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The EU Stupid Expands

by Frank Schnittger Thu Sep 12th, 2013 at 01:10:59 PM EST

Paul Krugman has again been making some apposite comments on the EU economic crisis. First he slams Olli Rehn [European Commissioner for Economic and Monetary Affairs and the Euro] for being an ideological neo-liberal contemptuous of French democracy and with no real interest in furthering economic recovery in the EU:

The Austerian Mask Slips - NYTimes.com

Simon Wren-Lewis looks at France, and finds that it is engaging in a lot of fiscal austerity -- far more than makes sense given the macroeconomic situation. He notes, however, that France has eliminated its structural primary deficit mainly by raising taxes rather than by cutting spending.

And Olli Rehn -- who should be praising the French for their fiscal responsibility, their willingness to defy textbook macroeconomics in favor of the austerity gospel -- is furious, declaring that fiscal restraint must come through spending cuts.

As Wren-Lewis notes, Rehn is very clearly overstepping his bounds here: France is a sovereign nation, with a duly elected government -- and is not, by the way, seeking any kind of special aid from the Commission. So he has no business whatsoever telling the French how big their government should be.

But the larger point here, surely, is that Rehn has let the mask slip. It's not about fiscal responsibility; it never was. It was always about using hyperbole about the dangers of debt to dismantle the welfare state. How dare the French take the alleged worries about the deficit literally, while declining to remake their society along neoliberal lines?

There was a time when France was proud enough to stop such idiotic meddling in its affairs: Is there nothing that Olli Rehn can do or say that might get him sacked?

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A Sociological Experiment

by Frank Schnittger Tue Aug 20th, 2013 at 07:38:09 AM EST

Peoples sense of humour can vary enormously. What is funny to me may not appeal to you at all. I give you, below, the top ten one-liner jokes at this years Edinburgh Fringe Festival. Apparently the Chinese Wispa joke got almost 25% of the total votes for first place, but I find it only mildly funny. Please vote for one of the top ten below and let's see how the distribution of ET humour works out...

Have you heard the one about the funniest joke in Edinburgh?

Last year's funniest joke was from Stewart Francis, who said: "You know who really gives kids a bad name? Posh and Becks."

In 2011, the best joke went to Nick Helm for his joke: "I needed a password eight characters long so I picked Snow White and the Seven Dwarves."

The top ten jokes of the festival are:

1. Rob Auton - "I heard a rumour that Cadbury is bringing out an oriental chocolate bar. Could be a Chinese Wispa."

2. Alex Horne - "I used to work in a shoe-recycling shop. It was sole-destroying."

3. Alfie Moore - "I'm in a same-sex marriage... the sex is always the same."

4. Tim Vine - "My friend told me he was going to a fancy dress party as an Italian island. I said to him 'Don't be Sicily'."

5. Gary Delaney - "I can give you the cause of anaphylactic shock in a nutshell."

6. Phil Wang - "The Pope is a lot like Doctor Who. He never dies, just keeps being replaced by white men."

7. Marcus Brigstocke - "You know you are fat when you hug a child and it gets lost."

8. Liam Williams - "The universe implodes. No matter."

9. Bobby Mair - "I was adopted at birth and have never met my mum. That makes it very difficult to enjoy any lapdance."

10. Chris Coltrane - "The good thing about lending someone your time machine is that you basically get it back immediately."

Alternatively, you can post, in the comments, a joke which really does appeal to you... The first prize is a free subscription to my new blog. The second prize is two free subscriptions...ok, ok, you heard that one before.

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German Elections Open Thread

by Frank Schnittger Thu Aug 15th, 2013 at 07:42:25 AM EST

I don't follow German politics, and there is very little coverage of them in the media that I frequent, but it seems to me that the German election due on Sept. 22nd. could be pivotal for all of Europe. On the one hand we have Frau Merkel who seems to bestride the political stage like a giant and who leads her nearest rival, Peer Steinbrück, by a margin of 60 to 30% as the public's choice for Chancellor. On the other hand, we have a rag tag of parties without a coherent ideology or unifying principle.  

And yet I have a sense that Merkel could lose.   I would be interested in gaming out the possible outcomes, and above all, in informing myself of the possible policy implications, because Germany seems to be the key player in determining EU and Eurozone policy at the present time. With Ireland still under the heal of the Troika, the German election outcome will have more influence on Ireland's immediate political and economic future than any Irish election could or would.

According to recent opinion polls the standing of the parties is approximately as follows:

The key to me seems to be whether the FDP can surmount the 5% minimum required for parliamentary representation. Paradoxically, Merkel's popularity might make that more difficult. If they fail, she has lost her current and natural coalition partner and is down to c. 40% of the poll. The FDP always seem to be in trouble coming up to recent elections, and they always seem to make in in the end thanks to some CDU leaning voters voting tactically for them to keep them in the game. But if everybody expects them to make it, the reverse could also happen!

The most popular option for government is a Grand Coalition of the CDU/CSU with the SPD. But with Merkel so dominant, the SPD and Peer Steinbrück might be less than keen to play second fiddle this time around and so might seek to cobble together an alternative coalition with the Greens and even, shock horror, with Die Linke. Even if the FDP do achieve the 5% minimum, an SPD/Green/linke coalition currently stands at 47% of the vote compared to 45% for the current CDU/CSU/FDP coalition. But are Die Linke still off limits for Government participation in Germany?

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Dying for a mistake

by Frank Schnittger Wed Aug 14th, 2013 at 10:37:12 AM EST

Fintan O'Toole has long been one of the most prescient commentators on the Irish political scene. Here he is echoing what Krugman has been saying on the other side of the pond:

Who will be the last to suffer for the mistake of austerity?

In 1971, testifying before a US Senate hearing on the Vietnam war, John Kerry famously asked: "How do you ask a man to be the last man to die for a mistake?" We must ask a version of the same question: how do you ask a child or an elderly person to be the last one to suffer for a mistake?

First, the mistake. The Europe-wide obsession with so-called austerity is based on an admitted error. Our masters got their sums wrong. They believed the negative economic effects of cutting public spending would be very limited. They had faith in a magical notion called "expansionary fiscal contraction", which is just as absurdly self-contradictory as it sounds. This faith-based approach is a construction of economic "reality" no less ideologically-driven, and no more based on evidence, than the glorious triumphs of five-year plans in the old Soviet Union.

At the heart of this belief was a mathematical calculation. It suggested a billion euro taken out of the economy in an austerity budget would not reduce economic activity by a billion euro. The damage would amount only to €500 million. The market would somehow absorb half the hit. But these sums were simply and wildly wrong. After four years of austerity, the International Monetary Fund's economists flatly admitted the formula was rubbish. Instead of giving a €500 million hit to the economy, the billion euro in cuts causes €1.7 billion of damage. The sums were wrong by a factor of more than three.

This admission was made last September. In January, the two IMF economists who made the admission published a detailed paper showing why and how the calculations had been so wrong. And since then? Nothing. The official response has been to carry on cutting and to carry on telling the public the corner is just about to be turned. People must continue to suffer for a mistake.

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Please delete

by Frank Schnittger Mon Aug 12th, 2013 at 07:31:31 AM EST

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May we never have to say goodbye

by Frank Schnittger Mon Aug 5th, 2013 at 04:51:39 PM EST

Shaun Davey is one of the greatest modern Irish composers combining a unique blend of traditional Irish and orchestral music often with the distinctive tones of Liam O'Flynn's uilleann Pipes and the beautiful singing of his wife, Rita Connolly. Here she is performing his Anthem for the Special Olympics, held in Ireland in 2003, May we never have to say goodbye:

More so, perhaps, than the much more commercially successful Riverdance by Bill Whelan or Enya's celtic inspired new age world music, Sean Davey's work represents a pivotal moment in the transformation of Irish folk music into a globally accessible orchestral sound.

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The Gender Backed Dollar

by Frank Schnittger Sat Aug 3rd, 2013 at 03:34:12 PM EST

I've long been an admirer of Paul Krugman's blogging style never mind his skills as an economist. I suspect it's his writing skills as much as his economic expertise which makes him just about the most influential US political and economic commentator this side of Rush Limbaugh; but he has really excelled himself with his latest piece: The She-Devil of Constitution Avenue

I've spent five years and more watching the inflationphobes, who weren't particularly sensible to begin with, descend into shrill unholy madness. They could have reacted to the failure of their predictions -- the continued absence of the runaway inflation they insisted was just around the corner -- by stepping back and reconsidering both their model and their recommendations. But no. At best, we see a proliferation of new reasons to raise interest rates in a depressed economy, with nary an acknowledgment that previous predictions were dead wrong. At worst, we see conspiracy theories -- we actually have double-digit inflation, but the BLS is spiriting the evidence away in its black helicopters and burying it in Area 51.


So at this point I thought I'd seen everything. But no: the prospect that Janet Yellen, a monetary dove, might become the next Fed chair has driven the right into a frenzy of -- well, words fail me. Jonathan Chait has the goods: the New York Sun ran an editorial titled The Female Dollar, warning about a "gender-backed currency". I kid you not.

And the Wall Street Journal thinks this was such a great analysis that it quotes the phrase, and argues at some length -- or, actually, asserts, since if there's a rational argument there I can't find it -- that the only possible reason people might want Yellen to succeed Bernanke is that she's not just a monetary dove but a woman.

And they have a point. After all, what possible non-gender case is there for Yellen? That is, aside from the fact that she's been a highly successful team player at the Fed, has a distinguished record as a research economist on the very issues she would have to deal with as chair, and, according to a recent assessment, has the best forecasting track record of 14 top Fed policymakers. Whose assessment? Um, the Wall Street Journal's.

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Corporate Censorship

by Frank Schnittger Wed Jul 24th, 2013 at 10:04:51 AM EST

I have a letter published in today's Irish independent (Irelands largest selling daily newspaper). Unfortunately they left out most of the substance of the letter leaving only a slightly repetitive rump...
Save lives by making swimming safe - Independent.ie

* Twelve people have drowned whilst swimming in Ireland this past month - about as many as die on our roads in an average month. Telling people not to swim on our rare days of hot summer weather is akin to telling them not to use the roads. It might save some lives, but it is hardly realistic or practical advice.

So what is to be done? Ireland is almost alone in the world in not designating certain areas in every county as safe swimming areas and not employing lifeguards to help assure their safety.

Let's stop wringing our hands about the drownings and start doing something practical to prevent even more. Let's designate safe swimming areas in every county and employ lifeguards to make them even safer.

Frank Schnittger

The middle (unpublished) section of the letter read as follows:

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[Update] Ireland passes law permitting abortion with huge majority

by Frank Schnittger Wed Jul 24th, 2013 at 07:00:23 AM EST


An anti-abortion protestor prays outside the Dail tonight as the amendments to the Protection of Life During Pregnancy Bill are debated. Photograph: Dave Meehan/Irish Times

[UPDATE 24/7/2013] The Irish Senate, the upper house of parliament, passed the legislation yesterday by 39 votes to 14. The Bill now goes to the President for signature or possible referral to the Supreme Court to test its constitutionality. [END UPDATE]

The Irish Government won the final Dáil (lower house) vote on the Protection of Life During Pregnancy Bill 2013 by 127 votes to 31 today (11/7/2013)- a more than 80% majority despite vociferous opposition from the Catholic Bishops and pro-life groups such as the allegedly US right wing funded Youth Defence. This parliamentary vote accurately reflects the state of public opinion on the issue in Ireland at the moment. The Bill regulates the provision of an abortion where the life of the mother is substantially at risk, and includes the threat of suicide in the definition of what might constitute a substantial risk to the life of the mother in line with the Supreme Court's interpretation of the "Right to Life" clause of the Irish Constitution in the X case (1992).

It should be noted that 6 of the 31 Deputies who voted against the Bill did so because they believed it did not go far enough - making no provision for abortion in the case of rape, incest or fatal foetal abnormalities (where a foetus has no chance of remaining viable later in pregnancy or after birth). Some were also concerned that the Bill's provision for a jail sentence of up to 14 years for procuring an abortion outside the terms of the Bill was unduly harsh and would have the effect of driving most women seeking an abortion to continue to travel to Britain.

An estimated 4,000 did so in 2012 and few people see this bill as having a major impact on that statistic in the future -despite claims by the pro-life movement that it will "open the floodgates" to abortion on demand in Ireland. Why would a women or her doctors risk criminal sanctions when an abortion can be legally procured in the UK without the onerous provisions of the Bill having to be complied with? In practice, only women in state care or who are too poor or to ill to travel are likely to apply for an abortion in Ireland under this Bill's provisions.

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The New Silk Road

by Frank Schnittger Wed Jul 24th, 2013 at 06:42:28 AM EST

As major global corporates like HP move from seaboard to western China in search of ever cheaper labour costs they are faced with increased costs and time delays trucking their produce to Chinese ports and thence to major markets in Europe. Now the
 Kazakhstan rail network has become a major alternative route to market for China based manufacturers. It is still 25% more expensive than the sea route to Europe, but takes, on average less than 21 days, compared to 5 weeks for the sea route. The difference is significant for high value fast moving computer goods like tablet computers where inventory costs and time to market are critical. The Kazakhstan, Russia and Belarus customs union has helped to reduce customs delays and pilferage and Kazakhstan has big plans to increase through traffic:
Hauling New Treasure Along the Silk Road

Kazakhstan forecasts that rail freight will grow to 7.5 million 40-foot containers by 2020, from just 2,500 transported from western China to Europe last year. That would be a huge increase that could sorely tax Kazakhstan's rail network; Mr. Alpysbayev said plans were under way to build extra tracks to help handle the traffic. But even at 7.5 million containers, rail freight transiting Kazakhstan would still be only a tenth of ocean freight between Europe and Asia.

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Catholic Bishops fighting losing battle in Ireland

by Frank Schnittger Mon Jun 17th, 2013 at 07:15:04 AM EST


In Abortion in Ireland I gave a brief account of the background to various attempts to make abortion illegal in Ireland in all circumstances by introducing a constitutional right to life for the unborn. These attempts failed when the Supreme Court ruled that abortion was lawful where there was a substantial risk to the life of the mother which could be alleviated by an abortion. Controversially, the Supreme Court included a threat of suicide in the definition of what could constitute a substantial threat to the life of the mother and this position was endorsed by two constitutional referendums (plebiscites) in 1992 and 2002.

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What price, Irish recovery?

by Frank Schnittger Fri May 31st, 2013 at 09:23:27 AM EST

Almost two years ago I wrote a diary called Light at the end of the tunnel? in which I posited the notion that the precipitous decline in Irish GDP and employment levels had halted and that there were some tentative signs of recovery on the horizon. Those green shoots have gradually taken root in the meantime not helped by a very difficult political and economic environment globally and in the Eurozone in particular.

Thus whilst Euro zone unemployment hits another record high, Irish employment has begun to rise, which, combined with net emigration, has begun to make a dent in the unemployment rate  which has declined from 14.1 per cent to 13.7 per cent in the first three months of this year. That this should be happening in the context of continuing government austerity, a continuing collapse of the construction industry, and slowing export growth in the face of Eurozone recession is all the more remarkable.

But we should be clear: this is no triumph for "expansionary austerity". Ireland's low corporate tax policies have continued to attract almost every major US multinational in the ICT, pharma and finance sectors to set up their European headquarters in Ireland, and to launder their European sales through the Irish corporate tax code. Tax competition seems to be working for Ireland as a recovery strategy, but it is hardly an option for the EU as a whole. Is Irish recovery at the price of contributing to global recession by allowing almost all incremental wealth to be hoovered up virtually tax free by global corporates?

To be fair, the nominal Irish corporate tax rate of 12.5% is close to the effective tax rate, and many countries with much higher nominal rates tax selected global corporations even less. But the real scandal has been the tax avoidance schemes used by some corporates such as the double Irish and Dutch sandwich which enable some corporates to pay almost no tax at all. Strangely, such arrangements, though well known for a considerable time now, seem to attract relatively little political and regulatory attention when compared to the focus on headline rates. Almost no effort has been made to close the tax loopholes in Irish, Dutch and US tax laws which make them possible even though it means that large corporates like Apple, Facebook, Microsoft, Eli Lilly, Pfizer and Google end up paying very little tax in any jurisdiction.

Now why ever could that be?

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Kruganomics 101

by Frank Schnittger Tue Apr 30th, 2013 at 05:02:33 AM EST

Paul Krugman is arguably becoming not just the most influential economic commentator on the planet, but also one of the more influential political commentators. That's partly because it's hard to gainsay the economic credentials of a Nobel Prize winning economist, but also because he has a way of putting often complex ideas quite simply. Here he gives a handy summary of his economic philosophy for the benefit of those economic simpletons who claim he is an out of touch "high fallutin'" intelectual:

The Ignoramus Strategy - NYTimes.com

1. The economy isn't like an individual family that earns a certain amount and spends some other amount, with no relationship between the two. My spending is your income and your spending is my income. If we both slash spending, both of our incomes fall.

2. We are now in a situation in which many people have cut spending, either because they chose to or because their creditors forced them to, while relatively few people are willing to spend more. The result is depressed incomes and a depressed economy, with millions of willing workers unable to find jobs.

3. Things aren't always this way, but when they are, the government is not in competition with the private sector. Government purchases don't use resources that would otherwise be producing private goods, they put unemployed resources to work. Government borrowing doesn't crowd out private borrowing, it puts idle funds to work. As a result, now is a time when the government should be spending more, not less. If we ignore this insight and cut government spending instead, the economy will shrink and unemployment will rise. In fact, even private spending will shrink, because of falling incomes.

4. This view of our problems has made correct predictions over the past four years, while alternative views have gotten it all wrong. Budget deficits haven't led to soaring interest rates (and the Fed's "money-printing" hasn't led to inflation); austerity policies have greatly deepened economic slumps almost everywhere they have been tried.

5. Yes, the government must pay its bills in the long run. But spending cuts and/or tax increases should wait until the economy is no longer depressed, and the private sector is willing to spend enough to produce full employment.

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The Intellectual Foundations of Austerity destroyed

by Frank Schnittger Fri Apr 26th, 2013 at 03:26:16 AM EST


Ken Rogoff in Davos

Reinhart and Rogoff wrote the single most influential economic paper supporting the Austerity policies introduced by Governments around the world. Now a paper by some graduate students reduces their findings to rubble - saying they were caused by some elementary arithmetic coding errors in Excel, the selective exclusion of available data, and some highly questionable averaging methods. Is this what "thought leadership" in the western world is reduced to?

Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff - WP322.pdf

Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff  by Thomas Herndon, Michael Ash, and Robert Pollin. April 15, 2013.

Abstract

We replicate Reinhart and Rogoff (2010a and 2010b) and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP grow that public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower. We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth

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The Politics of Competitive Austerity and Class War

by Frank Schnittger Wed Apr 3rd, 2013 at 02:17:46 AM EST

Paul Krugman keeps writing piece after piece lamenting how stupid politicians are to be heaping austerity policies onto already depressed economies and then wondering why the outcome is ever more depression. He heaps scorn on discredited theories of "expansionary austerity" or that excessive public borrowing might "crowd out" private investment pointing out that all the macro-economic evidence is to the contrary.

Absent from his analyses, however, is any theory as to why political leaders (and many of their economic advisers) might be following such counter-intuitive policies, other than the implied or explicit notion that these people must be really stupid. I want to begin the process of offering a more rigorous theory here, and it is in two parts:

Part 1 is a variant of our old friend competitive devaluations: In the days of floating currencies many countries sought to improve their short run competitive position by allowing or encouraging their currency to devalue relative to their trading partners. In the longer run of course, this resulted in inflation which tended to erode this advantage, and it only works in the short term if your country manages to devalue more than your trading partners.

Of course in a currency union this is no longer possible relative to your fellow currency members, and so the only way to improve your relative competitive position is to deflate your economy more than your "partners". This leads to two problems: Deflation is much more economically damaging than external currency devaluation, and if every country in a currency Union deflates at the same time, they achieve no competitive advantage relative to each other, but manage to massively deflate the currency area as a whole. Indeed one country's deflationary policies exacerbates deflation in their neighbours. This is what is currently happening in the Eurozone with record unemployment and forward economic indicators sufficiently bad to strike terror into the hearts of anyone likely to be looking for a job in the future - itself a cause of further depression.

But part 2 of the explanation is perhaps more insidious still, and it is to Marx rather than Keynes that we have to look for inspiration: What if the current depression is also being caused by an inter-generational and class war - currently really only being effectively fought and won by the older and wealthier classes? Not all older people are wealthier, I know, but there are inter-generational as well as class aspects to this divide. Follow me below the fold if you feel this hypothesis merits further exploration and elucidation.

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Irishtimes.com: The Perils of redesigning your website

by Frank Schnittger Wed Mar 20th, 2013 at 10:11:21 PM EST

The Irish Times recently launched a redesigned version of its online edition to almost universal criticism from its online users. I took part in some of those online debates and, as a result, have been asked by the Village Magazine to write an article on the redesign. The article is still being fact checked, but I thought it might be useful to put a draft of it online here to get ET users reactions to the article and the Irishtimes.com redesign itself. Given that ET is also going through a redesign process some of the issues may also be of relevance here, although please keep in mind that the article is written for a general audience in Ireland.

Amazingly, the screen-grab above shows three and a half full screens of content displayed on Irishtimes.com when the site is being viewed at full width on a laptop. The first screen really only shows you the top banner ad, the Irish Times Logo, and the top level menu. A drop down menu appears if you hover your mouse cursor over one of the menu options, but you can only read and select from the full menu if you scroll down the page first, and then hover back over the menu. Note the advertisements are in French, even though the website is being viewed from Spain (I.e. the Laptop IP address is in Spain).

For the complete text of the proposed article, please follow me below the fold.

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Cyprus: A Germanic Morality Tale

by Frank Schnittger Tue Mar 19th, 2013 at 09:31:12 PM EST

Cyprus is small enough not to be really significant in economic terms for the Eurozone as a whole. (Let's treat the strategic significance of Cyprus giving exclusive gas exploration rights to Gazprom or a Mediterranean naval port to Russia in return for a bail-out as a separate issue for now).

So the mostly German bankers who run the European Central Bank (ECB) decide this is a good opportunity to demonstrate to all and sundry the consequences of not playing ball with your creditors. The ECB refuses liquidity to insolvent Cypriot banks because the Cypriot Government refuses to implement the ECB bank bail-out plan. The banks have to limit withdrawals (say to 20k Max) because they cannot sustain the outflow of funds that would otherwise occur. The banks are declared insolvent and a liquidator is appointed. Bondholders/depositors are given shares in the banks in lieu of their investments over 20K and the banks re-open under new "ownership and management".

Russian "investors" (otherwise known a money launderers)  lose their shirts. Some bigger businesses become illiquid and may have difficulty trading. Small businesses and individuals are generally ok with 20K working capital but don't trust the banks as a place to maintain their working capital funds. A mattress/cash economy emerges. This works fine for small local cash businesses but business trading with other Eurozone countries cannot get credit and may have difficulty settling accounts with other Eurozone suppliers/customers. Cyprus may have to issue its own currency again but has difficulty getting it accepted by its trading partners. The larger economy grinds to a halt. The tourist industry almost collapses. Cyprus is effectively quarantined and "thirdworldised".   German Finance Minister Schäuble  has already said on ZDF TV: "The business model of Cyprus is no longer sustainable. Someone has to tell the Cypriots."

ECB central bankers look on with some satisfaction because this will teach the Greeks, Italians, Spaniards, Portuguese and Irish et al just what will happen if they don't play by the rules. They are happy enough the Russians got burned, but may cut a deal with Putin to stop the aforementioned Gazprom or Naval Port scenarios. NATO threatens a blockade if Russia does try to set up a naval base in Cyprus. Turkey decides this is  good time to consolidate it's position in Northern Cyprus by formally occupying and developing Varosha in Famagusta. Europe is once again on the brink of war.

All of this may seem ridiculous when you consider how small Cyprus is in the larger scheme of things. And then you remember that WW1 started because of the murder of a relatively obscure Archduke in Sarajevo. Once again the greed of central European elites threatens the security and prosperity of the continent as a whole.  Those who refuse to learn the lessons of history are condemned to repeat it.

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Ireland took one for the team?

by Frank Schnittger Thu Feb 21st, 2013 at 12:24:19 PM EST


Michael Noonan, Irish Finance Minister, is famous for his sometimes impolitic remarks. Here he is in a Bloomberg interview making the case that Europe owes Ireland for "taking one for the team" when the Irish banking bailout saved the European banking system from the contagion that an Irish banking collapse might have precipitated. It is a view widely held in Ireland, though perhaps more in hope than in expectation. Some think that the ECB "holding its nose" whilst the Irish Government restructured Anglo-Irish bank debts was the first installment of some payback by the EU. Germany's Jens Weidmann criticised the restructuring as bordering on monetary financing but did not actually block the deal when he had the chance.

The more general case Noonan is making - as one would expect from a Finance Minister - is that the Irish bailout is working, modest growth has returned, bond yields are coming down, and that Ireland should be able to exit the bailout and return to the sovereign debt markets on schedule next year. I would welcome the views of ET members as to whether this is a realistic or desirable prospect, or whether he is living in cloud cuckoo land.

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Ireland restructures Anglo-Irish Debt

by Frank Schnittger Thu Feb 7th, 2013 at 05:25:18 PM EST

Ireland has spent about €64 Billion on bailing out (mostly German, French and British) bondholders in failed Irish banks. To put this in perspective, this is more than any other EU country, including much larger economies like Germany spent on bailing out their banks, and represents c. 40% of Irish GDP. Whilst the Irish economy and population represent about 1% of the EU, the Irish people, have shouldered approximately 40% of the total cost of bank bail-outs within the EU, or about €14,000 for each man, woman and child within the country. It seems unlikely that German taxpayers would have tolerated a bank bail-out on a similar scale. Even the much criticized American bank bail-out constituted less than 5% of GDP, most of which has already been repaid by the bailed-out banks.

Much of this was, of course, caused by the seriously stupid Irish bank guarantee and a failure to regulate the banks properly. However it should also be remembered that the Irish property boom was caused in large part by inappropriately low interest rates maintained by the ECB (to aid German recovery) and by the EU drive for a single market in financial services without any adequate accompanying EU wide regulation of that market.

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The Trillion $ Coin

by Frank Schnittger Sat Jan 12th, 2013 at 05:54:29 AM EST

I've been reading about and advocating the Trillion $ Coin option as a means of avoiding the US Debt Ceiling impasse on US Blogs for some time now, but have always sought to leave the lead role in writing diaries on the topic to legal or economic experts. And just when I finally decide to weigh in in a more substantial way Krugman decides to write more or less exactly what I wanted to write:
Barbarous Relics - NYTimes.com

There will, of course, be howls from the usual suspects if that's how it goes [and the President decides to mint a Trillion $ coin]. Some of these will be howls of frustration because their hostage-taking plan was frustrated. But some will reflect sincere horror over a policy turn that their cosmology says must be utterly disastrous.

Ed Kilgore says, in a somewhat different way, much the same thing I and people like Joe Weisenthal have been saying: what we're looking at here is a collision of worldviews, one might even say of epistemology.

For many people on the right, value is something handed down from on high. It should be measured in terms of eternal standards, mainly gold; I have, for example, often seen people claiming that stocks are actually down, not up, over the past couple of generations because the Dow hasn't kept up with the gold price, never mind what it buys in terms of the goods and services people actually consume.

And given that the laws of value are basically divine, not human, any human meddling in the process is not just foolish but immoral. Printing money that isn't tied to gold is a kind of theft, not to mention blasphemy.

For people like me, on the other hand, the economy is a social system, created by and for people. Money is a social contrivance and convenience that makes this social system work better -- and should be adjusted, both in quantity and in characteristics, whenever there is compelling evidence that this would lead to better outcomes. It often makes sense to put constraints on our actions, e.g. by pegging to another currency or granting the central bank a high degree of independence, but these are things done for operational convenience or to improve policy credibility, not moral commitments -- and they are always up for reconsideration when circumstances change.

Now, the money morality types try to have it both ways; they want us to believe that monetary blasphemy will produce disastrous results in practical terms too. But events have proved them wrong.

And I do find myself thinking a lot about Keynes's description of the gold standard as a "barbarous relic"; it applies perfectly to this discussion. The money morality people are basically adopting a pre-Enlightenment attitude toward monetary and fiscal policy -- and why not? After all, they hate the Enlightenment on all fronts.

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