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is that if you need to resort to ad hominem, it's not helping your case.

Over the past several months, you've repeatedly thrown nasty insults at me on this forum. All I can say is that your reasoned posts stand a better chance of convincing me than these.

I see this as a political crisis, one of not enough Europe and too much nationalism, and I still fail to see how this is incompatible with what you say. You want to get rid of the Maastricht straightjacket, and I want a EU budget. Maybe it's not politically realistic today, but is it wrong?

Wind power

by Jerome a Paris (etg@eurotrib.com) on Mon May 30th, 2011 at 06:00:22 PM EST
[ Parent ]
If we do not get rid of the Maastricht straitjacket, there is a realistic possibility that you will not have a European Union to spend an EU budget in.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 30th, 2011 at 06:05:00 PM EST
[ Parent ]
It's not about the Maastricht straitjacket, it's about Keynes' negative feedback loop on surpluses.

Of course, admitting that deficit spending needs to be unconstrained in a recession and that the ECB should monetize public debt if necessary, would help.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 06:37:21 PM EST
[ Parent ]
Lifting the Maastricht straitjacket would impose a negative feedback on surpluses. Unless the surplus countries enjoy getting paid for their exports with their own money.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 30th, 2011 at 06:53:36 PM EST
[ Parent ]
But that's what they have been doing. The German export surplus gets loaned back to the deficit countries so they can continue to import.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 01:29:13 AM EST
[ Parent ]
No, that's not what they've been doing.

They have clearly been living under the impression that they were going to get paid in the Greeks' money. Eventually.

The fact that this is mathematically impossible does not seem to have dawned upon them just yet.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 31st, 2011 at 01:35:47 AM EST
[ Parent ]
Of course they were always going to be paid in the ECB's money, given that the Euro is a fiat currency. The real problem is that the Germans and the ECB are Aust[e]rian gold bugs.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 01:40:08 AM EST
[ Parent ]


Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 31st, 2011 at 01:41:04 AM EST
[ Parent ]
Sending in the bailiffs to take away some sun-drenched islands and perhaps an Acropolis (or more mundane goods) is a way of getting paid in Greeks' money.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 31st, 2011 at 07:10:58 AM EST
[ Parent ]
Or just buying up even more holiday homes, businesses and other property assets in Greece. The Greeks get an Aldi near them by way of recompense.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 31st, 2011 at 07:28:57 AM EST
[ Parent ]
PS an Aldi is about yo be built just up the road from my home...

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 31st, 2011 at 07:29:40 AM EST
[ Parent ]
In rural France, I don't have far to go to two Lidls and an Aldi. I don't consider them evidence of German colonisation, just part of an even cheaper crap food distribution subsystem of large-corporate supermarketry in general.

As to Greece, I did mention "more mundane goods". The point being that the core financial system will (if not checked) extract its pound of flesh.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 31st, 2011 at 07:49:51 AM EST
[ Parent ]
... if they get to keep them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 31st, 2011 at 08:02:59 AM EST
[ Parent ]
Just like to note for clarification that "they" are not a consistent group.

German workers has by way of slashing the social safety net been convinced not to fight for their fare share of production increases. (If they had more would have been consumed, leading to imports and more even trade.)

This surplus has instead been claimed by German owners of industries and gambled through the financial system.

The German financial system has then loaned the money back to the deficit countries, unaware or not caring about how unsustainable the total is.

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

by A swedish kind of death on Tue May 31st, 2011 at 04:44:37 PM EST
[ Parent ]
If instead of excess German capital going to Greek bonds, Irish real-estate banking, US mortgage backed bonds and so on, the money had been paid out to German workers for vacations in the South, the world economy would have been on a more solid footing and German workers would have been happier.
by rootless2 on Tue May 31st, 2011 at 06:37:09 PM EST
[ Parent ]
Yes but if everyone was happy with their lot, why would we need banks? People wouldn't have to borrow.  We need pain and suffering to make the system work.  How else can we extract "value" from the have nots to make sure the have mores have more.  Isn't that the point of economics?

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 31st, 2011 at 07:30:44 PM EST
[ Parent ]
the problem is not so much the euro as the robber baron policies of all of our elites, including the Germans.

But the Germans have been especially effective at pushing the blame away from them and towards Southern Europeans and making the average Germans feel self-righteous about their efforts instead of furious at having being ripped off by their bosses and banks.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 08:06:23 AM EST
[ Parent ]
The design of the Euro, like the gold standard before it, encourages mercantilist inflation policies by allowing the mercantilists to externalise the unemployment caused by their irresponsible policy.

You can't design a system that favours irresponsible policy and then claim that the only problem is the stupidity of the people who implement that policy.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jun 2nd, 2011 at 10:59:53 AM EST
[ Parent ]
 

  "You can't design a system that favours irresponsible policy and then claim that the only problem is the stupidity of the people who implement that policy."

 

  Your point, which I grant and agree with, is that one ought not do that.

    But, unfortunately, "you can do that."  And that is, to greatly over-simplify things, much of the trouble today.  You can do that and do it over and over and over again.  We are perhaps going to discover whether or not this state of affairs can last much longer.

"In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge

by proximity1 on Thu Jun 2nd, 2011 at 11:28:28 AM EST
[ Parent ]
A swedish kind of death:
The German financial system has then loaned the money back to the deficit countries,

all the while patting themselves on the humanitarian back for 'developmental aid'. who can deny the new businesses and suv sales? GROWTH has arrived!

send in the clowns.

'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 Wed Jun 1st, 2011 at 02:03:57 PM EST
[ Parent ]
I thought we were discussing the best way of framing the problem:
a) from a theoretical/analytical perspective, and
b) from a populist/propagandist perspective

From either perspective, I am not persuaded that Euro Crisis is not the best short hand to describe it.  Sure, German intransigence, policy, trade surpluses, and ECB domination are a large part of the problem.  But there are also problems in other member states, and the overall problem is one of a lack of an appropriate policy framework and economic leadership at EU level.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 30th, 2011 at 06:17:27 PM EST
[ Parent ]
I see this as a political crisis, one of not enough Europe and too much nationalism, and I still fail to see how this is incompatible with what you say. You want to get rid of the Maastricht straightjacket, and I want a EU budget. Maybe it's not politically realistic today, but is it wrong?

I see this as a macroeconomic crisis brought about by ideological and incompetent economic design of the Eurozone. It's not about the "Maastricht Straitjacket". It's about the single-minded focus on monetary variables to the exclusion of what really matters, trade imbalances, current account imbalances and structural unemployment. The political crisis just makes the structural macroeconomic crisis impossible to solve, but in fact given the pitiful state of economic thought in the EU policy establishment, the political crisis is the least of our problems. The economic advice that politicians are getting and the very public pronouncements of the ECB council members and central bankers would be enough to sink the Euro even without nationalistic politicians at the helm. Just consider that the new BuBa chief said at his inauguration that financial stability should be subordinate to "price stability" and that Merkel wanted the guy to chair the European Financial Stability Board (!)

And if the crisis is resolved somehow without instituting some sort of negative feedback loop on trade imbalances, it is guaranteed that it will blow up again.

You may find this piece interesting and instructive: On the Political Economics of Dominic Strauss Kahn's Political Death

Back in January (of 2011), DSK was being interviewed by a BBC Radio journalist in the context of a documentary on the history of the IMF. Toward the end of the program, I heard the distinctive voice of DSK responding to a journalist's question about how the global economy ought to be reconfigured in the aftermath of the 2008 Crisis. His astonishing answer was:
Never in the past has an institution like the IMF been as necessary as it has been today... Keynes, sixty years ago, already foresaw what was needed; but it was too early. Now is the time to do it. And I think we are ready to do it!
This was, in my estimation, a bombshell of a programmatic statement by the IMF's Managing Director. What was he referring to? He was, of course, referring to Keynes' powerfully put argument (in the context of the 1944 Bretton Woods conference) that a system of fixed exchange rates cannot survive for long without an automated mechanism that treats (a) systematic trade surpluses and (b) systematic trade deficits as the different sides of a problematic coin.

...

As I have explained in some detail (see here for example) the poignancy of an SRM [Surplus Recycling Mechanism] (and of its absence), I shall desist from repeating it here. Suffice to point out the political and economic significance of DSK's endorsement of Keynes' suggestion and, in particular, the determined statement that Keynes was ahead of his time but not, after the Crash of 2008, "Now is the time to do it. And I think we are ready to do it!"

...

Within Europe, the prospect of a French President who believes strongly (and is prepared to back up his convictions with a formidable analytical panoply) that the eurozone cannot survive without a Surplus Recycling Mechanism (which channels German surpluses to the deficit countries in the form of productive investment) had the potential radically to alter the political and economic agenda of the continent. It would, in particular, offer an invigorating counterpoint to the current mental incapacity to come to terms with the deeper causes of the euro crisis and to, at long last, recognise that the debt crisis is a symptom, not the cause of the string of failures that threaten the eurozone's very existence.

(Yes, I've read a goodly chunk of Varoufakis' blog today)

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Mon May 30th, 2011 at 06:34:45 PM EST
[ Parent ]
The problem - in Ireland's case - was that German banks were recycling their surpluses not in productive investment, but into an asset price bubble which rendered Ireland's economy still less competitive.

This dysfunctionality was exacerbated by the fact that banks, as surpluses recyclers, were predisposed to "safe" financialisation or property investments rather than "risky" productive investments, or long term infrastructural investments which might have rendered the irish economy more competitive.

Thus private banks or "markets" are ineffective rebalancers of surpluses, and what is needed is an EU directed infrastructural, regional, industrial and energy policy framework.

So yes, it is a problem of too little EU, but also a lot of the wrong sort of EU intervention - such as currently being peddled by the ECB.  The EU is not an unalloyed good which should be supported in all circumstances, it needs to be pursuing different policies in a much more effective manner.

Jerome has argued that administrative competence is a form of democratic legitimacy.  The EU has been losing legitimacy because it has been incompetent.  NOT because of the British, or there being too much English spoken in Brussels.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 30th, 2011 at 06:49:21 PM EST
[ Parent ]
It's not as if SG and DB and the landsbanks didn't have profitable investment opportunities in the home countries either. But the big money and bonuses came from speculation in real-estate and in junk bonds.
by rootless2 on Mon May 30th, 2011 at 07:18:55 PM EST
[ Parent ]
This dysfunctionality was exacerbated by the fact that banks, as surpluses recyclers, were predisposed to "safe" financialisation or property investments rather than "risky" productive investments, or long term infrastructural investments which might have rendered the irish economy more competitive.

Bingo!

This is why relying on "the market" to determine the direction of investment is wrongheaded. Which means that the EU rule that the public sector must fund itself in the money markets is barking mad. But it's written into the EU treaties (the infamous article 123).

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 01:34:20 AM EST
[ Parent ]
And the EU has been becoming incompetent as a result of the Reagan/Thatcher revolution and the hollowing out of Economics education by Friedman followers (and worse) since the 1980s.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 01:35:52 AM EST
[ Parent ]
I think that Keynes' Gesellian approach at Bretton Woods to his Bancor/International Clearing Union was spot-on and is a key insight which I have referred to here many times.

But the central issuance of a fiat Bancor by the ICU quasi-IMF/World Bank institution he had in mind required global government and global taxation to back it. This is just a New World Order wet dream.

I like to distinguish between:

(a) Financing - which is short/medium term, high risk credit based upon productive people, and which enables the creation of productive assets;and

(b) Funding - which is medium/long term; low risk, and based upon the use value of productive assets.

Financing does not require deposits: merely credit clearing based upon the capacity of individuals and corporates to provide value.

VISA is a good example, where there are no deposits, and both the sell side (through charges) and the buy side (who pay interest in respect of unpaid balances) cover system and default costs and provide a handsome profit to the owners.

The Swiss WIR is another credit clearing system which has been around since 1934, and the ongoing Ecuadorean FactoRepo is yet another. In neither case does fiat currency change hands: obligations are settled not in exchange for, but by reference to fiat currency as a numeraire.

It is the deployment of the credit necessary for Funding of productive assets which is the interesting question.

This is where the need for deposits comes in and how a currency issue may actually be based upon productive assets.

Here, John Law's analysis and proposal in 1705 for land-backed currencies remains valid, I think, but requires updating, through the creation of units redeemable in payment for rentals in respect of real property held by a custodian. Of course, such land-based currencies would be by definition domestic, but their creation would enable existing unsustainable property debt to be converted to undated credits ina  debt/equity swap on a cosmic scale.

But in relation to the EU and the need for a common (not a single) currency there is IMHO a genuine opportunity to base a European currency upon the value of energy. Moreover, the skills and experience to architect and lead such a project are available on this site.

How that might work is one of the things we'll probably touch upon next week when we focus on my pet subject of Resilient Financial Markets.

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

by ChrisCook (cojockathotmaildotcom) on Mon May 30th, 2011 at 07:32:13 PM EST
[ Parent ]
But the central issuance of a fiat Bancor by the ICU quasi-IMF/World Bank institution he had in mind required global government and global taxation to back it.

Yes.

Shared fiscal policy is a necessary condition for a stable fixed-currency regime.

That is not an indictment of Keynes' analysis, it is an indictment of the Gold Standard.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 30th, 2011 at 07:36:50 PM EST
[ Parent ]
In addition, the EU (unlike the World as a whole) could have federal level fiscal policy...

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 01:31:32 AM EST
[ Parent ]
Which presumably was the plan by the Euro founders - who had a strategic vision unlike their successors today who couldn't think their way backwards out of a paper bag.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 31st, 2011 at 02:54:37 AM EST
[ Parent ]
Hmm, they already knew Germany wouldn't go for it 20 years ago...

Or Germany was hoping to impose German macroeconomics on the rest of Europe, as has happened with Merkel's "Euro Plus Pact" (formerly the Pact for the Euro formerly the Competitiveness Pact formerly the Deauville pact).

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Tue May 31st, 2011 at 03:43:09 AM EST
[ Parent ]
Migeru:
they already knew Germany wouldn't go for it 20 years ago

You've said that Germany has been pursuing the same mercantilist goal for twenty years, and now that the other EEC leaders at the time knew that Germany would never accept compromise on the currency (so, presumably, moves towards a more federal type of economic governance), but went ahead all the same.

Can you write a diary explaining this?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue May 31st, 2011 at 07:40:43 AM EST
[ Parent ]
there still was momentum for "ever closer union." This died somewhere in the late-90s/early 00s and was killed off by France's NON to the EU Constitution, which basically set in stone the message that there would be no increase to the political legitimacy of the Brussels institutions, ceding the ground to national governments.

And at times of crisis, national populism is the easy route to deflect blame and rally people, with predictable results.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 08:09:44 AM EST
[ Parent ]
Stop blaming the political left for the sins of Third-Way social democrats.

Economics is politics by other means
by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 09:19:24 AM EST
[ Parent ]
where did you see me blame the political left in my comment above?

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 09:33:27 AM EST
[ Parent ]
France's NON to the EU Constitution

which you blame (not in that comment, but you did all thrrough the Constitution debates on this site years ago) on the French "lyrical left" and rebels within the PS.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Thu Jun 2nd, 2011 at 09:40:09 AM EST
[ Parent ]
I did indeed, but in this case I was making a more general point about the overall loss of desire for "ever closer union." Maybe it was generational change, maybe it was the focus on enlargement (which as we know the Brits did see, rightly or wrongly, as a distraction from deepening tendencies), maybe it was having a fundamentally eurosceptical French president (Chirac), maybe it was the cost and change in perspective(s) from  Germany' reunification it was the scandinavians and the more utilitarian view of the EU, or (more likely) a combination of all that.

Wind power
by Jerome a Paris (etg@eurotrib.com) on Thu Jun 2nd, 2011 at 10:23:21 AM EST
[ Parent ]

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