Wolfgang Münchau: Why debt rescues will boost the scenario of a closer union

Wolfgang Münchau concludes his two-part series on the end game for the eurozone crisis: see here.  

Update — A couple of complementary articles from the Irish Times: John McManus argues perceptively that Europe is already well on the way to a transfer union (see here); Dan O’Brien does not pull his punches in an assessment of Greece’s structural problems (see here).

50 replies on “Wolfgang Münchau: Why debt rescues will boost the scenario of a closer union”

@ John

what Munchau suggests is, politics aside, reasonably sensible. However, given the way the Irish citizenry feel they have been treated by the rest of the EU, whether that view is accurate or not, i am highly skeptical of such huge changes being passed by either an Irish government or the Irish people at any stage in the next 10 years. One hell of a carrot will have to be offered, and not in a loose, “promise” form, but in cold hard cash.

The nub of WM’s reommendations, apart from the idea of a “eurozone treasury secretary” were in his earlier piece.

“The second change is a minimally sufficient fiscal union. We are talking about something really small here. This would not necessarily involve an increase in the EU’s budget but centralising a small number of policy areas critical for the functioning of a monetary union. The single most important would be a eurozone-wide banking resolution fund, backed by a proper EU-level banking supervisory authority. I am not talking about co-ordination here. The crisis has taught us that banking cannot be a national activity in a monetary union.

In addition to a common banking resolution fund, it might also be useful to install economic shock absorbers. One idea might be a pan-eurozone contributory unemployment benefit scheme. No longer will Germany be paying for Greece, but those in work will be paying for those out of work.

You can pile much other stuff on top of that. Labour market policies are a natural candidate. At the very least, the eurozone should have co-ordinated wage bargaining systems. The test for each measure should be: does it contribute to reducing macroeconomic imbalances? If not, you can leave it in the national capitals”.

These measures can be encompassed within the existing treaties.

Rodrik’s Theorem is not pertinent as the EU has resolved one element of the trilemma i.e. the supposed conflict between national and international decision-making. Its unique construction allows legislation negotiated at an international level to become part – often directly by the adoption of Regulations – of the legal order of the member states, with the states being responsible for implementation (rather than a central federal government as would be the case in a classic federation which would have all the other prerogatives of a sovereign state).

Of much greater pertinence is Padoa Schioppa’s “inconsistent quartet” cf.


I have sent this email to the following ECB exccutive board members and goberning council. Feel free to also send this message.

Dear Sir/Madam

I acknowledge your achievements, experience, qualifications and research. I am sure you will in some part agree with this constructive critism and suggestion for the structure of the ECB.
The ECB is unrepresentitive of the European population and blatantly supporting the financial industry in the 4 largest Eurozone members.
It does not have any argument to support it’s bias and all top economists are saying its policy of non-restructuting and austerity is wrong.
There are many articles showing this critism on voxeu.org or project-syndicate.org by Nobel prize winning economists. Even those economists who usually disagree strongly, such as Larry Summers and Nouriel Roubini, are all agreed that the EU periphery needs 1. Restructuring of debt, 2. Issuing of Euro-bonds (like brady bonds) and 3. Easing of Monetary policy.

Please refer to this excellent article by Dr. Stiglitz where he predicited this situation of ECB bias in 2004.
I make the following suggestions for changing the structure of the ECB:

1. I strongly support Dr. Stiglitz interesting idea that a representitive from Workers Unions/groups should sit on the executive board of the ECB.
2. Jean Pisany-Ferry believes that the gentlemans agreement that the executive baord is made of almost solely of citizens from Italy, Spain, France and Germany is wrong. Executive board member should be appionted on merit. I strongly support Dr. Pisany-Ferry on this point.

office.president@ecb.europa.eu, office.vice-president@ecb.europa.eu, office.binismaghi@ecb.europa.eu, office.gonzalez-paramo@ecb.europa.eu, office.stark@ecb.europa.eu, office.praet@ecb.europa.eu,
a.h.e.m.wellink@dnb.nl, alessia.moretti@bancaditalia.it, Carine.Brandenburger@bcl.lu, carmel.mcgeough@centralbank.ie, comunicacion@bde.es, erkki.liikanen@bof.fi, ewald.nowotny@oenb.at, governor@centralbank.gov.cy, guy.quaden@nbb.be, jacqueline.agostini@bcl.lu, mario.draghi@bancaditalia.it, marko.kranjec@bsi.si, massam@centralbankmalta.org, mfo.gov@bde.es, mgtboard@centralbank.ie, Nicole.Erruidant@nbb.be, nout.wellink@dnb.nl, office.binismaghi@ecb.europa.eu, office.gonzalez-paramo@ecb.europa.eu, office.stark@ecb.europa.eu, office.tumpel-gugerell@ecb.europa.eu, secretariat.gouv@banque-france.fr, secretariat@bankofgreece.gr, segreteria.governatore@bancaditalia.it, vconstancio@bportugal.pt, webmaster@nbs.sk, yves.mersch@bcl.lu, peter.praet@ecb.europa.eu


Despite his previously oft-expressed desire to eschew consideration of grubby politics, Mr. Bond has identified the key political barrier not just in Ireland, but throughout the EU, to securing a rational resolution of the EZ debt crisis. But we need to distinguish between the steps required to resolve this mess and changes in institutions and procedures required to prevent a repetition.

The political and institutional focus in the EU is on the latter while sticking plaster is being applied to a wound that needs surgery. Seeking to address the former while glossing over the latter is both futile and damaging.

There is a general failure and reluctance to recognise that this, at heart, is a governance issue – or, more accurately, misgovernance. It ranges from general and gross misgovernance in the smaller peripherals to specific misgovernance in much of the core EZ that failed to exercise effective bank supervision and financial regulation to limit its banks’ exposure to the lunacy emanating from the US and the UK and to prevent them exacerbating misgovernance in the periphery. Spain, Belgium and Italy have their own positions along this spectrum of misgovernance.

Punishing the smaller peripherals because (a) voters in the core beleive they deserve it and (b) it provides cover for politicians and officials in the core to evade facing up to the implications of their specific misgovernance is a negative sum game.

But with the two senior politicians facing elections in the near future (Pres. Sarkozy next year and Chancellor Merkel the year after – with the latter displaying blind political panic in the face of a possible elcetoral meltdown) there seems to be no possibility that the barrier to a rational resolution will be removed.

So all we’ll get is can-kicking and sticking plaster with grandiose schemes for institutional and precedural refoems being advanced in an attempt to conceal its futility.

I still believe that the Government (and Irish people) needs to engage directly with voter in the core to disabuse them of the biased and self-serving message their politcians and media are conveying to them about Ireland. Mutual recrimination and demonisation (as purveyed from some media organs here) will jut make things worse.

And the chances of that happening…?

@ Chris

“1. I strongly support Dr. Stiglitz interesting idea that a representitive from Workers Unions/groups should sit on the executive board of the ECB”

Like who? David Begg perhaps? Remind me how that worked out at the CBI again.

Even if it were in Ireland’s economic interest ,closer European political union will be a hard sell in the deeply embedded nation states throughout Europe. It will be impossible if the policy of austerity for countries with debt problems continues.

In this context, Robert Kuttner , co-editor of the American Prospect , has a really good piece on creditor-debtor conflicts in the past.

He says that “Either the creditor class prevails at the expense of everyone else, or governments find ways to reduce the debt burden so that the productive power of the economy can recover.”

Post WW 1 the creditor class had its way. Post WW2 , guided by JM Keynes, the Bretton Woods arrangement, “created a global monetary system in which private financial speculators were denied the power to compel nations to pursue deflation. Cheap money and expansive investment kept America (and Europe) from sinking back into depression. ”

Today, he says “that expansionary logic has been reversed and creditors are once again hegemonic. Banks want cheap money for themselves, draconian terms for others. The banker-afflicted European Union is punishing Greece rather than finding a way to let it grow.”

He concludes by urging that “We need to democratize the money issue once again.”

The EU is certainly banker afflicted and the creditor class in Europe are likely to stunt the productive potential of many debt stressed countries, including Ireland, and lead to increasing divisions within the EU.

The Irish government must stop following the creditor/banking agenda and canvas for support within Europe to “find ways to reduce the debt burden so that the productive power of the economy can recover.” This approach has the possibility of developing a European Union based on social solidarity.

Exclusively bending the knee to the banking/creditor interest will not be a viable foundation for a democratic and sustainable EU .


End Game? All a little academic at present one would have thought. Abuot as useful as a discusion of the morality of warfare, while still in the heat of battle.
Still I wonder who he has in mind for this many years hence idea of a minature fical union?

‘The miniature fiscal union I describe would do precisely that’.


All of the executive board of the ECB worked in Finance before. For example Draghi is an alumni of Goldman Sachs. They are naturally biased towards their former employers.
They need someone who has not worked for a financial institution to put forward the case of employment/unemployed.
I suggest you read the link I put to Dr. Stiglitz article for more detail.
Whom exactly – good question I do not know, I am sure there are many strong candidates from workers unions or other groups across the EU.
The CBI lost its control of monetary policy and became basically a supervisory committee when we joined the Euro. As such David Begg was merely part of a basically supervisory committee not a monetary policy institution.

Dan O’Brien: “If [Greece] implodes, it may well bring the single currency down with it.”

A Greek implosion is likely to be truly dreadful for Greeks. But as for the rest of the EZ, I’m struggling to se why I should worry about the resulting downfall of the euro, whether that just means a fall in the exchange rate (highly desirable, I’d say) or the reintroduction of national currencies (could be good or bad, depending on how the greater monetary flexibility is used).

@Mr. Bond,

This ECB worker-director nonsense on which you have commented is merely a symptom of the failure by the broad Left to address the reasons for the terminal decline in its popular support throughout the EU. (The recent Irish blip was inevitable and, even now, seems to be diminishing.) To compensate for this terminal decline – and as displacement activity to avoid addressing the underlying problems – every angle is being considered to infiltrate and suborn instititonal processes.

The chances of success are in the “snowball’s chance in hell” category. But it does highlight a more serious problem. Prior to the Neocon hegemony, particularly in global financial capitalism, from the mid ’90, we could rely on broadly balanced and rotating centre-right/centre-left power blocs in continental Europe. The continuing decline of the Left has disrupted this balance and there is no longer a broad consensus to address political and institutional matters constructively at the EU-level.

Mnay voters are not happy with the growing centre-right dominance, but they are repelled much more by the Left. Woolly-brained Greenery is filling some of the gap in Germany, but right-wing, populist, xenophobic forces are on the rise elsewhere. It is recipe for disaster – and being Europe, will probably resemble a slow-motion car crash.

But while the Left reamins in denial and flails about attacking markets and those who try to make them work efficiently, advances the state as the panacea and keeps defending the indefensible there is little prospect of rational political solutions being crafted.

“David Begg was merely part of a basically supervisory committee”

Indeed. It was this ‘supervisory committee’ that was required – and expected – (by the allocation of Euro Area and national competencies) to oversee and enforce bank supervision and financial regulation in the national jurisdiction. I think we all know how well it did this job.


Instead of a “dim former rugby player” pulling the levers of our financial system, we could have a “dim former soccer player”. What would be wrong with that.?

David Begg’s uselessness is hardly a fully formed argument, you might as well say we should have no public representatives based on the last few governments we’ve had.

@ Chris

“Draghi is an alumni of Goldman Sachs”

He’s 63 years of age, and graduated with his PhD in 1976. Of the subsequent 35 years, 3, yes 1-2-3, were spent in the private sector with Goldman Sachs, and that very late on in his career. He’s an academic, a civil servant and a central banker, with a brief sojurn into the private sector. Lets not railroad his opinions or biases on the basis of less than 10% of his working adult life.

Also, i’m not sure what you mean by “All of the executive board of the ECB worked in Finance before”. Most of them actually have almost no private sector experience, and have a primarily academic or civil service/monetary authority background (unless “Finance” refers to central banks/State Treasuries??). The Portuguese representitive Constancio served in parliament for a time. I’m not sure who you suggest is better qualified to sit on the board of the ECB?

Also, re Begg – doesn’t Stiglitz reference him in that link? “One of the
European central banks, at least, has representatives from labour, to make sure that the voices of workers, of those who would be thrown out of jobs because of restrictive monetary policy, are heard” – so Stiglitz seemed to think he had a voice in the conversation on monetary policy, even if you dont!

I think Lawrence Summers’ FT article today was worthier of a news post, but so be it.

As to Dan O’Brien

GREECE IS a borderline failed state. Its society lacks cohesiveness and is deeply divided. Its economy is in shock. If the country’s history is any guide to its future, there is serious trouble ahead.

I quite wonder if O’Brien is vicariously describing another country we know in this article.

@ Tull

rugby is the game of the elites, soccer the game of the people, of course…said as a former scrum half…


The EU is certainly banker afflicted and the creditor class in Europe are likely to stunt the productive potential of many debt stressed countries, including Ireland, and lead to increasing divisions within the EU.

Very interesting post with extracts from Robert Kettner article.

Having tried to familiarise myself with this issue over the past months, I would even be more specific in realtion to the subset within the banking and creditor class that is causing the real problem.

I believe that it is the large institutional investors who don’t / won’t take losses. It is not the ordinary banker or ordinary non banking creditor who is well used to taking losses and moving on or regrettably moving out.

The heart of the matter is that that elite financier subset captured the political reins and are intent on getting their pound of flesh.

Western economies are now trapped in a liquidators agenda. A liquidators agenda dictated by the large financial institutions and enforced on their behalf by the ECB.

It bodes ill for Europe in particular. US democracy seems a little more robust even if the sheer audacity of top bankers remains undiminished as evidenced by Dimom’s challange to Bernanke:


“All of the executive board of the ECB worked in Finance before.”

Change “all” to “none” and you have it correct.

As Bond said, the current members of the EB are career civil servants, with about half of them background in academia. Draghi, if/when he is confirmed some time in the fall, will be the first with any background in private finance.

Add you should address your proposals to Merkel and other heads of state and government. None of the recipients of your mail have any role in selecting the members of the EB.

P.S. Why omit Jens Weidmann?

@Bond. Eoin Bond.

Any ex Goldman or any ex Morgan Stanley/Deutsche/ BNP etc should not be acceptable as head of the ECB.

Is is clear that the full ECB Board has been entirely captured by threats from the large financiers. What is needed is somebody with a crystal clear record of taking these people on.

And lets not re-write history in the relation to the CBI board. There were many eminent non-labour people on those boards. The bankers still won hands down. They bust the banks and the country. And they are still not happy with a cool €500,000 pa. to continue the destruction.
It is long since time to bring these top bankers to heel.
But I doubt that when ex Goldmans Draghi and ex Goldmans Geithner sit down for a cup of coffee, that bringing bankers to heel will be item one on the agenda. Or item 2,3 or 4.

@ Paul Hunt,

Ok I’ll bite.

“But while the Left remains in denial and flails about attacking markets and those who try to make them work efficiently, advances the state as the panacea and keeps defending the indefensible there is little prospect of rational political solutions being crafted.”

Paul, you have on a number of occasions on the TASC progressive-economy blog claimed that the left is defending the indefensible. But when queried you never respond:

It’s a straight forward question: What is it that the left defends that is indefensible?

Regarding the lefts so called advancement of the state as a panacea, I would ask you, would you consider Martin Wolf as a dyed in the wool leftie? When this crisis first struck he wrote a highly illuminating article where his prescription was for state infrastructural investment throughout the periphery. He did, however, acknowledge that this was unlikely to happen for political reasons.

Because the left broadly agrees with him, does that make Martin Wolf (a.) wrong, or (b.) a “know nothing” leftie, as you describe them?

Also, you seem to equate right with popularity. Granted, you are talking about politics where popularity triumphs, however, does that mean that those who are elected are always correct in their ideas and views? Might it be the case that if we had listened to, instead of incessantly mocking, the left, we might actually have learnt something over the previous decade or so? That we might not be where we are?

I don’t know Paul. You say you’re of the left. But you never cease to make broad swipes, nor fail to deride unions. Equally, you consistently argue for privatization. Why is that? If you disagree with the left, why don’t you ever state what your disagreement is, instead of just engaging in negative posturing?

@ Joseph Ryan

“Ex Goldman Geithner”

Eh? When exactly did he work for Goldmans? With the exception of some consultancy work earlier in his career, he’s US Treasury/IMF/Fed Reserve thru and thru.

Evidently Draghi’s 32 years of acadamic and civil service experience have corrupted him beyond repair in your eyes. Would you be shocked to learn that some of the economist who post on these pages have received consultancy fees from Goldmans, btw?

And i wasn’t rewriting history in regard to the CBI. It was suggested that having a union rep on the board would be a great idea, i simply pointed out that our own recent experience of that begged to differ.


I see you’re following me around. On defending the indefensible, a simple example from another thread:

Excessively high electricity prices are due to the ownership, structure, financing, management and regulation of the ESB and to the policy and regulatory design of the market structure in which it operates. Staff pay, though the levels, admittedly, may be considered generous, is not the key driver. Even significant reductions in the level of staff pay would have a vanishingly small impact on final prices to households and businesses. It is interesting though that all who bear the main responsibility for the current excessive prices are keen to ensure the focus is on staff pay.

But the unions and the left, in their desire to protect these terms and conditions of employment (it would be wonderful if every worker in the economy had these ts & cs and the unions are perfectly within their rights to seek to defend them), are adamantly opposed to any ownership or structural reforms that would benefit all households, businesses and the economy.

On infrastructure investment, Ireland has a relatively smaller infrastructure deficit (not all the bubble era spending was wasteful) than many developed economies. It would be far better to reform the current model of ownership, financing, managment and regulation (which imposes 100s of €millions of extra, unnecessary costs on citizens) before contemplating further investment. In addition, the level and pattern of demand for infrastructure investment has changed considerably.

I do not equate right with popularity; my focus is on securing popular consent. Something which, in a democracy, is very different.

And to conclude with something from another place:

“While it devotes so much effort both to attacking and seeking to supplant the currently dominant form of economic organisation and then seeking to impose an alternative that is largely centralised and state-determined (but with potential for ‘bottom-up’ collective arrangements), the Left creates enemies of potential allies and often ends up defending the indefensible.”

@ Jake

Geithner, or rather the Fed, granted the US banks their version of our ELA. Our ELA touched off $100bn a month or two back. On a per capita basis, that would have been like the Fed granting the US banks US$7.5trn, instead of just $80bn. Geithner wouldn’t have lasted a wet week in our CBI per your argument.

None of this conspiracy theorising can get away from the inaccuracy of the original claim – Geithner is not ex Goldmans.

@Bond. Eoin Bond.

Evidently Draghi’s 32 years of acadamic and civil service experience have corrupted him beyond repair in your eyes.

No. My point still stands:

What is needed is somebody with a crystal clear record of taking these people on.

Show me the evidence of taking on the top bankers and Draghi or anybody else will be fine with me.

As for 32 years of public service etc, I would not like to name the Irish worthies we relied on with similar career claims. He will have to do a little better than that:

The bankers will have to be brought to heel. Have they not caused enough damage?

Working in a central bank means working in Finance, so they have all worked in finance as Dr.Stiglitz also states.
There are economists hired by workers unions. I am sure there are some with Phds in Economics qualified to sit on the board of the ECB.
We are not sure that Dr.Stiglitz is talking about Beggs and in any case he is a talking about ‘voice heard’ rather than dictating policy. Reading the whole article his point is that workers and the people in general are under-represented at the ECB.
Dr. Stiglitz has been proven right in his assestion in that article that the ECB is overly concerned with the financial industry and underconcernced with workers and employment. The ECB are very stubborn in their insitence that banks be protected from restructuring. Their solution has led to and will lead to job losses and welfare cuts.

Working in a central bank is working in Finance. The reason I contacted the ECB members was so that now they may reflect themselves on their position and perhaps may see their own bias.
In any case it would be a good idea to contact heads of state. It will take a while to put a list together. I used a email list from 2009 which I linked on the bottom of my first post so this is why I may have ommitted Jens.

The ECB was too slow to lower interest rates when the crisis hit and now is raising them too soon. For comparison you could use the Fed and Bank of England. This is more evidence of its preference for the financial industry over workers.

@ Chris

“Working in a central bank means working in Finance, so they have all worked in finance”

Well, this isn’t really what you originally claimed. You originally noted that as Draghi had worked for Goldman Sachs, this meant he had worked in Finance. Surely referencing his current job, as the Governor of the Bank of Italy, would be more apt for your argument?

Also, re “he is a talking about ‘voice heard’ rather than dictating policy” – you want someone “dictating” monetary policy on behalf of the unions? Seriously?

@ Bond.

First off, I never made the claim that Geithner worked for Goldman Sachs. However, if you are basing your argument on this inaccuracy it borders on fantasy. The point is that Mr. Geithner and the Fed are spectacularly biased on the side of the big banks, which is not in their portfolio. This even includes foreign banks where most of QE2 went. If you think this a conspiracy theory, you’d be right up there with the Pope and Galileo.

Do you think it is conspiracy theory that Geithner played a role in the decision to backstop the Irish bank bonds?

Rather than focus on the particular employment record of any specific infuential official, I believe the key point here is one I raised on another thread: the extent to which so many sectors of national economies are characterised by oligopoly. Nowhere is this more apparent than in banking where the large players have multi-national reach, are often chacterised by vertical integration and devote huge effort and expense (utlimately borne by final consumers) to create and differentiate largely undifferentiable services and products. Small wonder that so many become ‘too big to fail’.

This is also true in sectors, in particular the utility sectors, that deliver foods and services to final consumers. Any effective regulation has long since been captured. Yet policy-makers and regulators continue with this fiction of competition and consumer choice and that consumers can exert discipline on these firms by switching thier custom. How on earth, if one is among 2 (3, 4?) million customers of such a firm, can one exert discipline by switching when all the other, allegedly ‘competing’, firms are providing almost identical services?

And most politicians are captured because these firms, in an era of declining mass membership of political parties, provide the crucial marginal (and lumpy) political contributions.

And it appears many economists have been sucked into this fiction either because they are well-rewarded as ‘useful idiots’ or because they have swallowed the fiction that their standard models of competition are relevant – and choose to ignore the dominance of oligopolists exercising considerable economic and political power to the detriment of all final consumers (and citizens).

@ Jake

one of the jobs of the Fed is to maintain a strong and stable financial system, and in its view lending to a set of systemically important banks in late 2008 was a necessary requirement to this end. It’s difficult to argue against that when you see what happened in the aftermath of Lehmans. So does the Fed try to maintain a system that has strong, secure and successful banks operating in it? Of course it does. Having a Fed which “went after banks” would be a bit of an oxymoron. Hence why there should be seperate agencies which are designed to do that. Like the FDIC. And the SEC. And the new Bureau of Consumer Financial Protection.

The main thrust of my actual argument was simply that having worked in the private sector at some stage in your professional life should not disqualify someone from being an able and meritous central banker. It’s simply lazy to say that someone should not be considered because of such a private sector experience on their CV. You should be able to identify just why on merit they should be excluded.

One member with a background supporting the point of view of workers among 6 ECB executive board members would help a liitle to balance their current bias towards the financial industry.

@Paul Hunt,

I don’t see how this is indefensible. Open to criticism, rightly or wrongly, but indefensible is hyperbole used to offend.

I’ll bow to your superior knowledge of the electricity market and accept that prices are high and pay is high, but that pay is a minor component in the cost of electricity. I also recall in a previous thread many moons ago, you stating that it was essentially a trade off between direct taxation paying for the cost of electricity infrastructure, or higher prices. If I remember correctly you asserted that in most other countries infrastructural investment was funded by retained earnings and state subvention (please correct me if i remember wrong). Whereas, in Ireland, not only does the state not subsidize investment, but receives a large dividend.

Now, if I have it right, this is an argument for either a. higher taxes in order to fund investment, or b. investment funded through retained earnings, or c. a combination of both. What privatisation has to do with it is beyond me.

Here is what’s indefensible.

In the global competitive index of 2010 we came 65th for the quality of our infrastructure, 59th for roads, 50th for rail, 53rd for ports (notably behind some landlocked countries), but for quality of electricity supply 26th.

I’ve been in a number of countries including some of the peripherals, and they did invest in infrastructure. Spain ranks 28th, Portugal 21st and Greece 54th (bad, but better than us).

Our broadband is appalling. We still have no metro. I read that we’re paying €110,000 a week to private road builders, because not enough cars are using the roads – which sounds susiciously like what will happen with the ringsend incinerator.

I don’t get it. I really don’t get it.

@ Bond.

The primary role of the federal reserve bank is to implement monetary policy to keep a balance between steady economic growth and high levels of inflation. Geithner loaning 30 billion dollars to GS at .01% to cover one of their losses falls under this rubric? If you equate this with maintaining a strong and stable financial system, more power to you.

I am sorry but I cannot see how one can say with a straight face that the Fed is not at the beck and call of the large banks in prejudice to the overall economy. That is just the way it works. It is not a conspiracy theory. How I wish it were. It will be interesting to revisit all these discussions in a year or two. Once the need to kick the old can down the road ends, then the real fireworks begin.

By the way, coincidently GS became a “bank” on September 21, 2008. Undoubtly, to better serve the public.

Sorry, disgruntled, defending the status quo of ownership, structure, financing, management and regulation of the ESB and BGE when these add up to €500 million of additional unnecessary costs each year to consumers and the economy is pretty indefensible in my book. And why would you increase tax to finance investment with a gaping fiscal deficit when, with effective regulation, the private sector would finance it at a weighted cost of capital considerably lower than the current cost of government debt.

But we’re getting away from the main point which provoked you. That the continuing decline in popular support for the Left throughout the EU (when it should be increasing now that the Neocon lunacy espoused by the centre-right has been exposed) is preventing the crafting of a rational political solution to the current crisis.

Rather than beating me up for seeking to explore possible reasons for this, it might be more profitable if you were to reflect on why this is the case – and what might be done to reverse it.

@ Jake

“Geithner loaning 30 billion dollars to GS at .01%”

Have you actually looked at the hard data? I just did. On some days the rate was 0.01%. On others it was was more like 1.25%-1.50%. On no single day was any amount greater than $25bn lent out, so it seems a stretch to say that Goldmans got that much at that rate. It also seems odd to say that this was in order to cover a loss of $320mn generated in one of their divisions – they needed to cover the loss 100 times over??

That someone could pen an article dedicated to Goldmans, and reference only the 0.01% rate and not the others, and whilst not noting that Goldmans was only the 15th largest user of these sort of Fed facilities, tells you everything you need to know about their opinions and biases in relation to GS.

The big banks got into huge trouble in 2008, and the Fed decided that it needed to help them. Thats what Central Banks do in crises. It’s their job.


@ Jake

btw, here’s what the NY Fed claim they do:

“The Federal Reserve Bank of New York works within the Federal Reserve System and with other public and private sector institutions to foster the safety, soundness and vitality of our economic and financial systems.

It is responsible for

– formulating and executing monetary policy,
– supervising and regulating depository institutions,
– providing an elastic currency,
– assisting the federal government’s financing operations, and
– serving as the banker for the U.S. government. ”

For clarity, monetary policy includes the use of the discount window. In fact, its one of the three tools of monetary policy implementation. The purpose of this discount window is “…as a safety valve in relieving pressures in reserve markets; extensions of credit can help relieve liquidity strains in a depository institution and in the banking system as a whole. The Window also helps ensure the basic stability of the payment system more generally by supplying liquidity during times of systemic stress.”

As such, is it not fair to say that the use of temporary lending via collateralised repo to the banks operating in the US financial markets, at a time of enourmous economic turnmoil, not form part of their monetary policy implementation, per the explanation above??


@ Bond.

“Big” banks in Ireland got into trouble and the state, along with the ICB, decided they needed help. That is what Central Banks do. How is that working out for you?

Just a short note on the author of the article:

Robert Scheer

After graduating from City College of New York with a degree in economics, he studied as a fellow at the Maxwell School of Syracuse University, and then did further economics graduate work at the Center for Chinese Studies at UC Berkeley. Scheer has also been a Poynter fellow at Yale University, and was a fellow in arms control at Stanford, the same post once held by Secretary of State Condoleezza Rice.

@ Bond.

We may just be whistling Dixie. SP just downgraded Greece to CCC (negative outlook and SD, selective default, in the cards) and the two year is at 26.5% and Irish 2yr at just a whisker under 12%. Where is the ECB when you need them?


Can you tell me where you get the €500m from? Could you also tell me if you honestly believe that considering all the evidence from privatisations and public partnerships, etc, not only would electricity get cheaper, but that we won’t just be replacing one purportedly inefficient supplier with private gougers. In short, I’m asking, should I believe you?

As for the left throughout Europe. Ireland first: Ireland has never had a left wing government. We’re so far from having a left wing government that hell, it’s almost academic. Regarding Europe, why would anyone vote for socialists who are almost as right wing as their opponents on the right? You know, values matter. Personally, I think what’s happening is a swing against incumbents of all stripes. Who knows what will happen in this environment?

I’ll leave it at that.

@ Jake

On the Irish banks and assistance provided by the government and central bank, you’re confusing liquidity with capital. The US banks needed liquidity primarily, the Irish banks needed both. A central bank can provide the former, but not the latter. That’s where the govt itself must step in, and why the Irish state is where it is right now.

I do agree about the ECB though – the limitations of it’s powers aside, repeatedly noted by DOCM, a more aggressive response, ala the Fed, would prove much more effective in alleviating the crisis. The Fed did, of course, have full political backing. Urging even.


Without wanting to get into the mill between Jake and your good self, I doubt that that the distinction between liquidity and solvency crises is as black and white as you suggest.

Given the systemic nature of the megabanks, the degree to which they have captured the political system, the supine nature of their accountants, and the malleability of accounting standards, the true state of their books is probably as mysterious as the Secret of Fatima.

@ Bond

I will give it one last heave. If you don’t think the US banks had (still do) a bone crushing solvency problem then there is an entire state, Nevada, I would like to sell you. I will even through in the Brooklyn Bridge for free. Of course much of the solvency problem has been moved to the Fed, does Maiden Lane ring a bell?

I think we can agree on one thing. All hell is going to be paid and it will not be the bankers who pay.

@Paul Quigley

Thank you for your lucid, articulate and witty commentary. I have visited Fatima but the three children were long gone. I was stuck with asking Ben, Timmy and Barry. They didn’t seem to have a clue.

John Mauldin in his newsletter of 11th June refers to economist Kash Mansori’s analysis Bank of Internationsl settlements data.

As a non-economist I’m not sure how he concludes from the BIS figures that the total debt issued by |Ireland and held by foreign creditors amounts to 679.1 bn dollars and that the US directly and indirectly is exposed to 105 bn. dollars, but if this is true it helps to explain Mr. Geithner’s attitude to burning bondholders.

@ Jake

i dont doubt that the US banks need capital. I don’t doubt that almost every bank on the planet probably needs capital, at least if we were to value their home loans on some sort of mark to market basis and truely recognise many of their losses up front. But thats not how the banking system works, and your question referred to the support given to the US and Irish banks, and how that had worked out for us here.

The US banks were suffering from “primarily” a liquidity crisis, which has since been alleviated, and so the support given to them by the US government has cost nothing. The Maiden Lane stuff looked like it was actually gonna start to come good earlier this year, but it has since fallen back somewhat, but overall the US govt looks like getting out close to flat. We can argue about the true solventy levels of the US banks til the cows come home, but at this point in the time the markets view them as solvent and most of their assets as semi liquid in nature. Hence, the support of the US govt is no longer required to anywhere near the level it was in 2008.

The Irish banks suffered from both a liquidity crisis, but an outright solvency crisis eventually, which resulted in a recapitalisation requirement that the state ultimately decide to backstop, and which has endangered the soveriegn as a result.

You’re not wrong to have worries over capital levels at the US banks, but (a) the markets have given them a pass for the moment and (b) thats not what we were arguing about.

I thought Dan O Brien was a tad harsh on Greece. Taki Theo whatshisname could stick the boot into Ireland. Anyone could, really. I mean, what fag brand did the DoF use to write the numbers on when the banksters came looking for their guarantee ? I read recently that Labour wanted to introduce cost benefit analysis to all major Government spending decisions. WTF?


‘We can argue about the true solvency levels of the US banks til the cows come home, but at this point in the time the markets view them as solvent and most of their assets as semi liquid in nature’

That’s true, as far as it goes, but it begs a few questions about what the processes were that allow the markets to take such a sanguine view. We are not talking physics here, lets just say there’s a lil’ room for laytitood in these matters.


“Working in a central bank is working in Finance.”

So let me get this straight: You think central banking background is inappropriate for central bank chiefs?

@Jake Watts

The article you referenced to is just completely silly. I would guess it simply makes up its facts and quotes.

There was nothing stealth about Fed’s Primary Dealer Funding Facility. It was widely publicized and on the front page of all financial newspapers. Publicity was the whole point of it – it was meant to reassure markets that primary dealers’ liquidity is safe. Barney Frank most certainly was the first to be informed about it.

“By the way, coincidently GS became a “bank” on September 21, 2008. Undoubtly, to better serve the public.”

GS and other primary dealers were strongarmed by officials to become bank holding compaines so that they could be regulated and supervised as banks. Before that, the Fed (or any other supervisory body) had no legal authority over them.

“SP just downgraded Greece to CCC (negative outlook and SD, selective default, in the cards) and the two year is at 26.5% and Irish 2yr at just a whisker under 12%. Where is the ECB when you need them?”

Where exactly do you see a role for the ECB in this?

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