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Poor Spectator Sports

by Frank Schnittger Thu Jul 23rd, 2020 at 08:27:55 AM EST

For a prestigious UK magazine, the Spectator does print some rubbishy articles, easily debunked. Unfortunately this one by Matthew Lynn, Europe's coronavirus rescue fund is dead on arrival," has now disappeared behind a paywall on the Spectator's main site but is still available in their US Edition (linked to above).

This is my riposte published in the Irish Times (second letter down). It begins by praising an Irish Times article, as this is the best way to get a letter published!


Sir, - Many thanks for publishing Brigid Laffan's excellent and balanced account of the new EU pandemic recovery package and seven-year budgetary framework ("Shape of EU's new political dynamic becomes clearer", Opinion & Analysis, 22nd).

It is a deal that could hardly have been agreed had the UK still been a member, as it would have strengthened the negotiating hand of the "frugal four" - Austria, Denmark, the Netherlands and Sweden.

That has not prevented English Eurosceptics from pouring cold water on the deal, however. For instance, writing in the Eurosceptic Spectator magazine, Matthew Lynn argues that "Europe's coronavirus rescue fund is dead on arrival".

His main points are, first, that it is too small; second, that it comes at the cost of great division within the EU; third, that the environmental or digital taxes proposed to pay back €360 billion in borrowing have yet to be agreed; and finally, that the disbursement of funds will be subject to political review.

First, the €1.8 trillion package is about 30 times the hated and now forgone British net contribution to the budget over the next seven years. Hardly trivial?

Second, EU budget negotiations have always been fractious and difficult. Fortunately, they only come around once every seven years. Hardly the end of the world?

Third, as the debt incurred is not due to be repaid for many years, it was hardly the most urgent order of business now to agree the exact environmental or digital taxes to be levied.

Finally, the disbursement process is to be managed by the European Commission with some oversight by the European Council. That is how the EU budget is always spent and involves the technical expertise of the EU's civil service, together with some democratic oversight. Isn't that how the UK organises its finances?

While always being grateful for the Spectator's solicitude, I think the EU will manage just fine without the UK's involvement. But it is strange to see conservative Eurosceptics worry about the EU's unity, decry the small size of the budget, and express concerns about democratic oversight when they have always been the first to criticise the huge size of the EU's budget and a claimed lack of democratic accountability.

In any case, it is a relief that the EU can now go about its business of mitigating the worst effects of the pandemic and associated economic depression. Hopefully, we will soon resolve outstanding issues around that other distraction, Brexit, although probably not to the satisfaction of the Spectator! - Yours, etc,


There are many legitimate criticisms which can be levied at the coronavirus recovery plan and the seven year budgetary framework which accompanies it, but Matthew Lynn's piece is somewhat wide of the mark. Certainly, it could have been bigger, but this is the first time the EU has borrowed to create a fiscal stimulus and where the loans are effectively mutualised. Matthew Lynn argues this means that the bond rating agencies may rate them as junk, and charge rates of interest similar to that attaching to Greek or Italian bonds. I think it far more likely that German bond interest rates will apply.

Direct conditionality to the observance of democratic norms has been dropped for any grants paid, but such programmes still have to be approved by weighted majority vote in the Council. This means that Poland and Hungary, alone, cannot ensure such conditions cannot be implicitly applied at a later stage. Neither can the Frugal Four, on their own, block payment of loans or grants to Greece or Italy, or make them conditional on their idea of what "reforms" should be instigated in Italy.

The overall plan still has to be approved by the European Parliament, which may apply conditions of its own. For instance it may insist on the restoration of cuts to research and development, climate change mitigation, and public health procurement and coordination measures which were instigated by the Frugal Four. Perhaps the Parliament may even suggest specific Europe-wide, carbon, plastic, digital, or financial transactions taxes to fund any increases in expenditure it proposes.

Certainly, there is much that can be improved in the overall package, but the EU now has the economic certainty of a seven year budgetary framework and coronavirus recovery package to underwrite confidence and national recovery plans closer to home. The Plan even includes 5 Billion to help businesses most effected by Brexit so the UK has been warned: the EU is preparing for a no-deal Brexit, or one that is extremely disruptive of existing markets. Is the UK similarly prepared?

Matthew Lynn might be better off addressing that problem. In posh British circles criticising a club you have just left is regarded as poor form. You would have had your chance to influence the outcome had you chosen to remain a member. Only people regarded as poor sports whinge about a match they have just lost. Watching what the EU is up to from afar is likely to be a poor Spectator sport.

The Belfast Telegraph has published a slighted amended (by me) version of my letter:

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 24th, 2020 at 02:06:30 PM EST
Having a plan of any sort is an improvement over what we have going on this side of the pond.
by asdf on Fri Jul 24th, 2020 at 03:07:04 PM EST
Yea - the plan doesn't actually kick in till next year, but already it can have a positive effect on consumer, investor, and government confidence that they can spend now knowing their is at least some sort of framework for future stability, always assuming a second wave of the pandemic doesn't hit in a major way come the autumn/winter.

Deaths for the entire EU area are running at about 100 p/day for the entire EU area compared to over 1,000 for a lesser population in the USA. So so far so good, but there are absolutely no guarantees it won't come back. Russia and the UK now account for far more deaths than the whole EU, but they are a continuing reservoir for possible new sources of infection.

Meanwhile, post Brexit-UK may be running out of road when it comes to cheap borrowing on world markets and the currency risk won't help their world trade. Cheap money and oil won't last forever, but at the moment they are probably the main drivers for recovery.

Ireland was actually in danger of over-heating prior to the pandemic with first quarter growth still 5.2% even after a mid-March shutdown. So hopefully it can recover reasonably quickly although the travel and tourist industries look a lost cause for the foreseeable future and agriculture and food will be badly effected by a no deal Brexit.

There are a lot of known unknowns, not to mention the unknown ones...

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 24th, 2020 at 03:48:25 PM EST
[ Parent ]
Yannis Varufakis has an op ed in the Guardian in which he says the deal is a very bad one and will lead to the disintegration of the EU. He gives three main reasons for his pessimism:

  1. Estimates for GDP (income) are for a drop of at least 10% on 2019 levels with some countries like Greece and Italy suffering even more and yet the 11 June Eurogroup communique talked about balancing budgets by 2021. This would be huge deflationary.

  2. Echoing Matthew Lynn, he says the recovery plan is far too small to be effective with Italy and Greece receiving a net boost of only 0.6% and 2.0% respectively every year from 2021 to 2023. In arriving at these figures he ignores the fact that interest rates on the loans element of the plan will be much lower enabling Greece and Italy to make considerable savings on debt service costs they would otherwise incur.

  3. "Third, the political conditions under which the funds will flow are a Eurosceptic's dream. " He argues there will be constant rows at European Council level over whether recipients of grants are doing enough to merit them in terms of economic "reforms" or adherence to democratic norms with (e.g.) the Dutch constantly lecturing the Greeks on how to run their country.

Each criticism has its merits, and to a degree we will have to wait and see whether his dire prophecies come true. On the more optimistic side, I would make the following observations:

  1. The Eurogroup communique is just crazy and can and will be ignored. We don't know how long it will take various EU member states to return to 2019 levels of activity, but there is no case for austerity until at least that has been achieved.

  2. Nobody ever said that all the heavy lifting to recover from the pandemic will be done by the EU. The 0.6 to 2.0% of GDP annual boost to GDP represented by the recovery plan grants is in addition to whatever measures are taken at national level. It is unrealistic to expect Germany to be entirely responsible fro the recovery of the Greek and Italian economies. In addition, the plan offers the prospect of near 0% interest rates which will greatly assist national efforts at recovery.

  3. We shall have to wait and see about his point three. Again it is unrealistic to expect net contributor countries to write blank cheques for net recipients to use as they please, while at the same time flouting democratic norms, allowing endemic corruption, or gross inefficiency in the allocation of monies granted. That is what democratic oversight of spending in any polity should be about. It could get very emotive, but at the same time the gross amounts of money allocated to each country will be determined by agreed macro-economic criteria (how badly an economy has been impacted by Covid-19), and the individual projects will be vetted primarily by the Commission in line with current budgetary oversight practice.

For Yannis Varufakis, European integration seem to be an entirely one way street. He wants a lot more money, free of any conditions or oversight for peripheral economies like Greece to be paid for by net contributor member states. That is not going to happen. It is not what happens now, and what we are seeing is a significant boost to fiscal transfers part funded by mutualised debt for the first time.

In my opinion the greater threat to further European integration is precisely the attitude being exhibited by Yannis. For him the world is never enough. The plan can be amended in future years if further changes are required, but for once the EU has responded to a crisis in a reasonably substantial and timely way. Let's not destroy the goodwill required to sustain that effort before it has even begun.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Jul 24th, 2020 at 11:24:56 PM EST
The best I can say about the 'rescue plan' is that, at least, the EU did something. That is hardly a high bar. To be adequate a 'rescue plan' should provide about the amount of money that has been lost due to the pandemic. This doesn't even start to come close, so depression will follow for some, if not all of the EU.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sun Jul 26th, 2020 at 04:02:01 AM EST
[ Parent ]
The EU is still not a confederation, much less a federation. The Member states are still sovereign, insofar as they have not chosen to pool their sovereignty. Economic management and taxation are still national competencies only curtailed where a Member goes into default or some kind of bail-out programme.

This is the first time the EU has taken on the burden of doing some of the heavy lifting, other than the standard regional, agricultural, structural and cohesion programmes intended to have a long term equalising effect and which constitute a small part of EU GDP.

The total EU budget, if I recall, is about 2% EU GDP compared to a US Federal budget of 21% - although that does take in Medicare, Medicaid, and unemployment programmes which are still national competencies within the EU. It also includes massive overspending on Military of course, which are also national competencies but much smaller in the EU than in the US, much to the annoyance of Trump and the Neo-cons).

So its baby steps, but at least an initial recognition that the health of each member state is also dependent on the health of the other member states economies. The obvious riposte to Yannis is to say that Greece doesn't have to be a member of either the EU or the EZ, and that membership does not constitute a guarantee by the other member states that they will bail you out, to an unlimited degree, every time you get into trouble.

It is his assumption that there is such an implicit guarantee attached to membership that leads him to take a radically different approach and which led to other member states refusing to deal with him when he was Greek Finance Minister.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sun Jul 26th, 2020 at 09:22:15 AM EST
[ Parent ]
One factor might be that by implementing a plan, even if insufficient, you can start to work the bugs out of the system.

Our American handout of $1200 and the $600 unemployment booster have both had a variety of problems. The distribution mechanisms are erratic (apparently still not entirely resolved), and the fairness of the amounts is questionable (no means testing), and they are obviously not going to replace the $1000 per week or so of income expected in the median household. But at least there is now a stake in the ground for modification going forward.

by asdf on Sun Jul 26th, 2020 at 04:31:20 PM EST
[ Parent ]
no means testing

Not even testing whether you live in the US, or whether the stimulus is going to the Italian economy....

by gk (gk (gk quattro due due sette @gmail.com)) on Sun Jul 26th, 2020 at 04:43:18 PM EST
[ Parent ]
Frankly, I was astounded by Treasury's rapid distribution of CARES Act corp and personal payola, and won't fault The Mnooch for the odious' niggardly calculation of "essential worker" cash benefits, fraudulent COVID-related "Paycheck Protection" application, or states' agencies' processing screw ups.

As quiet as can be kept by domestic press, The Mnooch has demonstrated an INORDINATE, dare I say, OBSCENE, interest in suborning teh debt from the odious--to FLOUT bipartisan balanced budget conceits--in every scene of the serial DRAMA, "The Next Coronavirus Bill." His enthusiasm for fiduciary INCONTINENCE in the public-sector appears to me consistent with his notorious and grandiose private-sector performance for Credit Crash '08.

UPDATE Trump aides float piecemeal* approach to coronavirus relief in Congress
background: DCCC House passed the 1,800 pp HEROES Act (pdf format). It's a textbook omnibus bill. The only sections (~ 100 pp) that interest election-cycle "surrogates" prescribe belated extensions of CARES Act transfer payments (UI + PUC, PUA, FEUC loans to states' DOLs) as well as mortgage and tenant payment forbearance from DECEMBER 31, 2020 to MARCH 31, 2021--three (3) months, more or less the period to run-off completely FIFO unemployment claims for each "enhanced" program. If anyone's read the remaining 1,700 pp, they're not talking, notably Paygo Pelosi and Chuck Schumer refusing *piecemeal senate adoption of HEROES.

A day before Senate Republicans were due to introduce a $1 trillion coronavirus relief bill that includes ["]reduced["] federal unemployment benefits, U.S. Treasury Secretary Steve Mnuchin said he believes the party can work quickly with Democrats on getting legislation passed.
ie. elimination of CARES $600 Pandemic Unemployment Compensation (PUC) added to states' diverse "regular" UI benefits; incidentally, exclusion of union members from any and all "enhanced" insurance is somewhat controversial.
The Democratic-controlled House of Representatives passed a $3 trillion coronavirus relief bill in May. House Speaker Nancy Pelosi, the top Democrat in Congress, criticized Republicans for not being able to agree on a plan when Americans are "on the brink" and going hungry.
magical HEROES Act, wrapped in "disproportionate" vulnerable Black- and Brown-Lives-Matter exhortations with data visualization
The most pressing issues are renewing the enhanced unemployment benefits - currently $600 a week - and liability protections from coronavirus-related lawsuits such as [BWAH!] "frivolous" litigation against schools and universities, Mnuchin said.
Kudlow's pet project "Kudlow: Businesses shouldn't be held liable for employees and customers getting coronavirus" (April) to induce "re-opening" of essential producers, regardless of OSHA or CDC safety "guidance"; campus chaos obtained fever pitch among "nonessential" workers, when DHS, ICE tampered with M-1, F-1 student enrollment visas--litigation led by Hahvahd briefly ha. ha . ensued.
White House economic adviser Larry Kudlow said Americans will receive a[nother] $1,200 check [CARES "Recovery Rebate"] as part of the new package, along with tax credits for small businesses and restaurants. Kudlow told CNN's "State of the Union" the package would also extend a federal moratorium of evictions contained in previous relief legislation.
Gratuitous response to social media "cancel" chatter (formerly-known-as JUBILEE)--as statutory forbearance expired this week; topical "economists" generally concede ~ 20M zero payment in escrow, dramatizing imminent homeless crisis but not, AFAIK, 2020 UI ordinary taxable rate, much less AGI credits--OR--medical debt deduction [!] to (ahem) save or create HHs' expected 2021 tax refunds.

So yeah. The situation here is still pretty psychotic. GD II, WW III here we come!
by Cat on Sun Jul 26th, 2020 at 11:15:20 PM EST
[ Parent ]
by Cat on Sun Jul 26th, 2020 at 11:34:52 PM EST
[ Parent ]
Back of envelope calculation suggests that $50k median household income, about $1000 per week and with two people per household both getting $600 per week, the system was in the ballpark at least.

With the proposed $200 per week, the "no evictions allowed" rules are going to put severe stress on rental property owners. Note that it is much easier, politically, to bail them out than the broke renters.

by asdf on Tue Jul 28th, 2020 at 03:27:48 AM EST
[ Parent ]
PUC bonus "relief" ($600/wk) is not means-tested; it's added to each claimant's unemployment insurance (UI) maximum benefit amt (% reported gross wage or salary) for duration "benefit year" in each state. Under-reported stat is which states did or did not enter into fed loan agreements to UI emergency programs.

NB. One provision of (R) R2 bill, eg. Grassley's, extends states' R1 forbearance and repayment periods. I've no idea how the 1,800 pp (D) bill modifies R1 loan terms or defines R2 terms of add'l "state aid"; PR simply promotes gross amount demanded.

Every UI claimant received $2,400/mo (Mar-July) regardless of HH size or state. PUC x1 alone exceeds 2020 purported average rent, $1,468, indicating E-W coast upper-bounds.

delta PUC ($2,400 - $800/person) isn't the eviction, foreclosure limiting factor; it's debtors' max UI benefit/mo. I speculate, "savvy" rental-property owners d/b/a LLCs and Cs have hedged tenant defaults with CARES Act SBA loan proceeds from retail lenders; MSM criticism of this program's admin and oversight has flewn over petty "sweetheart deals" to savage TBTFs. For them processing evictions is an accounting decision mitigating taxable income.

OTOH, tenant community militants stirred early reports of human barricades at district court entrances, organized to prevent resumption of proceedings and service. It's so GD I, so sad and futile, I think, unless judiciary devises some pretext to suspend dockets (as initially occurred) while legislators pull themselves together.

by Cat on Sat Aug 1st, 2020 at 01:23:19 AM EST
[ Parent ]
The situation here is still pretty psychotic
How the press corpse contrasts R2 appropriation bills.

reference acronym-resistant HEROES nemesis
American Workers, Families, and Employers Assistance Act, press release
S.4318 - American Workers, Families, and Employers Assistance Act, bill

by Cat on Sat Aug 1st, 2020 at 07:25:07 PM EST
[ Parent ]
an accounting decision

Diversity is the key to economic and political evolution.
by Cat on Sat Aug 8th, 2020 at 12:50:47 PM EST
[ Parent ]

Now is the time for blank checks if there ever was.
Our great leaders will nickel and dime us right back to fascism.

by generic on Sun Jul 26th, 2020 at 03:42:31 PM EST
[ Parent ]
Speaking about lecturing the EU for taking four days to reach a budget deal, how's that UK-EU relationship agreement coming along?

by Bernard on Sat Jul 25th, 2020 at 06:02:47 PM EST
Unfortunately for Boris Johnson, much of Europe has moved on from Brexit
However, things are different now. Back then, the UK was still a member state leaving the bloc; now, it's a third country, and the EU has moved on to the various bigger fish it needs to fry. These include passing its seven-year budget (the Multiannual Financial Framework or MFF) and coronavirus recovery package last week, with an attendant four days of bitter rows and negotiations.

"If Brexit is second in our list of priorities, imagine how far down the list it is of EU member states," says Anand Menon, professor of European politics at King's College London. "All this stuff about Brussels better brace itself, compared to the €1.8 trillion [$2.1 trillion] they just signed off, it's small beer."

The pandemic remains a much more pressing emergency for the 27-nation bloc. "We are focused on the recovery of the European Union -- that's the priority," said one EU diplomat who is not authorized to speak on the record. "When you've spent four days with the heads of every EU government arguing over trillions of euros, you start to see why Brexit is just not on our radar anymore. Unfortunately, the Brits are a little too self-involved to see that."

by Bernard on Wed Jul 29th, 2020 at 05:25:54 PM EST

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