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Peak oil (demand)

by Jerome a Paris Wed Jan 18th, 2012 at 10:41:11 AM EST

Oil demand falls for first time since 2009

Oil demand is falling for the first time since the 2008-09 global financial crisis as a result of a mild winter, high crude prices and the European economic crisis, according to fresh estimates from the International Energy Agency.

The industrialised nations’ watchdog said oil demand dropped by 300,000 barrels a day in the final quarter of 2011. Such a fall is rare: over the last decade, oil demand has posted drops only in the financial crisis of mid-2008 to mid-2009.

I can't help bring up again this graph, prepared by Luis de Sousa almost two years ago:

This not to dismiss all the explanations to the crisis linked to unsustainable intra-eurozone imbalances, but to suggest that one of the key reasons for such imbalances is the competitive hit received by the countries most vulnerable to an oil shock. And that what we are seeing IS an oil crisis - peak oil translates into higher prices, which eventually causes lower demand (in those countries which are price sensitive, i.e. mostly the Western world, as a large portion of the emerging economies subside fuels) - and this is accompanied by widespread pain, as people have to do with less, or with more expensive oil, and need to reduce their consumption of everything else as a consequence. It also worsens commercial deficits, which hurts first the countries with a less favorable intra-eurozone position.

With oil production basically flat since 2005 (and a big chunk of any increases there have been have come from lower-energy-density fuels like biofuels), and demand still increasing massively in various parts of the world (oil producing countries, who do not really feel the price increases, fuel subsiding middle income countries, and fast growing places like China), we have a crunch, and it looks like it's hitting the weaker parts of Europe especially hard.


Display:
Shorter Jerome: the Euro crisis is not an internal Eurozone balance of payments crisis, it's an external oil shock.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 11:40:38 AM EST
See here. See there.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 11:45:22 AM EST
[ Parent ]
I say that there are two things, and they combine at their most vicious in peripheral euro countries.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 11:47:54 AM EST
[ Parent ]
And further, that it is the countries most sensitive to oil prices that have the worst competitively shock and this does play a role in the creation of intrazone imbalances as it creates differentials in competitiveness.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 11:58:32 AM EST
[ Parent ]
Another (not equivalent) way to say this is that the Eurozone has balanced trade, but is a net energy importer. Therefore, differences in external energy trade balance translate into differences in internal Eurozone trade balances.

This has very little to do with competitiveness in the sense of how competitive the products one or the other country produces.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:04:07 PM EST
[ Parent ]
The more oil intensive an economy is, the worse it suffers in competitivity from oil price increases.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Jan 18th, 2012 at 12:06:31 PM EST
[ Parent ]
Is Spain's economic model built on bricklaying and tourism because of its oil dependence?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:11:42 PM EST
[ Parent ]
it is more oil-intensive because its economy was more focus on these activities? Not sure about tourism, but construction certainly is an energy intensive activity.

That would have created a large vulnerability to oil price increases.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 12:32:15 PM EST
[ Parent ]
No, it is more oil intensive because it doesn't have river or rail-based freight. Which may have something to do with being dry, hilly or mountainous terrain throughout. The Randstad and Ruhrgebiet have the advantage of being in a large plain.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:35:02 PM EST
[ Parent ]
Perhaps global warming will cause flooding that evens out that advantage...

Tangent: It strikes me that part of the German economy's resilience is that German firms have been laying off workers in other countries first...

Alex Harrowell wrote a piece at A Fistful of Euros about how you could see the effect of German firms cutting back during the financial crisis in the shrinkage of industrial production in Central European countries (e.g. Czech Republic). Unfortunately the a foe database seems to have swallowed it.

Not sure if that connects to energy or just to the fact that industrial economic decisions are in fact "in the hands of the market (firms)" rather than governments - so in the EU case of prohibiting industrial policy, it's not enough to analyse productivity growth through the frame of countries, at least for big firms...

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jan 19th, 2012 at 06:14:20 AM EST
[ Parent ]
In a free trade zone, the nation states aren't much more than arbitrage opportunities.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2012 at 06:19:18 AM EST
[ Parent ]
>Alex Harrowell wrote a piece at A Fistful of Euros about how you could see the effect of German firms cutting back during the financial crisis in the shrinkage of industrial production in Central European countries (e.g. Czech Republic).>

That is a truism. When the industrial production did shrink in Germany in 2009, german imports of industrial goods from Eastern <europe did shrink too. You don't need a conspiracy for that

by IM on Thu Jan 19th, 2012 at 06:37:03 AM EST
[ Parent ]
Who said it's a conspiracy? I think you need to try to be more polite.

Its also misleading to call it a truism.

The analytical point is that German manufacturing supply chains have outsourced many parts to Central European countries, much as Japanese firms have moved many factories to Thailand. Ownership is rarely outsourced, simply location. Then when hard times come, the cuts come first at the outsourced locations, notably those where labour laws, agreements and unions are weaker. This is not conspiracy, simply economic logic.

The critical point is that analysis of German unemployment and other economic indicators vs PIIGS or other countries are used to generate fallacious comparisons of virtue, when country level analysis is simply misleading.

by Metatone (metatone [a|t] gmail (dot) com) on Thu Jan 19th, 2012 at 06:43:11 AM EST
[ Parent ]
I first made the point in a comment and came back to it here.

But I think the post you meant is this one which somehow ended up without a valid URI.

by TYR (a.harrowellNOSPAM@gmail.com) on Wed Jan 25th, 2012 at 08:34:59 AM EST
[ Parent ]
Priceless:
It's been a bizarre week, but if the papers can't do mindless stenography of the words of the powerful, what are they for?


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 25th, 2012 at 08:48:10 AM EST
[ Parent ]
If you're right, that should inform the answers to
  1. what caused the eurozone crisis?
  2. how should it have been dealt with policy-wise up to now?
  3. what should be the policy to try to get out of it?


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:05:43 PM EST
[ Parent ]
Would you argue that internal demand in the Euro periphery is depressed not by procyclical austere reductions in government spending, but by rising fuel prices at the pump?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:17:29 PM EST
[ Parent ]
Do you see me denying that pro-cyclical policies have made things worse?

But can we agree that places already in recession are more vulnerable to pro-cyclical policies? And that the recession may have been made worse by the increasing fuel bill - especially if the increase was relatively bigger than in other European countries?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 12:28:33 PM EST
[ Parent ]
My feeling is that the drop in economic activity has driven traffic off the roads and reduced power usage faster than the change in oil prices could.

On the other hand, filling my little diesel Fiat Punto's 40L tank now costs around €60, which seems outlandish. That would reduce my driving if I had to do it more than every six weeks or so.

by Colman (colman at eurotrib.com) on Wed Jan 18th, 2012 at 12:33:02 PM EST
[ Parent ]
Your argument
what we are seeing IS an oil crisis - peak oil translates into higher prices, which eventually causes lower demand (in those countries which are price sensitive, i.e. mostly the Western world, as a large portion of the emerging economies subside fuels) - and this is accompanied by widespread pain, as people have to do with less, or with more expensive oil, and need to reduce their consumption of everything else as a consequence.
is just a version of the Austerian recession is the hangover from the excesses of the past.

As JakeS puts it,

Talking about oil as if it had anything to do with why the Euro failed leaves the reader with the erroneous impression that the Euro would not have failed if oil had been plentiful. And that is not the message you want to push. Because it's not true, and it's not true in ways that lend support to stupid policy conclusions.
The smart policy conclusion is given by ATinNM
the kind of capital expenditure required to move Greece - and Spain and Portugal - away from being a oil-exposed economy is exactly the micro-economic stimulus needed to help kick-start the economy.
but you say that people have to do with less ... and need to reduce their consumption of everything else including not being able to invest in turning their economies around.

As a result, we will see Germany and the Netherlands using their trade surpluses to fund renewable energy development in the North Sea while pointing fingers at the Mediterranean countries for staying backwards, undeveloped, indebted and oil dependent.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 08:41:51 AM EST
[ Parent ]
The periphery countries are all ahead of Germany in terms of wind power (and renewables) penetration: Ireland, Portugal, Spain all have higher wind penetration than Germany. And a lot of that was financed in the boom years by core country banks. Just as a lot of train infrastructure in Spain was financed by core banks.

I won't talk about the evil of pro-cyclical polices, because we agree on that. The more interesting question is whether the eurozone crisis would have happened anyway. And you have to wonder - if banks had been let to go bankrupt, a lot of the transfers from core to periphery would have been made irreversible through default. Maybe not the cleanest transfer mechanism, but a real one still.

So the culprit is the core governments forcing the periphery governments to support their creditors so that core lenders would not go bankrupt (and be supported by core governments). Effectively, the bailout of the core banks was passed onto the hapless periphery.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2012 at 09:16:29 AM EST
[ Parent ]
Ireland is still not allowed burn unsecured bondholders in what used to be Anglo-Irish Bank.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2012 at 09:30:13 AM EST
[ Parent ]
The periphery countries are all ahead of Germany in terms of wind power (and renewables) penetration: Ireland, Portugal, Spain all have higher wind penetration than Germany. And a lot of that was financed in the boom years by core country banks. Just as a lot of train infrastructure in Spain was financed by core banks.

So where does the oil dependence come from?

  1. lack of rail freight.
  2. lack of inland waterways
  3. poor energy efficiency in buildings

Where else?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 09:51:33 AM EST
[ Parent ]
  • lack of domestic oil or gas production
  • less nuclear power

are the first culprits. Energy intensity of GDP would need to be investigated.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2012 at 10:27:02 AM EST
[ Parent ]
0. Gross stupidity in infrastructure development.
by Colman (colman at eurotrib.com) on Wed Jan 25th, 2012 at 09:45:19 AM EST
[ Parent ]
I suspect the US is even more oil-dependent than these periphery countries, yet there's no debt crisis here.

That's not to say oil isn't a factor in how hard the crisis hits, but it's hard for me to see it as the cause.

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

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 18th, 2012 at 11:45:04 AM EST
The US runs a huge structural trade deficit, and carries huge and ostensibly unsustainable private and public debt, accumulating the worst problems of the most basket-case of the EU economies.

If the EU had a debt crisis, then the US would have one in spades. Ergo, what the EU has is not a debt crisis.

But we already knew that. Surely.

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

by eurogreen on Wed Jan 18th, 2012 at 11:57:28 AM EST
[ Parent ]
The US has the world currency. People have to buy US Treasuries because that the only place to park dollars.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 12:24:37 PM EST
[ Parent ]
5 years ago the Euro looked ready to share the role of world reserve currency. What happened?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:27:57 PM EST
[ Parent ]
As far as I can tell the value of the euro has not moved significantly, so as a reserve currency it's still largely there, and used as such. But investors are using Bunds preferably to the debt instruments of other eurozone governments like they did before.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 12:30:28 PM EST
[ Parent ]
The US can borrow pretty much for free and can easily make its interest payments.  We have a trade deficit of 3.5% of GDP, but we also have our own currency.

UK?  No debt crisis, despite Poshboy's best efforts.

Japan?  No debt crisis, despite public debt two to three times that of other industrialized countries.

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

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 18th, 2012 at 12:36:00 PM EST
[ Parent ]
Does the US have insolvent state or local governments, or debt crises at the state level?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:39:36 PM EST
[ Parent ]
well theres at leat one local government that has been put into administration

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Wed Jan 18th, 2012 at 12:44:34 PM EST
[ Parent ]
Perceptive question, and yes it does. CA is a total basket case because its constitutional provision requiring a supermajority to raise taxes makes responsible governing impossible given the state of the contemporary Republican Party.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Jan 18th, 2012 at 12:45:52 PM EST
[ Parent ]
Yes, as ceebs noted there's Jefferson County, AL, which was swindled by JPMC (I think) in a whole confusing bit of lunacy involving financing a sewage treatment plant.  Matt Taibbi has a bunch of stories on it.

Detroit is still...well, Detroit.  And obviously California's always one payday loan away from falling into the ocean.

There are a few others.  For the most part, though, the states and locals have started turning back around.  The drag from their spending cuts and tax hikes should be much less severe this year.

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

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Jan 18th, 2012 at 12:50:58 PM EST
[ Parent ]
The difference is that if push really comes to shove, everyone knows that Washington and the FED will bail out the crashing state in question, while possibly sending in federal viceroys to clean up the mess. This cannot or will not be done in the EU, which shows what an awful idea the common currency is.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jan 18th, 2012 at 07:43:23 PM EST
[ Parent ]
and for the same reasons.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 04:29:46 AM EST
[ Parent ]
The US corporate sector is not very indebted, indeed it is flush with cash it knows not what to do with. A comfortable problem. US private debt is shrinking as savings have increased massively (which of course makes the recession deeper). Public debt is big, but still lower than what UK debt was before Keynes argued for fiscal expansion. And it is only half that of Japan.

Most importantly, the US has its own currency and a non-insane central bank. With a dual mandate, including both inflation and employment.

The fact that the US is the reserve currency I mainly see as a weakness: it pushes up the currency, hindering an export-led recovery. But it sure does maintain the purchasing power of the 1%.

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

by Starvid on Wed Jan 18th, 2012 at 07:39:22 PM EST
[ Parent ]
by rootless2 on Wed Jan 18th, 2012 at 05:14:44 PM EST
[ Parent ]
only half US oil consumption is met with imports and much of the money spent for imported oil goes to US oil companies or is recycled back into the US in investments. So US oil consumption is far less of a drain on currency than e.g. for Portugal.
by rootless2 on Wed Jan 18th, 2012 at 05:25:05 PM EST
[ Parent ]
going on here.

  1. The most oil-exposed economies (Greece, Portugal, Spain...) have been hard hit in both trade balance and competitivity since 2008 by increased oil prices. This is part of what pushed them into crisis, and is a major part of what will keep them there. Getting free of oil dependence is capital intensive.

  2. Economic downturn, unemployment, and wage deflation will decrease oil use. Greater energy efficiency will also do this. Even at constant or moderately increasing economic output, the EU's oil consumption declines.


It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Wed Jan 18th, 2012 at 12:05:23 PM EST
The most oil-exposed economies (Greece, Portugal, Spain...) have been hard hit in both trade balance and competitivity since 2008 by increased oil prices. This is part of what pushed them into crisis, and is a major part of what will keep them there. Getting free of oil dependence is capital intensive.

Does it still need to be pointed out that Spain and Ireland at least entered the crisis with public debt ratios well below the 60% Maastricht limit, and that the reason we're in Austerity mode is because deficits shot up to double digit in all of Europe in 2009 in response to the depth of the recession that started in 2008?

The only link to oil here is not the deficits accumulated between 2005 and 2008 as a result of rising oil prices, but the possible role of the 2008 oil price maximum in precipitating the recession. The latter is, however, confounded by the fact that Lehman and Iceland went bankrupt in 2008, too, and could have caused the recession by themselves, as well as the fact that the US subprime bubble had popped by 2007 and the banking crisis was already in evidence at the end of 2007.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:10:23 PM EST
[ Parent ]
Seems to me, not that I am an expert, is the kind of capital expenditure required to move Greece - and Spain and Portugal - away from being a oil-exposed economy is exactly the micro-economic stimulus needed to help kick-start the economy.

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Wed Jan 18th, 2012 at 02:42:05 PM EST
[ Parent ]
Yes, and the European Investment Bank cannot fund such projects because 50% of the funding has to come form the member state concerned and they are not allowed by the Brussels Consensus to run a deficit.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 05:13:47 PM EST
[ Parent ]
unless they are Germany, apparently.
by rootless2 on Wed Jan 18th, 2012 at 10:45:22 PM EST
[ Parent ]
Germany is not allowed to run a deficit by its 2009 constitutional amendment, which leads to amusing nonsense.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 04:24:10 AM EST
[ Parent ]
Oh please, I thought we had debunked that myth.

And literally 0.35% of gdp is not zero.  

by IM on Thu Jan 19th, 2012 at 05:10:56 AM EST
[ Parent ]
The fact that the German government is now keeping track of its cumulative underspending of the debt ceiling (which is amusing nonsense) is not a myth.

0.35% of GDP is statistically indistinguishable from zero.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 05:17:02 AM EST
[ Parent ]
It's surely very much smaller than the error in measurement of GDP, for a start.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2012 at 05:34:05 AM EST
[ Parent ]
And in any case it's 0.35% of a pile of shite. GDP is nonsense, remember? The whole debate, based on GDP as it is, is built on wet sloppy sand.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2012 at 06:27:53 AM EST
[ Parent ]
That is neither herenor there.

Actually that just gives the government more flexibility.

by IM on Thu Jan 19th, 2012 at 06:42:02 AM EST
[ Parent ]
I think it's important to remember that we're debating angels dancing on pins here.
by Colman (colman at eurotrib.com) on Thu Jan 19th, 2012 at 06:55:30 AM EST
[ Parent ]

The whole debate, based on GDP as it is, is built on wet sloppy sand.

The Weserburg Museum of Modern Art in Bremen. Text reads:
Having Been Built On Sand With Another Base (Basis) In Fact; Auf San Gebaut Tatsächlich (Aus) Auf Anderem Grund

This is partly because the Museum, as is much of Bremen, is built on sand, just like economic analysis.

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

by Crazy Horse on Thu Jan 19th, 2012 at 07:03:54 AM EST
[ Parent ]
Say CH, earlier on you mentioned that you might be willing to show off your wet sloppy sand there in Bremen this October. Would it be too early to try to set a date for that mini-meetup now? That way, those of us who will having to be miss Paris will still have something to look forward to.
by sgr2 on Sun Jan 22nd, 2012 at 12:28:15 PM EST
[ Parent ]
The fact that the German government is now keeping track of its cumulative underspending of the debt ceiling (which is amusing nonsense) is not a myth.

But that it is in any way real accumulating of reserves is a myth. The rest doen't matters.

0.35% of GDP is statistically indistinguishable from zero.

A structural deficit of 0.35% is not zero.

by IM on Thu Jan 19th, 2012 at 06:40:38 AM EST
[ Parent ]
But that it is in any way real accumulating of reserves is a myth. The rest doen't matters.

You yourself explained:

Nowhere. we are talking about a balance sheet, an accounting fiction. There will be just another paragraph in the budget, tasting that in this year or the last the legal limit of 0,35% structural deficit was x, but the real deficit way y. If y is higher, a negative number will be added, if lower a positive number is added.

As soon as the accumulated sum on the "account" reaches 1,5%, it has to be lowered.

Therefore the "accumulated amount" has real budget consequences in recession years and the amount of the buffer is even capped.

It's not real money but it has real intertemporal effects on government spending.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 06:53:58 AM EST
[ Parent ]
>It's not real money but it has real intertemporal effects on government spending.>

It could have. The interpretation does matter (what is q structural deficit, legally speaking?) and you could argue that it just codifies existing policy preferences in Germany anyway.

And we started with the claim of real reserves.

by IM on Thu Jan 19th, 2012 at 07:24:49 AM EST
[ Parent ]
Codifies a certain partisan policy preference. I don't see Die Linke being in favour of arbitrarily limiting the government's ability to alleviate unemployment.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jan 21st, 2012 at 05:40:34 PM EST
[ Parent ]
Seems to me the reasonable thing to do to resolve this entire mess is to cap PIIGS lending rates via the ECB, continue harsh austerity, but compensating it with equally large credit/equity flows from the ECB/EIB/EBRD/ESFS/ESM into infrastrucure and energy efficiency investments aimed squarely at reducing the oil dependency of the PIIGS.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jan 18th, 2012 at 07:47:38 PM EST
[ Parent ]
Why continue austerity? There is no economic argument for it. Zip, zero, zilch, nada. Wages in those countries are not high (rather, German wages have failed to keep up with productivity, which is the unsustainable policy and so the one that needs to change), so wages do not need to come down. Retirement is not early compared to the EU average, so retirement age does not need to go up. Labour force participation is not particularly low compared to the EU average, so labour supply does not need to be increased. The public sector is not large compared to other EU countries, so the public sector does not need to shrink.

In short, all the excuses advanced for austerity are horseshit, as anyone who is willing to spend ten seconds looking at the relevant Eurostat tables can reaffirm for himself.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 19th, 2012 at 03:55:46 AM EST
[ Parent ]
Can you make this a diary with the relevant Eurostat data?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 04:27:35 AM EST
[ Parent ]
Because austerity is virtuous.

Sheesh, don't you know anything?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 04:28:26 AM EST
[ Parent ]
And that what we are seeing IS an oil crisis - peak oil translates into higher prices, which eventually causes lower demand (in those countries which are price sensitive, i.e. mostly the Western world, as a large portion of the emerging economies subside fuels) - and this is accompanied by widespread pain, as people have to do with less, or with more expensive oil, and need to reduce their consumption of everything else as a consequence.

Given that oil prices peaked in 2008, can it be argued that demand in Europe is dropping now because of oil prices?

Then again, the 2008 oil price peak is in dollars. Apparently the price of oil in Euros is again at historical maximums. The Euro has indeed depreciated maybe 30% with respect to the US Dollar since mid-2008.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Wed Jan 18th, 2012 at 12:14:19 PM EST
the oil price was temporarily higher in 2008, but it was much higher, on average this year (and I think, in 2010 as well compared to the average of 2008) - in USD.

And indeed, the euro was stronger in 2008 than in 2010 or 2011.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Wed Jan 18th, 2012 at 12:26:40 PM EST
[ Parent ]
Any idea of the percentage of Greece's oil imports are forward contracted and for how long?

Skepticism is the first step on the road to truth. -- Denis Diderot
by ATinNM on Wed Jan 18th, 2012 at 02:43:22 PM EST
[ Parent ]
I have seen sometimes on the net depictions of the american trade deficit where the part caused by energy imports was separated. Yglesias liked to argue that a lot of the american trade deficit is oil imports.

Perhaps we could use some states as proxy, that is the trade deficit of Spain or Ireland with Saudi-Arabia or Libya. Or just imports from Saudi-Arabia.

Russia or Norway are perhaps more important for european oil imports, but do also have  export more diverse exports.

by IM on Wed Jan 18th, 2012 at 01:53:36 PM EST
and failed. The irish re very detailed and I learned they paid a lot more for oil in 2011 compared to 2010. And that Ireland is importing most of its oil from the UK.

But on the other hand, these very detailed statistics start only in January 2011.

by IM on Wed Jan 18th, 2012 at 02:24:02 PM EST
[ Parent ]
With the rise of shale gas, the US petroleum import deficit might be eliminated, with LNG exports countering oil imports. Still, the entire shale gas adventure might be a bubble which will keep swelling as long as Wall Street is willing to pump cash into leasing acreage and drilling not-very-profitable shale gas wells.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Jan 18th, 2012 at 07:51:32 PM EST
[ Parent ]
with shale gas, the best the US can hope for is to reduce its need for imports from Canada. I have not seen a single projection that saw the US become a net exporter of natural gas (and that was using fairly lowish assumptions about demand growth, whereas the industry proponents are saying that gas could replace other energy sources in plenty of ways - that demand is never accounted for)

As to oil, let's not be ridiculous, the USA use 19-29mb/d and produce 8mb/d or so. There's no way they can become anything near an exporter.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2012 at 09:20:48 AM EST
[ Parent ]
Yes, it's normally presented as "Overall" and "Ex-Oil".  I think -- and I haven't looked for several months, for the record -- China makes up about half (give or take a bit) of the overall deficit.  Most of the remainder is oil.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Thu Jan 19th, 2012 at 09:50:35 AM EST
[ Parent ]
I figured if there is an oil shock effect, it should be visible in the total current account/GDP of the affected countries, in order of oil dependence.



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 Wed Jan 18th, 2012 at 03:19:01 PM EST
As the waterstamps read, they are all from TradingEconomics.com - Economic Data for 196 Countries

I figure that if oil has a big enough effect on CA it should appear in the total CA, otherwise it does not have such an effect. I will leave the analysis of the graphs to those that has a better grasp of how oil prices has developed.

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 Wed Jan 18th, 2012 at 03:24:25 PM EST
[ Parent ]
sort of off topic, but if you tax oil really heavily per liter (or better per CO2), an economy is less vulnerable to oil price surges as the relative price increase is less. That is what happend in the 70s in Germany and is also happening now. Americans can see their gas price at the gas station go up 50% and then down again quite quickly. That would not happen if a large part of the current price would be comprised of tax and only a small percentage actual oil price. Has the nice side effect of lowering consumption as well.

It would be really interesting to see how much major economies spend to get their energy from "outside"

by crankykarsten (cranky (where?) gmx dot organisation) on Wed Jan 18th, 2012 at 03:34:12 PM EST
amazing graph
by rootless2 on Wed Jan 18th, 2012 at 05:09:09 PM EST

This crude ol eurozone crisis

Looking back 10 years, we find that Germany's cumulative current account surplus adds up to roughly $1,900bn, while the combined cumulative deficit of Italy, France, Spain, Greece and Portugal equates to $1,500bn (Chart 6). Most interestingly, our analysis suggests that oil has moved from 67% of the combined deficit of these countries in the 2000-2010 period to being close to 80%, suggesting that Germany's export surplus is effectively financing the rest of the Eurozone's oil deficit




Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2012 at 03:30:35 AM EST
Actually, the first of those graphs argues against your hypothesis: The oil deficit was pre-existing. Sure, it went up with the price spike, but the interesting part of that graph is that the non-oil CA position goes from being mildly positive before the Euro to uniformly negative after joining the Euro.

Which leads us to the problem I have with the narrative you're presenting here. I am a big fan of Ockham's Razor, and Ockham's Razor tells me that oil is superfluous to the description of the crisis: The crisis is caused by current accounts imbalances, and the level of CA imbalances ex oil are perfectly sufficient to create the crisis we see today, given the German policy response.

In other words, fixing oil dependence will not solve the problem if we do not fix the German policy problem. And fixing German policy will solve the problem regardless of whether we fix the oil problem.

You are essentially arguing that This Time Is Different - that the collapse of this particular exchange rate peg is different from all the other failures of exchange rate pegs in the history of exchange rate pegs. And that just ain't true. The Euro was built to fail, oil or no oil. Talking about oil as if it had anything to do with why the Euro failed leaves the reader with the erroneous impression that the Euro would not have failed if oil had been plentiful. And that is not the message you want to push. Because it's not true, and it's not true in ways that lend support to stupid policy conclusions.

- Jake

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

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 19th, 2012 at 04:18:42 AM EST
[ Parent ]

... and the selected countries' trade balance went underwater when oil stopped being absurdly cheap, and became only moderately cheap.

Poor old Occam. My guess is that if oil had stayed cheap, the current crisis would have been delayed a couple of years.

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

by eurogreen on Thu Jan 19th, 2012 at 05:26:22 AM EST
[ Parent ]
The current crisis was caused by the 2009 decision to apply massive Austerity EU-wide in response to double-digit deficits in the middel of a recession.

Whether the recession was caused by oil or not is a different story.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker

by Migeru (migeru at eurotrib dot com) on Thu Jan 19th, 2012 at 05:40:50 AM EST
[ Parent ]
Migeru:
The current crisis was caused by the 2009 decision to apply massive Austerity EU-wide in response to double-digit deficits in the middel of a recession.

Whether the recession was caused by oil or not is a different story.

I would add that for oil to be the single or at least main cause of the recession it also needs to be the cause of the breaking financial bubble. Which I guess can be argued, but then bubbles tend to burst anyway.

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

by A swedish kind of death on Thu Jan 19th, 2012 at 06:15:18 AM EST
[ Parent ]
Mixing a trade statistic on oil with a statistic on current account is sloppy.

Just adding the CA deficits of several countries up and then adding up th years is nonsense. A combined cumulative deficit is more obscuring then illuminating.
I suspect France was just thrown in to get a big number.

We need the general trade balance and the oil trade balance for each separate country over at least some years back.    

by IM on Thu Jan 19th, 2012 at 06:29:21 AM EST
[ Parent ]
I tend to agree with that - the French numbers probably distort that graph beyond usefulness. But that points that Germany underwent austerity for 10 years, and France did not (or not as violently) - thus the debate about France not being virtuous now.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 19th, 2012 at 09:24:30 AM EST
[ Parent ]
The latest post of The Archdruid Report makes a point very close to the subject of this diary. Here I try to distill the relevant line of reasoning, with several sharp observations along the way:

[....] the torrent of material goodies that comes surging through the channels of the consumer economy is the payoff for cooperating with the existing order of things; so long as you want the things you're supposed to want, you can have them in fantastic abundance [....]

The entire operation of the modern magician state, after all, depends utterly on uninterrupted access to gargantuan supplies of cheap, highly concentrated energy. [.... The] largest fraction of [the energy] goes into produce that torrent of goods and services mentioned above, the collective payoff that keeps those target audiences docile. Now factor in the depletion of concentrated energy sources--above all petroleum, which provides 40% of the world energy supply and close to 100% of energy used in transportation [....]

[.... When people in the middle] criticize the system, their criticisms by and large focus on the barriers that keep them from having as large a share as the rich--not the ones that keep them from having as small a share as the poor, or to phrase things a little differently, that keep their privileged share from being distributed more fairly across the population as a whole.

[....] The real force behind [the 1960s protest] movement was the simple fact that the American middle classes were no longer willing to send their sons off to Vietnam, and were willing to use their not inconsiderable political clout to make that change of heart heard. It was indeed heard [....] Attempts to launch American antiwar movements since that time have foundered on the unmentionable but real fact that middle class Americans by and large have no trouble at all reconciling themselves to war, as long as someone else's kids are doing the fighting.

It's in this light that last year's spasmodic outbursts of protest from within the middle classes need to be understood. Since the peak of conventional petroleum production in 2005, economies around the world [....] have been stuck in a worsening spiral of dysfunction, and the middle classes have abruptly found themselves struggling to maintain their lifestyles. Their annoyance at that fact is easy to understand. From their point of view, after all, they've kept up their side of the bargain; they've bought what they were supposed to buy, borrowed when they were supposed to borrow, lined up obediently behind one or another of the approved political parties, and steered clear of all the hard questions [....]

The payoff is nowhere to be seen, in turn, as a result of processes sketched out more than thirty years ago in a forgotten classic of political economy, Paul Blumberg's 1980 study Inequality in an Age of Decline. Analyzing the downward spiral of the American economy in the 1970s [....] Blumberg showed that while a rising tide lifts all boats, a falling tide behaves in a much more selective fashion, as those groups with more political influence and economic clout are able to hang onto a disproportionate share of a shrinking pie at the expense of those with less.

The decades since Blumberg's book appeared have only sharpened his argument. One after another, nearly every economic sector has undergone drastic reorganizations that slashed jobs, pay, and benefits for everyone below the middle class, and a growing number of people in the lower end of the middle class itself. Now that everyone below them has been thrown under the bus, the middle classes are discovering that it's their turn next, as the classes above them scramble to maintain their own access to the payoffs of privilege [....]

[....] Now that the supply is running short, those lifestyles are going away, and since the decline in petroleum production is gradual rather than sudden, the way it works out is that some people are losing access to them sooner than others.

That's how borrowing what you are supposed to borrow correlates with the energy access.

by das monde on Thu Jan 19th, 2012 at 04:04:05 AM EST


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