Münchau on the summit fiasco

The other day in the FT, Klaus Regling suggested that it was ignorant ‘outside “experts”‘ — Americans, one presumes — who are the most pessimistic in their assessment of whether the euro will survive. On the contrary: knowledgeable Europeans, and especially those of a pro-EMU bent, are among the most alarmed right now, since they can see what way this thing is heading if Europe’s leaders continue to muddle through, kicking cans down the road, and erecting firebreaks around burning bushes (to use Olli Rehn’s unintentionally brilliant metaphor).*

Here is Wolfgang Münchau’s take on the summit, and here is a round-up of reaction on the Eurointelligence website.

* Rehn is so fond of this metaphor that he has now used it twice: first in May, when discussing Greece, and second in November, when discussing Ireland. If you’re living in a burning bush, you don’t need a firebreak. How far will the fire have to spread before the fire brigade gets called in?

27 replies on “Münchau on the summit fiasco”

LOL…. Who would have thought Mr. Rehn to have superb entertainer qualities.

In an interview with the 91 years old ex-chancellor Helmut Schmidt, he pointed out that this 3% nonsense was first and foremost broken by the very countries who are responsible for it, Germany and France.

If I am not mistaken, 75 times it was broken even since, yet, I have not seen anyone coming forward with a statement that this 3% rule needs to be readjusted, as it can not reflect the reality of the Union by any stretch of the imagination.

To insist on the 3/60 target is like an alcoholic who had a liver transplant and now opens a vodka, insisting everything is fine, he has a new liver now.

By apparently focusing on the world after 1 Jan 2013, it seems the European Council is inviting the markets to do their worst in the interim. Ireland and Greece are already out of the game and I suspect the markets view Portugal is gone as well. So it looks like Spain, Belgium and Italy will be on the menu when the markets return in full force after the season of goodwill.

It’s as if the EU’s top echelons are saying to the markets: ‘If you go on the attack, we’ll take some hits, but many of you will really suffer. Do you really want to pursue the route of Mutually Assured Destructon?’

Ireland (or Greece or Portugal) doesn’t figure in this game. It seems to me to be a perfect opportunity to sort out those things that got us in to this mess in the first place. But it seems to be politics as usual – and an overwhelming desire to return to business as usual – with a large does of victimhood thrown in.

The latest crisis has deep roots and this excellent New York Review article from 2005 goes into some of them. 2005 was the year the French and the Dutch voted no to the predecessor to Lisbon.

The EU wasn’t in great shape in 2005 but a few years of leveraged growth gave the impression that problems had been overcome. They haven’t.


“Some of the solutions to France’s problems are readily apparent, such as the necessity to remove fiscal and administrative barriers to firing and hiring, and to the creation of new enterprises. But these require the political leaders to tell voters things they don’t want to hear (as Gerhard Schröder has begun to do in Germany).

Baverez also speaks of the problem of Europe’s “organized deflation, which has transformed ‘euroland’ into a desert of unemployment and innovation,” the result of Germany’s original insistence that the European Central Bank be given as its sole task the prevention of inflation. This automatically canceled the possibility of Keynesian policies (even the perverted Keynesianism of Bush administration deficit finance, which gives George Bush’s and Alan Greenspan’s America its much-envied growth and high employment). As Robert A. Levine, former deputy director of the Congressional Budget Office, wrote recently, “The rigid monetary and fiscal constraints imposed by Maastricht are at least as responsible for economic malaise as structural sclerosis is.”

French voters remember that France’s postwar growth, from the early 1950s to the oil shocks of the early 1970s, took place under a dirigist government’s successful industrial policy, by which the government both supported and protected industries that showed a strong capacity for growth. At that time monetarism was but a cloud on the policy horizon, not the fading orthodoxy it is now. “

Instead of dismissing the views of others, Herr Regling should consider the validity of his own views.

Regling headed up the Economics Directorate of the EU when it concluded – in its March 2008 “Ireland: Macro Fiscal Assessment – An Analysis of the December 2007 Update of the Stability Programme” – that “Despite the weakening in the budgetary position in 2007, the medium-term objective, which is a balanced position in structural terms, was reached by a large margin.”

Clearly Regling did not comprehend what was going on in the Irish economy at that time. Clearly the EU did not comprehend what was going on in the Irish economy at that time. Yet Regling now argues that greater EU oversight of national budgets is required as part of any solution.

I would guess that Regling knows about as much about what’s going in the Irish economy today as he did in March 2008.

Clearly a level of austerity that would just trigger a downward spiral rather than a sustainable recovery in the medium-term is foolish policymaking.

However, again from comments last week from Dutch, Finnish, Austrain and Swedish (related to Sweden’s contribution to the existing rescue fund) political leaders, it’s crucial that the countries with problems begin overdue reforms.

It has been reported for example that Greece has eased up on its pursuit of wealthy tax evaders. It’s slow-motion as usual in Ireland.

I have made this point several times and there’s no point hand-wringing about weak politicains in Northern Europe, if they are not able to make a case with their taxpayers that structural reforms are underway in the peripherals – – it’s comparable w.

Most of the required reforms are institutional and could not be termed ‘austerity’ unless insider scrounging, corruption and feather-bedding is viewed as a stimulus.

An interesting development is that more than 100,000 Portuguese have settled in its former colony Angola, in just the past two years and the main motivation is the prospect of high salaries.


@Michael H,

Couldn’t agree more with your observation about core EZ (and associated) politicians struggling to bring there voters around “if they are not able to make a case with their taxpayers that structural reforms are underway in the peripherals”.

But I don’t think a huge amount is required in the nature of structural reforms – or reform of institutions. The institutions are largely in place; the problems are with procedures and process. Remember there were relatively limited structural changes to bank supervision and financial regulation. All that was required were two appointments at the top to make sure these (slightly re-defined and re-scoped) institutions did what they said on the tin. It’s the same in many other areas. Purge the deadwood, get some effective people in and, with some reform of procedures, outcomes could be improved dramatically.

It is interesting, though, that those, whether in the public or private sheltered sectors, who benefit most from no reform (and would be exposed if reforms were implemented) are the first to wrap the Green Flag around themselves, to claim victimhood and to seek to point the finger at, allegedly, weak-kneed politicians in the core EZ countries, nefarious officials in EU institutions and evil investors seeking to protect the interests of those whose savings they manage.

@ Paul Hunt

Self interest trumps common interest too often and it’s interesting how mute the Opposition is about the bonanzas coming the way of the exhausted fragile flowers on the government benches. It would be over-egging it to term them extinct volcanoes à la Disraeli.

The uncertain issue in the coming years is how strong the recovery will be.
Ideally, there should be a mechanism for weak countries to leave the EMU with an agreed exchange rate on euro debt.

However, for such economies, leaving the euro is unlikely to be a panacea with the prospect of a struggle to raise debt.

I’m on the train to Dublin and I was told in Cork over the weekend, that staff at Cork City Council have been given no information on what efficiencies are expected as part of the implementation of the Croke Park agreement – – I suppose it’s too much to expect any progress in just almost a year!

During the boom, all councils expanded management positions and one of the doss jobs to have is a director of services — (fill in the blank).

@Michael H,

In my view, leaving the Euro is a non-runner – and as for recovery, Alan Gray, writing in the SB Post, reckons FDI will save our bacon. I, however, reckon there is enormous scope to improve the performance of the domestic economy in ways that will ameliorate the impact the fiscal adjustment. But, as always, the comfortable, powerful and influential will do their level best to scupper any reform, while being, in principle, entirely in favour of reform.

@Paul Hunt

allegedly, weak-kneed politicians […] nefarious officials […] evil investors

Most of the complaints about Rehn, the German government, the ECB etc. doesn’t rely on a preconceived notion that they’re ogres; it’s based on specific misdeeds.

PLAINTIFF: My neighbour gored my ox.

DEFENDANT’S LAWYER: Ladies and gentlemen of the jury, the plaintiff is trying to construct my client as Other!

Of course the more traditional form of this defence is “Think of his mother!”; either way, it counts as pounding the table. Croke Park supporters have mothers too, you know. A policeman’s lot is not a happy one.

Rehn, probably, isn’t aware that the ‘burning bush’ didn’t actually burn – unlike shareholders’ wealth – but neither will the bondholders’ wealth. Hmmn,… maybe his strength is biblical exegesis after all…

@MH: “The uncertain issue in the coming years is how strong the recovery will be.”

I believe that the probability is that there will be a continuation of Economic Regression. Vide price of crude – why is it perched on the outer edge? It must decrease to $70/bl if we (western developed economies with large debt loads) are to scrape ourselves off the bottom – wherever that will be.

We are – in the economic aggregate, still descending. It took Titanic approx 4 miles to stop after the engines were shut down! Momentum!

I am planning for zero recovery. Not due to pessimism – just plain caution. If we ‘recover’ I get a bonus!


Anyone who has been in business will know that the one holding the money is in the stronger position.

Here we’re looking at the Irish (& the other PIGS) promising to implement reforms while asking for money to be transferred on the basis of the promise. Once the money has been paid then the paid for reforms may or may not happen. Prepayment for a service puts the buyer in a very, very weak position & is only done with the most trustworthy of sellers.

Having worked in Ireland, with Irish businesses and encountered how the settling of disputes are done in Ireland I’d personally be very, very careful about ever prepaying to an Irish business.

Foreign politicians are doing the same. Reforms first, then a period where the reforms are still done/implemented and then money can be paid. Money first would be foolish. It has been claimed that reforms stalled in the new EU states as they’ve already reached their goal of getting into EU.

Introduce some malus here: Pay the senior executives in Irish government with Irish government IOUs (5 years or longer). Then cleaning up the economy (as they claim they can do) will come with some very real consequences for the people in charge.

Minority government in Sweden & the likelyhood of them getting the money. The opposition:
Sweden democrats: Wants Sweden out of EU as Sweden is paying to much. Unlikely to support loans to Ireland.
Left party: Formerly known as ‘Left party communists’ (offical name). Unlikley to support what is perceived as a bankers bailout & not too keen on EU either.
Green party: Concerned about if Ireland will repay. Likely to prefer uncertain green investments in Sweden than uncertain investments like this.
Social democrats: Close ties with the largest unions in Sweden, Unions in Swden hate wage-dumping.

This year after the election the government was declined the money they asked for from the parliament. Anyones guess if the bilateral loan from Sweden will be approved though I wouldn’t count on it.


“Foreign politicians are doing the same. Reforms first, then a period where the reforms are still done/implemented and then money can be paid. Money first would be foolish.”

Is this why the the pension reserve will be the first tranche thrown into the pot (and is this conditional on the Irish version of the Enabling Act going ahead)?

and Alchemist that is exactly why the employee pension funds of Anglo, AIB, BOI etc should be put into the pot as well, and the NPRF money made conditional on this

I was talking to an economist at work today and the feeling seemed to be that the IMF deal is dead and will be renegotiated by a new government after the election.

I find it incredible that FF who don’t have the balls to legislate for abortion would throw it to the people to decide via a referendum but when it comes to the pension entitlements of hundreds of thousands of already born people there is no chance of a referendum.


I don’t know why the pension reserve is first to go into the pot. The ones who know don’t speak & the rest of us will have to make do with guesses.

The guesses will depend on the mind-set of the person guessing. A cynical & suspicious mind might make the guess that the pension money can be spent with less requirements for reforms.

I have been wondering why the Irish public is so trusting towards their elected politicians. In Sweden we trust (not much) but verify. Paying unvouched for expenses is one of the most trusting acts that can be done. The trust shown to elected politicians (50,000 eur multiplied by x?)….. By showing that much (blind?) faith in your elected politicians I do believe there must be other guesses out there as to why the pension reserve is first into the pot. Could we possibly get some other guesses?

A pension reserve seems to be something to be used for investment. Capitalising running costs might make them look like investments but the return on such ‘investments’ is…..

On holiday & might have replied to soon. I might have missed something, is the national pension reserve fund actually going to be used to fund the government deficit?

If it is, then Ireland seem to be missing some very important checks & balances. With so many people arguing for political control over the ECB & its monetary policies I shouldn’t be surprised but still.

Jesper, it seems likely that this was a condition of the bailout and something that was insisted on by Frankfurt and/or Brussels. (Of course it is difficult if you were not in the negotiating room to know who insisted on what.)

@Seafoid: “I find it incredible that FF who don’t have the balls to legislate for abortion would throw it to the people to decide.”

Its a complicated story. The Vatican is a foreign state (aka: Roman Empire). The senior clergy here in Irl are reps of the Vatican, and like colonizers insist that certain Canon Laws be obeyed. Outside of these laws – we can behave as we please.

Up to now the majority of our politicians have been very risk averse wrt Rome. Hence their cowardly behaviour toward that proportion of our female population between menarche and menopause – who need to be monitored by Big Daddy Binchy and his fellow travellers, since clearly these females just might get it into their heads that their own bodies are their own private property – to protect and cherish as they see fit. Very sad to observe – infuriating to experience.


@ Paul Hunt

In my view, leaving the Euro is a non-runner – and as for recovery, Alan Gray, writing in the SB Post, reckons FDI will save our bacon.


Alan Gray says nothing that would upset potential clients like IDA Ireland.

A WikiLeaks released cable shows that he was at a 2004 dinner hosted by the US ambassador for Treasury secretary, John Snow, of the great and good, including Albert Reynolds, who were selected to explain ‘secret’ of Celtic Tiger’s success.

It was the type of ‘good news’ event which I wouldn’t have been invited to.

The article (and a similar one in The Irish Times, and presumably the book, does not address inconvenient facts.

Why would we have a big ramp-up in FDI jobs in coming years, when we didn’t over the past decade?

Without repeating several challenging facts, it is already evident that the US market has
limited additional potential.


I suppose that Frankfurt/Brussels might have asked for the NPRF to be put up as collateral but then realised that taking the collateral if/when Dublin won’t pay back might be a bad political move. If things went bad I wouldn’t hold politicians above blaming evil foreigners for taking the pensions from poor Irish people. In that sense I do understand why the request would have been made to hand over/spend the collateral now. End result would be the same but the short memory of the population would point the finger of blame to whoever happens to be in charge in Ireland then…..

My guess is that the NTMA cash is already spoken for; it can be removed from the banks…

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