Imbalances within the Euro Area

Martin Wolf’s FT column looks at the macro fundamentals behind the divergence within the euro area: you can read it here.

85 replies on “Imbalances within the Euro Area”

So he’s saying:

Germans should take longer holidays going to Greece, Italy, Ireland, Spain & Portugal and spend more of their cash there?

It is cheaper to go to Bulgaria, Turkey & the UK, better value for money there…….

Or maybe, germans should stop being competitive so that other europeans can win some business? Forbid germans to compete on quality or forbid germans to compete on price? Then top it up by putting up tradebarriers to stop goods from outside EU from being competitive.

Not sure I see any benefits for consumers anywhere.

As a champion for the EU Germany can indeed shape the future of the EU. Either by driving other member states to become stronger or by becoming weaker itself.

Who will be the net contributor to the EU if the strong are made weak? Will the PIIGS pay?

L’Allemagne se rallie à un plan de soutien à la Grèce
L’Allemagne accepte de se rallier à un plan de soutien financier à la Grèce qui impliquerait plusieurs pays de la zone euro, non l’ensemble de l’Union européenne. Le président de l’Eurogroupe, Jean-Claude Juncker, devrait consulter les ministres des finances de la zone euro sur les modalités de ce plan. (Le Monde)

I agree that Germany, through gritted teeth, will probably do what needs to be done. Though there have to be doubts about the cohesion and effectiveness of the fledgling CDU-FDP government to convince German voters. Guido Westerwalle is no Hans Dietrich Genscher – and Angela Merkel seems to have gone AWOL. Most people outside of Germany seem to have little understanding of the pain German people experienced to absorb East Germany and to re-configure their economic model. Many Germans, quite rightly, will say “We took the hit to get ourselves in shape to prosper under the Euro; you PIIGS used Eurozone interest rates and liquidity to live high on the hog. Now is the time for your pain.”

Politically, like Waterloo, I suspect this could be a “damn close-run thing”.

@Philip Lane

Must agree that ‘situation is dire’ and that EU does not have a federal government. Also agree that this is not a case for IMF. Time for the little boys and girls in Europe to desist from running to Washington to fix minor cuts and abrasions – and also time to make their own bows and arrows and sort out which battles to fight etc ………..

mior point: can economists ever come up with something other than ‘wage restraint’? Have the macro-boys not been informed that wages are but a minor part of what is known as ‘productivity’ or ‘wealth creation’ ……..

@Kevin O’Rourke
Yes – Germany is the key. And I remain optimistic – and Paul Hunt has noted the considerable effort that Germany had to make to incorporate the East post 1989 – no other EU country could have done it and it is an ongoing project. Multi-lateralism is struggling within EU, never mind globally for the moment [and the previous brand of US unilateralism has not really gone away you know but better than a few years ago] and there is still a long way to go for the EU project in political terms. The previous German admin – with both main centre parties – was in better position to address this but present one is reliant on a minor player (makes it more difficult politically) ……… imho, as in previous brief comments, it is imperative for EU future strengthening and integration [political, economic, cultural, mi;litary] that Germany leads now, France will follow (whatever Niklas spins), and bring the errant children back into the fold. Might put a bit of pep back in Angela’s step ……….. The Categorical Imperative and what not ……..

Sign in and you get 10 a month.

There seems to be a fundamental flaw in Martin Wolf’s argument – Greece is essentially a closed economy. Other than holidays and olives they have little to sell to demanding central European consumers. This is also the fundamental difference between Ireland and Greece – there is a chance that if we improve our competitiveness that we can trade our way out of this mess – Greece looks doomed.

@ Paul – be very careful, it is not a CDU-FDP coalition but a CDU-CSU-FDP coalition. Rather than having gone AWAL, Angela Merkel is, true to form, performing a political balancing act keeping the coalition together while making sure all the mud sticks on others. The FDP are too self confident and hence willing to rock the boat while the CSU back is to the wall and hence they are wathching what their (Bavarian) voters want. German politics is always complicated by the fact that there are state level elections – this year (9th of May) the important state of Northrhein-Westfalia will vote. Merkel will have to focus on domestic politics (apart from Afghanistan – a mess they would love to escape from) e.g. the FDP want tax cuts the CDU don’t, there is huge disagreement about health and pension reform etc. and the CDU has just positioned itself so as to facilitate a possible CDU-Green coalition in Northrhein-Westfalia, which is not helping relations in the coalition.

A bailout for Greece will need to be arrived at quickly and at low cost to Germany or else it aint going to happen. I was over in Germany last week and I did not get the sense that there was much of an apetite to help out the PIIGS.

So a centre/right German government will expand aggregate demand to save the ‘peripherals’? Hmm. Its not too long since they were calling the Brits ‘vulgar Keynesians’.
In any case what happens in U.K and U.S. is probably more important for Ireland’s prospects.


Completely agree. I decided not to get into the minutiae of German politics – one has to be careful on this blog! However, this, fundamentally, is a political decision. And your final point is also being echoed by my contacts in Germany (and by others in the “core” EU member-states).

@ Jesper
Obviously, we need some heavy manufacturing,
Auto Manufacturing, we should be building cars to restart the eonomy!

“The Shamrock”
A car that punches above its weight.



We trade in Euros – not Dollars, not Sterling.

Without Berlin – we would be underwater at the mo. So lets stay both European and Global and lets not forget China.

@David O’Donnell
We could do with some help from the Germans. When our government took over the debts of our banking sector we became the most massively indebted country in…Europe? They talk about the PIGS.
Ireland is Kingpig.

@Oliver – but Ireland is very small – people here often forget that. If we were the only country in trouble there would be no problem. Greece has a population of 11 million, Portugal almost 11 million, Spain 46 million and Italy 60 million. I know we could look at GDP…but the basic point remains – we are very small.

That Martin Wolf article makes for scary reading. I note that a recent IMF report suggested that if you added the predictions of all the countries relying on exports then it vastly exceeded what those countries expected to be importing. The figures just don’t add up.

We have reduced wages and are increasing cometitiveness but it is no guarantee of increased productivity if global demand remains anaemic. In the meantime, the contraction is severe.

@ Zhou – indeed. I repeat, I think Greece is doomed – I made that prediction privately about a year ago and I am sticking to it. Indeed I would worry about serious political turmoil in Greece. It might sound overly dramatic but what would happen if their elected government were replaced by one that was not?!

Yes, we are small. But we owe a lot of money. Who do we owe it to? It is not our state that is in trouble for owing it, but our banks. With the others I get the impression that it is the sovereign debt that is the concern, with us, I believe it is bank debt.

I think somebody is doomed. Greece seems to be marching to the front of the queue. Iceland clearly wasn’t enough of a lesson, so a euro country has to bite the bullet.

I repeat myself, but it is Germany that needs the bailout and probably Austria. They are owed money by bust nations or bust banks. We should be turning the argument on its head and seeing cui bono by the bust countries not reneging on their debt.

@Edgar Morgenroth
Ireland is massively more indebted than Greece. Greece’s problems will pass but we will still be kingpig. However, this cycle of speculator cannibalism must be ended immediately. If it takes drastic state regulations on the speculators to do it, so be it. When people like yourself are saying democratic government in Greece is threatened it’s time to stop the market’s madness. It’s not tightly regulating them here and abroad that got us into this mess.

As a driver of economic growth in Europe, Germany is hopeless.

It is high time that other European countries spoke out and said so. If Germany wants to dictate economic policies to the rest of Europe, it should be told to produce policies, both economic and social, that are conducive to high growth and high consumption/investment/employment.

In the decade since 2000, Germany GDP has increased by all of 4 per cent.

That is 4 per cent in the whole decade, not 4 per cent annually. Pathetic!

Even more relevant to other European countries, final consumption in Germany has increased by a miserly 2 per cent since 2000. And, even worse, government consumption was responsible for all of that. Private consumption in Germany is lower now than it was in 2000.

No country with aspirations to play the lead role in the European economy should be allowed to get away with pitiful growth rates like that.

Unfortunately, these miserly growth rates are unlikely to change.

It is not primarily because of Germany’s taxation policies or the actions of the Bundesbank. It is due mainly to Germany’s hopeless demographics.

Germany’s population is now falling. The number of deaths each year is greater than the number of births and the gap is widening each year. Contrast this with Ireland where the number of births each year is almost 3 times the number of deaths. Not only is Germany’s population falling, but within the falling overall population, the proportion in the age group 20 to 50 is plummeting. The actual number of persons in the age group 20 to 50 in Germany is projected to fall by 25 per cent in the next 20 years. Since this is the age group which drives economic growth and which consumes the most, forget any ideas of Germany becoming a dynamic economy that pulls the rest of Europe forward with it. In contrast, the proportion of the population in Germany aged 65 plus, which is currently 20 per cent, is projected to rise to 35 per cent in the next 20 years. Again, the contrast with Ireland is stark. In Ireland, the proportion of the population aged 65 plus is only 11 per cent and, even in the worst-case scenario where the fertility rate plunges (currently it is rising), that proportion is only projected to rise to 16 per cent in the next 20 years. With demographics like that, the only growth markets in Germany in the next 20 years are likely to be for incontinence pads, mobile commodes and coffins.

As if that weren’t enough, Germany has bought lock, stock and barrel into global warmism to such an extent that, although Germany makes the best cars in the world, Germans won’t buy them. They now consider it almost criminal because they are convinced it will cause the world to fry. Prior to the recession, Ireland bought far more Mercedes per capita than Germany did, mainly because, let’s be honest, hardly anybody in Ireland (rightly or wrongly) gives a toss about global warming.

My own solution for the ‘German problem’ would be twofold. First, German men should be encouraged to spend more, particularily on high-value items like cars. Second, German women should be encouraged to have more babies. These two policies are, of course, very compatible since nothing turns a woman on as much as a man with a Mercedes.

@JohntheOptimist – how is a low birth rate in Germany is responsibe for the problems in the PIIGS??? These problems are homemade and that is where they ought to be solved in the first place. The fact that Germany would be in a position to give a dig out says it all. Even if Germany increased consuption by 20% it would not matter to Greece as, as I have said above, they have nothing to sell.

John the Optimist,

I thought your comment was interesting until I got to the last line: ‘nothing turns a woman on as much as a man with a mercedes’.

Thank you, John. Best laugh I’ve had all week (well, apart from some of the George Lee stuff). Good to see that ruminating over all those export stats has not damaged your sense of humour. It’s all Jane Austen’s fault, you know, after she contrived to have Miss Bennett alter her judgement of Mr. Darcy once she laid eyes on the size of his house in ‘Pride and Prejudice’. The myth as to what impresses women has persisted ever since, at least amongst some men!

As for Martin Wolf, his analysis is becoming repetitive and, as Edgar M. has pointed out above, is fundamentally flawed.

“It might sound overly dramatic but what would happen if their elected government were replaced by one that was not?”
I think then the EU have rules (somewhere in the back of my mind…) that allow temporary suspension. And yes, our hellenic colleagues have form on this area.
Er . maybe the reason Germany has grown so slowly is that its a mature economy with little upside?

I’m not quite sure why Mr. Wolf rules out the IMF as an option.

In fact, I think an EU/Eurozone bailout is a very messy option.

A Greek default is bad in general for all EU members, but has particular effects on Eurozone countries who plan to borrow in the coming years. Any bailout of Greece by Eurozone countries will be complicated by the EU-wide Common Economic policy, likewise an EU-wide group would find it difficult to agree in principle to a bailout which will primarily be of benefit to the Eurozone subgroup.

On the other hand, the IMF has great experience in these matters, and is designed for this very purpose -as opposed to the ad hoc agreement that EU-heads would have to sign outside of the EU.

Martin Wolf claims that an IMF bailout would prove that this is not a true union at all. Absolutely correct. There is a currency union which includes only 2/3rds of our MSs and a common economic policy which hinges on national actions. I presume he inserted this comment at the end of the article to generate sparks, rather than to make a genuine point.

Indeed it is worth noting that Britain and Sweden are pushing for an IMF solution
This seems to make a lot of sense to me, the IMF is positioned to deliver the maximum benefit in the shortest time, as opposed to the EU mucking about trying to spread the financial costs and then agreeing God-knows-what reforms (probably more politically inspired than economically sensible) they want to extract from Greece. We will not be doing Greece any favours by going down this road.

Oops, second time I have posted this one. The first time I typed my full name by mistake, so I’m no longer anonymous if the moderators let it go through. No problem.

@Edgar Monteith

I am not referring exclusively to the PIIGS.

The reality is that most of continental Europe has had an abysmal growth rate and high unemployment for the whole of the past decade. The fact that, over a period of a decade, the largest country in that area has had virtually no increase in consumption is bound to be a factor.

@Brian Lucey

The U. States is much richer than Germany, but seems to have had no problem growing. In addition, its demographics are infinitely superior to those of Germany. Its the difference between two cultures – Boston v Berlin. The U. States would never tolerate achieving average annual growth of only 0.4% over a period of a decade and certainly would not allow itself to go into demographic decline.

The USA isnt tht much richer, per head. I know where I would rather live….
Horses for courses. The USA is the USA. Germany aint. And note that I said mature, not rich. The USA is at first approximation empty compared to central europe. Lots of upside. Note also that as economies mature growth rates have to decline. The miracle of compound interest more or less guarantees that.

@ Brian Lucey – indeed they do have some form on this as they only got their current constitution in 1975. There is a general strike by the public sector at the moment i.e. some people still don’t want to deal with the problem. I wonder if our unions are watching what is going on in Greece???

In the meantime their debt-refinancing deadlines are creeping closer and of course there is speculation in the markets which will travel (and hence it is also in our interest that this is sorted).
Whoever is going to bail Greece out they better do it fast, or this is going to get very very messy.

To come back to Martin Wolf’s article, I doubt a spending splurge by the Germans will help the Greeks – it might help us though.

Bond yields well down today. Eoin, any comment? Profit taking, realistic views, shorting, the influence of Pluto on Gemini?

@Brian Lucey,

“..our hellenic colleagues have form on this area.” You have highlighted an area (following on from Edgar’s initial observation) that, not just Greece, but all the PIIGS have in common and, in my view, goes a long way to explain the inability to implement appropriate domestic economic policies in response to the rigours of the Euro. (And no, it’s not the two “c”s – Catholicism (or the post 1054 schism version in Greece) or residual corporatism.) Some semblance of functioning democracy is relatively recent – Portugal (1974), Italy (1945, but I would doubt its effectiveness since then), Greece (1973) and Spain (1975). Ireland has been an “elective dictatorship” (similar to the UK) since 1937. One reason the UK never joined, but is rarely mentioned – though it is surfacing implictly in the context of the burden of adjustment being imposed on the PIIGS, is that no government would have been able to impose the domestic policies required to adjust to the demands of Euro membership. The EU expanded too rapidly and accepted facades for reality.

In my view, another good reason to push for reform of democratic governance in Ireland so that we can implement economic policies to minimise the impact of external turbulence rather increasing the severity of its impact all on our own.

Lets not forget people that there are at least two italys. The bit north of about Castel Gandolfo works very well indeed.

@Brian Lucey

“I know where I would rather live….”

Why would you rather live in Germany? Assuming you meant Germany?

Your preference (again assuming you meant Germany) doesn’t seem to be shared by the rest of humanity. How many people emigrate to Germany each year as compared with the U. States? Few I’d say.

Even by western European standards, Germany is not particularily rich. I think its the 10th richest in the EU now. Its not actually as rich as Ireland. However, as this will provoke guffaws of laughter on this site, forget I said it. Instead, I’ll simply point out that Germany is about 20 per cent poorer than its neighbours, the Netherlands and Austria.

However, all this is a bit of a distraction. The main point is as follows.

Germany aspires to be the economic leader of Europe. It wants to set the economic policies which the rest of Europe should follow. Fine. Its the largest country, so maybe its entitled to.

What I’m saying is that certain responsibilities go with that, the main one being that those policies should promote growth. Germany seems to have no interest in that. As you say, they consider themselves a mature rapidly-ageing country and aren’t really bothered if they never grow at more than 1% annually ever again. If that’s their choice, fine, but its not compatible with the role of leader or dictating to everyone else what their economic policies should be.

@ JohnTheOptimist

“Its not actually as rich as Ireland.” You confuse income with wealth. Ireland might have higher per capita income (although that is rapidly becoming a historical blip), but Germany has a lot more wealth (accumulated throguh a long period of high income). Have you been in an Irish Hospital lately and compared it with a German one? Have you used Irish public transport and compared it to the German public transport system (they have a system we don’t).

You misunderstand Germans (I can say this as I am one) – they (we) will value stability more than dynamism (If I ever get some time I will do some research on the trade off between growth and stability across countries). In that context there is a total lack of sympathy towards the PIIGS in Germany – to them (us) these are countries that destabilised themselves. That is also why reunification has been so traumatic – it pushed Germany off its long-run trend.

What good is this lean towards stability to us? – well if they had followed our good example we would be rightly stuffed now!

@ Brian

“Bond yields well down today. Eoin, any comment? Profit taking, realistic views, shorting, the influence of Pluto on Gemini?”

Govt bonds down on the back of the “Greece bailout” story. Mainly its people getting out of short-Greece/Portugal/Spain trades, but there’s a bit of value buying as well from the real money funds. Gave back a bit of the move late on though as there is seriously conflicting comments coming out on whether there really will be a rescue package put together over the coming few days.

That said, heard an interesting story from a very good source today – Greek deficit figures to be revised/forecast a good deal worse than currently expected, released over the next week or so, and the German/EU support has been rushed through to counteract the fall out from this. The Greeks aint of out of the woods yet.

@Edgar Morgenroth
The longer this instability goes on the worse it is for Europe and for Germany. If this continues then….Germany will have to leave the Euro.
Formerly you were growing too little and now we are. Time to give you back the Deutsch Mark – it’s the only long-term solution. As for Ireland, we should want this turmoil ended immediately and should make our views known in the strongest possible terms to the ECB, Europe, Germany, FIFA…It must stop. These panics are ruinous.

@Edgar Morgenroth

First, sincere apologies for referring to you as Edgar Monteith in my earlier post. I have no idea why I did that. Second, any criticism I have made of Germany relates to German government policies and not to the German people.

Regarding the trade-off between dynamism and stability, during periods of global turbulence, the latter might be preferable. But, during the much longer periods of global growth, the former is preferable. So, while the global recession lasts, Germany might hold an advantage over other more dynamic countries. But, once global growth resumes, and it is possible that it allready has, then, based on the evidence of the past two decades, there is every reason to believe that many of these countries will achieve growth rates of 3%, 4%, 5% or higher, while Germany will still plod along with 1%. ESRI recently forecast that the Irish economy would grow by over 5% annually from 2011 on. What does the German equivalent of ESRI forecast for Germany?

I have certainly never said that Germany should bail-out the PIIGS. In fact, I believe no one should, and that they should cut public spending like Ireland has. My criticism of Germany is that the absence of any growth in consumption in the past decade is a major contributor to the low growth rate in the continental economy as a whole. I wasn’t referring specifically to Germany bailing out the PIIGS.

I have a question for you.

If all other developed countries had recorded the same increase in consumption in the past decade as Germany has (i.e. virtually no increase at all), what do you think the unemployment rate in Germany would be now, given that such growth that Germany has had in the past decade, and it has been very little, has resulted entirely from exports to countries which were recording much larger increases in consumption?

I take your excellent point about income and wealth. But, obviously, once one country achieves a higher level of income than another, then the wealth gap automatically closes and eventually disappears, and the higher-income country becomes the wealthier of the two, although how long this process takes is anyone’s guess, maybe decades. As you agree, Ireland currently has a higher per capita income than Germany, although not yet wealthier in your terms. However, there is very little to support your claim that this is a historical blip. At the bottom of this recession, Ireland still has a higher per capita income than Germany, although not as much so as in 2007, and, as I said above, based on the evidence of the past two decades, there is every reason to believe that Ireland will grow faster than Germany once global growth resumes.

Fortunately, I have not been in any Irish/UK hospital since 1988, and never been in a German one, so I can’t answer your point directly. However, there is a Swedish organisation that surveys health services in all European countries annually. This is their report for 2009:

They rank the German health service 6th best in Europe and the Irish health service 13th best. However, as you wisely point out, there is a time lag between one country achieving a higher income than another and that country becoming wealthier (in terms of things like health service and so on). So, I certainly accept their assessment that the German health service is currently better than the Irish one. However, given Ireland’s higher per capita income since around 2004, I’d also now expect the gap to be closing. And, indeed it has been. When this Swedish organisation started their surveys in 2004 or so, they ranked Ireland’s 29th. In the most recent survey for 2009, they scored Ireland higher than Germany for outcomes for the first time, which, let’s face it, is the most important metric in any health service comparison.

@John The Optimist

John – you are not getting the fact that Germany incorporated the East …..the Ossies …. the fact that Germany managed to grow at all, at all, in GDP terms is a miracle of economic management ………..

Imagine Ireland in 1989 – and the British decided they had enough of all that and pullled out – completely – including funding of all NI public services. [full stop] How do you think an all-Ireland economy managed from Dublin, and without external aid, would look now?

@JohnTheOptimist – don’t worry so much about offending me – I am thick skinned.

I won’t pretend that Germany does not have problems – you raised demographics – I totally agree (hence I point to the preoccupation with domestic politics above). Pensions, health…. you can go on there are lots of areas where they could do better. Reunification has diverted a lot of resources with which Germany has struggled. If you look at the longer run you will find that the average growth rate of Germany is not so bad and indeed you will find France performing almost as well as the US, and better than the UK and they would not come to mind as particularly dynamic.

High income does not guarantee high wealth – as we have seen you can blow income very easily, and I would not expect the Irish health system to be improving much over the next few years indeed I expect the opposite (and in fact that is my personal experience).

For the growth forecasts to come true a lot of things need to go right. I am less bullish as there is also a lot that can go wrong. At the very least we will be dragging a very heavy anchor of debt with us for a long time and that is not going to make us very dynamic.

Ah – “and they would not come to mind as particularly dynamic” – I am referring to the French.

The point is that we sometimes get carried away with the ‘Anglo Saxon model” being so much better – if that were realy the case the UK would be the richest and highest income country int he EU but it’s not!!

I would’ve thought that the point that “this is not a true union at all” is the most serious point of all, and one that will inevitably lead to the break up of the euro and an eventual reversal of the mindless policy of “ever closer union”.

@Edgar Morgenroth – “It might sound overly dramatic but what would happen if their elected government were replaced by one that was not?!”

It doesn’t sound overly dramatic. The Greek military have been known to, ahem, come to the aid of the civilian administration in troubled times.

Would you mind awfully getting your tank off my ministerial lawn old boy?

Is it possible that the myth of recessionary Ireland that you have effectively debunked, in GDP terms at least, has a parallel myth of plodding continental Europe?

I cannot square the circle of the higher general standard of living that is in evidence for larger numbers of people than here, the UK or the US. I suppose the metric I am using to measure this is in stress levels – it is far less stressful to live and work where public transport, health, unemployment, training and education systems work. They may not be superb individually, but they are generally good and they are as cheap as you need them to be.


I like the compliment, but I’m not quite sure what you mean by “myth of recessionary Ireland that you have effectively debunked”. I am certainly not disputing and have never disputed that Ireland is in a severe recession. I just maintain that it is a rare event and will in the near future give way to a prolonged period of growth, just as it did after the 1955-58 and 1981-84 recessions. That is my view anyway. Only time will tell if I’m correct.

But, I take your point on the other things.

The reason for quoting GDP and GNP so often is that they can easily be measured. Its a number, so you can readily compare one country with another.

But, I know what you are getting at in referring to the other things.

Obviously, GDP does not equate exactly to ‘quality of life’. The ‘quality of life’ in a country depends on lots of things apart from GDP and GNP.

Among them might be:

health service
education system
sports facilities
transport system
political freedom
security of employment
crime rate
nice scenery

and lots of others.

You are right to mention these things.

The problem for statisticians is that they are not easy to get a composite measure for. If any economist can come up with a way of getting a composite measure for all these things, he/she will make a fortune. I think President Sarkozy of France has some project going to do just that, to get a measure he calls GNHI (Gross National Happiness Index) or something like that.

I suppose it is similar when comparing how well off individuals are. If one man is earning 25 per cent more than his neighbour, we would normally consider him better off. But, if the one with a lower income had a more beautiful wife, was in better health, was stress-free, had better-behaved children, and so on, we might well consider him to have a higher quality of life. The difficulty for statisticians is getting a composite measure for all these other things.

Getting back to the attack on the Euro, Stiglitz has the speculators’ number I suspect. Whether the EU has the means or the will to burn them out, I don’t know.

“In a LSE Conference yesterday, and in various interviews with British media, Joseph Stigliiz has accused speculators of trying to provoke the collapse of Greece and other eurozone countries, like Portugal and Spain.

Stiglitz’s words arrive after Jose Blanco, Spanish minister of Development, accused speculators of causing the rise in the cost of Spanish debt in the markets.

“Europe should demonstrate soldarity with the countries being attacked,” said Stiglitiz in the talk at LSE.

“Speculators always look for the weakest link. What’s happening is the same as in Hong Kong in 1997-1998,” according to Stiglitz, who received the 2001 Nobel Prize for Economics. “What Hong Kong did then was raise interest rates and intervene in the market. Europe should do the same and burn the speculators.”

The likelihood of Merkel adopting ‘vulgar Keynesianism’ to boost demand in the periphery is slim. But doing nothing no longer seems like an option.
Any action at the core that strengthens the Euro may reduce what Ireland has to pay creditors, but makes exports to the U.K and U.S. more difficult, -markets that are about equal in importance to what Ireland exports to the eurozone, and probably more important if the employment content of exports is considered.
The collapse in domestic demand continues to be aggravated by the austerity measures. The only prospect of reducing the 20% of the labour force on the dole is through emigration.

Germany alone can decide whether it wants this union to prosper, or not.

Choices certainly are much easier for columnists!

German exports to the Eurozone in 2009 were 38% of its total exports compared with an estimated 41% for Ireland.

German companies have been well placed to take advantage of the rise of the emerging economies.

Norbert Walter, then chief economist at Deutsche Bank, said last year that Germans should not indulge in overconsumption now and then have to endure poverty in old age. He says it would be really good if gifted US economists were to recognise the ageing of Japan and some continental European nations for what it is: a reason to ensure sustainable consumption capability after 2015, by producing abundantly for the world now, accumulating savings and investing them productively in the world’s rapidly and dynamically expanding countries. This is the productive interpretation of the opportunities for expanding prosperity via globalisation.

As for the PIGS, all the countries were very badly misgoverned and its essential now that they reform their economies and that there is a better Eurozone system for economic monitoring and sanctions.

Greece needs to become a base for for FDI and offer attractive incentives like Ireland. Via its shipping industry, it has well established trading links with the Middle East and Asia.

@Pope Epopt – “Joseph Stigliiz has accused speculators of trying to provoke the collapse of Greece and other eurozone countries, like Portugal and Spain”

Hasn’t Stiglitz been hired by the Greek government to advise them as they try to chart a path through these problems? I guess he will say what his paymasters need him to say?

Did you see him on BBC’s Newsnight on Tuesday evening. Round table discussion with the Spanish ambassador to the UK and some guy who owns a hedge fund (didn’t catch his name as I came in after the name bars).

The hedge fund guy was just laughing at Stiglitz and basically telling him he didn’t know what he was talking about. I honestly think I saw the face of the beast that night – the hedge fund guy was just dripping arrogance, contempt, greed and wealth. I’ve certainly never seen a ruder performance in a round table discussion on TV. Stiglitz and the Spansih guy were far too polite to rip into him. I wish they had.

See if you can find it on the BBC web site. It’s certainly worth viewing. Watch the body language of the hedge fund guy when the others are talking.


I took your advice and dug it out:
(the roundtable starts about 7:45 mins. in).

I agree that the hedgie was OTT, but Prof. Stiglitz and the Spanish Ambassador were on a sticky wicket. Fundamentally, these are issues of moral hazard and democratic governance. The Greeks have consistently voted in governments that maintained a huge public sector, allowed the tax base to shrink, failed to enforce the collection of the limited taxation in place and, crucially, lied about the parlous nature of the fiscal situation.

Should the EU (not just the rest of the Eurozone) jump in now to guarantee, at least some of, their debt and rescue them from their folly? On one side I see the hedgies and speculators just brutally highlighting the results of years of delusion, deception and folly. On the other side I see the need for European solidarity.

I’m inclined to come down on the side of European solidarity – but the price has to fundamental reform of democratic governance in all of the PIIGS.

Arghh! IPlayer for TV not available on this corrupt little island.

Note to self: Set up a VPN to the UK.

Hugh Hendry is the hedgie.

I can’t help feeling we need to order in a few guillotines for the new aristos.

@Paul Hunt “I’m inclined to come down on the side of European solidarity – but the price has to fundamental reform of democratic governance in all of the PIIGS.”


I like the idea of madame guillotine too Pope!

Not sure if I put this in the right thread – discussion on Greece.

@Sarah Carey “They got there first, damn them. ”

Did they though? I’m told of lots of private jets with Spanish id’s going back and forth to Germany and France since Christmas. I’m also told there’s a lot of shouting, finger pointing and table thumping going on in Brussels this morning.

I wonder if this afternoons (or possibly evening) announcement might be wider than just Greece and its ouzo crisis? Only time will tell.

I also suspect that Faisal Islam on C4 is onto a big story/scoop. There’s something about his demeanour yesterday…………. gut feel.

The Handelsblatt reports this morning that legal experts have advised the German government that helping Greece (and other EU members) with their budgetary problems would contravene EU laws (the report was comissioned by the Liberal FDP). It also appears, perhaps because of this legal advice, that the IMF is part of the negotiations today. An FDP MP commented “You don’t help an alcoholic by giving him another bottle of schnaps”.

Michael Meister, the spokesman for Chancellor Angela Merkel, said that “aid would come under strict conditions and if the Greek government undertakes far-reaching state reforms.”

I wonder if he was thinking of a common European fiscal policy when he said ‘strict conditions’? Note the ‘and’.

@ Joseph – “I wonder if he was thinking of a common European fiscal policy” – a German dream would come true?! I think we are heading that way, but the legal advice came this morning and that aparently has torpedoed the idea of buying Greek bonds – the IMF would have to do the buying (and the EU give the IMF the cash).

Mr Papandreou said “If the speculation continues, it is not the business of Greece, but of the euro zone and Europe. It becomes a question of collective will to regulate the speculation.”

When passed through the Eurosh1t filter that seemed to come out as “I will see your two and raise you two (and try not to blink).”

Did I notice earlier that someone said the derivatives Death Star could be heard starting up?

@Edgar Morgenroth

Sorry, didn’t see your earlier post about legal advice as I take so long to write anything in my old age. That’s an interesting twist.

IMF involvement kind of ups the stakes for the average Greek – I wouldn’t want to be piling humiliation on top of austerity in any Club Med country – they’re not quite as ‘stoic’ as the Irish.

The irony is that Stoicism was a school of Hellenistic philosophy founded in Athens by Zeno of Citium in the 3rd century B.C.

@David O’Donnell – the EuroIntelligence story precedes what is in the Handelsblatt this morning (it also states that the technical deal referred to bin EI was off because of the legal opinion) – lets wait and see.


Deal is done – Van Rompuy ……….Angela leads, Nicolas supports + Barroso, Trichet, and Juncker + Papandreau … they now explain it to others in 2nd meeting and we wait and see. & interesting to see if the small German Liberal party have brought in the IMF in some shape or form or not ……… hope not: internal is better all round. UK Solidarity index nosedives – Darling -‘a Euro-zone problem’ ………



I wouldn’t want to have been in George’s seat in that first meet with Van Rompuy, Merkel, Barroso, Sarkozy and Trichet!

Is it true that the Spanish PM was also in that meeting? I’ve no video access today. Interesting if so.

@Edgar Morgenroth – “the legal problem for a bail out come from the Lisbon Treaty!”

Quelle surprise!

I was looking at their (Greece) unemployment figures earlier.

The rate increased to 10.6% – to around 530,000 – in November 2009 (from their NSS), the latest figures that are available from them. Makes Ireland look like a positive basket case but they will be moving soon enough I suspect.

Wonder what it will be in November 2010? Any odds on vying to tie with Spain at nearly 20%?

Shock therapy over the next few months and trebles all round I’m betting.

@Joseph – “Buy Euro and oil!”

Note to self: unless of course there isn’t any actual money put on the table today because ‘the markets’ won’t like it if it’s just ‘political’ support.


Doubth you see any cash on table – Political Solidarity within EiroZone and A.N. Other Guarantee more important ……… a positive enough holding exercise …….. and move to more centralisation of Euro and fiscal policy …… and Euro needs this. I’ll take Frankfurt and Berlin over Dublin and Cavan at the mo ……..

Bit of Irish Solidarity ……… from the pragmatic wing of FF!

Speaking ahead of today’s summit, Irish European commissioner Máire Geoghegan-Quinn, who has charge of the research and innovation portfolio, stressed that acting together to aid Greece was essential.

“We would be much worse off, all of us, if we were outside the European Union…It’s important to realise that together we can get out of this. No single European Member State on its own can get out of this crisis, we can only do so by co-operating together, and i think that’s the main focus of this summit meeting that Mr Van Rompuy has called today,” she said.

Angela – Kant let meself get caught like this again! Categorical imperatives how are ya?

Nicholas – Ou est Le Monde? Mon Dieu – c’est Levi-Strauss!

George – I’m only following in Daddy’s footsteps. Do I really have to go home?

The previous Greek conservative government lied to the EU. I wonder will our government give the full facts about Irish banks to the EU and then spin them, or will they say, we’ll be gone in two years anyway and we can cover things up using the NTMA until then. If I know our government Brussels will get significant mental reservation. But if I know Brussels, they’ll be happy enough so long as Ireland is stable and bondholders get a good deal. Whatever happens the victims will be the Irish public.

@Edgar Morgenroth
The Germans should realise that if they spend now they will get no thanks in the future, from Ireland anyway. If they get into trouble in the future they will get little or nothing from us and all of it grudgingly given. The ingratitude and selfishness of the Irish establishment is limitless.

“What could any one of them be saying? I hope the words ‘dirty postcards’ don’t come into it.”
Nicolas, your wife, she is very, yes? And Mr. Merkel, your wife also is very?

Anyway, great news. Greece is saved. From the IT report above:
“the union’s leaders suggested it could include some form of loans to Greece to help it service its debt and avoid a damaging default.”
They’re going to borrow their way out of debt! I didn’t know that ICTU was at the meeting too… 😉

Ooops. I mis-spoke too soon:
(Courtesy of D15Westie on the ‘pin)
“Germany is stepping totally on the brakes on financial assistance,” said a senior EU diplomat. “On legal grounds, on constitutional grounds and on principle.” Another senior diplomat said of the Germans: “They’re not waving their chequebooks.”

Guess the Mr. Merkel jibe really hurt?

I retain my opinion that moral support is as much as Greece will receive. I’m think Ireland’s contribution should be to send a fleet of Sr. Assumptas to help the Greeks give up cigarettes and alcohol and rollerblading for lent…

@yoganmahew – you should have believed me when I wrote “@ Joseph – “Buy Euro and oil!” I would start selling, aparently its a political deal!!” and that a real bailout would contravene the Lisbon Treaty – choppy water ahead!!!

By the way it is interesting that the legal objections to a bailout are not being reported here (it was all over the German print media yesterday) – is there some wishful thinking going on??

@Oliver – don’t worry the Germans are not going to change their behaviour because a few smaller countries can’t manage their fiscal affairs.

It looks like the crunchy decsisions will be left to ECOFIN next week. Likely to be a classic Euro fudge. Buckets of dosh in the social, regional, structural funds (and in the European Energy Recovery Programme) earmarked for Greece will be disbursed early to ease the fiscal adjustment, but there will be no formal intervention to prop up the Greek debt mountain beyond the political commitment to “solidarity”. I expect the Greeks might say to Chancellor Merkel: “And where can we cash that, ma’am?”

Greek GDP data for 2009 revised sharply lower by -0.8% for Q1/2/3, and Q4 good bit worse than forecast.

Revisions to previous quarters of -0.8%, and Q4 coming in at -0.8% instead of -0.4% forecast. 2009 GDP has now fallen -2.6%.

(a) at -2.6% Greece GDP didn’t ‘outperform’ by as much as they had previously suggested/expected.
(b) sharp revisions to previous quarters continue to undermine credibility in economic statistics for Greece
(c) it increase their debt/GDP ratio further!
(d) it fits well with a story i heard this week (think i posted above) that lots of Greek data is going to be revised worse in the coming weeks, and the German support package was hastily put together this week to get ahead of the bad-news cycle and avoid a complete collapse.

@ Eoin – what surprises me is that anyone is surprised that Greek data is pure makebelief. Anyone looking at the Greek data in any seriousness will soon find issues. What was EUROSTAT and ECFIN doing all these years?

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