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This, my friends, is why we can't have nice things

by Migeru Sat Nov 29th, 2014 at 12:16:24 PM EST

Earlier today in the European Parliament, Jean Claude-Juncker introduced his much-touted €300bn investment plan with these words:

I often hear that we need 'fresh' money. What I believe we really need is a fresh start and fresh investment. Others say we need more debt. We do not. National budgets are already stretched. The EU operates on balanced budgets and the abundant liquidity can allow Europe to grow without creating new debt. We will not betray our children and grandchildren and write more checks that they will ultimately have to pay off. We will not betray the rules of the Stability and Growth Pact that we have agreed jointly - this is a matter of credibility.

cross-posted on The Court Astrologer


Keynes rolls in his grave:

Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the "financial" burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the conduct of the State the maxims which are best calculated to "enrich" an individual by enabling him to pile up claims to enjoyment which he does not intend to exercise at any definite time.
And this, my friends, is why Europe is FUBAR.

Display:
Excuses for the Eurozone's deathly policy to date:

European Tribune - This, my friends, is why we can't have nice things

the abundant liquidity can allow Europe to grow

If that were true, why the need for this €300bn programme?

Of course, what's left of the "abundant liquidity" is on deposit at the ECB, because the banks are in no state to lend it out into the real economy, and are hunkering down while waiting for the next round of the financial crisis. The damage (self)-inflicted on the financial sector by the pre-2008 bubble has not been recognized or resolved, and the Great Financial Crisis is not over.

European Commission - PRESS RELEASES - Press release - Investing in Europe: speech by President Juncker in the European Parliament plenary session on the € 315 billion Investment Plan

We need structural reforms to modernise and preserve our social market economy. We need fiscal responsibility to restore confidence and the sustainability of our public finances. And to complete this virtuous omne trium perfectum (rule of three) we now need to boost investment.

Now? That was needed years ago. And this programme is too little, too late, and too private.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 27th, 2014 at 02:10:55 AM EST
European Commission - PRESS RELEASES - Press release - Investing in Europe: speech by President Juncker in the European Parliament plenary session on the € 315 billion Investment Plan
I know some of you are worried about the impact on the research and infrastructure allocations. You fear that redirecting money from the Horizon 2020 and Connecting Europe budget lines will mean that money is lost. But this is not the case. Every euro from these programmes paid into the Fund creates €15 euros for those very same research and infrastructure projects. We are not just moving money around, we are maximising its input.

Note to those who are "worried": IF Juncker's x15-leverage plan works, those research and infrastructure projects will be 93.34% funded by the private sector.

This fits Germany's current attitude to investment: oh dear yes, Germany is short on investment, but it has to be private.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 27th, 2014 at 02:13:29 AM EST
European Commission - PRESS RELEASES - Press release - Investing in Europe: speech by President Juncker in the European Parliament plenary session on the € 315 billion Investment Plan
It is not the job of politicians to choose projects. It will be done by the technicians who have the experience and know-how to do so.

No, it will be done by the private capital that puts up 14 out of 15 euros.

European Commission - PRESS RELEASES - Press release - Investing in Europe: speech by President Juncker in the European Parliament plenary session on the € 315 billion Investment Plan

Investing in people -this is what the social market economy is about.

Now we know: it's the social market economy.

by afew (afew(a in a circle)eurotrib_dot_com) on Thu Nov 27th, 2014 at 02:24:06 AM EST
afew:
it's the social market economy.

New lipstick, old pig.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 27th, 2014 at 09:46:04 PM EST
[ Parent ]
Nice example of Cognitive Closure:

The need for closure is the motivation to find an answer to an ambiguous situation. This motivation is enhanced by the perceived benefits of obtaining closure, such as the increased ability to predict the world and a stronger basis for action. This motivation is also enhanced by the perceived costs of lacking closure, such as missing deadlines. According to Kruglanski et al., need for closure exerts its effects via two general tendencies: the urgency tendency (the inclination to attain closure as quickly as possible) and the permanence tendency (the tendency to maintain it for as long as possible). Together, these tendencies may produce the inclinations to seize and then freeze on early judgmental cues, reducing the extent of information processing and hypothesis generation and introducing biases in thinking.

Claude-Juncker has The Truth© ... and all else follows.  


She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Nov 27th, 2014 at 11:54:12 AM EST
How depressing...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Nov 27th, 2014 at 12:24:48 PM EST
[ Parent ]
Keynes was right of course, but there is one teensy-weensy problem with his daring, visionary approach on economics.

Large public projects paid for with borrowed investment capital or fiat money have to be governed well to have the desired effect.

As recently seen in the mobbed-up, bribe-heavy scandal around the EXPO exhibition due to start in Milan in 9 months, it doesn't matter if the intention is noble (an exhibition that concentrates on world hunger) if the bids are greased with envelopes full of cash and the pols get to play favourites with backscratching construction firms hungry for millions of OPM.

So regulate them better, you'll say, but look how easily regulators are captured! We'll need regulators to check on regulators ad infinitum, offering more and more challenges for organised crime to capture.

How many layers of regulation will it take? Is that the solution, just making it more expensive to corrupt?

Something recently dawned on me regarding a connected issue: What if the reason so many projects in Italy financed by the EU remain blocked from beginning is that the pols know that if they say yes to the mafia they have to say no to the camorra?

To pick up a bribe from one may lead to stopping a bullet from the other(s).

While the longer they sit on the fence, the bribes offered get larger.

Lot of incentive to slow things to a halt, eh?

It would explain certain er, conundrums...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Thu Nov 27th, 2014 at 10:19:50 PM EST
You don't need large public projects and "the desired effect" is just to put people to work. So, modern advocates of employment guarantees always insist on state financing but local community definition and management of projects serving local community needs.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:57:17 AM EST
[ Parent ]
FDR's New Deal was a successful run of large public projects, wasn't it?

I am all for smaller, local-chosen and controlled projects. If done nation-wide, these can nibble at the unemployment problem and take significant chunks out of it.

But large projects such as retrofitting houses, solar rollout, broadband fibre rollout, national cultural/artistic patrimony management, better public transport and the like surely demand a less piecemeal approach?

Corruption remains a hellish problem whichever way is chosen.

Total transparency on all bidding programs could be transformational in this regard.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 06:42:26 AM EST
[ Parent ]
FDR's New Deal was a successful run of large public projects, wasn't it?
No, it wasn't. Or not exclusively: Works Progress Administration
The Works Progress Administration (renamed in 1939 as the Work Projects Administration; WPA) was the largest and most ambitious American New Deal agency, employing millions of unemployed people (mostly unskilled men) to carry out public works projects, including the construction of public buildings and roads. In a much smaller but more famous project, the Federal Project Number One, the WPA employed musicians, artists, writers, actors and directors in large arts, drama, media, and literacy projects.
But
Full employment, which was reached in 1942 and emerged as a long-term national goal around 1944, was not the WPA goal.
And already
The WPA was a national program that operated its own projects in cooperation with state and local governments, which provided 10-30% of the costs. Usually the local sponsor provided land and often trucks and supplies, with the WPA responsible for wages (and for the salaries of supervisors, who were not on relief). WPA sometimes took over state and local relief programs that had originated in the Reconstruction Finance Corporation (RFC) or Federal Emergency Relief Administration (FERA) programs.


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 09:11:27 AM EST
[ Parent ]
New Deal programs were insufficient in scope to really pull the nation to full employment, but they were hugely ameliorative and created public infrastructure that we are still using - the state parks in California, for one example, and a good number of the county court houses, public hospitals and school buildings in the USA. I have done work in more than one high school in LAUSD that was in part financed by the WPA.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 28th, 2014 at 10:15:12 AM EST
[ Parent ]
I thought it included the TVA and a huge dam.

Less labour to put up a slew of turbines strung across the great plains.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 08:01:28 PM EST
[ Parent ]
Both the TVA and the Rural Electric Commission were New Deal programs, but Hoover Dam was started under Hoover. But the Army Corp of Engineers has been overseeing US dam construction at least into the '60s.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 29th, 2014 at 01:36:54 AM EST
[ Parent ]
That being said, I'm pretty sure you'd run out of unemployed before you ran out of sensible large public projects.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue Dec 2nd, 2014 at 01:23:32 PM EST
[ Parent ]
Beppe Grillo's Blog

"According to Affaritaliani.it, Germany has prepared an emergency plan just in case the Eurozone collapses. What's covered in the plan? An exit strategy to go back to the Deutsche Mark:

"Emergency plan to go back to the Deutsche Mark". That's the title of the top secret document - whose existence is officially denied by everyone - and it's said to have landed on the desk of Angela Merkel, the German Chancellor. In Germany the debate about the euro, has always been going on in the background, even though the official line is to deny it completely. It is said that a few parliamentarians of the CSU, the Bavarian party allied to the Christian Democrats, have prepared a strategy document to deal with the eventuality of the implosion of the Euro-zone.

Marine Le Pen's possible victory in France and the referendum being promoted by the 5 Star MoVement, are symptoms of the fragility of the Euro-zone:

For the moment, no decision has been taken, but according to Affaritaliani.it, the Chancellor's office is preparing for what has been defined as an "emergency situation". It seems that the idea is to get the Bundesbank prepared so that it could swing into action with a two month time frame and swiftly print the old Deutsche Marks so they could be ready to take the place of the Euro if needed. In Berlin, the worry is that the long drawn out economic crisis in many EU countries could increase the pressure on national governments to stop respecting the rules of the single currency, as France has already partly done. And in this case, many German politicians are starting to think that it would be better to go back to the Deutsche Mark than to stay with the Euro without precise rules."



'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty
by melo (melometa4(at)gmail.com) on Thu Nov 27th, 2014 at 10:55:30 PM EST
"And in this case, many German politicians are starting to think that it would be better to go back to the Deutsche Mark than to stay with the Euro without precise rules."

Oh please, pretty please, do that!

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 02:32:47 AM EST
[ Parent ]
Were France and Italy together to inform Germany that neither have any intention of observing limits on deficits and debt demanded by the ECB might that provoke Germany into exiting - leaving the Euro and the ECB to be managed by the rump?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 28th, 2014 at 04:55:31 PM EST
[ Parent ]
If you look at the way the commission is handling the deficit procedures of Italy and France right now, they have done this. In a half-hearted half-measure de facto manner.

And so will this go on:  one half-measure after the other.

by IM on Fri Nov 28th, 2014 at 05:46:44 PM EST
[ Parent ]
I think after nearly 5 years of the Euro crisis it should be clear that hoping for any two countries to take a joint stand against the Euro is highy unrelistic.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:47:13 PM EST
[ Parent ]
The ugly parties in each country would have fits? All EMU members would rather suffocate in isolation? Or are they too captured by narratives that they think they are existing in another universe?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Nov 29th, 2014 at 01:41:57 AM EST
[ Parent ]
ARGeezer:
are they too captured by narratives that they think they are existing in another universe?

Yep,that's pretty much the gist of it.

by Bernard on Sun Nov 30th, 2014 at 04:26:46 AM EST
[ Parent ]
Bill Mitchell blog: The Italian left should hang their heads in shame (November 26, 2014)
The Lega Nord leader claimed that the result was an indication that they can "break out of their northern base" and "allows me to go across Italy, from north to south because I want to get to 51 percent of the electorate".

They are also strongly committed to environmental policies such as public green areas, national parks, recycling and opposes the big corporate food industry in favour of healthy alternatives.

But the League is also a nasty neo-fascist group fostering extremely conservative social policy stances - anti abortion, anti stem cell research, anti gay and same sex marriage, anti-immigration, and authoritarian rule of law positions. Their far right xenophobia amounts to racism.

They are also relative factionalised and there have been notable leadership spills and internal revolts.

Overall, not an attractive lot and one that the left should easily be able to pick off with some slick marketing and some strong framing of the alternative, with appealing language to support the frame.

But the left are pro-euro because the Lega Nord is anti-euro. Go figure. The left is scared of being confused with the Lega Nord in the electoral process. Go figure!

The left are so lacking in leadership and self-confidence that they do not think a fully articulated progressive social policy with an anti-euro stance could be differentiated from the filth that the Lega Nord push out.



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 06:00:17 AM EST
[ Parent ]
Would you recommend leaving the Euro? And: Would you vote for a party which recommends leaving the Euro?

These are not rhetorical questions. I am really wondering what your opinion is.

by rz on Fri Nov 28th, 2014 at 09:40:08 AM EST
[ Parent ]
I don't think it needs to be a straight yes or no necessarily.

I would definitely vote for a party stating that staying in the Euro is not going to be an at any cost objective - for instance, that is the Syriza position.

I would want my government (yes, I can dream - France is not going to do that anytime soon) to very clearly present that, if the Euro is to insist on sticking to something that arithmetically cannot work, then the decision will be to leave, and it will be taken soon enough.
But that we are quite willing to be part of a workable project if the appropriate changes are made.

It may seem unthinkable, but somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 09:55:28 AM EST
[ Parent ]
It may seem unthinkable, but somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

I think this is very much a mistake. Threats are always unpopular. The German government is also under substantial political pressure. The only way I can think of that Germany would agree to changing the rules for the Eurozone is if our own economy goes badly.

Otherwise I think threats will be counterproductive.

But there is an even more important problem with hinting that you will leave the Euro: Your Banks will be destabilized. In principle the only non-destructive way to leave the Euro, would to do it suddenly without telling anybody beforehand. This again, would be politically very unpopular basically everywhere.

by rz on Fri Nov 28th, 2014 at 10:24:05 AM EST
[ Parent ]
Making it clear that you will not seek to stay at all cost, and highlighting your needs, should be sufficient.
Then a private conversation with Angie to make it clear that you mean it.

France leaving (and the mere suggestion by Sarkozy that he might do it, although it is highly unlikely that he would have, was enough to lead to the one time Merkel showed more flexibility) would be such a catastrophe for the German economy that even your awful political class may well find the resolve to stop lying to its population for a minute and make the case for changing the rules.

Staying as it is is an impossibility, so pointing it out should hardly weaken the banks more than they would be in the long run anyway.
Although we would not hit the long run in any case: if no party makes the case that it is not an at all costs thing, then you'll have le Pen winning an election. At this stage your choice is a military coup, or an uncontrolled exit.

I am not saying it is easy, and that is an extra reason for not stating it as an absolute yes or no. But by saying yes, whatever, you have far worse consequences than by admitting that it is not so straightforward. We are many years behind the curve and if we don't bend Germany soon, a whole generation and then some will have been sacrificed, for no eventual gain as the ultimate point will be the same: ordoarithmetics do not work.


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

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 10:55:55 AM EST
[ Parent ]
"Making it clear that you will not seek to stay at all cost, and highlighting your needs, should be sufficient.
 Then a private conversation with Angie to make it clear that you mean it."

Isn't that  - in a so somewhat different context - the Cameron strategy?

Not really working.

by IM on Fri Nov 28th, 2014 at 02:04:25 PM EST
[ Parent ]
On the contrary, Cameron is grandstanding for all he's worth.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 02:29:37 PM EST
[ Parent ]
If we look at the UKIP results, not even that aspect is working.
by IM on Fri Nov 28th, 2014 at 02:50:27 PM EST
[ Parent ]
Indeed. And a UK departure would harm only the UK.

Whereas the breakup of the Eurozone would, first and foremost, harm Germany.

Another thing: Cameron complains about things that are actually rather trivial, no major economic consequences would ensue from their continuation. Whereas the Euro framework CANNOT continue, for the simple reason (among others) that there is no way for a sum of non-zero positive numbers to be zero.
So you can't simply reason countries into falling back in line. All you can do is blackmail them into aggravating the disaster and somewhat delaying the outcome. But status quo is not an option, it is at most an unstable transitory state.

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

by Cyrille (cyrillev domain yahoo.fr) on Fri Nov 28th, 2014 at 03:40:10 PM EST
[ Parent ]
We are at a point where being popular is hardly a reasonable aim.

The German government has to see that it is not possible to go on sticking blindly to an unworkable set of institutions and policies, or there will be major disruptions in Europe, in particular of the extreme-right government kind.

As Cyrille says, getting that point across is within the scope of firm diplomatic discourse, without the need for public histrionics.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 12:13:18 PM EST
[ Parent ]
 "getting that point across is within the scope of firm diplomatic discourse,"

that is magical thinking

by IM on Fri Nov 28th, 2014 at 02:13:23 PM EST
[ Parent ]
The only unrealistic thing about it is that we haven't got the statesmen we'd need to carry it out.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 02:34:39 PM EST
[ Parent ]
O, "leadership". You are not an Wapo columnist?
by IM on Fri Nov 28th, 2014 at 02:45:54 PM EST
[ Parent ]
Where am I am talking about "leadership"? I am talking about heads of state who are sufficiently clear-sighted, honest, and courageous to do what the situation calls for. Needless to say, we don't have them.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Nov 28th, 2014 at 03:38:39 PM EST
[ Parent ]
statesmen. leadership. resolve.
by IM on Fri Nov 28th, 2014 at 05:47:24 PM EST
[ Parent ]
They are all scared shitless of the markets, and to a certain extent they are right since the State has been hollowed out by 30+ years of Reagan-Thatcher and 15+ years of 3rd way.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:49:59 PM EST
[ Parent ]
It is a matter of cultural hegemony.

Here in Germany, two thirds of the voters of Left (party) demand a balanced budget.

Any yes, you will the same mind set in every western country.

by IM on Fri Nov 28th, 2014 at 05:54:20 PM EST
[ Parent ]


A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:57:24 PM EST
[ Parent ]
And you can find the 66% among supporters of all parties.
by IM on Fri Nov 28th, 2014 at 06:10:17 PM EST
[ Parent ]
And if we seek a bit we can find a press release of e. g. Renzi congratulating and promising Italy will achieve the same next tuesday.
by IM on Fri Nov 28th, 2014 at 06:12:37 PM EST
[ Parent ]
Does this mean that a full third doesn't buy their bullshit any more? Given that the Nulldefizit is unassailable elite consensus that doesn't sound so bad.
by generic on Fri Nov 28th, 2014 at 07:22:26 PM EST
[ Parent ]
Indeed.
by afew (afew(a in a circle)eurotrib_dot_com) on Sat Nov 29th, 2014 at 05:48:51 AM EST
[ Parent ]
We're all supposed to be elated that the Bundestag approved a budget with zero new debt issues in 2015.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 05:56:06 PM EST
[ Parent ]
Cyrille:
somehow I guess Germany would think twice before insisting on the path of doom should a country like France or Italy make a credible exit threat.

Eggzackly! It calls their bluff, basically, and would force them to reveal why they really want the status quo to continue, as the journalistic pressure steps up.

Been believing -and saying- this for years here.

Greece had zero heft. Italy needs to do it soon, or the state of the nation will be so parlous that it will be an even bigger mess, whether in or out of the Euro.

It's either bleed to death or make one last effort before all strength to do so is gone...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 08:15:13 PM EST
[ Parent ]
What Cyrille said.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Nov 28th, 2014 at 11:09:08 AM EST
[ Parent ]
I would say yes and yes. Or well, for France the threath of leaving may be enough. But otherwise, take the temporary crisis rather then suffer under the Troika.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Fri Nov 28th, 2014 at 04:21:35 PM EST
[ Parent ]
I would say yes and yes, also. In theory.

If a small country (like mine) decides to live the Euro, then there will be a massive assault on that country to prove it was a "wrong" decision. Being dependent on 80% of imports of what you eat and also dependent on non-electric energy would make it easy to bring on a intended catastrophe.

And yes, if a small country like Greece decides to exit, I believe that the EU powers will make sure to make of it an example.

For this thing to be sorted it has to be Italy (where my hopes are) or even Spain.

I completely assume that I would like Marine to win in France. She is the only one with balls to face the situation. Send a snake to a snake-pit kind of argument.

by cagatacos on Fri Nov 28th, 2014 at 04:45:16 PM EST
[ Parent ]
cagatacos:
it has to be Italy (where my hopes are)

Yup, Italy is the fulcrum point. I agree, Spain would do as well too, but I think the Italian state is closer to tipping point though I don't know for sure.

I think the crunch will come in February when President Napolitano will step down and holy hell will break loose around the choice of the next president.

Plus the 5* movement is reformulating, as Beppe says he's tired and has delegated power to younger, cooler blood. Expect a less erratic strategy from them soon as the attention shifts to a set of highly capable new front men (and woman), completely un-prone to the verbal kamikaze excesses of its volatile founder. The cebtre-right and far right are still floundering in the wilderness notwithstanding Salvini's skills, no-one else has any cred, though Berlu is still flapping his gums.

Renzi's turd way troika pandering and fiscal sleight of hand will get old really fast as the Italians cotton on. It already is...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Fri Nov 28th, 2014 at 08:29:36 PM EST
[ Parent ]
I see two types of answers to my question.

a)  Cyrille,  Migeru,  afew, (maybe melo):
We need a credible threat to leave the Euro, to change the European institutional setup. The exact nature of the changes you want has not been spelled out, but from our discussion here it is quite clear that what would be needed is, i) changes to the 'Stability and Growth Pact', ii) The possibility for the ECB to directly finance gouvernments. iii) maybe a higher inflation target.

b)  A swedish kind of death,  cagatacos:
We should leave the Euro right now.

I want to lay out here why I think that position a) is wrong and b) is correct. With the caveat that b) makes most sense for Portugal, Spain and Greece.

Why is a) wrong?

The threat is not credible:
As expressed by afew, melo and Cyrille, I guess the idea here is that if countries where to leave the Euro, their new currency would devalue leading to less demand for German good and in turn to a negative economic impact for Germany.I think there are several reasons why this will not be take seriously in Germany:
I)German economists are crazy and the economists advising our government are the worst of the bunch.
The understanding of the economy in Germany is deeply ideological: 'if you work hard things will be fine', 'a lower value for the currency is only needed for lazy southerners' and so on.
II) Even looking at it objectively it is not clear to me if German would be worse of if other countries would leave the Euro. All other countries have to import at lot of good, no matter what. So the amount of devaluation possible is limited. At the same time, the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on. this would create a rebalancing which is urgently necessary.
III) In the special case of France I am not even sure that the new currency would devalue. The French economic weakness is a myth. I am not saying that everything is fine in France, but still the economy is quite strong. Furthermore, in contrast to Germany France has not destroyed its infrastructure in an obsession with its deficit and it has a growing population. These two factors lead to the conclusion that its growth potential is much better then the growth potential of e.g. Germany. If now on top of this France would have its own currency and could run a sane monetary policy this would probably create solid growth (I will also come back to this in b)) and therefore an appreciation of  the currency.
IV) If you simply threaten to leave the Euro your financial system will be destabilized. As soon as you start to talk about leaving the Euro you basically have to shut down all banks, or you will have a bank run. Even if you agree with I.III), then it would still make sense to first take your Euros out of France, wait till the new currency drops a little and then go back in. For Spain and Portugal, anybody how lets his Euros be exchanged to the new currency will have substantial losses. So either you do it directly and quickly, or your banks will collapse and you will have to beg the IMF for Money.

Lets go to b):

We should not underestimate the challenges in leaving the Euro. I also have to say that legally any country leaving the Euro would enter unknown territory. If some investment fond would loose money because your country leaves the Euro, could it sue? Most probably. And, while in the long run leaving the Euro could be hugely beneficial, in the short run it could lead to real loss of purchasing power for imported goods, which are a lot of goods. A debt default is also pretty much unavoidable, which also comes with real costs down the line.

That said: 25% unemployment is unacceptable. I do not see how this can continue! This is an obvious reason why Spain, Portugal and Greece should leave the Euro. Similar to Argentina around 2000, the benefits of a different monetary policy would most probably outweigh all costs.

Now for France the Situation might be different. It could probably leave the Euro, and some of its creditors might even agree to denominate the debt in the new currency. Or maybe not, but even then France will not need to default on its debt. I am quite confident that growth would be sufficient. Again, it is not clear to me that leaving the Euro is really a good idea for France at the moment, but it still beats the 'whining about leaving the Euro' option.

by rz on Sat Nov 29th, 2014 at 06:59:20 AM EST
[ Parent ]
Checking tradingeconomics.com Portugal, Spain, Italy and Greece now all has small surpluses. (France still has a deficit, though it has decreased.) So now should be a good time to leave, as many euros goes in as comes out which decreases the risk of runs and shortages.

This is odd, Germany still has its huge surplus (7.5% in 2014). The eurozone itself shows a distinct surplus for the first time. Checking the numbers:

Euro Area Current Account | 1997-2014 | Data | Chart | Calendar | Forecast

Euro Area recorded a Current Account surplus of 31 EUR Billion in September of 2014.

Germany Current Account | 1956-2014 | Data | Chart | Calendar | Forecast

Germany recorded a Current Account surplus of 22300 EUR Million in September of 2014.

So Germany's surplus was about 2/3 of the Eurozones surplus. But who is allowing an undervalued euro? China?

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sat Nov 29th, 2014 at 02:49:54 PM EST
[ Parent ]
But who is allowing an undervalued euro? China?
This is what I could not anticipate back in 2012 when I wrote about this: that the rest of the world would tolerate a sustained Eurozone current account surplus. But it has.

Now, isn't it interesting that the trade surplus indicates that the Euro is undervalued when everyone outside Germany was screaming bloody murder about the Euro being overvalued?

This is all leading me to question even more any "hydraulic" (to borrow a term from BruceMcF) reasoning about exchange rates, trade balances and the like. The dynamics are more complicated than that.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2014 at 08:22:27 AM EST
[ Parent ]
These are very interesting points. Could you please put these into a diary?
by Bernard on Sun Nov 30th, 2014 at 04:29:16 AM EST
[ Parent ]
I made a diary out of it.

 Leaving the Euro

by rz on Mon Dec 1st, 2014 at 03:18:42 AM EST
[ Parent ]
The exact nature of the changes you want has not been spelled out
Unless and until Article 123 of the Treaty on the Functioning of the European Union (Article 104 of Maastricht Treaty) is repealed, all the rest is cosmetic. Of course, Germany will never accept that.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Sun Nov 30th, 2014 at 08:09:15 AM EST
[ Parent ]
A few comments:

rz:

German economists are crazy and the economists advising our government are the worst of the bunch.

No objection from this quarter :)
As you've noted elsewhere, some Germans have exposed it as such (but if it's written in an English paper, even the FT, does it really count?).

rz:

The French economic weakness is a myth.

No objection either, but would the hypothetical new French currency not devalue against the German one? I doubt the respective economic strengths (and the more dynamic French demography) would be enough to prevent an appreciation of the eventual new DM, if only for Deutschmark fetishism in a lot of financial circles. After all, if policies were mostly driven by facts, we would be in a very different situation, wouldn't we? Let's not forget that markets can remain irrational longer than we can remain solvent...

rz:

the real income of Germans would rise. they could go cheaper on Holidays, they could by cheaper goods from the rest of Europe and so on.

As good as it would be for German people, especially those with the lowest incomes, an over-appreciated currency would be a catastrophe for a German economy entirely oriented towards exports: a lot of companies would be hurt, not necessarily the big conglomerates who already have facilities outside of Germany, but the Mittelstand certainly. "Real income" with respect to what? Imported goods? Precisely what an export minded leadership wants to limit at all costs...

Lastly, I don't think the "credible threat to leave the Euro" is the only option for other EZ countries: never mind the fact that, barring a Le Pen elected French president, it is totally unlikely to happen, what with the current EU leaders enthralled with the austerian fairy tale. As you rightly pointed out, threats do not work well, especially with a German leadership (and a German population to a large extent) living in the parallel Swabian housewife universe. Grandstanding never works in the EU, as a British PM is finding out.

Another option is to quietly refuse to apply the full austerity straitjacket. There will be of course a lot of furor, and possibly scathing editorials from German EU commissioners (oh, wait...), but, in the finest EU tradition, no frontal crisis: just long winded horse trading negotiations ending up into some "new consensus", the details of which being difficult to predict from here.

Lastly, there's the - not entirely unthinkable - possibility that the first country to pull the metaphorical trigger won't be Greece or Portugal or Italy, or even France: Germany might well beat them all to the punch. Especially if the EU commission fails to strictly enforce full-metal austerity from Lisbon to Tallin and the cries of currency debasement and Weimar inflation upon us grow increasingly louder in Germany. This would actually provide a perfect vindication to the "lazy Southerners who cannot be trusted" theme

To quote Migeru:

Migeru:

I'm pinning my hopes on AfD.

The "summer series" 'End of the line for the Euro', a political fiction published by Le Monde over the summer of 2011, might even end up to be true after all :-)

by Bernard on Sun Nov 30th, 2014 at 01:12:34 PM EST
[ Parent ]
Another Austrian-School libertardian who has no clue how government budgets and sovereign currencies work.  In spite of everyone's best efforts, they haven't all been relegated to the US.  Perhaps Europe's efforts should have been focused on crating the Mises and Hayek clones up and shipping them to Russia.  By now they would either have destroyed the Empire of the Bear or been put on one of those beautiful, great rockets the Russians make and shot into the Sun.
by rifek on Sun Nov 30th, 2014 at 10:46:09 PM EST
Another Austrian-School libertardian
Who, Juncker? You're giving him too much credit. He's just a Christian-democrat lawyer.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Mon Dec 1st, 2014 at 04:53:43 AM EST
[ Parent ]
Just commenting on the type of brain-washing he's displaying.  Since he's CD, his economics were probably filtered through Jesuits, and being a lawyer, he has even fewer math skills than an economist, but he's definitely preaching from the Gospel According to Hayek.
by rifek on Tue Dec 2nd, 2014 at 12:13:51 AM EST
[ Parent ]


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