Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

Kicked Cans Don't Roll

by afew Tue Dec 13th, 2011 at 04:27:11 AM EST

As expected (once again), the great fiscal-conservative union treaty compact sort-of agreement lost its wheels as markets reacted by selling European stocks and the euro, the private Wall Street corporations in charge of rating poured cold water, and Italian and Spanish spreads remained at unsustainable levels while CDSs rose.

There are optimists, of course. Nicolas Sarkozy (in an interview in Le Monde) says the details of the "pact" will be worked out before Christmas (though he also implicitly accepted the coming loss of France's triple-A, to be faced with cool, calm and determined application of the same policies that have already failed). Herman Van Rompuy says today:

EU's Van Rompuy says sees fiscal compact signed by March | Reuters

An intergovernmental treaty among up to 26 European Union countries on stricter fiscal rules will be finalised by March 2012, European Council President Herman Van Rompuy said on Tuesday.

"Early March at the latest, this fiscal compact treaty will be signed," he said in a speech to the European Parliament in Strasbourg.

But according to Eurointelligence, reporting the FAZ (e-mail):

In the Commissionís view there is hardly anything really new in the euro agreement and what is new is legally very doubtful, Frankfurter Allgemeine Zeitung reports. The main problem according to the Commission is that the agreement for quasi-automatic sanctions would be part of an intergovernmental treaty and in international law that is of lesser legal value than a European treaty. As a consequence any countryís request to proceed according to the weaker deficit rules of the European treaty would mean that the stricter rules according to the intergovernmental treaty cannot be applied. Also the Commission points out that is doubtful that it and the European Court of Justice can legally be asked to perform surveillance duties on behalf of a subgroup of the EU.

So, even though all the Europeans (bar that silly Mr Cameron, who is now as-expected stuck between business-interests Scylla and Eurosceptic Charybdis) had decided to line up and take their nasty fiscal medicine, the cure isn't working. Here's a well-known doctor, writing just before the Friday summit:

Itís time for the IMF to step up in Europe | Lawrence Summers

After Fridayís summit, attention will and should shift to the IMF. It must act boldly but no one should ever forget a fundamental lesson of all past crises. The international community can provide support but a nation or a regionís prospect for prosperity depends ultimately on its own efforts.

One way or another, the Washington Brussels Brushington Consensus will straighten us out.


Display:
I was going to front page this, but let's discuss it here:


France's Hollande would seek to rework euro deal

PARIS, Dec 12 (Reuters) - French Socialist Francois Hollande said on Monday that he would seek to renegotiate the terms of the latest euro zone rescue plan if elected president next year.

(...)

"Without economic growth we will achieve none of the targets on deficit reduction," said Hollande, who said the accord was insufficient both as a short-term answer and a long-term solution to the continent's sovereign debt crisis.

He said he'd ask for ECB lender of last resort role, eurobonds and creation of an emergency bailout fund.

This is all in line with what we've argued here.

Reuters pours cold water on this:


The Socialists engaged in similar sabre-rattling back in 1997 when they vowed to renegotiate Europe's deficit-control rules, known as the stability pact, if they won power.

They did, but the renegotiation ultimately boiled down to a semantic one. The deal was re-labelled as the stability and growth pact, in a nod to the need for economic expansion alongside fiscal rectitude.

So, a false hope? But at least he's saying the right things today.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue Dec 13th, 2011 at 04:49:04 AM EST
I was going to feature this yesterday, till I realized I had to run a search for it on Le Monde site, it was so hidden away. I haven't heard it mentioned on radio news. I don't see much TV news, but I doubt it got much play there.

We could say that was due to manufactured-consent media obedience, but I don't think so - journalists are quite ready to step out of the Sarko line these days (they have scores to settle).

My conclusion is that Hollande is mouthing the right words, but he's not putting any media presence behind them. Almost as if he's afraid of the bully reaction from the conservatives.

The French are in need of a narrative they can fit to this crisis. Because they have no other than the debt-sin story (and yes, it works on the French too), they are currently resigned to taking a flogging. If Hollande doesn't offer what's needed, he won't win the election.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 05:04:21 AM EST
[ Parent ]
I've been cut off from things, but saw this as one of the first items on the TV news (on France 2) so it can't have been all that discreet.

But yes, it's been clearly underplayed in the paper/internet media. Why that is so is a good question - is it Hollande not pushing it, or the media choosing to ignore it?

The (rest of) Europe vs UK thing is of course getting plenty of play everywhere, even if it's just a sideshow - but it's been called a sideshow quite rapidly as well...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Tue Dec 13th, 2011 at 06:09:19 AM EST
[ Parent ]
Too many unknown unknowns there. Are the media clinging to the TINA story because it's simple and it works, why go against the grain? Is there in fact a split between the candidate and the party organisation, reducing capacity for drum-banging? Is Hollande keeping his head down while waiting for the chips to fall - which could be a tactic as long as he knows what he's going to say when Sarko later looks like a loser?

Thing is, Hollande is currently polling as second-round winner by 60%-40%, in other words as next French president. When he says: "I will renegotiate", that should be making headlines. But if it did, the UMP would be on him like a ton of bricks as the irresponsible man who broke the agreement Serious Sarko worked so hard to build and thus save Europe. Is that why he whispers?

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 08:31:36 AM EST
[ Parent ]
In fact, Prime Minister Fillon upped and said exactly that as soon as Hollande had spoken.

Hollande renégociera l'accord de Bruxelles s'il est élu - Présidentielle 2012 Holland will renegotiate the Brussels agreement if elected - 2012 Presidential
François Fillon a jugé "tout à fait irresponsable" la proposition de François Hollande : "c'est la crédibilité de la France qui est en jeu, car on ne peut pas dire aux marchés : 'il y a un accord européen en décembre mais on ne sait pas si en avril ou en mai il sera toujours valable'".Francois Fillon considered Francois Hollande's proposal as "completely irresponsible" , "the credibility of France is at stake because you can not tell the markets: there is a European agreement in December but we don't know whether it will still be valid in April or May."

In the Nouvel Obs, Renaud Dély thinks that Hollande was courageous, in the circumstances, to come out in favour of renegotiation:

Hollande face au piège sarkozyste de "l'union nationale" - Présidentielle 2012 Hollande up against Sarkozy's "national unity" trap - 2012 Presidential
c'est bien un climat d'incontournable "union nationale" que le chef de l'Etat cherche à instiller. Ce faisant, il prend le risque de devenir le candidat "TINA" - "there is no alternative" -, porte-drapeau de la trop fameuse "seule politique possible". Le discours plaît souvent aux éditorialistes et séduit les élites, économiques ou intellectuelles. Il désespère en revanche les classes populaires qui désertent les urnes ou se réfugient dans le vote "anti-système" de type lepéniste faute de croire encore à une alternative possible....it is indeed a climate of inescapable "national unity" that the head of state seeks to instill. In doing so, he risks becoming the candidate of "TINA" - "there is no alternative" - ​​flagship of the notorious "only possible policy." This discourse often pleases the editorialists and seduces economic or intellectual elites. On the other hand it drives the lower classes to despair, who then desert the polling booths or take refuge in the "anti-system" vote, Le Pen style, since they can no longer find credible a possible alternative.

I guess all anyone can do is just shut up. Not only TINA, but it is treason to be in the opposition.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 09:30:25 AM EST
[ Parent ]
If your government is at war with the Welfare State, isn't taking the side of the Welfare State treason?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 09:33:37 AM EST
[ Parent ]
If Merkozy's genial plan fails to rescue the euro (and we all know it will), it's not their fault. It is the fault of Hollande's stab in the back.
by Katrin on Tue Dec 13th, 2011 at 11:09:58 AM EST
[ Parent ]
And Cameron, and the likely Irish referendum. And the fecklessness of the Greeks and their inability to grow their economy while slashing government spending by 10% of GDP.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 11:17:32 AM EST
[ Parent ]
Especially the Irish referendum, I guess. Can't have that anymore, this damn democracy. Why must they always give the wrong result in the first attempt?
by Katrin on Tue Dec 13th, 2011 at 11:27:09 AM EST
[ Parent ]
So the Dolchstosslegende is fair game, too?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 11:24:38 AM EST
[ Parent ]
Couldn't help it.
by Katrin on Tue Dec 13th, 2011 at 11:27:52 AM EST
[ Parent ]
If even campaigning against Merkel's and Sarkozy's policies is declared disquieting for "the markets", Dolchstoßlegende is the correct metaphor.
by Katrin on Tue Dec 13th, 2011 at 11:38:50 AM EST
[ Parent ]
is that "the markets" are tanking because Europe is throwing itself into a recession. The prospect of more expansionist economic policy in the future can therefore only be welcomed by said markets.

Fillon undoubtedly knows this, because he is not a complete idiot (unlike his president and many of his ministers)

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

by eurogreen on Tue Dec 13th, 2011 at 12:40:20 PM EST
[ Parent ]
Double treason in this Dolchstoss from Hollande, since he and all the opposition have to be constantly ordered to stop being Germanophobic, which God forbid Sarkozy could ever be.

Except that during the 2007 campaign, the candidate Sarkozy came out with the following, on three occasions in major public speeches:

Quand le candidat Sarkozy était accusé de "germanophobie" en 2007 - LeMonde.fr

"La France n'a jamais cédé à la tentation totalitaire. Elle n'a jamais exterminé un peuple. Elle n'a pas inventé la solution finale, elle n'a pas commis de crime contre l'humanité, ni de génocide"

(9 March 2007, Caen; and 17 April, 2007, Metz)

"[La France] n'a pas commis de génocide. Elle n'a pas inventé la solution finale."

(30 March 2007, Nice)

France has never given in to the totalitarian temptation, has never exterminated a people, did not invent the final solution, has committed no crime against humanity or genocide...

No reference to Germany, of course.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 03:27:04 PM EST
[ Parent ]
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 03:37:00 PM EST
[ Parent ]
As predicted by Mig, France's AAA rating has become the subject of French Presidential Election Campaign Football, and of course, the "Golden Rule" is used by the UMP to tar the socialists as "irresponsible" (last summer, I wrote: "we haven't seen the last of the "Golden Rule"", but really, this was shooting fish in a barrel).
by Bernard on Tue Dec 13th, 2011 at 03:16:30 PM EST
[ Parent ]
European Tribune - Comments - Kicked Cans Don't Roll
As a consequence any country's request to proceed according to the weaker deficit rules of the European treaty would mean that the stricter rules according to the intergovernmental treaty cannot be applied.

I frankly don't see things getting even that far. Multiple national constitutional courts are going to rubbish this in the constitutional-suit-equivalent of a New York minute either on sovereignty grounds or lack of democratic legitimation.

Or maybe both.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Tue Dec 13th, 2011 at 05:07:09 AM EST
Well, the Commission presumably has to look at that aspect. But I agree with you.
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 05:08:37 AM EST
[ Parent ]
I'm not sure the Commission will even get a look-in, as I imagine the opponents will start seeking relief from the national constitutional courts as soon as the parliaments enact this, um, can we call it a treaty-default swap?


The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
by dvx (dvx.clt št gmail dotcom) on Tue Dec 13th, 2011 at 05:21:57 AM EST
[ Parent ]
Can we short it?
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 05:23:29 AM EST
[ Parent ]
I'm not sure I understand what the problem is. EU institutions already play a key role in enforcing Eurozone and Schengen rules even though they don't apply to all. The UK also got an opt-out on Lisbon in relation to the Charter of human rights.  Does this invalidate the role of the ECB or European Court in relation to the others?

On the other hand, if the UK really got obstructive about this, what is to prevent the EU26 from "downsizing" the current Commission to one room in the Berlaymont and creating a new one for the EU26? (The UK should be happy that all that bureaucracy and administrative red tape as been demolished).  Effectively the UK would be sidelined.

My greater concern about an "inter-governmental" Treaty is not that it has any lesser force than an EU Treaty - the EU treaties are also inter-Governmental in Nature.  The problem is that such a Treaty would further undermine existing EU institutions in favour of an intergovernmental Troika effectively led by Germany France, and the ECB.

And whatever about the UK being sidelined if it doesn't play ball, a small debtor country like Ireland doesn't have a chance of influencing outcomes in the new arrangement.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 13th, 2011 at 06:01:21 AM EST
[ Parent ]
If you don't see a problem in 26 of the 27 scrapping the current Commission to build a new one against Britain's veto, then I guess you're right, there's no real problem! ;)

I think the point is that this "compact" is being hyped up as a binding treaty to impress the markets (as if), when in fact it never looked like being a full 27-country Lisbon revision, and will not even be a 26-country "treaty" (too much ratification and referendum-type hassle). It will be, at most, an inter-governmental agreement that the Commission is supposed to police (some hope, as the Commission is apparently muttering) and the ECJ rule on (no hope).

So it looks like a turkey for Christmas, but start plucking it and it turns out to be dead crow.

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 09:59:06 AM EST
[ Parent ]
If, as seems likely, the Attorney General rules that a Referendum is needed to ratify the "compact" in Ireland - ironically, partly because it is not ceding power to the EU, but to a new 26 country entity - and that the referendum is defeated, as seems even more likely, then the markets are going to be even more impressed. Sarkozy's re-election hopes will be in deep DoDo and Merkel will be a dead woman walking because the exercise of democracy has a way of doing that to ill thought out schemes.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 13th, 2011 at 10:12:05 AM EST
[ Parent ]
@economistmeg
Fianna Fail and Sinn Fein calling for Irish referendum on fiscal compact. Even if referendum isn't legally required, politics may require it



tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 11:50:52 AM EST
[ Parent ]
I wouldn't be over impressed by opposition parties doing what they are supposed to do - oppose - and positioning themselves "on the side of the people". Referendums in Ireland are called when a constitutional change is deemed necessary to ratify a Treaty. There is never a political reason for calling one, it is always a legal one. It would be an abdication of Government responsibility to call a referendum when none is legally required - but that doesn't prevent the opposition from trying to claim the Government is running away from the people.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue Dec 13th, 2011 at 12:20:08 PM EST
[ Parent ]
A clear, readable piece from Philip Stephens (again) on why fiscal rectitude will not prevent crises in the absence of current-account rebalancing:

Why the eurozone deal will fail - FT.com

If, however, southern European nations are no longer in the business of issuing unlimited government paper, what other assets might German investors acquire? Perhaps we'll see the titans of German industry building new factories in Spain, Portugal or Greece. But Germany's excess savings might be invested in southern European real estate or, even worse, newly-created pieces of paper uncannily similar to mortgage-backed securities.

(Google search link).

by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 05:07:30 AM EST
European Tribune - Kicked Cans Don't Roll
(though he also implicitly accepted the coming loss of France's triple-A, to be faced with cool, calm and determined application of the same policies that have already failed).

LOL

he's aged 10 years in the last three months. cog-diss will do that to a man...

'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 Tue Dec 13th, 2011 at 06:54:48 AM EST
[ Parent ]
Given that it is apparently impossible for a policy to fail sufficiently spectacularly that the failure prevents the policy from being resolutely adopted and followed if it appeals to TPTB, perhaps the best chance that sane policies will be adopted lies in the need to safely and profitably reinvest capital. But that is a very frail reed, as crisis after crisis has shown.

The one thing that they will not abandon is the doomed but self serving policy and the one thing that they will not do is adopt a policy that better accords with reality. The only solution that is likely to work is the near total obliteration of all inhabiting the existing political spectrum in Europe and North America. But while that may well happen the response is likely to take us all in the exact worst possible direction.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Dec 13th, 2011 at 11:41:48 AM EST
[ Parent ]
Perhaps we'll see the titans of German industry building new factories in Spain, Portugal or Greece.

If they haven't been doing this since 1981 or 1986, why should they start now?

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

by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 11:44:48 AM EST
[ Parent ]
I read Stephens as insinuating that this was a big "perhaps"...
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 11:53:34 AM EST
[ Parent ]
Because those factories would be uncompetitive as the periphery nations have too high costs and can't devalue?

They could still buy up periphery shares, esssentially in the long run transfering ownership of Spanish etc business to German pension funds (etc). Of course, the surplus savings could also be invested outside of the eurozone as well, in petroleum assets, mines and so on, Chinese style.

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

by Starvid on Wed Dec 14th, 2011 at 06:37:02 AM EST
[ Parent ]
On a topic close to our hearts, it appears that after the disappearance of the Croatian government subsidies, Brodosplit continues to produce excellent boats but they are now the most expensive in the world.

In any case, you continue to not address the issue of why the periphery should accept depression conditions rather than the core accepting some inflation.

Investing German surpluses outside the Eurozone does nothing to address the intra-Eurozone imbalances, by the way. And buying existing shares just inflates asset prices, it doesn't improve the capital base of the periphery (or of the EU as a whole) and so doesn't really constitute "surplus recycling".

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 06:45:38 AM EST
[ Parent ]
In any case, you continue to not address the issue of why the periphery should accept depression conditions rather than the core accepting some inflation.

I'm not arguing for any of those solutions, as I see both as unacceptable. I want to see widespread sovereign defaults, bank recapitalizations and the emergency funds of the ESFS spent on infrastructure spending in the periphery as a way of offsetting austerity.

Investing German surpluses outside the Eurozone does nothing to address the intra-Eurozone imbalances, by the way. And buying existing shares just inflates asset prices, it doesn't improve the capital base of the periphery (or of the EU as a whole) and so doesn't really constitute "surplus recycling".

The important point here is not improving capital bases as such, but of financing CA deficits without debt to buy enough time to restore competitivness.

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

by Starvid on Wed Dec 14th, 2011 at 08:48:39 AM EST
[ Parent ]
And where is competitiveness to come from if not via improvements of the capital base? Bangladeshi wage levels?
by generic on Wed Dec 14th, 2011 at 09:21:06 AM EST
[ Parent ]
Better productivity is not exclusively about higher capital content in the production. There are always smarter and more efficient ways to do things, and companies constantly look for them. It's a never-ending quest.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:46:57 AM EST
[ Parent ]
Better productivity is not exclusively about higher capital content in the production.

But overwhelmingly it is.

There are always smarter and more efficient ways to do things,

But finding them requires an industrial base from which to learn.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 09:55:14 AM EST
[ Parent ]
The entire set-up of the Soviet economy proves the opposite. No matter how many tractors, coal mines or capital-intensive megaprojects you had, the inherent inefficiency of the planned economy wrecked productivity entirely.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:10:35 AM EST
[ Parent ]
You need balance.

The whole unfettered free-market thing doesn't seem to work too well either.

by Colman (colman at eurotrib.com) on Wed Dec 14th, 2011 at 10:12:03 AM EST
[ Parent ]
Productivity defined how?

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:14:58 AM EST
[ Parent ]
The entire set-up of the Soviet economy proves the opposite. No matter how many tractors, coal mines or capital-intensive megaprojects you had, the inherent inefficiency of the planned economy wrecked productivity entirely.

That's not actually true. The Soviet economy performed more or less as a Solow model of capital accumulation would predict. When you calibrate your model to the whole world, the Soviet Union overperforms during the interbellum (usually ascribed to the Soviet Union being part of an international trade system that was shielded from the Depression) and slightly underperforms during the postwar period (usually ascribed to Russia being part of a smallish international trade system - larger international trade systems tend to perform better, which is why you have international trade systems in the first place).

But Russia was a third-world country in 1918. And Germany, well, wasn't.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:48:03 AM EST
[ Parent ]
The Soviet interbellum period was one that fitted especially well to planned economy, as the efforts were more or less entirely focused on mining coal and iron, to make steel to make tanks. It wasn't very complex at all, and so planning worked. As did planning in all countries during wartime. However, the postwar era showed that it was a useless system for producing things people actually wanted: consumer goods.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:50:58 AM EST
[ Parent ]
Again, the underperformance in the postwar period, relative to a naive Solow model, is very modest. Certainly less than two sigma. The gap between the Soviet Union and Western Europe is largely if not totally explained by their relative starting positions. And any residual is largely or wholly explained by the the Soviet Union being in the smaller trade bloc, and the trade bloc that started out poorer.

The Soviet political system just isn't visible in the gross GDP and growth data.

Of course, having a police state and fighting unprofitable colonial wars in Central Asia tends to divert industrial output from consumer goods into military hardware and man-hours from industry into the army and political police. A point the Americans may want to keep in mind.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:59:53 AM EST
[ Parent ]
That just doesn't make any sense when you look at the stagnation of Soviet GDP after say the 60's. Nor does it mesh with the massive anecdotal evidence you have from the Soviet union. The waiting in lines for everything, the lack of consumer products, the low quality of what products there were, the squalor and lack of housing with many families living in the same apartments, the poor Polish visiting basketball players who (after having roundly beaten their Swedish opponents, and not caring much) spent all their time stealing toilet paper from the arena bathrooms to bring home... :p

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:04:40 AM EST
[ Parent ]
And how much different is that from, say, Egypt today?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:18:00 AM EST
[ Parent ]
Considering many people in Russia consider that those were the good times - better times than today, anyway - it's not clear that the anecdotal evidence supports your point.

Besides, the ability to make and distribute consumer goods isn't in itself a particularly useful measure of the health or value of an economy.

We don't actually have a useful model of what a healthy economy does look like. Mid-century social democracy probably comes closest, but the - apparently - inevitable slide into economic dictatorship by the non-proletariat has to be considered a bit of a flaw.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Wed Dec 14th, 2011 at 11:20:42 AM EST
[ Parent ]
Of course I'm coloured by the Scandinavian perspective, but from that perspective, things have never been better.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:28:37 AM EST
[ Parent ]
Isn't the Swedish economy in CA plus due to trade with Germany?

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Thu Dec 15th, 2011 at 02:55:41 PM EST
[ Parent ]
I'd say Sweden has a CA deficit with Germany.

Exports (2010)--SEK 728.2 billion (U.S. $102.9 billion). Imports (2010)--SEK 687.6 billion (U.S. $97.2 billion).

Major trading partners, exports (2010)--Germany 10.1%, Norway 9.9%, U.K. 7.6%, U.S. 7.3%, Denmark 6.5%, Finland 6.2%, France 5.1%, Netherlands 4.7%, Belgium 3.9%, China 3.1%.

Major trading partners, imports (2010)--Germany 18.3%, Norway 8.7%, Denmark 8.5%, Netherlands 6.4%, U.K. 5.7%, Finland 5.2%, Russia 4.9%*, France 4.8%, Belgium 3.9%, China 3.9%.

* This is mainly oil, especially heavy/sour gunk which we process into motor-grade diesel a the refinery in Lysekil.

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

by Starvid on Thu Dec 15th, 2011 at 04:03:47 PM EST
[ Parent ]
I have been thinking a bit about lines.

Far as I can see lines are a sign of:
1) limitation in access (you don't line for something everyone has in abundance)
and 2) power allocated at the point people are lining to (in the reverse, you have people going door-to-door)
and 3) distribution by stubbornness

Distribution by market forces just changes the last point to distribution by market power. When it comes to capital and resources, distribution by market power can be argued on basis of efficiency. When it comes to consumer goods, unless you assume homo economicus, I see no reason that it is more efficient to distribute from market power then from stubbornness.

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

by A swedish kind of death on Wed Dec 14th, 2011 at 03:57:47 PM EST
[ Parent ]
Do the periphery nations have too high costs?
by Colman (colman at eurotrib.com) on Wed Dec 14th, 2011 at 07:08:20 AM EST
[ Parent ]
No, they have low productivity.

Relative to Germany, Spain has low wages and longer working hours, but inefficient or deficient physical capital.

Relative to China, Spain has high wages, shorter working hours, and possibly better physical capital.

Germany wants Spain to deflate wages to the level of China or export its qualified workforce to Germany so wages there are depressed.

Spain should like to have its capital base improved to improve the productivity of its workers.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 07:14:09 AM EST
[ Parent ]
Q: Do the periphery nations have too high costs?

A: No, they have low productivity.

In the real world of business, those are essentially the same things.

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

by Starvid on Wed Dec 14th, 2011 at 08:44:18 AM EST
[ Parent ]
But my point is that the same worker is more productive with better tools.

So, if the business is undercapitalised it can blame the worker and pay it less or blame itself and improve its capital and pay both itself and the worker more...

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 08:54:32 AM EST
[ Parent ]
Still, what matters most is that at the end of the day you must produce a product your customer wants, at a price he is ready to pay. Otherwise, he'll choose another supplier. That's why SAAB is going under, and good riddance.  

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:03:18 AM EST
[ Parent ]
What your consumer is prepared to pay depends on his income, which in turn depends on his government's employment, fiscal and currency policy.

If you want a currency union, you must be prepared to increase government deficits, increase employment and increase inflation until you do not run a current accounts surplus against other members of the currency union.

If you don't want to do that, then you don't want a currency union.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:00:36 AM EST
[ Parent ]
Spain should like to have its capital base improved to improve the productivity of its workers.

A key policy focus for any Spanish government, just as it for any reasonable government.

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

by Starvid on Wed Dec 14th, 2011 at 09:00:57 AM EST
[ Parent ]
Incompatible with 1) the Growth and Stability Pact; 2) EU "Illegal state aid" rules.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:01:36 AM EST
[ Parent ]
Not at all. Creating a strong business climate does not necessarily require government subsidies (which might well be counterproductive, especially after the "infant industry" stage) or massive national debts or deficit spending.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:05:27 AM EST
[ Parent ]
Running a government surplus and reducing debt (as Spain did) manifests itself as pressure to increase private indebtedness. Indebted business is not really a strong business climate.

Currently, with austerity, the message seems to be that a strong business climate will be fostered by lax labour laws, easier layoffs and longer hours for lower pay. Meantime, skilled workers are getting fed up and emigrating.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:07:55 AM EST
[ Parent ]
Also Re: illegal state aid, it is not a coincidence that the weapons and aerospace sector is the one of the few ones that thrive in Spain, because it's the only one that it exempt from EU "illegal state aid" rules. Also not a coincidence that Spain wanted to use its semester presidence of the EU council to get the EU to lift the arms embargo on china. Also not a coincidence that one of the conditions for the "rescue" of Greece was the continuation of arms purchases from the Carolingians.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:10:50 AM EST
[ Parent ]
Creating a strong business climate does not necessarily require government subsidies

It requires a protected domestic market. This is the simple, unequivocal fact to come out of the 19th and 20th centuries.

or massive national debts or deficit spending.

Yes it does.

If you are running a foreign surplus, that deficit can be someone else's. But you still need one.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:05:10 AM EST
[ Parent ]
The point is that it should but it doesn't.

Except in so far as infrastructure building counts as capital improvement, Spain has developed decent road, rail and energy networks.

But I'm talking about improving the capital base of the private sector. Which it is the modern fashion to keep government out of.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:03:48 AM EST
[ Parent ]
But I'm talking about improving the capital base of the private sector. Which it is the modern fashion to keep government out of.

And that's not an entirely bad thing, either. Remember GOSPLAN. Though of course, state involvement makes far more sense in some industries (centralized, commoditized, capital intensive) than in others.

Still, there are indirect ways to improve the business climate and increase capital investment. Tax breaks for investment, improved infrastructure, improved higher education, reduced bureaucracy and corruption, and so on. These are all things which lie under the control of the government.

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

by Starvid on Wed Dec 14th, 2011 at 09:10:26 AM EST
[ Parent ]
Still, there are indirect ways to improve the business climate and increase capital investment. Tax breaks for investment, improved infrastructure, improved higher education, reduced bureaucracy and corruption, and so on. These are all things which lie under the control of the government.

And none of those were lacking in Spain. The crisis was the result of the blowup of private (corporate, not household!) debt which built up as a result of the pressure to reduce government debt as a fraction of GDP.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:13:10 AM EST
[ Parent ]
There is no reason why funds that had previously flown into government debt instead had to flow into private corporate debt. If the owners of those funds had been prudent they would not have lent that much, nor would those in the real estate business borrowed as much as they did if they had been prudent.

There is no simple mechanical explanation here, which says that funds flowing out of Spanish government debt has to create a credit bubble somewhere else in the Spanish economy. There were, and are, other asset classes available for investors.

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

by Starvid on Wed Dec 14th, 2011 at 09:19:59 AM EST
[ Parent ]
There is no simple mechanical explanation here, which says that funds flowing out of Spanish government debt has to create a credit bubble somewhere else in the Spanish economy. There were, and are, other asset classes available for investors.
Yes, there is. Three-sector national accounting.

You can't have growth, public sector surplus, private sector surplus, and a structural trade deficit. Something has to give. Structural trade balances take years to change. Public sector surplus is mandated by the GSP. Growth is a political necessity. Therefore, you get private sector deficit. Therefore, foreign agents' surpluses get intermediated into private debt. And the structural imbalances don't get corrected.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:39:42 AM EST
[ Parent ]
The funds might have flowed from out of government debt other things than Spanish private debt. For example into the Spanish stock market, or into investments, or they might have flowed abroad.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 09:50:38 AM EST
[ Parent ]
When you make that argument Eurozone-wide you end up with the argument that core surplus should have flowed abroad. Which would have meant a weaker Euro (and you have seen how the Swiss Central Bank reacted to that) or foreign-credit tensions in peripheral EU countries (which has happened, massively, with Core - mostly Austrian - funds loaned to Central-Eastern Europe, and blown up twice since the crisis started) or monetary deflation in the Eurozone (again, Eurozone-wide recession).

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 09:58:03 AM EST
[ Parent ]
The world is big. Unless those core surplus accumulated in just a few markets, they would have been comfortably diluted. Sure, the euro might have weakened somewhat, but not at all radically against certain currencies like the Swiss franc. The strengthening of the franc is purely an effect of flight to safety/quality.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:15:56 AM EST
[ Parent ]
The world is big, and the Eurozone is not a negligible fraction of the world. So the world is not big enough to dilute capital flows on the order of the Eurozone trade imbalances.

But you're from Sweden, and Sweden is outside the Eurozone and small enough to have its surpluses diluted in the Eurozone, let alone the whole big world.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:23:34 AM EST
[ Parent ]
The world is big, and the Eurozone is not a negligible fraction of the world. So the world is not big enough to dilute capital flows on the order of the Eurozone trade imbalances.

I'm not sure about that. It seems to be able to swallow US CA deficits without much trouble, and the US economy is of the same magnitude as that of the EZ.

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

by Starvid on Wed Dec 14th, 2011 at 10:28:03 AM EST
[ Parent ]
Hmmm... just because the US CA deficit issue with China hasn't blown up yet isn't a good guide to "without much trouble."

The trouble is out there - and it's incoming. It can be solved, but it's going to take a huge political negotiation to do so - and may be a rough ride even with that level of leadership. With Merkozy levels of leadership, the prognosis isn't good.

by Metatone (metatone [a|t] gmail (dot) com) on Wed Dec 14th, 2011 at 12:46:28 PM EST
[ Parent ]
The world is big.

The world also floats its currencies relative to the €-Mark. It would be triviality itself to retaliate against a mercantilist drive towards surpluses with RoW.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:02:49 AM EST
[ Parent ]
We keep running circles around the small open economy mindset problem.
The many failures of the eurozone's crisis response policy have a common cause: the eurozone is a large closed economy. Each of its 17 members is small and open. The political leaders who run the eurozone have a small open economy mindset - every one of them, without exception. The economists they employ mostly use small, open economy models.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 11:10:15 AM EST
[ Parent ]
You're inverting the causality. The funds are created when the private or public sectors assume debt. Because central banks do not generally rediscount common stock under a capitalist system.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:04:35 AM EST
[ Parent ]
And when the government unwinds it debt, there is no need at all for it to turn up as new debt in some other part of the economy, unless someone actually want to borrow massively. Which is my point exactly.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:17:05 AM EST
[ Parent ]
But they will want to borrow massively, because otherwise GDP drops.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:21:57 AM EST
[ Parent ]
In the event of a recession where lower interests don't help enough, they will. But that's perfectly alright. Especially if they have payed down government debt during the good times.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:25:46 AM EST
[ Parent ]
Unless Germany panics and forces Austerity on you as happened to Spain (which had paid down its public debt in the good times) in 2009.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:27:39 AM EST
[ Parent ]
Sucks to be in a monetary union with goldbugs.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:28:55 AM EST
[ Parent ]
And when the government unwinds it debt, there is no need at all for it to turn up as new debt in some other part of the economy, unless someone actually want to borrow massively.

You're inverting the causality again. The government can only unwind its debts when someone else wants to borrow massively. Or if the private sector were to somehow radically alter its propensity to store its savings in monetary instruments. But the latter scenario is only of academic interest, as it has not happened to any modern industrial society.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:42:05 AM EST
[ Parent ]
The government can only unwind its debts when someone else wants to borrow massively.

Why is this? If I'm the minister of finance and don't feel like rolling over my bonds as they come due, who's going to stop me? I don't need the permission of some other borrower.

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

by Starvid on Wed Dec 14th, 2011 at 10:47:50 AM EST
[ Parent ]
Because unwinding (consolidated) government debts reduces the money stock of society. Which you only get to do when people decrease their (money) savings relative to the size of the economy, or, what comes to the same thing, when the velocity of money increases rapidly.

If you attempt to reduce your consolidated government debt faster than society reduces its need for government money, you get deflation, which increases the magnitude of the government's obligation relative to GDP, both directly through shrinking nominal GDP for the same real GDP and indirectly by wrecking real GDP.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 10:53:00 AM EST
[ Parent ]
Can't you do it when you you're at the top of the business cycle then, when the government usually runs a surplus and inflation is a worry anyway?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:58:24 AM EST
[ Parent ]
That's when you want to run surpluses, if you ever do. But the ability to run deficits during the downturn has no relation to your ability or will to run surpluses during the upturn. Unless you constrain yourself with silly and arbitrary rules like a 60 % of GDP government debt ceiling.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:19:40 AM EST
[ Parent ]
But the ability to run deficits during the downturn has no relation to your ability or will to run surpluses during the upturn.
Not if you keep devaluing your currency through inflation or repeatedly default on government debt. But if you actually want to have a sustainably good economy, you need to repay debt (as a fraction of GDP) when things are going well, if you want to do deficit spending when the economy is bad. Otherwise you'll end up as Greece. You can't spend more than you earn indefinitely. Eventually something will have to give.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:33:13 AM EST
[ Parent ]
Otherwise you'll end up as Greece.

And if you do you end up as Spain or Ireland. No amount of deficit reduction, no matter when it happens can unfuck the Eurozone.

by generic on Wed Dec 14th, 2011 at 12:10:20 PM EST
[ Parent ]
Not if you keep devaluing your currency through inflation

shrug

I have no great issue with inflation in the mid to high single digits. Beats unemployment in the mid to high single digits.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 12:39:21 PM EST
[ Parent ]
Then you need to pay the bonds out of increased tax revenue or reduced expenditures, and we know how well that is turning out in Europe at the moment...

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:57:11 AM EST
[ Parent ]
Not running a budget surplus when the economy is booming is just wrong, if you're inclined in a Keynesian way. I think we even have legislation demanding the government run a 1 % budget surplus over the business cycle.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 11:00:04 AM EST
[ Parent ]
That's not a problem, the problem is the current austerity drive.

Another problem is using the boom to pay down government debt rather than to invest in a reduction of the trade deficit. Because if your economy is booming under a trade deficit the economy is taking debt on as a whole, and if you don't take that debt on as a government the private sector is doing it while at the same time growing on imports. That is not a healthy situation as we have seen, and the market won't correct it by itself.

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

by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 11:03:28 AM EST
[ Parent ]
Actually, if you're doing it right (that is, tying a piece of string around the balls of your banks), you'll still be running moderate deficits during a boom.

You only really want to run surpluses when you have a foreign surplus (particularly when you suspect that it is caused by hot money) or a private sector credit expansion in excess of trend.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 14th, 2011 at 11:15:46 AM EST
[ Parent ]
The necessary first step in "doing it right" is not putting bankers in charge of financial regulations and the money supply.

For the same reason anyone with sense doesn't put monkeys in charge of a banana plantation.

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

by ATinNM on Thu Dec 15th, 2011 at 02:58:24 PM EST
[ Parent ]
Starvid:
I think we even have legislation demanding the government run a 1 % budget surplus over the business cycle.

I recently learned that that legislation was a preparation to joining EMU and was commented by the magazine Affärsvärlden as an abandonment of Keynesian politics.

Budgettaket är en anpassning till EMU

Tidskriften Affärsvärlden konstaterade redan när budgetsystemet beslutades att det innebär "en av de största förändringarna någonsin i svensk ekonomisk politik", närmare bestämt "ett byte av ekonomisk-politiskt system" och att "den keynesianska budgetpolitiken överges".


Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
by A swedish kind of death on Wed Dec 14th, 2011 at 04:35:02 PM EST
[ Parent ]
In one way I agree you're right, but I think the more important reason is the lessons of the early 90's crisis. As PM Göran Persson said, he never again would allow that the leader in Sweden would have to go to Wall Street, cap in hand, and beg for loans from smirking 20-somethings. A bit like how those who got burned during the 30's often never ever borrowed money again. With strict budget discpline, all would be well. And to tell the truth, it has all worked very well, helped by a 6% CA surplus and a floating exchange rate. The only problem is the real estate bubble. We'll see how bad that turns out. And even if it does turn out badly, due to our budget discipline and the state saving money in the good times, Sweden is one of the few states around that can spend freely in the bad times without getting into economic/political problems.

Still, your point is relevant, in that the Euro would never have worked unless there were strict budget discipline and large budget surpluses during the good times, as the interest rate weapon would work much less efficiently during the bad times, and fiscal stimulus becomes very problematic in a common currency area unless your government debt is initially very low. Maybe the cap should have been set not at 60% of GDP, but at 30%? Then we would have no EZ at the moment, as Germany would not have managed to reach 30% yet. Seems like a good outcome to me... No caps on deficits, hard caps on debt ratios which were to be waived in the event of local asymmetric shocks..

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

by Starvid on Thu Dec 15th, 2011 at 03:44:14 AM EST
[ Parent ]
Yes, I think that was a formative moment for Persson and thus for the soc-dems and the whole economic politics of Sweden.

But from what I now understand he could have told "you and what central bank?" and got them to stop smirking. If there was a law in place to stop direct borrowing form Riksbanken they could always used Nordea that the government had taken over and borrowed as much as they wanted. Thus turning the speculators to... raw meatballs?

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

by A swedish kind of death on Thu Dec 15th, 2011 at 10:04:54 AM EST
[ Parent ]
We were not in a liquidity trap back then. Printing lots and lots of money instead of borrowing it abroad would have resulted in considerable inflation. This was not at all wanted as massive inflation during the 70's and 80's had resulted in price-wage spirals, falling competitiveness and stagnating real wages. And lo and behold, since the crisis passed we have had real wage increases of a magnitude not seen since the golden years of the 50's and 60's. I think it's important to remember that the 70's and 80's were very dark years for the Swedish economy, which culminated in the credit bubble and real estate crash of the early 90's. Since then we've been back on track.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Dec 15th, 2011 at 10:29:57 AM EST
[ Parent ]
Why the need to borrow from abroad? Sweden had a positive Current Account Balance from 1994 and onwards (I am uncertain which year the famous trip was, but the soc-dems returned to power in 1994 so it is a starting point).

When it comes to the 70ies and 80ies I think the standard explanation overlooks factors like oil dependence, RoW catching up (Sweden did not have its industrial base destroyed in wwII) and demographics - Sweden avoiding wwII meant  more people born in 10's and 20ies working in the 50ies and 60ies and retiring in the 70ies and 80ies. I also object to stagnation causing the property bubble of the late 80ies, I see that as caused by the deregulation of 1985:

Novemberrevolutionen (Sverige) - Wikipedia

Novemberrevolutionen är det informella namnet på Riksbankens beslut att avreglera den svenska kreditmarknaden den 21 november 1985.[1] Beslutet innebar bland annat att bankerna fick låna ut obegränsat med pengar utan att Sveriges riksbank lade hinder i vägen.

Nationalekonomen Lars Jonung har skrivit om novemberrevolutionen: "Detta är den s.k novemberrevolutionen som markerar den mest genomgripande omläggningen av Riksbankens penningpolitiska strategi under hela efterkrigstiden.".[2]

But we are getting into a very broad topic and of the imho interesting topic in relation to the ongoing euro crisis - did Persson need to borrow abroad and if so why?

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

by A swedish kind of death on Thu Dec 15th, 2011 at 02:45:21 PM EST
[ Parent ]
Note of Caution:

Have to be very careful when making conclusions based on Economic History.  It's easy, with the best will in the world, to fall into "Correlation-as-Causation" fallacies.  

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

by ATinNM on Thu Dec 15th, 2011 at 03:07:13 PM EST
[ Parent ]
Well, that credit bubble was certainly caused by credit deregulation, but it was something of a crescendo of the mad 25 years after 1968. It's important to note that with the exception of the oil crises, all the Swedish economic problems of 1968-1993 were homegrown.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Thu Dec 15th, 2011 at 04:07:30 PM EST
[ Parent ]
Hey, look, a description of the situation (minus the realisation that private sector imbalances are dangerous) in peripheral Europe (minus Greece)
Countries which have virtuously delivered fiscal surpluses have, too often, succumbed to financial crisis. In the late-1980s, the UK ran a budget surplus alongside a current account deficit. Only as the economy began to collapse did policymakers begin to recognise that imbalances within the private sector could be just as damaging as those within the public sector. The UK economy wilted in the face of a rapidly deflating housing bubble.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 12:18:23 PM EST
[ Parent ]
Uh, not Philip Stephens but Stephen King who
is group chief economist at HSBC and the author of Losing Control (Yale)


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Tue Dec 13th, 2011 at 12:19:28 PM EST
[ Parent ]
Whoops! </cleans glasses>
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Dec 13th, 2011 at 12:39:12 PM EST
[ Parent ]
We're living in a Stephen King novel?

Driven by ghosts of inflations past ECB has gone mad and will axe the economy unless telepathy can be invented quickly enough.

Suddenly things makes sense.

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

by A swedish kind of death on Wed Dec 14th, 2011 at 04:38:35 PM EST
[ Parent ]
Lafontaine sees the End of the Euro coming - Interview - Spiegel Online
...and he designates Merkel and Sarkozy as irresponsible spendthrifts.

There is a common currency but economic, financial, social, and wage policies are drifting apart... German wage dumping... The banks have now succeeded in blaming the state for maldevelopments. Unfortunately, most politicians are parotting this nonsense. Two years ago statesmen saw that deregulated finance have led to massive additional expenditures because banks had to be bailed out. Put differently, deregulated finance is a giant debt machine. If that machine is not stopped, if they're not shrunk and strongly regulated this debt will ever increase.

SPON: Isnt that a bit too easy? Many EU countries have borrowed heavily from financial markets to finance welfare, living above their means and becoming dependent on financial markets.

No. The German example shows - HRE, Commerzbank, IKB, Landesbanken - that the debt explosions originating from banks have nothing to do with welfare spending. Ireland and Spain had -before their banks bombed- no debt problem. It would be fatal if European governments again saw the main problem in welfare spending. That results in absurd policy. Instead of freeing themselves from the yoke of financial markets, the Agenda 2010 is applied on all EU countries. The result: the economies are suppressed and debt increases. We have two notorious debtors: the banks on one side and Angela Merkel and Nicholas Sarkozy with their austerity programs on the other side.

...A classic liberal would have to say: all banks are to be shrunk so that they're no longer too-big-to-fail. E.g. Deutsche Bank wouldn't be allowed to have a balance sheet of 2000 billion but only around 200 billion...

On a recent talk show he (the classic lefty) and the neoliberal H.W. Sinn largely concurred that the EU polity is screwing around with side battles like sovereign debt and not tackling the real problems of easy money and overleverage. Additional points of concurrence: banks trying to offload debt onto taxpayers, stability and fiscal pact won't work and are undemocratic. Says the FAZ ("Lafontaine and Sinn shoulder to shoulder"): "'Is Germany also going down now?' ...One has to fear yes, if the chief lefty Lafontaine and neoliberal Sinn agree so often."

Schengen is toast!
by epochepoque on Tue Dec 13th, 2011 at 02:23:05 PM EST
I bet a friend of mine 100 kronor that the euro would not exist in the way it does now, on January 1 2012. I'm more and more thinking I might have been wrong. The Euro does not work, but the costs of a break-up, not only political but economical as well, are so immense that it will not happen. The periphery will probably prefer grinding deflation/depression. and Germany might well prefer just paying everybody else's bar bill.

See this enlightening report from UBS.

The cost of a weak country leaving the Euro is significant. Consequences include sovereign default, corporate default, collapse of the banking system and collapse of international trade. There is little prospect of devaluation offering much assistance. We estimate that a weak Euro country leaving the Euro would incur a cost of around EUR9,500 to EUR11,500 per person in the exiting country during the first year. That cost would then probably amount to EUR3,000 to EUR4,000 per person per year over subsequent years. That equates to a range of 40% to 50% of GDP in the first year.

Were a stronger country such as Germany to leave the Euro, the consequences would include corporate default, recapitalisation of the banking system and collapse of international trade. If Germany were to leave, we believe the cost to be around EUR6,000 to EUR8,000 for every German adult and child in the first year, and a range of EUR3,500 to EUR4,500 per person per year thereafter. That is the equivalent of 20% to 25% of GDP in the first year. In comparison, the cost of bailing out Greece, Ireland and Portugal entirely in the wake of the default of those countries would be a little over EUR1,000 per person, in a single hit.



Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:08:13 AM EST
[ Parent ]
Yeah, and we will probably also give up democracy to save the Euro. At the end of last week's summit they appeared to be willing to throw the continued existence of an EU27 into the Euro's volcano.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:14:04 AM EST
[ Parent ]
That's a funny thing, as in not funny at all actually. In the latest issue of Real-world economic review, Richard Koo comments that it has proved extremely hard for peace-time democracies to maintain stimulus programs over time. As soon as the slightest green shoots are noticed, stimulus is stopped and the recession returns.

However, he also notices that there is nothing as corrosive to democracy as sustained depressions. Well then say I, this resolves the problem! With the disappearance of democracy, the political problem of maintaining a stimulus disappears, as we see the advent of massive military Keynesianism. Yay. :p

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

by Starvid on Wed Dec 14th, 2011 at 10:23:32 AM EST
[ Parent ]
And yes, the only thing we seem to learn from history is that we learn nothing from history.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Dec 14th, 2011 at 10:24:21 AM EST
[ Parent ]
With the disappearance of democracy, the political problem of maintaining a stimulus disappears, as we see the advent of massive military Keynesianism. Yay.

You joke, but this is no joke: Political Aspects of Full Employment by Michal Kalecki in 1943

The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories: (i) dislike of government interference in the problem of employment as such; (ii) dislike of the direction of government spending (public investment and subsidizing consumption); (iii) dislike of the social and political changes resulting from the maintenance of full employment.  We shall examine each of these three categories of objections to the government expansion policy in detail.

...

The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism.  The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed.  In a democracy, one does not know what the next government will be like.  Under fascism there is no next government.

The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments.  Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp.  Political pressure replaces the economic pressure of unemployment.

And this, my friends, is why Fascism is the primary mode of failure of Liberalism.

tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Wed Dec 14th, 2011 at 10:29:54 AM EST
[ Parent ]
Anyway, I'm entirely ready to close the CA divide with the southern countries through increased imports. All in the name of macroeconomic stability, of course. :p

   

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

by Starvid on Wed Dec 14th, 2011 at 10:54:39 AM EST


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