Münchau on misdiagnoses

Wolfgang Münchau is in fine form in this morning’s FT. And this morning’s Eurointelligence provides further evidence along the same lines, with some alarming German comments about the forthcoming stress tests (or should that be “stress tests”?).

24 replies on “Münchau on misdiagnoses”


Yes – lots of ‘stress’ around at the mo ….

G20 Paris

ECB takes a leaf out of Old Sinn Fein handbook, and Irish Stress is recognized!

“On the particular case you’re mentioning, I have nothing to say, certainly today. I will see whether with the Central Bank of Ireland – because you mentioned banks in Ireland – whether there is anything to say. But at this stage I say nothing,” Mr Trichet said.

“For Ireland there is a different timetable, just to be clear. The Irish stress tests will have to be completed by mid-March, which is work going on for the moment.” [Mr Rehn said] Yes, I agree – midMarch …


& CDU under a bit of ‘stress’ in Hamburg – 16% for Dr Merkel’s party

& Nicolas under a bit of ‘stress’ due to Bin Ally affair – er .. property

Rather than Wolfgang Munchau’s ‘parallel universe’ we are seeing some ‘low politics’ in Germany and France. Chancellor Merkel is both tapping in to and fostering a popular mood in Germany that says: ‘We’ve paid, and paid again for the EU; and we’re damned if we’re going to pay even more.”

And the reluctance to allow proper ‘stress tests’ is linked to this. Germany is not willing to reveal the dodgy bank stuff that has been ‘warehoused’ and that will require fiscal injections to deal with the resulting bank recaps, until it has a rock-solid commitment by all other member-states that they are prepared to put their shoulders to the wheel as well.

Fiscal austerity is being advanced to enhance sovereign debt service capability to provide the necessary fiscal support. I also think it’s being realised that senior bondholders everywhere will escape and that the inevitable EU-wide restructuring will, as a result, impose a greater demand on fiscal resources. The retrospective infringement of property rights isn’t really on – not to mention the damage to the savings of ‘widows and orphans’.

And I think the pressure on Ireland to increase its sovereign debt capacity by a major programme of privatisation – and to boost domestic economic performance to service this debt with meaningful structural economic reforms – will increase massively.

These are the issues that should be being discussed in the general election campaign as Ireland retains considerable sovereignty in these areas and citizens’ informed consent should be secured. The ‘big picture’ macroeconomic, bank resolution, EU/IMF deal issues are out of our hands.

But, of course, the focus is on macho swaggering about how we should burn bondholders and stick it to the EU to force better terms in the EU/IMF deal – or on displacement activity on political refrom. The report of the Colm McCarthy-chaired Review Group on States Assets and Liabilities won’t appear until after the election. And there is no serious engagement on structural economic reforms.

@Kevin O’Rourke

Key entry in EuroIntelligence:

The Germans will continue to HIDE their BIG Black Holes in Their Banking System – and the severely Under- and Un-Capitalised nature in many of the banks, icl the Landesbanken.

We can now kiss substantive response to EZ banking system BLACK HOLE goodbye at March 24 meeting ………… we are fools, and are being taken at face value ….


Münchau seems to be outdoing himself on gloom today.

Why would the 17 countries pick a ‘third rate’ central banker? As for France and Germany setting the agenda, are the others totally powerless?

If they as a group object to particular issues, they won’t happen.

George W. Bush thought multilateralism was a pain in the neck; as Bismarck might say, the process doesn’t look pretty.

How about a Citizen Taxpayer (aka: The Sheeple Peeple) Debt Repayment Stress Test. That would be a lot more informative.

@DO’D: The mind boggles at the insufferable arrogance of it!


There is an important point in the article, which makes the parliamentary democratic approval of the Euro experiment quite problematic:

“The German narrative is the outgrowth of a lie the country’s establishment has peddled ever since debate on the single currency started 20 years ago: that a monetary union can be sustained through a simple set of rules for monetary and fiscal policy; that financial regulation and current account imbalances do not matter. The eurozone crisis has proved this is not the case.”

This “lie” was told not just to Germans, but to citizens and elected representatives throughout the potential Euro-zone countries, and acceptance of this was fundamental to the adoption of the Euro virtually everywhere. So if democratic approval of the Euro was based on a “lie” (that seems a bit strong as a description of what was just “political spin” rather than an outright lie) then where does that leave the Euro project? An interesting legal/political question.

@ Gregory Connor

It appears that any strain of negativity is feasted on even though you don’t know if this particular claim is just a journalist’s opinion, based on credible researched facts or tittle-tattle from other journalists.

Münchau’s charge that German policymakers deliberately sold a fraudulent euro prospectus should be contested, including in a court of law if necessary.

Before we buy into the myth that the well-intentioned Irish eejits were sold a pup, we had plenty detail as to what the project entailed and the governing party had form with its system of machine politics which I wrote about at the weekend coupled with the decade-long economic fallout in the 1980s from its late 1970s economic policies.

Central Bank governor Maurice O’Connell, told the Oireachtas Committee on Finance and the Public Service in early 1997 – almost 2 years before the launch of the euro: “There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders.”

Strange isn’t it that the main Spanish banks that were regulated by the Banco de España, are not now on respirators, like the Irish banks?

@Gregory Connor,

The Euro project was based on a specific set of technical and politcial assumptions that would not have survived proper expert and democratic scrutiny. As a result, it was pushed through over voters’ heads – similarly to the much rewrapped EU Constitution.

But we can’t expect Chancellor Merkel or Pres. Sarkozy (or the other EU Grand Panjandrums) to say to their voters: “Our predecessors sold you a pup and it’s going to cost you to get it into shape”. Far better to blame the feckless peripherals for undermining the whole project and evil speculators (and naked shorters) for exploiting and exaggerating the strains that the peripherals’ feckless behaviour revealed.

We’ll have to stomach a lot of hypocrisy, bullshit and low politics before all this will be resolved.

@Michael Hennigan

Key point is that ‘understandable’ self-interest by key players in Germany [and its Vichy surrogate] to fudge weaknesses in their banking system – means that a substantive on bank resolution mechanisms will be fudged, if on table at all, in meeting March 24.

This is ‘contagion’ in our direction – and TripleA Austerity for yonks while those Irish citizen-serfs chained to remain on the island pay for the originators of the reckless capital flows from German institutions [+ Fr + UK] to reckless Irish banks. Lorenzon Bini Smaghi, ECB, appears to be washing his/their hands here [accepting No responsibility re monitoring capital flows – but under German pressure from Herr Schauble doing so in future] as 1.5% of EZ banking system no big deal when dealing only with the numbers(as distinct from the people) – so tough sh1te for the Irish …… fire sales of ‘banking system’ ‘ass_ets’ to recompense ECB ……

… and when Ireland Sovereign defaults – a minor hit in European terms ….. we’re a ‘lab rat’ …. and I’m sure you are aware of where most ‘lab rats’ end up? While our own originators swan around the globe, and locally, with massive personal assets still in situ ………

Smart lab rats pick up Heidegger’s Hammer and break the glass – from the inside – only hope of saving the Irish Sovereign.

@Michael H,

Thank you. This will have to be a grown up engagement between politicans constrained by recalcitrant – and justifiably recalcitrant – electorates. Playground name-calling will not advance this; and is likely to hinder it.

Agreed, the Vichy thing is about as helpful as suggesting a sale of the Atlantic Ports to Britain and America.


In an interview with Ursela Halligan, to be broadcast on TV3’s Vincent Browne show tonight ‘11.00pm Deputy Enda Kenny, almost certainly next Taoiseach said, in response to Ursela:

“Under NO circumstances will Ireland default on its debt.”

This is essentially PD/gp/FF conflationist banking policy where private banking debt is lumped with Sovereign debt – and Irish Citizen-serfs expected to pick up ALL the tab – at truly horrendous personal cost.

Deputy Kenny is capitulating, without a murmur, to the power of the German/French axis within the EU, the EZ, and the ECB.

The Irish are electing a VICHY-Government.

Non Serviam – I’m in the resistance.

@Michael Hennigan

‘What sum should we demand?’

‘Unilateral negotiation’ is a contradiction in terms – to negotiate demands two. Dictatorship is another matter, and there is only one response to dictatorship – Fight.

I expected ECB to act following the massive injections of liquidity late last year – and I had hoped for a circa €50 billion write-down deal on the Irish banking system – if EZ policy (for whatever reason) demanded that all seniors be protected (for whatever reason) …. naive of me perhaps …

We are well beyond that now …….. unsecured seniors and most seniors have been paid …… and present Irish debt dynamics are unsustainable – the human cost is simply too high : but €60 billion as a gesture of good faith would go a long way ….. but bank restructuring not on table for March at EZ/EU level.

I would unilaterally Default NOW – were I in a position to do – No one in any position of power or influence (excepting a few pragmatic realists in IMF – as powerless as I) are fighting on behalf of Irish citizen serfs.

David, How can Enda do anything else? No Irish politician has presented a manifesto to get democratic backing for a policy of upsetting foreigners who have advanced a credit line.

They have chosen no to do this because their political judgement tells them that there is too little appetite for very big public spending reductions in the country – which would be necessary without the credit line or market access.

This has been predictable all along – and before having another go at the French, just remember that France at least declared war in response to the invasion, not of France, but of Poland. At least they gave it a go!


‘No Irish politician …..’. Incorrect – do I really need to elaborate?

I’m not, never have, nor do I expect to in future – have(ing) any go at ‘The French, and the decent people of France’ – I’m a longstanding Francophile and a founding member of a certain group which has its HQ in France. I might add that I’m also a longstanding Germano_phile and keen student of the richness of German philosophy, without which the ‘idea’ of Europe would not even be possible.

I disagree, if at times somewhat vehemently, with present French Administration, certain senior members of which, I believe, pulled wool over certain FF eyes in their own interests, and to the detriment of the citizens of Ireland. Ditto for the present German administration.

“to get democratic backing” implies spelling out the repercussions and obtaining popular support notwithstanding. Nobody has done that – it would all be cost free because, well because, er you need jobs and stuff and a wealth tax and, and if there are jobs there won’t be a deficit and, er…

“Under NO circumstances will Ireland default on its debt.”

The most Enda can honestly say is that Ireland will not default on its debt within the lifetime of the next government. If he sticks to the line, there’s every chance that the next government after the one he leads will have a Labour overall majority, and will inherit a positive primary balance. With no need to borrow to fund day-to-day spending, and debt service taking money out of the economy by the truckload, default will look awfully attractive.


Got it in one. Its “Frankfurt’s way or Labour’s way”. Since Labours way does not involve cutting the primary deficit to zero any time in the next generation, it become Frankfurt’s way by default or “Frankfurt’s amended way”


Any responses, comments, etc on the incoming Vichy_Bank Taoiseach’s performance in interview with Ms Halligan on the Vincent Browne show tonight wrt banking debt, sovereign debt, default options etc. ?

Little wonder Axel Weber is moving on …. Axel must be absolutley terrified at the thought of having to negotiate with such a heaveyweight.

@ David O’Donnell

I would unilaterally Default NOW – were I in a position to do – No one in any position of power or influence (excepting a few pragmatic realists in IMF – as powerless as I) are fighting on behalf of Irish citizen serfs.


Maybe you have form in making what would be regarded as big decisions that would have unknown serious consequences on the upside or the down side.

If you have you would be in the minority among the sideline fireeaters.

However, the fact that you say NOW, suggests that you would have no Plan K, like Kim Jong-il’s executed finance ministry head.

@Michael Hennigan

She who is usually obeyed does remind me at times … on those ‘big decisions’ and ‘form’ – & some bits of form are prob best left unsaid (-; iffen u no wat imean …

Patricia the Irish Sovereign_in_Exile says Hi! She is presently in Beijing, accepting a cordial invitation, and in informal discussions re Plan-C, and other areas of mutual interest. On the way back, she is dropping in to Seoul for a spot of bulguggi, prepared from the best Irish beef, where some future FDI may also be on the table. A brief discussion in Washington with D.S-K is hush-hush at the mo, and I’m not authorised to either confirm/or deny that she had a little bunga-bunga joust with Bernanke and Obama recently – Hilary, apparently was not amused at the rumour, but Bill, as you know, is a dyed in the wool fan, and has accepted an invitation to her economic war cabinet. Thus far, she has not accepted the invitation from Hugo, and the thousand tankers of oil, but it is really too good an offer to refuse. She trusts your international experience Michael, and is prepared to leave all matters related to the Other Dear Leader in your capable hands – but do mind yourself up there.

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