Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
... but you are of course right that the EU offers a certain amount of protection (if only through inertia) against globalised capital, which an isolated "sovereign" nation lacks.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II
by eurogreen on Mon Nov 19th, 2018 at 11:51:54 AM EST
[ Parent ]
Debatable. I think we have to think about the nature of the threat posed by globalised capital before we jump to conclusions.
Number one is being thrown out of the international trade system through loss of access to the payment system (see Iran) and piracy(see Argentina).
We'll have yet to see if the EU offers any kind of protection against this. Iran is a test case.

Otherwise, all we are left with is this:
What Is Foreign Investment For? - J. W. Mason

The final argument is that, if you have committed yourself to permitting the free creation of cross-border payment commitments, you will be unable to honor those commitments without a sufficient willingness of foreign units to take net long positions in your country's assets. [6]

This one is correct. If, let's say, banks in Argentina have accumulated large foreign currency liabilities (on their own, or more likely, as counterparties to other units accumulating net foreign asset positions) then their ability to meet their survival constraint will at some point depend on the willingness of foreign units to continue holding their liabilities. And unlike in the case of a bank with only domestic-currency liabilities, the central bank cannot act as lender of resort. In other words, the central bank can always maintain the integrity of the payment system as long as its own liabilities serve as the ultimate means of settlement; but it loses this ability insofar as the balance sheets of the domestic financial system includes commitments to pay foreign moneys. [7]

This, probably, is the real practical content of stories about how important it is to maintain the goodwill of footloose capital. If you don't honor your promises to foreign investors, you won't be able to honor your promises to foreign investors. The weird circularity is part of the fact of the matter.

by generic on Mon Nov 19th, 2018 at 12:41:47 PM EST
[ Parent ]
Ireland is obviously a case study in this regard, having foolishly taken on net liabilities of c. €60 Billion on foot of the bank guarantee (c. 30% of GDP) the Commission and ECB prevented the government from burning bank bond holders - even junior unsecured bondholders - putting ordinary taxpayers on the hook instead: taxpayers who had, almost universally, never even heard of the investment banking entities who required much of the bail-out. Apparently this was for reasons of moral hazard, if you don't regulate your banks sufficiently, you pay...

Hopefully lessons have been learned - by all sides from that debacle - the ECB has since moved to make junior bond holders the first line of liability. That debt is still on the Irish government books despite a massive turnaround in economic fortunes since. But much of that economic turnaround was also enabled by ECB policies in the meantime, with QE providing v. low cost finance for the national debt to the point that the interest burden now is less than it was after the economic crisis of the 1980's - before the advent of the Euro.

It is perhaps this history, and this experience which makes me and c. 90% Irish people such pro-EU advocates. Most would trust the ECB/Commission before we would trust our own financial watchdogs. The peculiar perspective from a very small state with a very open economy makes us appreciative of whatever small mercies the Draghi ECB visited upon us.

We are still close to being captured by global corporates, and particularly by US ICT corporates like Google, Microsoft, Facebook, Apple. Our government could/would never have contemplated what the Commission has done in seeking to rein in their most egregious tax and regulatory excesses. We need the EU to do what our government simply hasn't got the bargaining power to do. Perhaps this is a particular "small country" perspective, but let us not forget the the bulk of the remaining 27 EU members are economically small countries. The view from France/Germany may be somewhat different.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Nov 19th, 2018 at 02:53:13 PM EST
[ Parent ]


Top Diaries

Occasional Series