lean on the Fed. But yes, it's easier to hide things like that on the books of your central bank than on the Treasury's books.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 8th, 2011 at 03:26:48 PM EST
[ Parent ]
Just use a FOREX swap with a slightly skewed present value to hide the loan. Then when the swap blows up you can still fleece Ireland...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:10:47 AM EST
[ Parent ]
Why would Geithner take such a position?
by rootless2 on Sun May 8th, 2011 at 09:03:39 PM EST
[ Parent ]
He didn't want there to be a precedent for bank bond holders taking a hair cut.

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 Sun May 8th, 2011 at 09:22:05 PM EST
[ Parent ]
Since bank bondholders of GM and Chrysler were decapitated on Geithner's watch, haircut does not go far enough, that's a theory that needs some work.
by rootless2 on Sun May 8th, 2011 at 10:54:22 PM EST
[ Parent ]
They must not have risen to the high status of TBTF. And if any TBTFs took a hit, there were probably ways for the Fed to compensate. The Fed and Treasury were definitely picking winners and losers in 2008-09.

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 Mon May 9th, 2011 at 12:02:12 AM EST
[ Parent ]
Wrong on all counts.
by rootless2 on Mon May 9th, 2011 at 06:45:53 AM EST
[ Parent ]
Since bank bondholders of GM and Chrysler were decapitated on Geithner's watch, haircut does not go far enough, that's a theory that needs some work.

GM and Chrysler are a story about busting or defending the last serious US unions, and all policies regarding the automaker bailouts have to be viewed in that context. Ireland has no such complication - it's a straightforward case of getting raped by the banksters. This difference should be taken into account by any attempt to explain or predict policy response.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:25:41 AM EST
[ Parent ]
The argument made was that Geithner's motivation was defending the precedent that bank bondholders always get repaid - there is no such precedent and he's been shown not to defend it.
by rootless2 on Mon May 9th, 2011 at 06:47:03 AM EST
[ Parent ]
The argument was that he was defending a policy that bondholders are always repaid. Other policy considerations (such as not pissing off the autoworkers) may trump that policy - Geithner is hardly dictator of the US, and even banksters lose upon occasion.

And Ireland is not comparable to the automakers. A better point of comparison would be the foreclosure racket in Florida - something there has been no serious federal effort to stop, despite the fact that it's probably the most blatant violation of basic due process protection that has happened to Florida's citizens since they stopped lynching black people.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 07:26:34 AM EST
[ Parent ]
It's clearly not a policy. I certainly don't put it past the US government, but it seems awfully convenient for UK//Germany/Ireland to be able to blame the US. And it's odd to claim that one member of IMF can reverse IMF policy and all of a sudden the EU is following IMF directions.
by rootless2 on Mon May 9th, 2011 at 08:06:50 AM EST
[ Parent ]
That was my hypothesis about IMF involvement.  Bringing in the IMF allows them the option of hiding behind Uncle Sam's pantleg.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon May 9th, 2011 at 08:26:54 AM EST
[ Parent ]
But Morgan Kelly's argument is that the IMF was a good deal more realistic and sympathetic to Ireland's case than the ECB and that the subsequent deal was almost as much an embarrassment to the IMF as the ECB.  If we have to identify a bad guy here, it is the unidimensional mandate and determination of the ECB to protect bondholders at all costs and put price stability above employment or structural balance within the EDurozone.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 03:43:20 PM EST
[ Parent ]
That's my recollection and my view, too, because it seemed obvious that the moment things went to shit in Greece/Ireland/wherever -- as we all said they would -- the anti-IMF chants would start and many would immediately fall for it.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Mon May 9th, 2011 at 05:19:46 PM EST
[ Parent ]
I don't think you and rootless2 agree on the extent of US influence on the IMF.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 04:06:34 PM EST
[ Parent ]
I've no idea, but I don't think it matters much.  The plans for Greece and Ireland was laid out broadly before the IMF got involved.  In fact, I seem to recall Colman posting something about the IMF saying that completely destroying Greece and Ireland probably wasn't a terribly awesome idea, to which I responded with something to the effect of "When the IMF is the sane one in the room, you know things are fucked up" or something.

The fact that we're even having this conversation is exactly why I didn't want the IMF involved.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon May 9th, 2011 at 05:12:24 PM EST
[ Parent ]
rootless2:
And it's odd to claim that one member of IMF

Not really, when it is the member that

a) has the single largest share of the votes
b) runs an world-dominating empire

Not that this proves anything about what happened, just showing that if the US says jump and the IMF board of governors asks how high, then nobody should be surprised.

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 Mon May 9th, 2011 at 04:14:05 PM EST
[ Parent ]
The argument was that SOME bondholders, especially TBTFs, never get a haircut -- Goldman especially, as with Geithner's actions in the AIG fiasco in Sept. '08, where all were expecting a haircut but Geithner, as head of the NY Fed, insisted that Goldman, Deutsche Bank, and others be make 100% whole -- with money from the Fed backed with the authority of the US taxpayers. What would have happened to foreign banks had there been no US institutions at risk remains an open question, as does the question of what would have happened had Goldman not been involved. Perhaps the policy extends to JP Morgan and actually is one of protecting the banks that work with the Fed in open market operations and/or serve as bullion banks. At the time neither Goldman nor JP Morgan were depository banks nor were they covered by ANY depository guarantee. They were granted that status to enable them to receive TARP funds, IIRCC.

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 Mon May 9th, 2011 at 12:27:56 PM EST
[ Parent ]
The GM/Chrysler bondholders included all the big Wall Street firms - Chrysler was owned by the Ceberus for crying out loud.

Read Barofky's report on the AIG bailout. The FRB had to make an emergency decision, with no help from Treasury, to deal with a situation where French banks insisted that they would invoke bankruptcy law on any haircut at all. Furthermore, there was good reason to suppose that default would create a massive crisis all over eastern europe whose bankers had been suckered into buying crap by SG. What should have happened was that treasury should have warned France that it was not going to save SG, but Bush was President reading My Pet Goat again and Paulson, who seems to always disappear from these accounts was both Sec. Treasury and former GS CEO. It would have been a real scandal if the president of NYFRB took it upon himself to decide to plunge Europe into the crisis that they seem to have only delayed until now.

The ridiculous conspiracy theory that places all blame on a career civil servant is not much better than the similarly Republican inspired theory that community loan standards were to blame.

by rootless2 on Mon May 9th, 2011 at 12:54:01 PM EST
[ Parent ]
And I feel quite confident that the TBTFs, at a minimum, have been made whole from the GM & Chrysler bailouts. Ceberus possibly not so much, but it and it's owners have survived. The real victims were pension funds, etc. that held some of those bonds, but they have been the grass on which the TBTFs have grazed for the last five years. It WAS Paulson, Bernanke and Geithner, all three, almost certainly, who brought about the situation where GS would get 100% of the value of the worthless CDSs AIG had sold to it. The pretext that Geithner could not get hold of Paulson and caved to the French threat I find more credible as ass cover for Geithner than as reality. He could have imposed the haircut and then it would have been the French banks that would have been responsible for crashing the system were they to have sued.

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 Mon May 9th, 2011 at 01:36:24 PM EST
[ Parent ]
Of course they survived. There's a big distance between making a false claim that Geithner has held onto the principle that bondholders never lose and a rather absurd complaint that Geithner has not abolished finance capital.
by rootless2 on Mon May 9th, 2011 at 01:48:25 PM EST
[ Parent ]
Just as there is a distance between claiming that Giethner wanted to protect all bondholders and that he wanted to protect certain bondholders.

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 Mon May 9th, 2011 at 03:30:29 PM EST
[ Parent ]
"US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. "

It's also interesting to note that the numbers are wrong (most of that 13B was previously posted collateral from AIG, Maiden Lane payments were $5.6B), oddly chosen since SG got significantly more and it's funny to have GS picked out in the context of another bailout of European/UK banks, and, of course, the uncomfortable fact that Maiden Lane III net balance is going to cover outstanding balance, validating the widely sneered at claim that FRB was responding to a liquidity crisis not an insolvency crisis.

http://www.newyorkfed.org/markets/maidenlane.html

How could anyone give any of that article any credence at all?

by rootless2 on Mon May 9th, 2011 at 04:40:39 PM EST
[ Parent ]
And reminding us that Paulson was US Treasury Secretary, but assimilating comments on Geithner's role to personal attacks.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 04:10:58 PM EST
[ Parent ]
Paulson had the policy position and the GS tie.
by rootless2 on Mon May 9th, 2011 at 04:41:51 PM EST
[ Parent ]
Above all was Secretary, US Treasury. Influence on the two postwar orgs, the World Bank and IMF, decisive.

Of course Geithner could veto an IMF policy proposal. I'm not saying he did, that remains to be proved, but it's within his power. And saying so isn't character assassination.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 05:09:19 PM EST
[ Parent ]
of course it's possible and not character assassination to say just that, but it would be nice to see some motivation that had some content and plausibility. What is the motivation of the US Treas. Sect to protect German and UK banks at the expense of Irish taxpayers and the US corps that depend on Irish stability?
by rootless2 on Mon May 9th, 2011 at 05:13:34 PM EST
[ Parent ]
Who knows what other deals were going down between USA, Germany, France, UK etc.?  Ordinarily Ireland/Greece/Portugal wouldn't be a blip on Geithner's horizon.  Certainly not worth pissing off the Germans if you want Nato to fight in Libya or something else entirely unrelated. That is why I am placing (a very small bit) of hope in Obama's visit in a couple of weeks time, because Ireland does have clout in terms of the Irish American vote and the presence of large US corporates here.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 05:53:09 PM EST
[ Parent ]
that's plausible, but it does not fit with the story that the EU wanted to give poor Ireland a break until the bad Americans insisted otherwise.
by rootless2 on Mon May 9th, 2011 at 07:32:33 PM EST
[ Parent ]
Who thinks that the EU wanted to give Ireland a break? The claim was that the IMF wasn't on board with the whole grind them into the dust program until Geithner made a call. Not that what the IMF says is all that important in this situation.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Mon May 9th, 2011 at 07:44:51 PM EST
[ Parent ]
I think you have mis-read my story.  It was the EU/ECB who were/are giving Ireland a hard time and the IMF who recognised the plan was unworkable and wanted to allow an element of re-structuring.  The question of why Geithner disagreed with restructuring and supported the German/ECB line is not known but has not been a central part of any narrative here.  The Irish negotiators could hardly complain as they were also (stockholm syndrome like) supporting the ECB line.  You are reading an anti-Americanism (or at least an anti-Geithnerism) into the story which simply isn't there in my text or reading of the other texts I quoted.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 07:46:28 PM EST
[ Parent ]
I'm reacting to this from above (and all over the net)

Ireland's Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: "You are Ireland's salvation."

    The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.


by rootless2 on Mon May 9th, 2011 at 07:51:26 PM EST
[ Parent ]
I don't know how good Morgan's information is here, but it seems to have come from an IMF source who, if his account is to be believed, does not regard the plan which eventually emerged as workable.  Geithner's objection was unexpected, and is presumed by Morgan Kelly to be due to his closeness to US banks.  Perhaps they also had a stake in the Irish bank bonds which would have received a haircut under the IMF proposal.

But Morgan's main fire is directed at the ECB (not the IMF) who would not countenance any restructuring (or even buying back of Irish debt at a discount on secondary markets). Morgan portrays the IMF (at staff level at least) as supporting his thesis that the ECB insistence on no restructuring, high interest rates, and total focus on price stability making an Irish default inevitable.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 08:11:08 PM EST
[ Parent ]
The CDS market is largely custom, over the counter, non-public arrangements -- very opaque. Giethner, as US Sec. Treas. might have, or might have been given a heads up by Goldman or JPM about possible CDS blow-up if European banks holding bonds are given a haircut. Just speculation, but it seems plausible that he cares a whole lot less about 8 million Irish than about one TBTF.

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 Tue May 10th, 2011 at 01:02:38 AM EST
[ Parent ]
This is the problem with the current left. There is a storyline that Geithner is a bad guy, so we ignore all economics, all interest, all power politics, and rely entirely on "just speculation" that makes us easily manipulable.
by rootless2 on Tue May 10th, 2011 at 07:36:29 AM EST
[ Parent ]
We are ignoring all economics? Seriously? It rather seems we have some disagreements on how economics functions. Specifically on the efficiency of the extend and pretend model of crisis management.

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 May 10th, 2011 at 09:35:33 AM EST
[ Parent ]
indeed. You seem to be reduced to totally untethered speculation that there might have been a US bank that wanted Geithner to intervene in order to prop up a rumor that makes sense only if one ignores the actual economic/political interests of German and UK banks and governments as well as their documented behavior.
by rootless2 on Tue May 10th, 2011 at 09:55:59 AM EST
[ Parent ]
We have a claim from the Irish Times that Geithner ordered the IMF to get with the program. What makes this interesting is that there is no apparent reason for this. Are we to pretend that it couldn't have happened because we can't find a ready motive? How could one expect to learn anything if one discounts everything that doesn't make sense on the first glance?

And to reiterate: I don't think anybody here is claiming that this whole austerity fiasco is an American conspiracy or that the US played an important part. It is quite clear that the responsibility for these decisions lies on this side of the Atlantic.

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 May 10th, 2011 at 10:31:19 AM EST
[ Parent ]
No what we have is a claim by Morgan Kelly that Geithner "torpedoed" a plan that neither the Irish government nor the ECB/EU have advocated. We know that ECB/EU have been acting as enforcers for German/UK banks. We know that Geithner is under attack from Wall Street as they desperately try to fend off regulation. We know that the German media have sold Germans on the story that foreigners, many of them swarthy, have pissed away money and are demanding that hard working Germans bail them out. And, yet, the a large number of people on the  "left" are happy to wander off into silly speculations that don't address any of the issues at hand - at the instigation of "Reagan Democrats" and others.
by rootless2 on Tue May 10th, 2011 at 12:23:29 PM EST
[ Parent ]
There was no rescue plan. The IMF had a plan that was supported by parts of the Irish government and possibly, though that is far from clear, Osborne. No one else. And the claim is that the IMF had to give up on it once Geithner vetoed it. Everything else we knew already. So why is it silly to think about this new piece of information?

We know that Geithner is under attack from Wall Street as they desperately try to fend off regulation.

We do? What is this planned regulation that would so severely damage Wall Street?

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 May 10th, 2011 at 12:49:36 PM EST
[ Parent ]
by rootless2 on Tue May 10th, 2011 at 01:04:52 PM EST
[ Parent ]
Wall Street doesn't like Elizabeth Warren and her consumer protection agency. But what is the connection to Geithner? Its not him trying to appoint her. It rather looks like Wall Street would very much prefer to be regulated by the treasury and the Fed.

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 May 10th, 2011 at 01:23:09 PM EST
[ Parent ]
Warren works under Geithner.
by rootless2 on Tue May 10th, 2011 at 01:27:08 PM EST
[ Parent ]
Likely only because that was the worst place Wall Street sycophants in Congress could find to place the agency. And the only times I have seen Geithner come out for reforms has been at Obama's instigation, presumedly after he has lost the argument in the cabinet, but that is just my read. What has he done that has so impressed you?

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 Tue May 10th, 2011 at 01:52:43 PM EST
[ Parent ]
You have no idea what arguments Geithner has had in the cabinet.

Warren works for Geithner

The auto rescue and scalping of bondholders happened under Geithner

WS was forced to repay TARP and purchase back options at open market prices under Geithner.

Billions in TARP money went to small banks, including labor banks under Geithner

That's fact. The narrative that relies on speculation about what happened in conversations nobody overheard or in dark plots that have no evidentiary basis is just narrative.

by rootless2 on Tue May 10th, 2011 at 02:05:45 PM EST
[ Parent ]
That's fact.

"Facts" without context are meaningless.

I certainly do not recall Giethner leading the bail-out of GM and Chrysler. Seemed more like he was drug along kicking and screeming. Giethner did not appoint Warren and I have seen little evidence that he supports her efforts, though I would be pleased to be wrong.

The terms on which WS "repaid" TARP and bought back options were about the minimum that would not be seen as outright gifts and the revenue to make those payments came largely from WS arbitrage of the difference between the Fed cost of funds and what they could get in the market. I.E. the public gave them free money for them to lend at interest. Oh, and they understood how much and how long these funds, including QE I and QE 2 would last and were able to "invest" them in markets, such as the stock markets, which they effectively have manipulated. The whole TARP issue is only the tip of the iceberg of Fed and Treasury assistance to TBTFs, and this has been to the detriment of the "real economy", which has continued to wither.

Small banks didn't get TARP money, but mid sized regional banks, such as my bank, Bank of the Ozarks, did, at Treasury insistence, under Paulson.

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 Tue May 10th, 2011 at 03:30:42 PM EST
[ Parent ]
"I certainly do not recall Giethner leading the bail-out of GM and Chrysler. Seemed more like he was drug along kicking and screeming. "

That's pure fiction unless you know someone in the Administration who tells you otherwise.

"The terms on which WS "repaid" TARP and bought back options were about the minimum that would not be seen as outright gifts "

More fiction - if McCain had won they would have been allowed to cancel the warrants which they were demanding strongly.

"revenue to make those payments came largely from WS arbitrage of the difference between the Fed cost of funds and what they could get in the market. I.E. the public gave them free money for them to lend at interest. "

Wrong again. By the way, the discount window was not invented by the Obama administration.

"The whole TARP issue is only the tip of the iceberg of Fed and Treasury assistance to TBTFs, and this has been to the detriment of the "real economy", which has continued to wither."

Which is why we have just had the longest period of manufacturing growth in 20 years.

"Small banks didn't get TARP money, but mid sized regional banks, such as my bank, Bank of the Ozarks, did, at Treasury insistence, under Paulson. "

And that's not even false, it's Republican PR bullshit. The records are online - look it up.

Keep reading Yves Smith and keep believing RW propaganda and calling it "left".

by rootless2 on Tue May 10th, 2011 at 09:38:50 PM EST
[ Parent ]
Well, I am certainly not going to take instruction from you.

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 Tue May 10th, 2011 at 11:52:50 PM EST
[ Parent ]
I think we may have reached the end of the productive part of this thread, then.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 01:45:13 AM EST
[ Parent ]
N
O
T

Y
E
T

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Wed May 11th, 2011 at 04:41:00 AM EST
[ Parent ]
Please consider a diary "setting the record straight"...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 01:54:57 AM EST
[ Parent ]
The argument appears to be, insofar as Ireland is considered, whether Geithner was a key actor in determining the outcome of the IMF/ECB/Irish negotiations, or whether he was the fall guy, someone the ECB could use as cover for a very regressive, bank bondholder driven, austerity policy directed at Ireland.

We have Morgan Kelly arguing he was a key actor, apparently based on an account from an IMF source with knowledge of the negotiations. Morgan Kelly is an economic historian, not an insider in either IMF or Irish Government circles, and so we have to make a judgement call on how reliable his source and his account is.  Based on his track record, and based on only partial denials coming out of Washington, I would tend to believe him on this occasion, mainly because the ECB have no need of a US scapegoat:  they are doing exactly what they think they should eb doing, and making no apologies for it.

You are free to differ, and seem to be arguing that Geithner is a much misunderstood and maligned guy, both by Morgan Kelly and by US progressives more generally.  That is an argument I am not qualified to get into, but I suspect the position people will adopt depends on their view of the Obama administrator's dealing with wall street more generally.

This is a topic which deserves a diary of its own, and does not deserve to be buried in a 250+ comment stream where only 3 or 4 people are still involved.  From an Irish point of view, if we are looking for support from the US administration, it is important that we understand the internal dynamics and politics at work within that administration.

So please Rootless2, give us a diary on what you consider to be Geithner's approach to dealing with the financial crisis as it has unfolded in the US and Europe, and how it might differ from the approach of the Germans and the ECB.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 11th, 2011 at 06:51:30 AM EST
[ Parent ]
Oh, and they understood how much and how long these funds, including QE I and QE 2 would last and were able to "invest" them in markets, such as the stock markets, which they effectively have manipulated.

QE1&2, as I understand it, involved US sovereign bonds. Insofar as this is the case, the only extraordinary thing about them is that they are considered extraordinary.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed May 11th, 2011 at 02:40:50 AM EST
[ Parent ]
Small banks didn't get TARP money, but mid sized regional banks, such as my bank, Bank of the Ozarks, did, at Treasury insistence, under Paulson.

red herrings to throw off the scent of regulator bloodhounds?

this whole global heist analysis is becoming like an agatha christie whodunit.

and the best de-veilers are right here!

layer by layer, the obfuscatory games are laid bare, and soon the whole world will know if the butler dunnit or not.

was it the colonel with the candelabra?

i still have dreams of paulson in the stocks outside the wall street skyscrapers, getting pelted with defunct 401Ks.

here's beppe grillo's remodded 'animal farm' take on it.
Beppe Grillo's Blog


A gentleman called PIG, is about to go bust. He's got a great idea. In order to survive, he's selling his debts. He calls them State Bonds. Many people are buying them; they only want a low rate of interest and a tiny bit of interest when the capital is returned when the loan arrangement ends. Mr PIG has found the system for living above his means. He continues to get debts and to sell them. His family accounts however get worse and to protect themselves, those who buy his bonds, are asking for a higher rate of interest. Mr PIG is obliged to increase the interest rates. Over time, the situation becomes critical. The number of people buying the debt goes down as they are afraid of the risk. The debt is no longer triple A minusminus, but a triple B plusplus. The time will come when Mr PIG is no longer able to pay the interest. The neighbours of Mr PIG who have lent him most of the money, have nothing to gain by making him go bust. If he goes bust they will lose their money. Thus they offer him a loan with lots of conditions, something they call a "bail out".
Mr PIG is obliged to accept so as not to go bust. When the money from the loan dries up, Mr PIG finds he's paying more interest than before. Those who have lent him money have only gained time and now they are doubly at risk, they can lose both the State bonds and the loan that is the bail out.
Mr PIG, technically a bankrupt, is thus able to raise his voice as though it were he that had lent money to the others. He threatens to restructure the debt. In other words, those who bought his bonds at 100 will see the value halved to 50 and Mr PIG will be freed of half the debt with no one being able to stop him doing so. The creditors, who are ever more worried, don't know which way to turn. In fact, the State bonds, like those of any company quoted on the Stock Exchange, can lose their value. The creditors have one thing in common with Mr PIG, the currency. Once upon a time, Mr PIG used the Drachma, now the Euro. His behaviour is putting at risk the good name of the currency of the virtuous gentlemen that have no debts or few debts. The Euro cannot be compromised. The neighbours can throw out Mr bankrupt PIG from the Euro and see part of their credit go up in smoke for ever or continue to give him finance with one "bail out" after another. Germany and France have about 250 billion dollars in Greek State bonds and because of Mr PIG, the Euro is losing value in relation to the dollar and the yuan. Mr PIG leaves the Euro and his State bonds become waste paper. I would like to find the logic and the moral of the story, but I cannot.

i don't either, unless it's 'the cunning always cheat the weak'.

;(

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

by melo (melometa4(at)gmail.com) on Wed May 11th, 2011 at 10:36:31 AM EST
[ Parent ]
BG:s blog perhaps makes sense if he replaces PIG with "Greece," otherwise not so much.
by kjr63 on Wed May 11th, 2011 at 11:33:26 AM EST
[ Parent ]
Or Ireland, or Portugal. If any one of them publicly defaulted on a significant portion of their debt it would likely take down numerous banks in the EMU core. But the default would likely need to be public in order to prevent selective "extend and pretend" from being continued and to exceed the reach of "regulatory forbearance".  

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 12th, 2011 at 10:35:09 AM EST
[ Parent ]
I don't see why a default has to be widely publicised, apart from the fact that it would be difficult to avoid publicity.

From the point of view of the PIGS economies, it is actually preferable if a default is "kept in the family" until some time after the fact, so the money markets don't throw a hissy fit and crash their economies. And if German politicians want to bail out German banks and then lie to their public about it, then that's a matter between the German electorate and Mrs Merkel.

Indeed I can think of a lot of excellent reasons we might prefer her to try to keep it under wraps. Not the least of which reasons would be that such a coverup would make her politically radioactive when exposed (as it inevitably must be - you can't hide a bailout on that scale). Sadly, I think she'll prove to be too politically savvy or too ideologically committed to the fiction that Germany holds some sort of moral high ground to let such a default pass unmentioned.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 12th, 2011 at 11:15:13 AM EST
[ Parent ]
Especially in the USA, but probably elsewhere as well, I see ongoing damage from the fraud based TBTF banking model with its accompanying regulatory and governmental capture. The longer the system runs the more damage it does. So I would prefer a crash NOW to entropy death later. There are so many unpayable debts out there that the best thing would be an event that would take down enough bad banks that the system could not be saved and it would have to be reconstructed. Of course it could well be reconstructed along similar lines, but, at least, there would be an opportunity for something better to emerge.

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 14th, 2011 at 08:08:53 PM EST
[ Parent ]
So I would prefer a crash NOW to entropy death later.

Yes, but a country with a structural import dependence on fuel and food and a foreign primary deficit may view things in slightly different terms. Especially if they have neo-Nazis rampaging through the streets, looking to take advantage of any "national humiliation."

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 15th, 2011 at 03:58:19 AM EST
[ Parent ]
I don't see why a default has to be widely publicised

It needs to be publicized to further discredit the system and to force recognition and write down of unpayable debts. If bad debts can be written down a better economy becomes possible. Anything that a TBTF is forced to write down is one more former bad debt that they will no longer be able to use in their ongoing attempts to squeeze blood from stones. And if it takes down the TBTF, that is a good thing.

I don't see how anyone other than the elites can benefit from the current situation and I find it surreal that the elected governments of the chief victims, the PIGs, have been turned into the enablers for the continuation of the torture of their own populations. Guess I just don't have the stomach for serial abomination.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 14th, 2011 at 08:19:56 PM EST
[ Parent ]
I recognize that such a "moral" position is totally at variance with what passes for contemporary academic economics, so I don't recommend that any that look forward to employment in that discipline publicly join me in my desire for a collapse. I really don't want it either, it is just that I think it is the least worst long term outcome and offers the best chance for a genuine improvement in governance. But, to paraphrase what Lenin said of the Romanovs: We have had 120 years of financial capitalism. Why not another 120 years?

As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 14th, 2011 at 08:25:50 PM EST
[ Parent ]
I really don't know where you are coming from on this - or whether you are including me and others here in "the current left".  If there is one thing that intrigues me about this crisis - as seen from Ireland - it is that the left are often more sycophantic than some on the right.  In either case Geithner is a sideshow which has barely emerged in the narrative here.  

If the USA is to make a positive contribution, I see it coming through Obama/Clinton and a wide selection of Irishphile political and administration figures within the US with Geithner understandably more focused on the global players - both corporate and national - and with US based financial interests.  Our main problem is with a resurgent nationalism in Germany and with a disintegration of the Eurozone thanks to an inadequate institutional and policy framework.

What's with your simplistic bad guy narrative?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:05:00 AM EST
[ Parent ]
i really don't have any issues with your diary. I'm just reacting to the way in which the Geithner rumor, which seems to me to be most likely an effort by EU/Ireland to blame the bogeyman,  has taken off and not just here.

http://www.irishcentral.com/story/roots/the_american_in_ireland/tim-geithner-helped-sink-ireland-121 510004.html

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=439x1059150

http://alethonews.wordpress.com/2011/05/09/geithner-scuppered-imf-plan-to-impose-haircut-on-irish-de bt/

just google "geithner ireland"

by rootless2 on Tue May 10th, 2011 at 10:11:01 AM EST
[ Parent ]
I'm not familiar with any of the sites you cite - are the US based?  I am amazed that an opinion piece by a hitherto marginal and reviled Irish academic has resonated so much elsewhere - the Geithner reference is tangential to Morgan Kelly's main targets - Honahan, slight dim former rugby players running Irish banks, the ECB, and the Irish Government.

I suspect the Geithner reference is playing into some pre-existing anti-Geithner sentiment on the US left and also a pressure point for Irish Americans on the Obama administration.  But from an Irish perspective the main bogeymen are the Irish Government, regulator, central bank, structural flaws in the design and implementation of the Euro, ECB and German nationalism.  

The US administration, for once, is a marginal player, but one which I think could be a positive player since it is less austerity fixated and much less hidebound in its dealings with banks than Germany.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:28:53 AM EST
[ Parent ]
Yves-Smith and similar have fixed on Geithner as the bad guy. It's weird.

I think the reemergence of German nationalism is very dangerous.
 

by rootless2 on Tue May 10th, 2011 at 10:37:07 AM EST
[ Parent ]
Never heard of Yves-Smith before, but have just read his/her? critique of the very limited Treasury denial of Geithner's role.  It seems an entirely reasonable critique given the denial didn't deal with the point Morgan Kelly made.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:51:54 AM EST
[ Parent ]
Kelly's claim

The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers.

Treasury denial (as reported)

Last night, a senior US official said this report was "inaccurate".

The official pointed out the ECB and the European Commission (EC) did not want to impose haircuts on bondholders who loaned money to Irish banks.

"The ECB and EC were both dead opposed and they are decisive. The US is not a decision maker on European issues," the official said

The Yves Smith take:

Ahem. Notice the statement. It does not say that Geithner was against the restructuring, merely that his opposition made no difference.

But this finesses what Kelly discussed, which is that Geithner effectively undercut the IMF

And that's just gibberish. Kelly alleges that US "torpedoed" the rescue plan, the US says the obvious - that it didn't torpedo anything because the ECB is calling the shots and the ECB is protecting the bondholders. The key claim of Kelly is "torpedoed" and that's exactly what Treasury addresses. So what we have is a Kelly claim of "torpedoed" that is (a) unsubstantiated (b) denied and (c) based on a clearly false theory that the US is calling the shots. When you add that to the other problems with Kelly's argument (he even gets the total of treasury payments to GS wrong by a factor of 2 1/2)  Smith's silly "ahem" just reduces to "but the script has Tim as the bad guy".

There are plenty of reasons to object to US treasury policies from a left wing point of view, but neither Yves Smiths "timmy is evil" cartoon or Kelly's apparent water carrying for the ECB comes close.

by rootless2 on Tue May 10th, 2011 at 11:31:12 AM EST
[ Parent ]
The IMF are providing a separate loan to Ireland (at a lower interest rate) and would have needed ECB agreement to any haircut plan.  Whether the ECB would have agreed to that under any circumstances became moot once Geithner vetoed the IMF proposal.

The idea that Kelly carries any water whatsoever for the ECB is just plain ridiculous, given the only water he wants to give the ECB is ownership of the Irish banks in return for the 150 Billion the banks owe the ECB.

Some water carrying.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 12:31:08 PM EST
[ Parent ]
"Whether the ECB would have agreed to that under any circumstances became moot once Geithner vetoed the IMF proposal."

But we only have one unsubstantiated and denied allegation that Geithner vetoed anything. And that allegation is surrounded by checkable inaccuracies.

Whether Kelly is telling the truth, making it up, or carrying someone else's excuse is impossible to tell. What's easy to tell is who benefits: the Germans, the UK and the Irish government all of whom have a convenient scapegoat.

Obama blocked IMF deal to haircut Irish debt. Boycott Obama's speech in O'Connell St - pass the word around

http://www.politicalworld.org/showthread.php?t=8075

And this at a time when the US and Germany are actually in a known dispute

On a more fundamental level, however, Washington is concerned that, should Europe overreach in its rush to cut government spending, it could endanger the fragile economic recovery that has taken hold on the Continent and around the globe. In particular, the US would like to see countries like Germany and France continue efforts to stimulate their economies.

http://www.spiegel.de/international/business/0,1518,697132,00.html

And the US policy has been, for a while to oppose Euro austerity

"In a letter to G20 leaders last week, US President Barack Obama warned against cutting national debts too quickly, arguing it would put economic recovery at risk"
http://www.bbc.co.uk/news/10411167

So the claim is that in contrast to clear US policy, the US treasury department is forcing massive austerity on Ireland and backing up the bond hawks. I guess it is possible, but to me it seems more likely to be disinformation designed to focus popular discontent on an easy target.

by rootless2 on Tue May 10th, 2011 at 12:59:06 PM EST
[ Parent ]
  1. Geithner is not an important part of this story from a European perspective.  Everyone knows the ECB is opposed to all haircuts.  No one here is blaming Geithner for this. At most he undercut IMF efforts to negotiate a slightly more enlightened policy.

  2. I have already argued above that I see the US and the Obama administration as a potential ally against excessive German/ECB inspired austerity policies.

  3. You seem to be trying to overlay a US left/right debate around Geithner on a European discussion of Austerity policies, German ECB obsession with protecting Bondholders, and structural deficiencies in the design of the ECB and Eurozone.

  4. Please stop buttressing your argument with websites I have never heard of making points no one here has ever made. Your argument is with other people!


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 01:18:40 PM EST
[ Parent ]
"No one here is blaming Geithner for this"

Kelly certainly is. And the websites show that he is not the only one in Ireland.

by rootless2 on Tue May 10th, 2011 at 01:28:51 PM EST
[ Parent ]
The fact is, ARGeezer did bring up Yves Smith's angle on the Morgan Kelly piece. Where in your excerpting you ignored the G7/IMF conference call episode, Yves Smith focuses on that. There's also the "Geithner and DSK" diary.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 01:39:17 PM EST
[ Parent ]
because Ireland does have clout in terms of the Irish American vote and the presence of large US corporates here

I'd consider putting faith in the latter, since a lot of tech companies are over there (and tech companies tend to be more Democratic-leaning than companies in general, so they'll have more sway with Obama).  Most of the Irish in America are in New England though, and as you know with the exception of New Hampshire, New England is about as likely to vote for the GOP as I am to win the next mayoral race in Caracas.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Mon May 9th, 2011 at 08:44:11 PM EST
[ Parent ]
I don't have figures, but I suspect the larger Irish American community (insofar as they self-identify as such) is a bit more spread out than t6hat, and, in any case, the game is also about trying to get donations and win Congress.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 05:39:56 AM EST
[ Parent ]
It would have been a real scandal if the president of NYFRB took it upon himself to decide to plunge Europe into the crisis that they seem to have only delayed until now.

While I don't dispute the rest of your analysis, I feel the need to reiterate that keeping insolvent private banks alive is not helping. Insolvent private banks should be separated from their clearing functions posthaste, and then have the carcass put through ordinary bankruptcy proceedings.

Now, it may well be that it would have been irresponsible to pull the plug on a large number of insolvent European banks in the context of a European federal financial regulator and market maker that is studiously refusing to actually perform either of these jobs. In which case the blame is shared by the witless gold bugs at the ECB.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:16:49 PM EST
[ Parent ]
I'd go further.

Keeping insolvent private banks alive is actively contributing to the crisis as well as actively ensuring the crisis persists.  The choices are:

  1.  Kill the banks and deal and have a major mess to clean-up

  2.  Kill the Real Economy in a vain attempt to save the banks which will kill the banks leaving catastrophe on our hands - which may not be solvable, I'd like to note.

The banks are dead, one way or the other.  The longer the SeriousPeople© try to keep 'em going the worse the final situation when they fall over.


Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Mon May 9th, 2011 at 02:30:22 PM EST
[ Parent ]
But there is a major difference between a foreign regulator killing your insolvent banks and your own regulator killing your insolvent banks.

Given the quality of decision-making coming out of the Bundesbank et al, I am not convinced that the European policymakers would have been able to salvage a major banking blowup that happened on someone else's time table. Hell, they may not even be able to handle a blowup that happens on their own time table, but at least then they'd have a sporting chance.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:54:39 PM EST
[ Parent ]
Whether the local (national) zombie banks are killed by local (national) regulators or by EU regulators is de minimus from an economic POV.

I grant there is a emotional side of equal (?) weight going counter to the pure economic analysis.

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

by ATinNM on Mon May 9th, 2011 at 05:01:33 PM EST
[ Parent ]
Well, yes, but there's a difference between having them killed by European regulators versus having their balance sheets blown wide open by the Americans while everyone in Europe is still sitting on their hands.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:24:12 AM EST
[ Parent ]
I'm not defending the policy in general, I'm simply pointing out that in the context of the time, the decision made by FRBNY was not that strange. In fact, I might have made it myself and not through any love of GS or SG for that matter. They did not have "orderly wind down of any AIG creditors, whoever they may be" as an option.
by rootless2 on Mon May 9th, 2011 at 04:31:17 PM EST
[ Parent ]
At the time neither Goldman nor JP Morgan were depository banks nor were they covered by ANY depository guarantee. They were granted that status to enable them to receive TARP funds, IIRCC.

IIRC they bought themselves some tiny bank somewhere so as to qualify as "bank holding companies"...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 01:21:20 PM EST
[ Parent ]
just for the record, Bush was President at the time.
by rootless2 on Mon May 9th, 2011 at 01:34:25 PM EST
[ Parent ]
And it's clear that Geithner has not opposed serious banker haircuts in the past, so it seems like an attempt to make someone else responsible.

Yves-Smith, by the way, is a totally unreliable source.

by rootless2 on Sun May 8th, 2011 at 09:09:39 PM EST
[ Parent ]
Patrick Honohan has objected to some parts of Morgan Kelly's thesis but praised it as accurate in other respects.  He has not objected to the part about Geithner - and he was a party to those discussions.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 09:33:59 PM EST
[ Parent ]
I'd like to see something more specific: the US treasury does not have anything at stake here other than the possible collapse of a huge trading partner, but the UK govt. which is here claimed to by sympathetic has been actively defending UK banks and investors. Certainly Pat Honohan may have things he can and cannot say as well.

Yves-Smith has a serious grievance against Geithner -she'd believe any story - even one that nobody has told.

by rootless2 on Sun May 8th, 2011 at 10:52:24 PM EST
[ Parent ]

I'm much more inclined to believe this rather than rumors.

by rootless2 on Sun May 8th, 2011 at 11:05:28 PM EST
[ Parent ]
Are we supposed to compare by eye the area of the blue wedge with the area of the circles?

How to lie with statistical graphs...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:12:21 AM EST
[ Parent ]
Do you dispute the numbers?

Another way of looking at those numbers is by population, roughly:

Greece: 11 mil (28 bil)
Portugal: 11 mil (28 bil)
Ireland 4 mil (114 bil)
Spain: 46 mil (146 bil)
Germany: 81 mil (79 bil)

You can't be me, I'm taken

by Sven Triloqvist on Mon May 9th, 2011 at 03:20:45 AM EST
[ Parent ]
I dispute the graphical presentation of the numbers.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:13:17 AM EST
[ Parent ]
...is in the eye of the bondholder

I agree that the size/area of the circles does not conform to the figures contained within, and thus has only a semiotic or perceived value.

If you really want to object though, the main point of the graphic is that the four yellow countries are rolling downhill, with the 'stable' slope as Germany. OR, alternatively, the greater 'weight' of Ireland and Spain are tilting the horizontal axis. However the first explanation seems more likely, as the numbers within the circles are slightly rotated to indicate rotation/rolling.

If this graphic comes from a newspaper, it is very likely to have been created by a sullen youth of indeterminate gender in Converse boots and a possible piercing, on the basis of a hurried email instruction by a sub-ed.

Scientists, as you well know, are barred from all publishers.

You can't be me, I'm taken

by Sven Triloqvist on Mon May 9th, 2011 at 08:16:16 AM EST
[ Parent ]
If this graphic comes from a newspaper

It says "Der Spiegel" on the right, in white on a yellow background (though I doubt they were actually trying to hide this). I suspect that the areas do actually conform to the figures, but they sure don't look at first as though they do.

by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 08:23:30 AM EST
[ Parent ]
Well, I measured the areas of the circles and they don't!

You can't be me, I'm taken
by Sven Triloqvist on Mon May 9th, 2011 at 09:43:05 AM EST
[ Parent ]
If you say so.... I estimated by eye that Spain had slightly more than twice the diameter of Greece and figured that it wasn't really worth more careful examination....
by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 09:49:37 AM EST
[ Parent ]
If you really want to object though, the main point of the graphic is that the four yellow countries are rolling downhill, with the 'stable' slope as Germany. OR, alternatively, the greater 'weight' of Ireland and Spain are tilting the horizontal axis. However the first explanation seems more likely, as the numbers within the circles are slightly rotated to indicate rotation/rolling.
Precisely. This is narrative-pushing, using the numbers as a poor excuse.

Maybe there's a third interpretation, a sort of domino effect/snowballing down the German deficit slope.

Whichever way you interpret it, the visual presentation has precious little to do with the data.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:03:43 AM EST
[ Parent ]
My point was purely to highlight the immense amount owed to German banks. The rest of it is something I don't have an opinion about.

plus 100B to UK banks just for Ireland and we start to get an outline of cui bono.
 

by rootless2 on Mon May 9th, 2011 at 09:32:05 AM EST
[ Parent ]
It is clear that this whole "rescue" mess is simply a way to transfer the losses to the public sector.

Under a default scenario the creditor countries still have to pick up the losses of their banks, so this is just a different way of achieving the same effect, just delayed so well-connected people have time to liquidate their positions...

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:35:35 AM EST
[ Parent ]
And to hide the rescue from their publics.

Remember, the original sin here is depressing German wages in the name of competitiveness. Telling the German people that they have to bail out the German banks because they lent the money that should have been paid to them to cowboy banks is unlikely to do anyone's political career any good. I'm guessing German workers would have been much happier if it was them rather than Irish bankers who were buying the Mercedes.

by Colman (colman at eurotrib.com) on Mon May 9th, 2011 at 09:39:54 AM EST
[ Parent ]
Right - the German government can now tell the gullible German public that the trouble is the reckless spending of Irish and Greeks, not the need to bail out a failed German banking industry.
by rootless2 on Mon May 9th, 2011 at 09:54:13 AM EST
[ Parent ]
Take it from the German SPD: it's all been "crass keynesianism"...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 11:36:27 AM EST
[ Parent ]
Do those numbers include money owed to German and UK banks by their subsidiaries operating from Ireland?
by Colman (colman at eurotrib.com) on Mon May 9th, 2011 at 09:41:19 AM EST
[ Parent ]
i dunno - does it make a difference?
by rootless2 on Mon May 9th, 2011 at 10:45:32 AM EST
[ Parent ]
Thou shall not use pie charts (or any other representation using area).
by asdf on Mon May 9th, 2011 at 08:21:41 PM EST
[ Parent ]
Graphics, like statistics are important tools for conveying messages and can also be misleading.  Critiquing their use can be an important part of appraising the validity of an argument.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 05:43:25 AM EST
[ Parent ]


Austerity can only be implemented in the shadow of a concentration camp.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:22:38 AM EST
[ Parent ]
And they're comparing a stock (debt outstanding) with a flow (GDP).

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:25:48 AM EST
[ Parent ]
The ratio is the interest rate at which you'd spend your entire GDP servicing debt.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 06:27:52 AM EST
[ Parent ]
The figure is budget deficit, not GDP.
by gk (g k quattro due due sette "at" gmail.com) on Mon May 9th, 2011 at 06:31:09 AM EST
[ Parent ]


Austerity can only be implemented in the shadow of a concentration camp.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:34:54 AM EST
[ Parent ]
Doesn't matter. The claim made is that Germany/UK were happy to toss away many billions, that an Irish government that signed up to pay suddenly took a different path and that a US official with no apparent motivation except character defect prevented them from doing the right thing. Generally, I find it a good practice to be skeptical of self-serving rumors coming from such meetings.
by rootless2 on Mon May 9th, 2011 at 06:49:56 AM EST
[ Parent ]
Yves-Smith has a serious grievance against Geithner

His conduct as Governor of the New York Fed and then as Secretary of Treasury would account for serious disdain from Yves and many others, myself included. Do you have any specific reason why she has a personal grievance or a grievance arising from her professional activities against Geithner? And do you think Giethner has done a good job both as Governor of the NY Fed and as Sec. of Treas.?

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 Mon May 9th, 2011 at 12:10:06 AM EST
[ Parent ]
Her politics are libertarian/conspiracy and she's fixed on Geithner/GS as the axis of evil. The fact that e.g. DB was a bigger player in the US mortgage mess in key years than GS or that Geithner's team ruthlessly slashed bondholders to protect GM/Chrysler or that the approach taken by Geithner/Bernanke to the crisis required far less of a taxpayer hit than the ones Yves advocated - or the ones taken by the European central bank are facts that conflict with her stupid narrative.

I find proposed explanations of this crisis that are based on character defects and alleged criminality to be a lot less plausible than ones that are based on who makes money and whose interests are at stake.

by rootless2 on Mon May 9th, 2011 at 06:55:20 AM EST
[ Parent ]
Libertarian? I don't remember her advocating for unfettered free markets and goldbuggery.

Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
by generic on Mon May 9th, 2011 at 07:30:56 AM EST
[ Parent ]
there is certainly a lot of chatter about "fiat money" on that site and Yves nutty devotion to "market value" of bank assets plus her conspiracy mongering gives me a strong flavor of libernuttian. I could be wrong, but that's what i see. Certainly there is not a hint of a suggestion that there could be a systematic issue of finance capital not caused by the moral turpitude of Geithner.
by rootless2 on Mon May 9th, 2011 at 09:44:42 AM EST
[ Parent ]
She has self identified as having been a Reagan Democrat back in the early '80s. The core of her work as presented on naked capitalism, and, from reviews of her book, Econned, has been to show how the US government and, especially, the financial regulators have been captured and corrupted by big finance over the last 40 years and how that has been facilitated by the systematic take-over of academic economics by the Chicago School, Friedmanite-NCE approach, largely funded by libertarian billionaires.  Over that time she has worked for many of the major Wall Street firms, including Goldman, some of whom are now "considered" to be TBTF.

A substantial part of those who regularly comment on her site ARE libertarian and some are goldbugs, but she has, at times distanced herself from them. Don't conflate the views of those who comment with her views. My sense is that she would be an Eisenhower Republican, were there such a wing of the current Republican Party.

As for conspiracy theorists, see her recent spoof: Blacklisted Economics Professor Found Dead: NC Publishes His Last Letter

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 Mon May 9th, 2011 at 12:09:15 PM EST
[ Parent ]
Well, this is not coming from Yves Smith, but from Morgan Kelly in the Irish Times (right before the bit that Frank Schnittger quotes in the diary):
On November 16th, European finance ministers urged [finance minister Brian] Lenihan to accept a bailout to stop the panic spreading to Spain and Portugal, but he refused, arguing that the Irish government was funded until the following summer. Although attacked by the Irish media for this seemingly delusional behaviour, Lenihan, for once, was doing precisely the right thing. Behind Lenihan's refusal lay the thinly veiled threat that, unless given suitably generous terms, Ireland could hold happily its breath for long enough that Spain and Portugal, who needed to borrow every month, would drown....
It was a complete mystery why Ireland capitulated so quickly as it did, assuming the very public claim was true that the Irish government was funded on a cash basis until mid-2011. So far, the only explanation for the capitulation was that the ECB threatened to crash the Irish banks, to a great cost to the Irish taxpayer in any case as the government had to make good on the €100,000 deposit guarantee (one question that posed itself, then, was doesn't Ireland have enough cash in hand to make good on the deposit guarantee?).
Ireland's Last Stand began less shambolically than you might expect. The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: "You are Ireland's salvation."


Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 07:12:55 AM EST
[ Parent ]
See also: Lenihan blamed ECB for forcing Ireland into bailout (Eurointelligence)
Here is a story we have so far refrained from reporting, but since it continues to make headlines here is what happened: In an interview with BBC Radio 4 former finance minister Brian Lenihan had accused the ECB of bouncing Ireland into a bailout, some days before Easter. Lenihan accused members of the ECB executive of "betrayal" and also criticises some ECB governing board members for the "damaging" manner in which they briefed some media about Ireland, according to the Irish Examiner. In a comment for the Irish Independent Gary O'Callaghan now supports Lenihan in his claim, saying that the ECB board's public frustration triggered the bank run in Ireland. Perceived as electoral rhetoric, the ECB's reaction was calm, the Irish Times reports. Yesterday,  Jean-Claude Trichets dismissed again these claims saying that the facts prove that the ECB is siding with Ireland in the difficult circumstances.
(with links in the original)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 07:31:18 AM EST
[ Parent ]
So the argument made is that the Irish architect of the bailout and the German and UK governments that have been faithful servants of their own banks which are the ones most exposed to Irish debt were ready to reverse course and make the bondholders pay, as the IMF had recommended, but that the American Treasury whose only role is as a member of the IMF also reversed course and vetoed any haircut?

"The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. "

Unlikely on both counts.

by rootless2 on Mon May 9th, 2011 at 07:37:26 AM EST
[ Parent ]
I'd very much like to see the expanded version. We have several claims here:

  • The IMF proposed a haircut plan
  • At a G7 finance minister meeting Geithner vetoed that plan
  • Osborne "spoke up" for the Irish. He was the only one to do so.
  • The ECB insisted on full repaiment.
  • The only positions we get are the US and UK. No one else had an opinion?

    Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter

    by generic on Mon May 9th, 2011 at 08:27:52 AM EST
    [ Parent ]
    I can think of one explanation: No single European country can veto an IMF decision. The US can. Geithner could just have been the one who formally killed the plan. Not necessarily on his own initiative, but on behalf of the creditor nations.

    Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
    by generic on Mon May 9th, 2011 at 09:12:23 AM EST
    [ Parent ]
    But of course the EU and UK are not constrained to follow IMF recommendations either.
    by rootless2 on Mon May 9th, 2011 at 09:51:45 AM EST
    [ Parent ]
    Of course. But It would have been supremely embarrassing for everyone involved were the IMF to sing from a completely different hymn sheet.

    Von überall könnte das Volk, Urbrut alles Undemokratischen, Zelle des Terrors, über die gewählten Hüter von Wachstum und Wohlstand® kommen. - flatter
    by generic on Mon May 9th, 2011 at 11:07:29 AM EST
    [ Parent ]
    The G7 consists of the US, Japan, Germany, France, UK, Italy and Canada.

    Three of the 7 (Germany, UK, France) are home to major creditor banks of the Eurozone, Italy is the in the PIIGS but not in the PIGS, and Canada and Japan presumably wanted nothing to do with the Euro policy mess. The US happens to be the single country which can veto the IMF and has no skin in the Irish rescue game, so its position can be sold to the outside world as disinterested.

    Germany, the UK and France politely ask Geithner during the G7 conference call to veto the IMF position on Ireland, and he obliges.

    Is that an implausible scenario?

    All the same, Frank is right that he chose not to excerpt this part of the story in his diary and Geithner has been brought in by an American quoting Yves Smith...

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 02:05:40 PM EST
    [ Parent ]
    At a G7 finance minister meeting Geithner vetoed that plan

    The claim was that this occurred during a telephone conference of G7 financial authorities.

    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 Mon May 9th, 2011 at 12:12:49 PM EST
    [ Parent ]
    Well, then the US government should have a tape that could clear things up for us...

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:06:32 PM EST
    [ Parent ]
    We may hear or see a transcript of that conference call yet, but not likely from the US government.

    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 Mon May 9th, 2011 at 03:33:31 PM EST
    [ Parent ]
    George Osborne has strong Irish roots and has been viewed as being consistently "helpful" to Ireland considering he is a British conservative.  Don't forget Irish/UK trade is huge and it is not in the UK's interest for the Irish economy to crash. The peace process is ongoing - as symbolised by the queens visit in a week or too. Huge numbers of Irish people live and work and vote in the UK. George Osborne has been a lot less sympathetic to Portugal/Greece.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 04:07:56 PM EST
    [ Parent ]
    writes Helmut Schmidt in Die Zeit. He doesn't see a Euro crisis (and categorizes talk of such as dangerous) but a crisis of the EU institutions. In his opinion the treaties of Maastricht and Lissabon were inadequate for 27 member countries and the new currency. It's quite in the same vein as this diary except he doesn't see debt restructuring or a haircut as palatable - it would require another massive bailout of German etc. financial institutions.
    by epochepoque on Sat May 7th, 2011 at 06:54:21 PM EST
    So, how strong will the Euro be after defaults by Greece, Ireland and Portugal, if it can be held to those countries? It would seem conceivable that the banks and their debtors could be immolated but that the currency could survive, even if everyone up to and including Germany defaults. But the problem is that none will go that route. It is starting to look like the choice is between the EU and the Euro on the one hand or the banks and their un-payable debts on the other.

    Looks to me like we are eleven years late on a millennial Jubilee.  

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

    by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 7th, 2011 at 07:06:55 PM EST
    [ Parent ]
    It's clear to me (and i'm not sure why or how it's clear) that the underlying value of what's actually produced in both the Euro zone and the EU is going to prove its worth. Equally clear, that the trouble with Euro zone banks is going to be resolved, buzz cuts included, as part of the package.

    i'm not Migeru, so i can't cite chapter and verse, but i'm clear that it will be here in the Euro zone that the first attempt at ending the piracy (Raubtier Kapitalismus; predatory capitalism) will be joined. Because one thing is obvious, it's here in Yurp that the curtain has been pulled.

    Merkel's antics, the strange to fathom emergence of the IMF as the lesser of two evils, the strange public revelation from DSK regarding Pompandreou's discussions, the strange public revelation of Geithner's veto, all point to a serious breakdown of the "system." Or perhaps the transparent street bean shill of the bank "stress tests." Or the naked capitulation of the PES.

    We can't ever forget that here in Yurp, however haltingly, is the attempt at a sustainable civilization, which must now include a reworked understanding of economics, already begun.

    I mean we have the only truly functioning sustainable industries outside of China, and for a short while, we still have the technical advantage over them... though that won't last long. But they will have other problems, as their environmental problems overwhelm their economy, so on balance, we're as good to go as any.

    Not sure why i post this emotional analysis when such diligent background data remains necessary, perhaps because i watched Goethe tonight, but i know i'm on it. i just don't know how, exactly.

    i used to tell people it's all easy to fix, you just have to decide where you want to be in twenty years, and i mean exactly. Then it's simply a matter of discerning the steps backwards from that agreed upon point, until you arrive at what you must first do today.

    Or maybe not. But what the hell. Geronimo!

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin

    by Crazy Horse on Sat May 7th, 2011 at 09:06:20 PM EST
    [ Parent ]
    Oh yeah, there's also the point about why "the market" has been fixated on attacking Euro economies, while ignoring the impending disaster within.

    Though i guess that's typical of parasite tunnel vision.

    (Dammit, it's 3:15am, so i missed first pitch, as the Giants go for their second win inaro against the 1st place Rockies... jeez, baseball begins late in Yurp. How can we survive with such time inequity?)

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin

    by Crazy Horse on Sat May 7th, 2011 at 09:18:30 PM EST
    [ Parent ]
    I'm sure the attacks on the Euro economies are just coincidence.

    Although if they weren't, what would it say about "the markets" if it turned out they were willing to make millions unemployed, homeless and impoverished in order to avoid tighter financial regulation and a possible end to the multi-decade party?

    Elsewhere, we seem to have run into the problem that Europe means different things to different people. On ET we'd like to think it means civilised inquiry, intellectual curiosity, pragmatic as opposed to ideological empathy and enlightened democracy.

    But what was the original vision? Does anyone know? I remember it being a "common market" - which doesn't bode well. Was it ever supposed to be more than that?

    The question is only passingly relevant because - clearly - it could be more than that. But making it more than that means pushing against "the markets", the exploiters, the financial criminals, the petty populist nation-state tribalists, and the tragicomical media despots like Berlusconi and Murdoch.

    Having the vision isn't bad. Not being able to achieve the vision - yet - isn't entirely bad.

    It would be worse if the vision didn't exist at all.

    by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun May 8th, 2011 at 08:47:05 AM EST
    [ Parent ]
    But what was the original vision? Does anyone know? I remember it being a "common market" - which doesn't bode well. Was it ever supposed to be more than that?

    The whole European Union thing was a gambit by starry-eyed politicians who had succeeded, with the Single European Act, in establishing a complete single market with free movement of capital, goods, services and people.

    The starry-eyed politicians came up with Schengen and the Euro and the Common Foreign and Security Policy and the Cooperation in Justice and Home Affairs, and voila, the European Economic Community became the "first pillar" of the European Union.

    See wikipedia, as usual...

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:08:17 AM EST
    [ Parent ]
    "Starry-eyed"? Piffle. Go read history. Almost all of the politicians of the time - at least until the 80s - had personal experience of the horrors and inhumanity of WWII. You perhaps were told what Spain was like before the death of Franco in 75?

    You can't be me, I'm taken
    by Sven Triloqvist on Mon May 9th, 2011 at 02:33:51 AM EST
    [ Parent ]
    The point is that the European Union post-1990 may be described as a bad case of mission creep after the avowed goal was well and truly achieved.

    Alternatively, it can be described as a visionary project by the likes of Delors, Kohl, Mitterrand and González, squandered by 20 years of petty nationalistic politicians without a vision.

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:16:30 AM EST
    [ Parent ]
    I think you're forgetting the context of the fall of the USSR and of the Warsaw Pact regimes, and German Reunification. What you call "starry-eyed" or "visionary" was far from it: it was an attempt by European leaders coming to the end of their careers and seeing the dangers ahead, to lock European nations (above all Germany) into a tight pact that would conserve what had been constructed. I don't believe Mitterand or Delors, for example, saw the rules laid down then as a final achievement, some wonderful system that would last. They hoped and expected there would be further development, because it was necessary, and because the European project had always managed to move forward like that in the past. But what then happened was that neoliberal economics/politics took over completely and in fact, if anything, forced whatever change there was in the opposite direction. Resulting, above all, in what they feared: Germany dominating Europe and using Central Europe as its economic backyard.

    What development of Europe, twenty years ago, would have avoided that, in your view?

    by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 04:35:34 PM EST
    [ Parent ]
    Writing sensible rules for the Eurozone in the Maastricht Treaty would have been a major plus.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 04:52:12 PM EST
    [ Parent ]
    What was written was what Germany would sign up to. And I continue to think the "leaders" of the time expected further development re economic governance. They were wrong. But my point is that they were not "visionary" or "starry-eyed" - more likely "worried" would be the word.
    by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 05:01:24 PM EST
    [ Parent ]
    Worried the club med would undermine German stability?

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 05:57:32 PM EST
    [ Parent ]
    afew:
    what they feared: Germany dominating Europe and using Central Europe as its economic backyard.
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 09:52:45 AM EST
    [ Parent ]
    What was written was what Germany would sign up to.

    Then the Euro was a bad idea, and Maastricht sans EMU would have been a better treaty.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:25:16 AM EST
    [ Parent ]
    The euro with no further evolution in terms of economic governance has now been shown to have been a bad idea.
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 09:55:04 AM EST
    [ Parent ]
    Or perhaps it was a good idea inadequately implemented, and the problem now is that the political environment has now changed so much in a bad way that demonstrable problems cannot be fixed any longer. A resurgent German nationalism seems to have paralysed the EU.  But if there were a coherent alternative majority on the Council, Germany could be outvoted.  So perhaps the spinelessness of the rest of Europe is as much to blame.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:12:24 AM EST
    [ Parent ]
    You cannot build a system that deliberately favours the most powerful player and then expect that it will be reformed to something better in the future. That is, well, "starry-eyed idealism" is a term that comes immediately to mind.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 10:25:15 AM EST
    [ Parent ]
    The same mistake made at Bretton Woods, and for exactly the same reason, failing to solve exactly the same problem.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 10:30:54 AM EST
    [ Parent ]
    The overwhelming dominance of one player?

    It is very difficult for a political process/negotiation to solve that problem unless all the other payers have a united and coherent opposing position.  So far the Eurozone crisis has seen a conspicuous lack of solidarity of anyone with or for anyone else.  It's every member for themselves at the moment with the majority keeping their heads down and hoping not to have to get involved.

    Index of Frank's Diaries

    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:38:20 AM EST
    [ Parent ]
    The problem is the macroeconomic instability resulting from the tendency of trade balances to grow more lopsided with time. The solution is the introduction of penalties on net exporters. The difficulty is that, until a crisis hits, there is no incentive to do anything, and after the crisis hits the exporter of last resort has everyone else over a barrel.

    See: the US at Bretton Woods, China at the G20, Germany in the Euro.

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 11:03:31 AM EST
    [ Parent ]
    If you think Mitterand and Delors were starry-eyed idealists, have a bag of salmiak on me ;)

    More than anyone seems to want to recognize in this discussion, the rapid fall of Communism redrew the map of Europe and forced them into an attempt to tighten the bolts on the European superstructure. I don't know to what extent they believed it would really work. Maybe I should try to see if Delors has said anything of late. Mitterand, apparently, is silent.

    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 10:39:56 AM EST
    [ Parent ]
    Hmm, time to revisit Reunification - some history rewriting where Jerome downplayed claims that Mitterrand feared reunification, or DoDo's "We'd better take down the wall ourselves".

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 11:05:58 AM EST
    [ Parent ]
    afew:
    My memory from that time is also that Mitterand feared reunification but was resigned to it - and negotiated with Kohl to get stronger European integration, particularly wrt the common currency, as the price of his support.
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 11:28:49 AM EST
    [ Parent ]
    Maybe the Convergence Criteria and the Growth and Stability Pact were macroeconomic nonsense, and lately the Competitiveness Pact Pact for the Euro Euro-Plus Pact is just ideological shock doctrine.

    Without a negative feedback mechanism for limiting the growth of internal trade imbalances, and with arbitrary constraints on fiscal policy and an ideological prohibition of "printing money" the thing was primed for a blow-up. We're actually unfortunate that the global financial crisis started with the subprime crisis and acted as a trigger for the Eurozone crisis, allowing people to pretend that all was well with the Eurozone had it not been for contagion from across the Atlantic.

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 10:26:55 AM EST
    [ Parent ]
    Uh, didn't Germany write it?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 09:46:10 AM EST
    [ Parent ]
    Uh, did it?
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 09:53:37 AM EST
    [ Parent ]
    Didn't the German Finance Ministry design the Euro convergence criteria  under Theo Weigel, and then later the Stability and Growth Pact?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 10:07:22 AM EST
    [ Parent ]
    They certainly had a lot of input (not particularly starry-eyed or visionary, btw), accepted by partners who wanted to tie them in. The expectation was that - as had happened before - there would be further moves towards "greater union" in terms of economic governance because everyone, the Germans included, would simply be forced into them by circumstances. But Germany stood by monetarism and moved towards mercantilism, and the whole continent got converted to marketista theology which prevented either right or left governments from reacting to that.
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 10:24:53 AM EST
    [ Parent ]
    Why did Germany "need to be tied in", and why into a monetary union?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 10:29:43 AM EST
    [ Parent ]
    To mitigate German hegemony...

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 10:39:03 AM EST
    [ Parent ]
    Then a monetary union is exactly the wrong tool.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 11:05:07 AM EST
    [ Parent ]
    I think that people fail to understand that historic context is fundamental in all this mess.

    Our grand-fathers had direct contact with the horrors of WWII, fascism and stalinism. That shapes a certain kind of individual.

    Their mistake (and, it seems to me, the mistake of some here) was to forget that their descendants would be born in a completely (better) different world. Thus, a different kind of individual.

    An individual breed in good times cannot easily foresee that it is shaping a path back to horror because (s)he does not know how such horror feels like.

    I think a leader of the WWII generation would NEVER allow the current crisis to be shaped with a narrative of "nation versus nation" or "rich nations vs poor nations" or <put your national variant here>.

    Sometimes the argument here seems to amount to "if we had the proper leaders, this would be alright". This is naive at best: (i) In a democracy we are bound to have, over time, leaders of different persuasions, it is not always the "old fashioned, historically sensitive, social democrat"; sometimes you get the "banker owned, ideology obsessed, short-sighted neo-liberal", this is NORMAL in a democracy. and (ii) we are having the generational leaders that know little about horrors.

    This is why I think that the "European Dream" is turning into a "bloody nightmare": We Europeans designed (with good intention) a system that is too tight-coupled (think Portuguese bailout in the hands of Finnish parliament). We are too connected without sharing nothing resembling a "national identity". This is bound to be problematic in a time of crisis.

    A more cautious approach would have serve us much better. It might not have been the utopia of a "united Europe", but would have avoided the problems that are coming (because they have not really started yet).

    by cagatacos on Mon May 9th, 2011 at 08:17:22 AM EST
    [ Parent ]
    Given that there were about 20 years between the end of WWI and the beginning of WWII, it's possible that Europe's Founders had a sense of urgency and that they believed that a "cautious" approach would not have worked.

    On the other hand, the whole thing started with a very limited and, indeed, "cautious" European Coal and Steel Community. The single market itself was already "mission creep". The "Founders" set a ball rolling and hoped that further integration would be inevitable.

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:06:46 AM EST
    [ Parent ]
    The actual first attempt was of building a true common defence policy, which was truly ambitious and didn't happen as a result...

    Un roi sans divertissement est un homme plein de misères
    by linca (antonin POINT lucas AROBASE gmail.com) on Mon May 9th, 2011 at 10:41:24 AM EST
    [ Parent ]
    I wonder if the degree to which the wealthy arrange to skew the system in their favor depends in part on how close you get to social collapse. Massive banking failures in the USA in 1893 led to the federal reserve. Socialism the result of the great depression. European union after ww2. And conversely, 40 years of prosperity leads to a "let them eat cake" economic policy.

    I hope this is not the case, because I would rather not have to cope with the social disruption it implies...

    by asdf on Mon May 9th, 2011 at 08:43:05 PM EST
    [ Parent ]
    I wonder if the degree to which the wealthy arrange to skew the system in their favor depends in part on how close you get to social collapse.

    There is a relationship, but I think it is the reverse. The wealthy have to be protected from their basest instincts which are to skew the system so strongly to their interests that it is forced into collapse. They collectively seem incapable of accepting this, though many wealthy individuals do understand the relationship. The only satisfaction that gives is that those who understand the situation are better positioned to benefit from the collapse than those who deny the possibility or project the causes onto others.

    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 Tue May 10th, 2011 at 01:17:58 AM EST
    [ Parent ]
    Conversely, the vast majority of people also display little interest or engagement in politics so long as they are materially ok and sometimes care little for those who are not ok and who they then perceive as being a threat to their material security on a win:lose basis.  It can be very hard to organise the disadvantaged even in support of their own vital interests, and even harder to organise support from those who feel they themselves are relatively ok.

    For the wealthy engaging in politics can be a hobby or a pastime, a means of upward mobility, a career, or an insurance policy against "bad people" getting into power. Often they are wealthy because they have played the game well in their own interests.

    So the general observation, that major political innovations come in response to catastrophic social failures holds true for both reasons - the dispossessed become more engaged and recognise their common interests in changing the system and the wealthy lose their grip in the social upheaval that follows.

    Of course the trick, in a functioning democracy, is to provide mechanisms for ongoing non-violent change which reduce the risk of catastrophic failures and mass upheavals.

    Index of Frank's Diaries

    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 05:56:33 AM EST
    [ Parent ]
    But I would argue that the financial system and the process of financialization of the economy, while contributing mightily to the wealth accumulation of the already wealthy, and while embraced by them for that reason, also tends to make the system unstable, as the further "progress" of financialization requires the dismantling of regulatory regimes that protect the stability of the system.  

    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 Tue May 10th, 2011 at 12:03:06 PM EST
    [ Parent ]
    I think we both come to the same conclusion via an intuitive gestalt. I posed a question to whch I believe I have the answer, but there are an enormous number of variables involved. But you are right that Europe has the underlying productive capability to survive. That is the actual capital. The capital markets are supposed to be a mirror of the actual, but they have been twisted into some version of a fun-house/house of horrors mirror.

    The good news it that the capital markets are much more of a social construct than are the underlying capital assets. The bad news is that we don't know how quickly one very distorted mirror can be replaced by one that gives a better image. It will be a fight over myths and images. It is not as though there are not very powerful vested interests at work here that want to keep the existing system and just dial up the distortion. The problem is basically political. Unfortunately, the existing politicians are, almost uniformly, useless to actively harmful.

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

    by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat May 7th, 2011 at 09:33:51 PM EST
    [ Parent ]
    Five years of recession-going-on-depression in the business layer can wreak havoc on the real economy and destroy the productive capacity which first stays idle and then is asset-stripped. The global financial crisis started in 2007 and the European crisis in late 2008. It's been 30 months already...

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:04:14 AM EST
    [ Parent ]
    Agree. My sentiments to a T.

    You can't be me, I'm taken
    by Sven Triloqvist on Sun May 8th, 2011 at 02:46:36 AM EST
    [ Parent ]
    Me four.  I'm basically an optimist but can't find much rational basis for that insane optimism right now - except that Yurp has overcome even greater challenges in the past.  The problem is that the EPP has become so dominant, and the PES so slavishly subservient to EPP talking points even EPP leaders don't really believe.  When you look to the IMF dfor (relative) sanity, you know you have a problem...

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 03:24:27 AM EST
    [ Parent ]
    Has there ever been a socio-economic project as large as the European Union before? Half a billion people using (officially) 23 languages, and representing a diverse range of cultures.

    While the evolution of the EU has taken place over 60 odd years, it was only in 1993 that the Single Market was born, with its 4 basic principles of the freedom of movement of people, goods, services and money. That was only 17 years ago: Europe is still a teenager (like the Internet).

    Remarkably too, the EU is administered cost-effectively - contrary to popular opinion.

    Enormous problems remain - that's what ET was set up to discuss. But problems have to be solved, and we are all part of that process. To me, the major task, deep down, is how to balance regulation with creative and cultural freedom.

    You can't be me, I'm taken

    by Sven Triloqvist on Sun May 8th, 2011 at 05:15:50 AM EST
    [ Parent ]
    Oh, the EU is doing quite well, all things considered. At this point in the history of the US, they were fighting an acrimonious civil war. And it turned out to survive. So federations that survive often have constitutional crises that make this one look like kid's play.

    But federations that do not survive also often have constitutional crises that do not even approach the severity of the current one.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 8th, 2011 at 05:45:11 AM EST
    [ Parent ]
    Has there ever been a socio-economic project as large as the European Union before? Half a billion people using (officially) 23 languages, and representing a diverse range of cultures.

    India?

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:01:01 AM EST
    [ Parent ]
    Good point - though it was more of a disunion project.

    You can't be me, I'm taken
    by Sven Triloqvist on Mon May 9th, 2011 at 02:40:09 AM EST
    [ Parent ]
    Back in the days of the EU Constitution debate I suggested one should look at India and Switzerland as case studies in multilingual devolved democracy.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:43:47 AM EST
    [ Parent ]
    Today, do you consider them useful case studies?
    by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 04:38:37 PM EST
    [ Parent ]
    Is it just me or the (current) optimism of EuroTrib members about Yurp is proportional to the credit rating of their home nations?
    by cagatacos on Mon May 9th, 2011 at 08:51:31 AM EST
    [ Parent ]
    Also possibly to their age.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 09:00:06 AM EST
    [ Parent ]
    It's certainly not proportional to my personal credit rating. :)
    by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 9th, 2011 at 09:04:00 AM EST
    [ Parent ]
    In my case, i didn't give a thought as to various credit ratings. Nor to all the delusional religious psychopathy about economics.

    i was pontificating from my tunnel vision watching Germany, Denmark, Sweden, the Netherlands and Spain (and soon Finland) selling their wind turbines and technology around the world, including into the US, UK and the BRICs. I think about Spanish and German solar plant the same way, although there California has given the US a base of its own.

    Then i was thinking of the growth in organic produce in parts of Europe. And a general attitude regarding sustainability.

    More likely my view is based upon grandiose doses of wishful thinking, which i spend most every day trying to make good.

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin

    by Crazy Horse on Mon May 9th, 2011 at 11:11:50 AM EST
    [ Parent ]
    You see optimism somewhere?
    by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 9th, 2011 at 04:39:55 PM EST
    [ Parent ]
    Why don't you flesh this - minus the Migeru reference - out into a diary?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 02:01:44 AM EST
    [ Parent ]
    ARGeezer:
    It is starting to look like the choice is between the EU and the Euro on the one hand or the banks and their un-payable debts on the other.

    Looks to me like we are eleven years late on a millennial Jubilee.  

    there has to be a solid reason for the darn thing to have been invented, evolved as necessary...

    the forces that conspired to make jubilees emerge as vital for continuance of the then present financial systems are probably the same as dictate its usefulness today.

    one wonders what level of social turmoil was need back then, of course the numbers ~and populations~ are hugely augmented, but it appears to be a principle that no financial system has been able to eschew for too long.

    anyone know any history around this stuff? were there riots or somesuch before the old cabals realised they had to let go of some idea of  (casino) profits if no-one but they held all the chips!

    i'll bet they didn't get there without some intense struggle, same as we see today from the banksters trying to make us believe that stacking bets 600 trillion high ain't good for the bottom line...

    down with fractional reserves! maybe compound interest too, and maybe that would obviate the need for jubilees.

    they must have been great celebrations, when they happened, great scenes of.... jubilation

    ...which we could all use a dose of too :)

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

    by melo (melometa4(at)gmail.com) on Mon May 9th, 2011 at 07:46:04 AM EST
    [ Parent ]
    Over the past year I made the point on various occasions that the Eurozone as a whole has low inflation, balanced external trade, and negligible foreign-denominated debt, so the entire crisis is one of internal macroeconomic imbalances. In that sense, Helmut Schmidt is right, the Euro is okay - Europe is not. The macroeconomic imbalances is what the Euro rules should have focused on, not monetary convergence, and obviously the political rules of the Euro are not helping and the current rise of petty nationalistic political leaders doesn't help either.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 01:58:44 AM EST
    [ Parent ]
    I think we both signed up on this site, long years ago, with a belief in Europe. Well, such is life. It is at least good that we can do "belief revision". As you know, I grew negative a few years ago, so I think I understand some of your feelings.

    One thing, if we restructure, why would we be kicked out? Where it is written that states cannot restructure? There is absolutely no legal basis against restructuring.

    Though I would prefer to go back to the Escudo, in any case.

    I must say I learned a lot when discussing with you. Especially when there were disagreements.

    by cagatacos on Sat May 7th, 2011 at 09:37:13 PM EST
    Well, there's no legal basis for refusing to put insolvent banks through bankruptcy either. The ECB is pretty transparently making shit up as they go along and only applying the rules that it finds convenient.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat May 7th, 2011 at 10:20:48 PM EST
    [ Parent ]
    The greater problem comes when "there is no legal basis" for doing the right thing and not doing the wrong thing, when the law is is captured by a regressive elite and by an ideology which has become disconnected from reality...

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 03:27:28 AM EST
    [ Parent ]
    well written diary, the pathos is tangible.

    i may be wrong, but so far the intention not to go back to warring nation states in europe has been successful, in that 'what europeans don't want' hasn't happened.

    what is also sadly clear is that what europeans want is not clear, beyond a warm fuzzy embrace of so-called european values, which are now coming under scrutiny because of the financial fiasco, and told to us by our stooges-in-place are unaffordable, and austerity is the answer.

    the positive side is that the banking profession is ever more revealed as usurious and inept, indeed amoral and unable to face up to its mistakes, seeking through regulatory and cognitive capture to sweep them under the rug, and deal another hand, a liars' poker we little people have to put up with for the nonce, until it collapses under the weight of its own greed and incompetence.

    we can decry this, somewhat impotently, from the bleachers, but the pred-cap mindset here in yurp far predates the formation of the EU, and remains the mechanism by which our governments allow finance to be, a largely US model of trickle-down, deluge-up capitalism, because the yanks learned our systems and ran with them to their logical - i use the word loosely!- conclusion, ie the degradation of the welfare state towards a somalia-with-tvs model of anarchy, with the pirates wielding ECB directives and IMF skullduggery instead of AK 47's.

    the very existence of the EU threatens the geithner model of banks-uber-alles, just as the strength of the euro vis a vis the dollar threatens the cherished image americans have learned to feel entitled to as top of the global heap, yet it is the bric countries that are growing, while europe dawdles in the doldrums, imo largely due to the subversions of a lot of american voices, from the slagging off of the french as cowards, the cretinous spoutings of yer boltons and yer rumsfelds about old europe, (anywhere that isn't lapdog enough to put up with being america's satrap, and put up boondoggle missile defence shields, store nukes, and do renditions uncomplainingly.)

    luckily for us, in some ways, the hegemon is staggering around on crutches made in china, due to their war-is-us military muscle twitches and media-for-dummies awareness of their place at the global table, where their betrayal of their own sound principles occurs with ever more transparency, with ron goldbug paul being as likely as any to run for the GOP ticket, the refusal to participate in the ICC or climate change remediality. the scabbard is off and the naked blade is there for all to see...

    don't like wikileaks? cut off your own nose to spite your face and ban reading it for federal employees, forced ignorance.

    don't like pesky sovereignty rules? blast right by them and go assassinate anyone you like, who's gonna argue with a gorilla that big?

    just as in the cold war, we in yurp are now between china and america as they jostle for polluter-in-chief, before it was russia we all spent trillions to spend into the ground, now we sit between the old and new numbah-1 and cuddle up to russia to keep the lights on.

    after 20 years of extra-european life i came back here because i was amazed at the progress europe had made, now 20 years on i see the charred ashes of many aspirations, and it is hard not to feel bitter, as we sit here surrounded by 100 nuclear plants, and are told that the solar sector is growing too fast and needs to be curbed by our all-knowing caregivers.

    the rightwing loony parties, from berlu and snarkozy, wilders and bossi, strut and foam, while in eastern europe the familiar stench of organised hate groups begins to waft over the landscape, already heavy with fumes from aluminium smelters, chernobyl fallout residue and coal plants a gogo.

    the stakes are high everywhere, we see it played out here, and thank fate that we are starting from a higher position to take on peak oil and commodity speculations, but i wonder if that just means we have further to fall.
    to end this jaded rant on a more positive note...

    i do believe that europe is placed better than any other locus, because we have had no wars here for two generations (a record!), unless you count afghanistan, iraq, kosovo and libya, natch.

    and because europe has been the intellectual womb for so many of humanity's greatest oeuvres, be they scientific, idealistic, pragmatic or socially visionary. the fact that our politics are so shambolic i am choosing to see as the sunset effect of a paradigm breaking down, and new ones emerging.

    i love coming here, because of the spirit of love for the good things we have created and enjoy in europe, and the caring to diagnose and treat the ills that plague us still. ET symbolises the hope that remains, with its passionate devotion to energy issues, and the slow cracking of the nut that is the financial system.

    maybe we will emulate the arabs, and show up in enough numbers that our lords and masters will get a kick in the pants, maybe we'll muddle through, while the rest of the world is distracted by yer fukushimas, the world currencies valuation battles, and the sound and fury of dictators being upended by the exasperated starving street protests, willing to die rather than live on their knees.

    we are not there yet, but unless people en masse wake up to how the foundation of our finance system is rotten and run by idiot gamblers, and how the PTB would like to take us back to the 30s, forgetting what the consequences of that may mean, our noble fumblings towards a globally sustainable, socially equitable state. we don't have to be super-anything, just avoid excess and waste, and continue to resist the blandishments of the free-market fanatics, and their poodles-in-power, until the whole house of cards collapses and we see who has the pants down by their ankles, and who had a clue. (looking at you chris cook!)

    gimme some truth! ah john, we miss you man...

    sad epiphany Frank, great diary and comments.

    it's the energy, intelligent ones!

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

    by melo (melometa4(at)gmail.com) on Sun May 8th, 2011 at 05:36:22 AM EST
    [ Parent ]
    What I find particularly difficult to digest is that the period of the most egregious depredations by the bankers and their light touch regulation cronies has coincided with a period of increased political ascendency for their ilk, and the almost complete collapse of a coherent alternative - be it PES of Green.  Now that Zapatero, too, has capitulated, who in Government is even trying to articulate an alternative paradigm? Marketista ideology rules the roost no matter the party leanings of the leadership in question.  We need a Marx, Keynes, or a Krugman to articulate an alternative paradigm for Europe and a political movement to make it happen.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 10:28:22 AM EST
    [ Parent ]
    Coincidence? I think not.

    You can't be me, I'm taken
    by Sven Triloqvist on Sun May 8th, 2011 at 10:59:27 AM EST
    [ Parent ]
    There never were coherent alternatives.

    Historically the PES is based on the idea of increasing the material wealth of the working classes. Most of the working classes in Europe, nowadays, have enough material wealth to live decently. It can even be argued that we have too much: considering the ability of the planet to provide equal material wealth to all other citizens (Africa, Lat AM, Asia, ...).

    What I am trying to convene is that, since some decades ago, there were actually no big difference from left and right: all proposals were variations of GREED. Asking for a salary increase of someone doing above 1.800 is greedy. The planet cannot sustain that lifestyle for 7 billion inhabitants.

    A left program would be more along the lines of:

    1. Full employment (at the expense of more salary!)
    2. Some level of job security (even at the expense of "growth")
    3. Trading money for time
    4. Maintenance of community involvement: Some entitlement programs abstract away community - one pays taxes and problems appear "miraculously" solved. The welfare state should be maintained with direct population involvement (say, through a compulsory civil service)

    The aspirations by the left are, in essence, the same as the ones from the right. Why go with a copy when you have the original?
    by cagatacos on Sun May 8th, 2011 at 12:10:59 PM EST
    [ Parent ]
    To meet those four goals we'll have to come-up with an alternative to compound interest.  I suspect, cannot prove, we need an alternative to compound interest to get to "sustainable" - however defined - on any road.

    Chris Cook has been very active on this line.

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

    by ATinNM on Sun May 8th, 2011 at 05:52:44 PM EST
    [ Parent ]
    I do not understand, and (if you have the patience) would love to read an extended version (or pointers to info).

    Then again, this is maybe because I do not buy Keynesian economics (especially in the context of dwindling natural resources): "if you want to invest, save first" is my motto. Of course, saving in debt based instruments (aka money) might pose a problem (because it means somebody else is accruing debt). Then again, it is just a question of saving in a different way (e.g. collecting natural resources). But this is above my pay grade (I am not an economist - though reading some, I am glad I am not).

    I have to say (If Chris is reading), I have some difficulty in understanding what he proposes. I did indeed put quite some effort in reading his stuff, but I never really did grasp it.

    by cagatacos on Sun May 8th, 2011 at 06:06:56 PM EST
    [ Parent ]
    Got some friends coming over & I have hustle to get the house ready.

    I'll post later tonight or tomorrow.

    (Depending on how much wine flows o'er the (non-existent) tonsils.  :-)

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

    by ATinNM on Sun May 8th, 2011 at 06:26:23 PM EST
    [ Parent ]
    Of course, saving in debt based instruments (aka money) might pose a problem (because it means somebody else is accruing debt).

    Precisely.

    The problem with "savings" is that the everyday understanding of the term is "to hoard money." Hoarding money does not create investment, or accumulate capital. It merely enables you to lay claim to a larger share of whatever plant and labour exists when you move to spend the money.

    Hoarding physical resources solves that problem, because you can now spend those resources directly. But hoarding physical resources is not without problems either - because now you're hoarding (that is, making unavailable) physical resources that someone else might have a productive use for. In an era of scarce physical resources, this may not be wholly appropriate.

    In the end, the problem is that there is a relationship between productivity (how many hours, raw materials, etc. we must spend in order to obtain the finished goods we want) and the extent of the capital plant. In turn, there is a relationship between the extent of the capital plant and the rate of investment. And the rate of investment is driven by the state of demand.

    So the answer to the question "why don't we just cut production and work hours in half?" is that this would not work under a market economy, where investments are determined by what manufacturers believe that they can sell. Because manufacturers would then allow their plant to deteriorate. In the standard growth theory models, cutting output in half would only, in the long run, cut work hours by a little under 40 %.

    This may not seem like such a problem - after all, working 60 % of the time for 50 % of the goods isn't an atrocious deal. But during the time (a decade and a half or so) that plant is deteriorating, you'd have to work longer hours to obtain the same production (on average you'd have to work something like 1 % longer every year - minus any advances in total factor productivity). Again, in real terms this may not seem like a big deal, but it becomes politically untenable very quickly (I'm betting that people will forget how much they used to work fast enough that they will complain about increased work hours before the capital plant has fully deteriorated).

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 07:15:54 AM EST
    [ Parent ]
    The problem with "savings" is that the everyday understanding of the term is "to hoard money." Hoarding money does not create investment, or accumulate capital. It merely enables you to lay claim to a larger share of whatever plant and labour exists when you move to spend the money.

    I think the fallacy here is the idea that money always represents the same thing. It does not. Imagine: 1 million people are expropriated of their savings which they planned to use to buy a (imported) car and that capital accumulation is used to say, build a dam?

    As a layman, it strikes me that you are being too theoretical. For me it depends on how capital accumulation is used. Politics can help there.

    This may not seem like such a problem - after all, working 60 % of the time for 50 % of the goods isn't an atrocious deal. But during the time (a decade and a half or so) that plant is deteriorating, you'd have to work longer hours to obtain the same production (on average you'd have to work something like 1 % longer every year - minus any advances in total factor productivity)

    My impression again is that you are over-theorizing (and over-simplifying). Interestingly I think the seeds of an answer are in your own words: "minus any advances in total factor productivity".

    I would really like to continue this discussion, but this is above my paygrade and I do not have the time (the deadline to submit my PhD is looming)

    by cagatacos on Mon May 9th, 2011 at 08:32:36 AM EST
    [ Parent ]
    I think the fallacy here is the idea that money always represents the same thing. It does not.

    Exactly. Economics is politics. It has no independent existence.

    Economics is a political tool used to manage the activities of populations.

    Money is a whip. Occasionally it's a carrot. It isn't a commodity, it isn't limited, and it doesn't follow quasi-scientific laws.

    It would be possible - with some effort - to imagine different accounting systems with different inherent priorities. But currently, as soon as you start thinking about concepts like profit/loss, interest, ROI, GDP and the rest, you're already trapped inside a world of conceptual newspeak where certain thoughts become impossible, and only certain types of relationships between actors are acceptable.

    by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 9th, 2011 at 09:00:16 AM EST
    [ Parent ]
    I quite like this way of putting it:

    (via).

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 02:54:32 PM EST
    [ Parent ]
    Imagine: 1 million people are expropriated of their savings which they planned to use to buy a (imported) car and that capital accumulation is used to say, build a dam?

    Money is not capital.

    If the government wanted to build a dam, the government could always build that dam, provided that it can mobilise the manpower, cement, turbines and rivers required. The reason that you take money from the people who wanted to buy cars is in order to free up man-hours otherwise spent selling the cars, and hard currency otherwise spent importing the cars, for use on your dam project. It is not because the money is necessary or sufficient in itself: The government can always print more money in any amount it wants (except if it's in the €-zone, since the BuBa is staffed by gold bugs).

    Interestingly I think the seeds of an answer are in your own words: "minus any advances in total factor productivity".

    Yes, if you can increase TFP faster than the capital plant deteriorates from lack of maintenance, then you're golden.

    Unfortunately, increasing TFP is hard. Only roughly half our GDP growth in the industrial age has been from TFP increase (the other half from a combination of higher labour force participation, greater raw material use and greater capital intensity). And most of the industrial age's TFP increase is from economies of scale, which would presumably reverse if we went back to small-scale, local production.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 01:33:50 PM EST
    [ Parent ]
    JangoSierra has pithily captured the history of western civilization in one phrase.

    "the government could always build that dam, provided that it can mobilise the... rivers required."

    Suweet.

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin

    by Crazy Horse on Mon May 9th, 2011 at 03:15:57 PM EST
    [ Parent ]
    I'd like to second this request for a synoptic overview of Chris Cook's ideas.
    Sometimes there is a great advantage in having an idea expressed by a third party.
    I also find my understanding is ephemeral- more so as I grow older.

    Capitalism searches out the darkest corners of human potential, and mainlines them.
    by geezer in Paris (risico at wanadoo(flypoop)fr) on Mon May 9th, 2011 at 08:33:22 AM EST
    [ Parent ]
    I can't write a definitive synopsis of Chris' work.  I don't understand it well enough.

    My understanding - subject to correction - is:

    He proposes investment would be returned by the goods/services the productive unit outputs.  This would be in two ways:

    1.  Direct use of the output

    Example: investers in a windmill power plant would receive (time limited?) compensation in the form of electricity which they would use to power their own productive unit to manufacture goods/services.  

    2. Indirect use of the output

    The investor would sell the electricity to a third party, in some manner or form, in order to reap the benefit(s) of their investment.

    One result of this system would be to limit the Return on Investment (ROI.)  Investment funds "tied-up" in an electric power plant can only receive an ROI limited to the actual Real Economy value of the electricity.  Thus disabling the ability of certain classes of investors (read: rentiers, for one) to churn their investment at a higher rate than the wealth (in my example electricity) produced by the Real Economy.

    In concrete terms, an investor receiving 100 megawatts of electricity for their investment can only get an ROI of what 100 megawatts of electricity is worth.  Unlike our current predatory financial capitalist  system, the investor cannot reap the benefits of selling 500 megawatts; if an investor tries they run smack into what is commonly called "Fraud."  

    One rather nice 'externality' of Chris' proposal is: it ties the health of the FIRE sectors to the health of the Real Economy.  IF an investor gets an ROI based on the ability of their investments to produce goods/services THEN they have a vital interest in the continuing ability of their firms, say, to continue to produce over the long term.  This is complete contradiction to our current system in which the Financial Interests - particularly the (so-called) "Investment Banks" - to deploy their capital (equity and debt) as quickly as possible and as many times as possible to maximize short-term gain.  Effectively Chris' proposed system reduces the baneful effects of Compound Interest run amok.

    And I'm going to stop here so Chris and weigh in and tell me where I got it wrong.

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

    by ATinNM on Mon May 9th, 2011 at 01:50:27 PM EST
    [ Parent ]
    Not just compound interest.

    Also profit/rent, the demand for which is the 'cause' - by definition and accounting identity - of inflation.

    We need an enterprise model where there is the creation, exchange and sharing of surplus value, but no rentier profit. In other words, a partnership framework, within which there is no profit and there is no loss - and if credit is created within such a framework agreement, then there is no compound interest either.

    This presentation last year on Economic Systems Thinking  gave a holistic view.

    More specifically re housing here's a preview of a presentation in London on Tuesday to a Community Land Trust conference in which I am proposing a new approach to financing and funding of CLTs, and outlining one of several ongoing specific prototypes.

    Hard work, but getting there, I think.

    Also as a Senior Research Fellow my work on Resilient (ie decentralised, dis-intermediated and networked) Markets is getting a more 'serious' hearing.

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

    by ChrisCook (cojockathotmaildotcom) on Sun May 8th, 2011 at 08:09:48 PM EST
    [ Parent ]
    Congrats on the position, Chris. Puts you in a position to do more good and looks very good on the CV.

    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 Sun May 8th, 2011 at 09:26:53 PM EST
    [ Parent ]
    You at the Feasta conference in Croke Park tomorrow? See you there if you are.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 09:36:24 PM EST
    [ Parent ]
    Avoiding compound interest is easy: Do not allow it to compound. There's really nothing terribly mysterious about this point. It's the reason "negative amortisation" loans tend to go tits-up sooner rather than later.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun May 8th, 2011 at 08:52:32 PM EST
    [ Parent ]
    And is Friedmanite monetarism and Randian libertarianism "coherent"?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 01:51:48 AM EST
    [ Parent ]
    God, no.

    My point (though not clearly written) was not on coherence. Much less on the economical part.

    It was philosophical. Centre-"left" (and hard-"left") proposals have been a variation of greed. That was my point.

    Economics is nothing more than philosophy (and religion) through other means.

    In a completely different front, I much doubt that the human species has the cognitive capacity to produce anything "coherent". "Enough to keep things going" is the best we can do. Note that saying this does not make me an Austrian ;)

    PS - I always rate posts and, at the end, click the browser "close tab" button instead of the page "Rate all" button. Sorry, but it is a habit difficult to break.

    by cagatacos on Mon May 9th, 2011 at 08:42:37 AM EST
    [ Parent ]
    Install tribex and the rating is instantaneously posted every time you rate.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 04:26:52 PM EST
    [ Parent ]
    cagatacos:
    It was philosophical. Centre-"left" (and hard-"left") proposals have been a variation of greed. That was my point.

    It is the dream of Cornucopia. Some time ago I read a Bradbury novel (I think) were dystopia was achieved by to much Cornucopia - nothing for people to do.

    When dystopian science fiction writers can raise no objection to infinite growth on a finite planet other then that it will be boring, then you have a general capture of the minds.

    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 Mon May 9th, 2011 at 05:26:24 PM EST
    [ Parent ]
    cagatacos:
    Trading money for time

    Some time ago I heard a speech from a veteran of women's movement. She told the audience that the influential group she belonged to in the 70ies decided not to push for 30 hour week with 40 hour pay for parents with small children (government chipping in the cost) as it was believed that a general shortening of the work week to 30 hours was just around the corner anyway. So they pursued different changes.

    My point is not that they would have got it, but that in the 70ies politically interested people believed that a general 30 hour work week was just around the corner.

    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 Mon May 9th, 2011 at 05:09:43 PM EST
    [ Parent ]
    Ruari Quinn, Past Labour Leader, Minister for Finance, and now Minister for Education is famous for saying c. 1970, that "the 70's will be Socialist" and that Labour would remove the tyranny of work from people's backs by reducing work through automation, new technology, reduced working hours etc.

    The irony is that people have had to work much harder ever since, now it takes two wage earners to support a family, and the hours, never mind the intensity has increased.

    Index of Frank's Diaries

    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 05:46:24 PM EST
    [ Parent ]
    Frank Schnittger:
     We need a Marx, Keynes, or a Krugman to articulate an alternative paradigm for Europe

    Ghostly contributions from the first two notwithstanding, that leaves a lot of work for Paul Krugman who isn't European, all the same.

    An alternative paradigm for Europe, that's up to us. Here on ET. Srsly.

    It's what we should now be aiming at.

    by afew (afew(a in a circle)eurotrib_dot_com) on Sun May 8th, 2011 at 04:22:31 PM EST
    [ Parent ]
    We need a Marx, Keynes, or a Krugman

    Hardly so. None of those above understand housing market. We need Adam Smith, Henry George and Hyman Minsky.

    by kjr63 on Sun May 8th, 2011 at 05:03:30 PM EST
    [ Parent ]
    But perhaps P.T. Barnum could 'splain it all to the Banksters. Or Al Capone.

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
    by Crazy Horse on Sun May 8th, 2011 at 06:24:01 PM EST
    [ Parent ]
    We need a Marx, Keynes, or a Krugman to articulate an alternative paradigm for Europe and a political movement to make it happen.

    Both of those things are essential. Right now, however, it seems the latter is more desperately needed than the former. There's no shortage of good analysis, and there are new paradigms being articulated, including at this site. But it's like shouting into the wind, because there's not much organizing going on. UK Uncut seems to be about it so far. The ground appears to be fertile.

    And the world will live as one

    by Montereyan (robert at calitics dot com) on Sun May 8th, 2011 at 10:16:03 PM EST
    [ Parent ]
    We need a Marx, Keynes, or a Krugman to articulate an alternative paradigm for Europe and a political movement to make it happen.

    That's a 30-year process right there.

    We're living through the beginning of a crisis analogous to the Great Depression or the 1970's Stagflation. Both ended with a substantially different political economy than they started with. In the case of Stagflation, the new political economy was the Reagan/Thatcher revolution, and Friedmanite market-worshipping Neoliberalism. The thing is, Friedman had been active long enough (and notorious enough) for the elder Galbraith to heap ridicule on him in The New Industrial State for being a starry-eyed market romantic 150 years out of date. Which means the ideology of 1980-2010 was already there in the 1960's.

    If there's going to be a transition to a progressive political economy at the end of the tunnel we're now just entering, the ideas must already be in place. But, of course, being ridiculed by the establishment we may not be aware of how important they will become. It is also entirely possible that the political economy of the post-crisis system will be an authoritarian dystopia because there actually isn's a strong enough progressive ideology waiting in the wings (not just that we're not able to see its importance).

    Economics is politics by other means

    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 01:50:25 AM EST
    [ Parent ]
    Krugman is an orthodox economist.

    http://www.othercanon.org/

    by rootless2 on Mon May 9th, 2011 at 07:15:48 AM EST
    [ Parent ]
    Well, there's a big difference between Europe and the EU; and an even bigger difference between a single currency and a common currency.

    I think that the European (and global) institutions are past their sell-by dates, ad the challenge is to create new ones.

    As the man said, you can't solve 21st century problems with 20th century solutions.

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

    by ChrisCook (cojockathotmaildotcom) on Sun May 8th, 2011 at 04:39:05 AM EST
    [ Parent ]
    Especially when our leaders represent a return to 18th century feudalism.

    "Life shrinks or expands in proportion to one's courage." - Anaïs Nin
    by Crazy Horse on Sun May 8th, 2011 at 05:28:57 AM EST
    [ Parent ]
    You exaggerate!

    We may be going back to the pre WW1 "Great Powers" in a multipolar world order - with all the attendant militarism and jingoism, but feudalism with peasants owned by local warlords seems a further step back...

    Index of Frank's Diaries

    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 09:22:00 AM EST
    [ Parent ]
    cagatacos:
    I must say I learned a lot when discussing with you. Especially when there were disagreements.

    It is the manner in which we conduct our disagreements which defines us as members of a community...and provides the basis for learning and growth

    Index of Frank's Diaries

    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 10:21:00 AM EST
    [ Parent ]
    Honohan rejects Kelly criticism - The Irish Times - Sun, May 08, 2011

    In particular, Prof Honohan disputed the suggestion that the bank guarantee could have been reversed. "I took a lot of legal advice on this. There was no way of the Government walking away from that very formal guarantee, endorsed by the Oireachtas," he said. "The Government would have been treated as a bankrupt right away."

    Prof Honohan said his strategy has been to keep Ireland's options open in what is a difficult position, and not to undertake further costly engagements. "To a large extent we have been successful in doing that," he added.

    Mr Honohan said the deal struck with the IMF and European authorities last November was agreed in a hurry and designed to be altered.

    "It was not a final solution," he said. "I would regard it as a holding operation, something to offer a window of time in which to get what could be sorted out within our own competence in Ireland sorted out.

    "It's not the end of the story. Negotiations, discussions will continue with Europe for a long time to come as we know there are already discussions about the interest rate and so forth."

    Prof Honohan said he wanted to nail the idea that there is a conflict of interest between heading the Central Bank and having a role on the governing council of the European Central Bank.

    "Everything that was done here by me and by colleagues on behalf of Ireland - I was playing for Ireland," he said.

    Mr Honohan also addressed his breaking rank last November in an early morning phonecall to RTÉ Radio from a meeting of European bank chiefs in Frankfurt  to reveal that Ireland was on course for a bailout running to tens of billions.

    "The facts of the matter are pretty clear, because the negotiators for the lenders were in Dublin with snow on their boots. They had been invited by the Minister for Finance," he said. "What my purpose there was, and I said it at the time, was to provide reassurance and fact,



    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 11:04:42 AM EST
    "Everything that was done here by me and by colleagues on behalf of Ireland - I was playing for Ireland," he said.

    TWEET!

    Red Card.

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

    by ATinNM on Mon May 9th, 2011 at 01:56:26 PM EST
    [ Parent ]
    Ireland bet everything that house prices would rise forever, and lost.

    I should not laugh, but this so comical. And it is still going on outside Ireland.

    by kjr63 on Sun May 8th, 2011 at 03:35:40 PM EST
    They were persuaded by the marketistas that there would be a "soft landing" as the markets are always self correcting and right. Except when they are not, and then its the fault of the politicians for "distorting the market"...

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun May 8th, 2011 at 09:40:28 PM EST
    [ Parent ]
    Eurointelligence Daily Briefing: The consequences of a not-so-secret meeting
    Fierce row in Ireland after Morgan Kelly called for debt restructuring

    An comment by the Irish economist Morgan Kelly in the Irish Times calling for Ireland to walk away from the bailout agreement provoked a huge row in Ireland and some fierce reaction from the central bank and the government.  Kelly argued that the Irish government should walk away from the banking debt, leaving it to the ECB, so that the country would be left with a "survivable" €110bn debt.  Central bank governor Patrick Honohan felt compelled to defend himself, after Kelly accused him of making the "costliest mistake ever made by an Irish person" by miscalculating the scale of the bank losses. Honohan defended his role in the run-up to the original bailout deal and his decision to retain the bank guarantee. The finance ministry also responded by issuing a stark warning in response to Kelly's article, saying that child benefit and the wages of 300,000 public sector workers would be slashed by 33% if the government were to abandon the EU-IMF bailout deal.

    (Google link)

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 05:39:38 AM EST
    True Finns leader Soini in WSJ:

    http://online.wsj.com/article/SB10001424052748703864204576310851503980120.html

    Fantastic article! There are some pretty nasty people within "true finns," but Soini is hardly one of them. What will "Big Boys" think about a text like this? Soini has still a strong popular support from voters.

    by kjr63 on Mon May 9th, 2011 at 06:04:07 AM EST
    When I had the honor of leading the True Finn Party to electoral victory in April, we made a solemn promise to oppose the so-called bailouts of euro-zone member states. These bailouts are patently bad for Europe, bad for Finland and bad for the countries that have been forced to accept them. Europe is suffering from the economic gangrene of insolvency--both public and private. And unless we amputate that which cannot be saved, we risk poisoning the whole body.

    ...

    Further contrary to the official wisdom, the recipient states did not want such "help," not this way. The natural option for them was to admit insolvency and let failed private lenders, wherever they were based, eat their losses.

    ...

    Why did the Brussels-Frankfurt extortion racket force these countries to accept the money along with "recovery" plans that would inevitably fail? Because they needed to please the tax-guzzling banks, which might otherwise refuse to turn up at the next Spanish, Belgian, Italian, or even French bond-auction.



    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 06:11:11 AM EST
    [ Parent ]
    When the ugly party is making more sense on economics than the social democrats, we are well and truly fucked.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 9th, 2011 at 06:33:19 AM EST
    [ Parent ]
    But we knew this:
    PM Zapatero's economic advisors (Vicenç Navarro)

    ...

    A trait of Zapatero's government has been to propose important changes on social issues, following the Social Democratic tradition well established in Europe (and in which Spain was considerably backwards), earning a well-deserved applause on important issues which affect the quality of life of Spanish citizens. Reforms such as the Fourth Pillar of Welfare (with the approval of the Dependency Law, among other measures) have earned national and international recognition. However, this positive side of his tenure has been limited by his economic and fiscal policy, which has diminished the potential of the social measures approved by the government. And this is due to the economic thought that has guided a large part of these economic and fiscal policies, which is well defined in the book by Jordi Sevilla (the most influential economist in the birth of the current known as New Way), entitled New Socialism, with a preface by the then candidate Zapatero. In this book, Sevilla wrote

    Can anyone defend in this day and age that a social democratic programme must favour more taxes and spending and introduce normative rigidities into the economy?
    (to see a critique of Jordi Sevilla's book, see the chapter "the debate on the socialist strategy: the new socialism" in my book Spain's social underdevelopment: causes and consequences (Anagrama, 2002).


    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Mon May 9th, 2011 at 06:48:15 AM EST
    [ Parent ]
    The summary sentence below the headline from the WSJ:

    Insolvency must be purged from Europe's system and it must be done openly and honestly.

    Soini probably does not understand that opacity, duplicity and dishonesty are the CORE of the current economic system and that to purge insolvency "openly and honestly" would almost certainly bring down the entire edifice. The appeal of populists such as Timo Soini or Ron Paul is that they seem sufficiently determined and bloody minded to do just that. The problem is that if they are selected as the agents of this transformation, we will get some version of their regressive social views. The fate of the TBTF bankers I could live with, were it confined to them, which is unlikely, but returning women to the 19th century I could not live with. But there would be a Thermidor and a new Directorate and then, likely, Banksters 2.0.  

    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 Mon May 9th, 2011 at 01:20:00 PM EST
    [ Parent ]
    Call me what you want, but I have some difficulty in disagreeing with this piece.
    by cagatacos on Mon May 9th, 2011 at 09:39:42 AM EST

    This 7 minute U-tube video, called Portugalnomics Ep 1, has now received a typically innovative Finnish reply.



    You can't be me, I'm taken

    by Sven Triloqvist on Mon May 9th, 2011 at 10:10:14 AM EST
    [ Parent ]
    It is innovative.

    If it was a little less innovative I might understand what they are saying.


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

    by ATinNM on Mon May 9th, 2011 at 01:58:26 PM EST
    [ Parent ]
    You have much to learn about Finnish humour ;-)

    It is far from mine, but I have learned to appreciate it. Think "in your face"

    You can't be me, I'm taken

    by Sven Triloqvist on Mon May 9th, 2011 at 02:23:33 PM EST
    [ Parent ]
    I understand this:

    had them rolling in the aisles.

    [The young boy, Onni Tommila, has continued his career by playing Pietari Kontio in Rare Exports: A Christmas Tale.]

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

    by ATinNM on Mon May 9th, 2011 at 05:49:51 PM EST
    [ Parent ]
    Another example of Finnish Humor© is giving unsuspecting foreigners salmiakki:

    For those fortunate never to have tasted it, salmiakki is:

    Salmiakki is a salty treat (like candy but salty) that many people in Finland love.

    A more accurate description:

    Salty form of licorice from Finland that is flavored with the taste of burning tires and distilled death.



    Skepticism is the first step on the road to truth. -- Denis Diderot
    by ATinNM on Mon May 9th, 2011 at 05:59:49 PM EST
    [ Parent ]
    Yes, the Finns and the Danes are the only ones in the EU who make real licorice.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:32:26 AM EST
    [ Parent ]
    I'm tempted to troll-rate that.
    by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 10th, 2011 at 09:48:47 AM EST
    [ Parent ]
    Norwegian or Swedish-Finnish trolls?

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 09:50:50 AM EST
    [ Parent ]
    Constantin Gurdgiev, one of the few economists in Ireland who has consistently advocated default, is also one of the most rightwing economists around.  A strange feature of the debate on default is that the ultra right economists and ex-bankers/stockbrokers/financiers have generally been more progressive on the issue than establishment, social democrat, Green, and Labour economists.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 04:53:04 PM EST
    [ Parent ]
    I read Zero Hedge and Karl Denninger (Market ticker), and the same can be read over there.

    As I see it is a mix of: 1) Irresponsible lending should be punished (as much as borrowing) 2) The debt burden is so high that it is a mathematical certainty.

    It seems that there is a substantial difference between being right-winger because one ruthlessly believes in merit/market (Karl Denninger) against being right-winger because you are in the pocket of the economic powers (or generally like to lick the a$$ of the powerful)

    by cagatacos on Mon May 9th, 2011 at 05:04:43 PM EST
    [ Parent ]
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 9th, 2011 at 06:48:19 PM EST
    Hand higher?! No reason to get nasty ;-) I marvel at the bony flexibility with which European leaders contort themselves to praise stupid decisions. 'Yes, we have some fresh ice for our whiskey on our titanic ship!'
    by epochepoque on Mon May 9th, 2011 at 07:45:00 PM EST
    [ Parent ]
    EUObserver: Europe Day celebrated amid growing criticism of ECB (9 May 2011)
    A more frank assessment of the current climate [than van Rompuy's haiku] was offered by Ireland's European commissioner, Maire Geoghegan Quinn, in a Europe Day address to the the Irish parliament.

    ...

    She appeared to be responding to sharp criticisms [by Morgan Kelly] of the European institutions' handling of the Irish economic crisis and in particular the ECB's insistence of full repayment of bank bonds out of the taxpayer's pocket that appeared in the country's newspaper of record, the Irish Times, on the weekend.

    ...

    On Monday, the Irish prime minister, Enda Kenny, appeared to endorse criticisms of the ECB, called for "ways in which to improve the bank's accountability", while Micheal Martin, leader of the opposition Fianna Fail party, attacked the bank's "rigid orthodoxies" and said it "does not appear to have the humility required to evolve or the diversity to encourage rigorous debate on policy alternatives. Its defensiveness in the face of criticism serves no positive public purpose."



    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 02:07:33 AM EST
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 06:01:51 AM EST
    [ Parent ]
    On Monday, the Irish prime minister, Enda Kenny, appeared to endorse criticisms of the ECB, called for "ways in which to improve the bank's accountability",

    European Tribune: Get your policy recommendations six weeks early.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 10th, 2011 at 09:38:43 AM EST
    [ Parent ]
    DAILY MORNING NEWSBRIEFING: "I was told to say there was no meeting... We had certain necessities to consider" (Eurointelligence, 10.05.2011)
    Juncker's spokesman Guy Schuller admits to lying about the secret meeting; Juncker himself is quoted as saying :"when it becomes serious, you have to lie", thereby undermining the credibility of the EU's policy response; Lucas Zeise says lies are a hallmark of an economic policy end game, with the eurozone now very likely to break up; Jean Claude Trichet has proposed another €50bn loan for Greece; Greek tax revenues fall way short of the plan; there are reports that Angela Merkel will travel to Brussels for emergency consultations; euro falls further, and bond spreads rise; an FDP politician has tabled a motion to end all eurozone rescue packages; there are huge recriminations in Brussels against the Germans for leaking the meeting, and for undermining the Greek stabilisation efforts; S&P downgrades Greece, and says that even a voluntary debt restructuring constitutes default; Finnish parties start difficult negotiations about Portugal's bailout package today; Portuguese banks borrowed €48bn from ECB in May; new FDP chief Philipp Rösler becomes economics minister, asserting his power in the party; German exports and imports reach new records, with net exports rising; the euro, meanwhile, is far more popular in France than it is in Germany.


    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 02:17:56 AM EST
    The best option, it now seems, is for Germany to leave the Euro and for the ECB to be reformed into a genuine monetary authority, financial regulator, and lender of last resort.

    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 06:04:07 AM EST
    [ Parent ]
    Quoting for the umpteenth time... Germany is unfit for the euro (By Joerg Bibow, 21.04.2010)
    Not for the first time in its history the German people have been irresponsibly misled by a political leadership that seems to have lost any sense of history, any sense of order and stability in Europe, and any sense of Germany's key contributing role to the current crisis. As ever, the mindset of lawyers frames the political debate among a political class that seems inhumanly uneducated in matters of economics. If economic voices are heard at all, it is usually the voice of the Bundesbank. It is a peculiar democracy that expects either its constitutional court or central bank to have the final word of wisdom.

    Regarding Euroland's economic performance since 1999, three stark facts or policy blunders stand out. First, while similar in size to the US economy, Euroland is remarkably export dependent and prone to domestic demand stagnation. The world economy boomed at record rate in 2003-7. Euroland for long was the "sick giant". Joining late, it crashed all the harder as the global crisis hit. Second, the 2001-5 period of protracted domestic demand stagnation saw finance ministers at pains to cut budget deficits below 3 percent, as the so-called Stability and Growth Pact prescribes, and the ECB similarly at pains to squeeze headline inflation below the 2 percent mark that seems to constitute price stability. Obsession with what lawyers judge to be stability produced rather perverse results. Hiking indirect taxes and administered prices to achieve their magic number, finance ministers thereby helped to keep inflation above the ECB's magical number. In turn, the ECB's obstinate refusal to care about domestic demand kept budget deficits above 3 percent, triggering further indirect tax hikes, and so on. Contrary to the notorious stability-oriented gospel, it is hard to conceive of a more counterproductive macroeconomic regime than this. Third, the brief history of the euro saw the emergence of stark divergences and buildup of grave imbalances within an economic area that can no longer rely on exchange rate realignments to solve them - imbalances the implosion of which have left Euroland stuck in the mess it is in today, once again hoping for strong global growth to pull it out.

    Sadly enough, Germany has been central to all of this. Germany is the biggest factor in Euroland's export dependence, growing on exports only while domestic demand, especially private consumption, is notoriously stagnant. Among the first countries to break the Maastricht deficit limit dreamed up by its own lawyers, Germany contributed most to the ECB's misses of its headline inflation mark by hiking indirect taxes. Worst of all, Germany reneged on the euro's cornerstone to abstain from beggar-thy-neighbor policies.



    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 06:08:03 AM EST
    [ Parent ]
    And market-maker of last resort.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Tue May 10th, 2011 at 06:10:29 AM EST
    [ Parent ]
    Kelly's route out of economic crisis is itself a road to ruin - The Irish Times - Tue, May 10, 2011

    He is advocating a two-pronged strategy:

    (1)That Ireland walk away from the EU-IMF deal (a notion that is, of course, attracting a lot of favourable media comment) and;

    (2)that, in order to be able to pay its way in the absence of funds from the EU-IMF, Ireland should immediately eliminate its budget deficit (a drastic notion that, equally predictably, is being ignored in the same media comment).

    While I favour speeding up the adjustment, doing it all in one year would be impossibly disruptive.

    He claims that a strategy along these lines is needed because otherwise, he thinks, our debts are unsustainable. He bases this on pessimistic growth assumptions, which may or may not transpire. And he argues that a slow, messy bankruptcy would destroy an Irish economy that depends so much on international trust. Better, he argues, to do the whole job immediately.

    There are a number of elements missing in Professor Kelly's analysis.

    First, he does not consider the impact of what he is suggesting on other countries, and how they might react.



    Index of Frank's Diaries
    by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 10th, 2011 at 11:21:07 AM EST
    Shifting this a little to the Greek problem, I wonder if the EU has really gotten serious politically. Here you have a nation still spending 4% of GDP on armaments, a nation that is being asked to sell off assets that will go to service a debt load it will eventually default on. In the end, Greece's public asset sales will be used to fill the coffers of banks immediately, while the assets themselves will fill the coffers of corporations for 50 years or more, depriving Greece of needed income (especially with respect to selling off gambling and lottery concessions) for a long time.

    Meanwhile, Greece is still purchasing military equipment. Worse, though evidence has been uncovered of bribes to Greek officials from corporations for the delivery of things such as submarines (which don't actually work in warm Med. waters) to the tune of billions of euros, Greece is forced to take on these "assets."

    If the EU were serious, they would guarantee Greece's security, force Greece to end military purchases, cancel contracts, sell of submarines etc.

    by Upstate NY on Wed May 11th, 2011 at 11:48:56 AM EST
    But the EU is not serious, it's being run like a neoliberal looting project like the Washington Consensus of the 1980's and 90's.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 11:51:18 AM EST
    [ Parent ]
    Where were the submarines being bought from?
    by Colman (colman at eurotrib.com) on Wed May 11th, 2011 at 11:51:23 AM EST
    [ Parent ]
    Germany, of course.
    by gk (g k quattro due due sette "at" gmail.com) on Wed May 11th, 2011 at 11:53:47 AM EST
    [ Parent ]
    So we see how it works. German bailouts being channelled back to German companies.

    All hail free-market capitalism.

    by Colman (colman at eurotrib.com) on Wed May 11th, 2011 at 11:55:57 AM EST
    [ Parent ]
    I'm sure German bans loaned Greece the money for the purchases in the first place, too.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 11:58:47 AM EST
    [ Parent ]
    Germany.

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 11:54:20 AM EST
    [ Parent ]
    Also a French frigate.

    It's not exactly a secret either, Daniel Cohn-Bendit complained about it.

    Also...

    MEPs and defence experts are calling on the EU commission to go after market-distorting, corrupt side-deals to big weapon deals between member states, such as the ones greasing Germany's submarine sales to Portugal and Greece.


    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Wed May 11th, 2011 at 11:57:43 AM EST
    [ Parent ]
    Eurointelligence Daily Briefing: German rebellion against second loan tranche for Greece
    Bundestag votes in favour of Portugal package, but more and more MPs come out in opposition to a second loan package for Greece; Schäuble says Germany's support was a question of fate for Europe; Der Spiegel says Europe has become the fault line of centre-right politics in Germany; Bild Zeitung has another outrageous article about overpaid and lazy Greeks, and why the crisis will last forever; Antonio Borges and Jean Claude Juncker call for more Greek privatisations; Holger Steltzner bemoans that the ECB is becoming more French, and less German; the IMF warns that the crisis may yet spread to core Europe; El Pais wonders why the IMF still considers Spain to be among the Euro Area 4 peripheral countries; economists and investors overwhelmingly expect a Greek restructuring, according to a Reuters poll; Barclays Capital calculates that Greece needs a 67% haircut; True Finns stay out of government in protest over the decision to support a Portuguese aid package; there were more violent protests in Athens after the serious injury of a protester earlier this week; John Walters argues why Ireland is the victim in this crisis; Christine Lagarde is to revise the 2011 growth forecast upwards following a better than expected first quarter;there is much speculation, meanwhile, about the future of Lorenzo Bini-Smaghi after Mario Draghi's accession to the ECB presidency.
    (Google link)

    Economics is politics by other means
    by Migeru (migeru at eurotrib dot com) on Fri May 13th, 2011 at 04:51:52 AM EST
    Good.

    The sooner this "bailout" bullshit gets killed dead, the sooner we can move on to a real solution. Like defaulting on all those CDU banksters.

    - Jake

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

    by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri May 13th, 2011 at 05:29:46 AM EST
    [ Parent ]


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