European Sovereign Debt Crisis

The conclusion of the EU Summit this morning marks one more stage in the evolution of this crisis (comments please!).  The longer-term dynamic for the crisis was extensively discussed in Tuesday’s Policy Institute/IIIS roundtable event. The presentations are below (audio/video coming soon)

39 thoughts on “European Sovereign Debt Crisis”

  1. After the prologue to Henry V

    Oh for a Bryan G that would ascend
    The brightest heaven of explanation
    Blogospheres for a stage, and economists
    To debate the swelling debts,
    Then should the warlike Krugman, like himself,
    Assume the port of Keynes, and at his heels,
    Leashed in like grads, should def’cit tax and spend,
    Crouch t’create employment. But pardon, bloggers all,
    The flat, untutored spirit that hath dared
    On this unworthy posting t’invoke
    So great bruiser. Can this website hold
    The vasty fields of Europe? May we cram
    Within th’electronic sphere the very tests
    That did affright the board of ECB?
    Oh pardon! Since a since single comment may
    Attest in little place a million:
    And let us, ciphers to this great account,
    On your algothrithmic forces work.
    Suppose within the framework of this world
    Are now at war two mighty monarchies.
    Behold how mighty Finance sweeps the plains,
    Splitting the tax-payer and their cash asunder.
    Piece out the imperfections of our thoughts,
    Into a thousand jobless times each cut
    And make imaginary expanded contraction;
    Think, when we talk of debtors, that you see them
    Hiding their bills in the shameful drawers:
    For ’tis your thoughts that now must guide our leaders,
    Carry them here and there, jumping through airport customs,
    Turning the destructive votes of many years
    Into the demand of an hour-glass; for which
    Admit me, blogger to this unfolding:
    Who, Grumpy-like, your humble comments pray,
    Gently to hear, kindly to debate, this play.

    I stuck this at the end of a previous thread – seems more appropriate here.

  2. I expect there’ll be a post on the Summit statement – or not? The UK Guardian has the text here:
    http://www.guardian.co.uk/world/interactive/2011/oct/27/eurozone-greece-bailout-full-text

    Probably the best that could be cobbled together in the circumstances, but falls far short of what is required.

    Of more significance is that Germany (supported by neighbouring countries) is committed to wage repression as a key element of its strategic positioning relative to the big emerging economies in the G20. The extent of financial repression imposed on dimwit and greedy EZ banks is miniscule in comparison. Germany must strike a balance between its global ambitions and its European ambitions.

    There is huge scope for internal devaluations in the countries targeted in the statement via structural reforms that would benefit all citizens and consumers, but these will be more difficult to achieve while Germany (and others) maintain such a huge external imbalance within the EZ. There is also huge scope for infrastructure investment throughout the EU to which ‘good money’ would be attracted, but inept policy, unrealistic targets, the cosseting of monopoly power, captured regulation and silly subsidies will scupper this.

  3. So now Greece has its haircut. Who’s next ?

    And is it a “credit event” or not ? You couldn’t make it up.

  4. It may be useful to insert at the beginning of this thread the comment by Jean Pisani-Ferry in his article in the FT. (Numbers inserted by me).

    “There are several, partially compatible ways out of this. 1. One is to make states individually safe by going far beyond the requirements of the Maastricht treaty and bringing public debts down to levels where solvency cannot be challenged anymore. It implies decades-long austerity. 2. Another way is to make the financial system safe by putting limits to the banks’ exposure to their sovereigns and creating a eurozone-wide deposit insurance. It implies that states renounce the convenience of having ‘their’ banks. 3. The third way is to change the mandate of the European Central Bank. This implies breaking with the Bundesbank’s heritage and giving the ECB a governance structure adequate to a new, quasi-fiscal role. 4. A last option is to move towards fiscal union so that individual state solvency stops being a concern for markets.”

    I think that we will get a bit of all four. Prudent states will make an effort at 1 irrespective of what happens. 2 must happen if the euro area is to be made compatible with free movement of capital, a fundamental principle underpinning the EU. 3 is already happening in an uncertain and inadequate manner. 4 is the least likely because of sovereign political objections but the fundamental objective of restoring the fiscal responsibility of member states can be achieved through the various other measures in train or contemplated.

    It may be noted that the wording on the ECB was watered down to its standard formulation. (“We fully support the ECB in its action to maintain price stability”).

    Of course, we are already off to the races with regard to the debate in Ireland. The leading nag at the moment is “Ireland is Greece”, closely followed by “Iceland” with the fancied runner “Firewall” far down the field.

    Of the various papers, the only graphs of real significance to Ireland are those relating to capital movements (negative) and bond spreads (positive). The way they behave will give an indication if “Firewall” is making any ground.

  5. Céard a dhéanfaimid feasta gan “no default policy”,
    tá deireadh credibility na neoliberals ar lár;
    níl trácht ar contractionary expansion ná a teaghlach,
    is ní bainfear a cling go bráth;
    an áit úd ina gcónaíodh an ECB
    a fuair gradam is meidhir tar banks,
    bhíodh investors ag tarraing tar toinn ann,
    is an ideology binn á rá

  6. Many thanks for posting the presentations. I had registered but was unable to attend on the day. Will there be any podcasts/vodcasts of the event?

  7. First question: Will this deal be adequate to the task? That’s one for the economists to tease out. Second: will it stick? That depends on the answer to the first question, plus the attitude of affected banks and the medium term response of the markets.

    Irrespective of both, this deal poses a massive political problem for our domestic government. There we are, the best boy in the class, handing in our meticulously crafted homework to the Troika in good time, whilst Greece shows up late with a tattered, dog-eared, blotted copybook and reaps the reward of a 50% write-off in its sovereign debt. As the former Greek Finance Minister put it on radio this morning, the simple message is that if you refuse to meet your obligations, then the EU will ride to your rescue. Ireland, on the other hand, must hand over some 700m euro of taxpayers’ money to unguaranteed Anglo bondholders in the coming days.

    The government has done itself no favours with its spin – reiterated by Leo Varadkar on the VB Show last night – that this repayment is being met out of Anglo’s own resources, a stance ably critiqued in Karl Whelan’s earlier posts. The Taoiseach’s line that ‘Greece is a special case’ is equally pretty feeble in a country in which ‘special pleadings’ are the political norm.

    A better approach might be to abandon its current policy of spin, which is an insult to the intelligence of the Irish public, and for the Minister for Finance to request the Fiscal Advisory Council to prepare a report on the implications of the EU deal for Ireland and engage in a public information campaign to that end. Informed citizens may still be angry citizens, but that has to be preferable to angry and confused.

  8. @ Paul Hunt

    …Germany (and others) maintain such a huge external imbalance within the EZ.

    Germany’s trade with the other 16 was in balance in August and the surplus has fallen in 2011 as domestic consumption has risen.

    A significant country like Italy must first take a lead in sorting its own mess.

    We know from Ireland however, that changing from bad ways of doing things takes decades.

    In a conservative country, eight former attorney generals (most if not all multimillionaires) warn on the dangers of change, as the comfortable status quo skews vision.

  9. @ Veronica

    “As the former Greek Finance Minister put it on radio this morning, the simple message is that if you refuse to meet your obligations, then the EU will ride to your rescue”

    Well he would say that, wouldn’t he?

    Cuir sioda ar an gabhar…

    In reality, the Greeks can’t pay off their debt via deflationary austerity. Even the Germans have worked that out. The numbers don’t work.

    Ireland has a better chance . That is what everybody knows. Because Irish people are very obedient and have a very high pain threshold. That catholic heritage is magnificent.

  10. @Bards of the Blog

    In the way that even an accumulation of debts can appear as an accumulation of capital, we see the distortion involved in the credit system reach its culmination. [Karl Marx, Capital, vol. 3 (London: Penguin, 1981), 607-08]

    … something fundamental has changed in the nature of capitalism in the closing decades of the twentieth century. Accumulation—real capital formation in the realm of goods and services—has become increasingly subordinate to finance. Keynes’s well-known fear that speculation would come to dominate over production seems to have finally materialized.

    … Now more than ever, as Marx said, “an accumulation of debts” appears as “an accumulation of capital,” with the former increasingly effacing the latter.

    …Hidden within the general formula for capital, M-C-M′, Marx argued, was a tendency of capital to try to transform itself into a pure money (or speculative) economy; i.e., M-M′, in which money begat money without the intermediate link of commodity production. In M-M′, he wrote, “the capital relationship reaches its most superficial and fetishized form.”19 If M-M′ originally referred simply to interest-bearing capital, it metamorphosed in the course of capitalist development into the speculative demand for money more generally. “Credit,” Marx explained, “displaces money and usurps its position.” Capital more and more took on the “duplicate” forms of: (1) “real capital,” i.e., the stock of plant, equipment and goods generated in production, and (2) “fictitious capital,” i.e., the structure of financial claims produced by the paper title to this real capital. Insofar as economic activity was directed to the appreciation of “fictitious capital” in the realm of finance rather than the accumulation of real capital within production, Marx argued, it had metamorphosed into a purely speculative form.20

    Read on: John Bellamy Foster (h/t seafoid the bard)

    http://monthlyreview.org/2010/10/01/the-financialization-of-accumulation

    DO’D: What do you think Biddy?

    Blind Biddy: Pull the Default Switch – I’ve had enough of this financialization, socialization, serf_immizerization, credit eventualization, bleed1n procrastinization, merkozyization, …. TEESHOCK – WHERE’S ME HALF BAG OF COAL – A F******N CREDIT NOTE IS F8888 ALL USE TO ME &&&&%%% I’M F&&&&& FREEZIN $$$$$££££*** (expletives deleted due to possibility of children and stressed out genteel readers reading the blog)

  11. @ Seafoid

    “Ireland has a better chance . That is what everybody knows. Because Irish people are very obedient and have a very high pain threshold. That catholic heritage is magnificent”

    Do you think the pain being experienced by irish people is anything like on a par with the greeks?

    I dont, i think our pain threshold and obedience levels are no different to any other country. If we were pared back to the levels greece have been, we’d be tearing Dublin apart just the same.

  12. @ Jarlath

    I have heard from a number of market wallas that Greece is a lost cause because they had a long civil war and other stuff and they are incapable of government while the Irish are much more compliant and they always have emigration and those who want to can leave but that Ireland can do it . And now I hear that Ireland is doing really well withthose bond yields back to 8%. I think the spin is important. And it is clear that perceptions of the 2 countries are different. Greece seems to be a corner of the empire that is tricky to manage while Ireland is much more loyal.

    And yes, Greece is suffering brutally but Ireland isn’t exactly la dolce vita these days either and is maybe 2 years behind on the savagery. The elite has stabilised and RTE and the IT are back on form and everything is normal isn’t it ? Did you see Man Utd at the weekend ? Another how many billion of cuts to come? And when they come what will happen?

    Not much.

  13. @Veronica,

    Many moons ago, one of the distinguished contributors here made the important point that ‘anger is not a policy’. Unfortunately, at this stage, we have to rely on the best efforts of the Government to secure future amendments of the Troika support package that will address the ‘legacy costs’ incurred by Ireland to hold the line on EZ bank contagion. However, what is vital, in general, and urgently required in this case – so as to ‘strengthen the sinews’ of Government – is for the Dail to have the powers and resources, independent of Government, to assess the issues and make the case. And that’s why I have argued consistently that the Fiscal Advisory Council and a revamped, re-organised NESC, NCC and ESRI should be resourced by, conducting analysis for and directly reporting to the Oireachtas.

    We have seen the Bundestag assert the primacy of parliament over government in Germany during this crisis. The UK parliament asserted its primacy in the ‘Murdoch affair’ in the summer and shuddered into life again on Monday. Neither Denmark nor Sweden are in the Euro because those parliaments asserted their primacy over governments. The Netherlands, Austria and Finland are taking a hard-line in this crisis because those governments are taking their ‘riding instructions’ from their parliaments.

    The contrast with the PIIGS could not be more pronounced. Executive dominance over feeble and ineffective parliaments is the order of the day – and executive dominance in Ireland is at the extreme end of this spectrum. This, rather than differences in economic and fiscal performance, is the crucial fault-line in the EU. The national economic and fiscal crises in these countries are symptoms of these failures of democratic legitimacy. The focus should be on the malaise, not the symptoms.

    @Michael H,

    I bow to your superior knowledge of German trade statistics. But is this the outcome of short-term changes in the balance of exports and imports that could easily be reversed, or is it outcome of a change in policy to re-balance the economy?

    And I have continuously pointed out that all of the PIIGS could undertake structural reforms that would be in the interests of the vast majority of thier citizens, but the FODAR are powerful. It wouldn’t bother them if the economies were to go down the Swannee as they would be able to defend most of their absolute gains and probably enhance their relative position in the food chain.

    And as for the motley crew of 8 former attorneys general, they do actually have a point. It would be wrong to change the Constitution to secure a nakedly political objective, i.e., an inquiry focused on burying FF once and for all as an effective political force. However, refusing to empower the Oireachtas with the power to conduct such an inquiry would simply confirm its irrelevance other that as a vehicle to elect a Taoiseach and to rubber-stamp the edicts of the govenrment subsequently formed.

  14. @ seafoid

    You’re right, more cuts will come and not much will happen. Mainly because our young unemployed people will leave, our public sector will still be very comfortable and our pensioners will not be touched. That doesnt really leave anyone to wreck the place.

  15. @Jarlath

    “That doesn’t really leave anyone to wreck the place.”

    Except for the hard working, private sector, ‘squeezed’ middle class (acknowledgement: I am one). How many of those are there left these days? 🙁

    Plenty of emphasis this morning on no ‘credit event’ happening because it is ‘voluntary’ participation (and plenty of banks saying they don’t need any recap). I wonder what the Merkozy’s said to the bondholder reps very late last night? “We will bring in legislation over the next n years that will make your lives a misery so don’t rock the boat” ??

    Stay away from that CDS black hole boys. There be dragons.

  16. Paul,
    Generally, I think it is important not to over-state the ‘executive dominance of parliament’ argument. It is correct to say that executive dominance of the Irish parliament is too strong, but executive dominance doesn’t amount to executive dictatorship, at least not any that could last over any extended period. Any government seeking to exert complete dominance over parliament inevitably comes a cropper and finds its plans derailed, most frequently due to revolt amongst its own backbenchers, as demonstrated in numerous historical examples, however big and unassailable its parliamentary majority and its consequent assumed stranglehold over parliament may have been to start with.

    As for the ‘anger is not a policy’ remark by that most distinguished contributor to our national economic debate, I took him as referring to government policy options not popular feeling. I agree with McCarthy as regards the business of governments; but citizens’ anger at the sheer incompetence of our political class and their cynical betrayal of political values is both justified and necessary if we are to have any prospect of maintaining the values of a civilised society in the long term. Otherwise, we might as well be just saints or fools.

    Obviously, there is a case to be made for immediate reform of our parliamentary processes and, in the context of current events, for extension of the debate on Ireland’s position, and its options, among a range of bodies. However, I think the need for an information campaign is urgent and, in the circumstances, the independent Fiscal Advisory Council looks best-placed to undertake that task. I don’t think it can afford to await until all our parliamentary ducks are in a row. Forgive me if I seem a bit tetchy this morning; it does my humour no good at all to find myself having to go out and vote against a proposed important Oireachtas reform for which I would have ordinarily campaigned in favour because the wording proposed for a constitutional change is a botch job.

  17. I think this crisis has gone beyond the financial. These “Occupy” protests have added a moral/ethical dimension, and mass public discontent to the crisis mix. Whether or not this cash will be enough(It probably won’t), the EU must address public concerns about the the morality of its banking policy before the mood sours further.

    The most important aspect of the European Project is the sense of a common European identity among the people of Europe. The ever present amorality in this crisis is undermining that.

  18. Deal is inadequate, more work needed

    1) Greek debt seniority
    What will ranking of ECB,IMF,EC,Priv sector be ?

    2) Greek haircut amount
    50% on just the private is not adequate

    3) European Bank Stress Tests
    EBA work a nonsense, not enough data published

    4) European Banks Capital
    8 months till top up is too long, guaruntees needed

    5) No bazooka
    EFSF barely covers sovereign insolvency, certainly inadequate for liquidity style crisis. ECB not part of deal

  19. @ Paul Hunt

    I agree generally with the points you make and especially in relation to the question of the role of national parliaments. The fact that those countries with parliaments capable of keeping control of the executive generally do better economically than those that cannot is particularly important and will have to be addressed in the context of the key Franco-German relationship. Thomsa Klau dealt with the issue in a recent FT article and the link is repeated here. I think that it will be dealt with through a greater involvement of national parliaments at a European level.

    http://www.ft.com/intl/cms/s/0/84bd896c-f973-11e0-bf8f-00144feab49a.html#axzz1bdAZffj6

    On the issue of trade imbalances, there is an improvement – as Michael Finnegan points out – with regard to intra-EU trade but the fundamental problem of the North-South imbalance remains cf.

    http://www.tradingeconomics.com/euro-area/balance-of-trade

    ” Concerning the total trade of Member States, the largest surplus was observed in Germany (+88.9 bn euro in January-July 2011), followed by the Netherlands (+26.5 bn) and Ireland (+25.0 bn). The United Kingdom (-66.5 bn) registered the largest deficit, followed by France (-51.2 bn), Spain (-26.6 bn), Italy (-20.7 bn), Greece (-10.9 bn) and Portugal (-9.8 bn)”.

    @ Veronica

    I agree with your view that a better narrative is probably required with regard to explaining why Greece appears to be getting away with something when Ireland is not. However, Greece is a special case and the banks of the major countries responsible for allowing a country that was unfit for membership of the euro to join are now paying the price of that decision. The national exchequers that have to put up the cost of the necessary recapitalisation of the banks in question are probably consoling themselves with the thought that the money was not entirely wasted as it kept employment going in various shipyards and manufacturing plants supplying – on credit – import goods of various descriptions that Greece neither needed nor could afford. And Greece will be effectively under supervision for a minimum of a decade, if not longer.

    It would be foolish in the extreme to place Ireland at risk of suffering the same fate, especially given the country’s very positive trade figures. But that never stopped politicians!

  20. @Veronica,

    I accept that, for the sake of debate, I may have presented some things too starkly, but there is a distinction between a parliament frustrating the intent of an over-mighty executive (that, in many cases, may be in hock to powerful vested interests) and a parliament asserting its primacy in the public interest.

    The former happens all of the time, and for all sorts of reasons, in all parliamentary democracies, regardless of the quality of political governance. But the latter seems, increasingly, to be the case in the northern European countries I mentioned.

    Voters there are angry because they believe they were gulled by the assurances given by successive governments on the nature and functioning of the ‘Euro project’. Their members of parliament are simply channelling this anger as constructively as possible to give governments clear ‘riding instructions’, but, unfortunately, it is preventing governments taking all of the actions required. Any deficiencies in the package announced after this latest EU summit reflect these constraints. Governments are being compelled to re-secure the trust of their voters.

    But this is both necessary and healthy – and it needs to be addressed across many areas of EU policy.

    In Ireland, in contrast, we seem to have, as near as damnit, a ‘grand coalition’ similar to that between 2005 and 2009 in Germany. The Government, as is the norm, retains all the resources to fomulate, spin and enforce policy, but any ‘debate’, such as there is, takes place behind closed doors. Voters are being compelled to take it on trust that this administration has their best interests at heart. Prior to the ‘Gallagher imbroglio’, it looked like many would use his election as a timely warning to an over-mighty Government. Now it seems less likely.

    And it appears many voters are reluctant to empower TDs to do the job members of parliament in the other northern European countries are doing for their voters. Your idea about the FAC is sound, but it remains a creature of government. While we’re under the Troika’s umbrella there is time to get some ducks in line, but TDs will have to take the initiative and voters will have to be convinced. Very little sign of that happening.

    And I fully understand your tetchiness. I think we both know that the bodging of the amendment wording is to ensure that there’ll be some ‘naming and shaming’ – and I expect we also have a good idea of the identity of some of those whom it is intended to ‘name and shame’.

  21. @ObsessiveMathsFreak

    The most important aspect of the European Project is the sense of a common European identity among the people of Europe. The ever present amorality in this crisis is undermining that.

    +1

    I would amend that slightly to say that currently “The most important missing aspect of the European Project is”, the current “devil take the least converged with Germany” angle being a significant part of that problem (and our own dependence on corporate taxation competition is also a serious problem). Solidarity has to be preeminent over competition or the EU is doomed.

    It appears however that Chancellor Merkel is committed to doing, as she says, only what is best for Germany, and that since Germany effectively exercises control over current economic policy and the policy that is best for Germany is bad for the peripheral economies (which is everyone not sharing a border with Germany) that the EU has become subverted by its largest member to the extent that it is no longer operates in a democratically legitimate way.

    For Ireland’s sake it would be best if the current solution is quickly undermined by a banking/sovereign crisis in a country that is too big to save within the constraints of German opposition to printing Euros on a large scale and French opposition to acknowledging the losses in the banking system. We need a credit event, we might even need the end of the Euro/ECB.

    What a mess.

  22. @DOCM,

    I deliberately left France out of my comments becasue of its form of governance, but I take your point. Indeed the governance architecture of the EU resembles – and, in fact, predates – that of the Fifth Republic. The Council pairs with the Presidency, the Commission with the presidentially-appointed Government and the Parliament with the innocuous Chamber of Deputies.

    Whether governance arrangements in France will change, or those of the EU is an interesting question. I suspect a bit of both will be required. But, you’re right. The role of national parliaments will become more significant. This makes it all the more important to ensure that they are resourced and empowered to provide the necessary political legitimacy.

    @Shay,

    I would be reluctant to pray for a ‘credit event’. The question now is whether the firepower assembled in this package is sufficient to convince those who would profit from provoking such an event that they would be severely burned in the process. The jury is out.

    I also think my comment of 8:15am above echoes and, possibly, amplifies some of your complaints. But bringing the house down might not be the best way of refashioning some large and ill-fitting furniture.

  23. @Philip Lane

    I attended on Tuesday and thought that the talks were interesting (particularily Peter Boone and Mike Dooley). However, I was disappointed by the lack of debate or challenges to the views that were aired.

    Perhaps the questions from the audience members should have been requested to only ask clear, simple questions without going into their own sililoquy. Also, perhaps in the future, either yourself or others could specifically challenge speakers on their views.

    I didn’t get a chance to ask my question, but the following seem particularily relevant:

    – Why does Peter Boone think that the “Germany would not protest too loudly” to a complete ECB backstop.

    – Does Mike Dooley see any crucial differences in circumstance between the types of bailouts he did in the 80s and today?

    – JPF should definately have been questioned on how he comes to the conclusion that further ECB participation is impossible because it is “not set up for it”, while bizarrely he can see a role for the European Court of Justice in adjudicating on the fiscal policy of member states.

    – And CO’H should definately have been challenged on his view that austerity is the primary solution to Italy’s woes: there has been hardly any news of importance concerning the fundamentals of the Italian economy over the last few months which would suggest that it is a total lack of confidence in the Euro’s institutions that have led to an increase in BTP yields.

    I know that in normal circumstances it would be impolite to invite speakers to a round-table and then pin them to the wall on their views, but these are not normal circumstances and these issues are not just of theoretical importance.

  24. @Paul Hunt

    I would be reluctant to pray for a ‘credit event’.

    I understand your reluctance to see the sudden collapse of the European financial system but the CDSs are a problem that should be confronted sooner than later. To strain a metaphor until it snaps a credit event could let make us start demolishing the unstable wing of the building rather than creeping about waiting for it to make the entire house uninhabitable.

    Now everyone, outside of Tim Geithner, agrees that naked credit default swaps were one of the very worst pieces of modern financial innovation to have been allowed but even in their “clothed” form they present a serious obstacle to concerted government action to save the larger economy from the financial sector.

    The “clothed” CDS market severely constrains government’s power to negotiate with investors as the threat of triggering a CDS with an unknown outcome on the balance sheets of the European financial sector can be invoked – the financial sector has effectively booby trapped the market to avoid “interference” (huge bailouts not qualifying as interference).

    We can not tolerate this.

    The financial sector needs to see a limit set to their ability to do damage and since removing this particular suspended sword is a necessity, and given also that we seem unlikely to tackle the problem without the weapon being revealed, a credit event is required.

    @Gavin Kostick

    A very nice spin on Shakespeare, the current crisis makes me feel more Hamlet though.

  25. @Shay,

    Karl Whelan provided this link on a more recent thread:
    http://ftalphaville.ft.com/blog/2011/10/27/713826/how-gross-and-net-cds-notionals-really-work/

    It tallies with what I’ve picked up from other sources, but I have absolutely no specific insight or knowledge in this area. We just don’t know what ‘creepy crawlies’ have been ‘warehoused’ in various locations.

    However, I think my key point remains. The key parameters of and constraints on this package have been determined ultimately by northern European parliaments (and a French President seeking re-election in just over six months). By dent of gloriously inept governance Ireland, Portugal and Greece have been sidelined – and Italy and Spain are moving to the sidelines as objects rather than subjects. (And, yes, it is ‘stomach-churning’, as John McHale has put it, that Irish taxpayers are paying and will continue to pay for this EZ delay in recognising that its banks needed significant recap – and probably much more than what has been agreed is required.)

    Voters in the PIIGS will have to come to terms with the fact that governments exercising excessive executive dominance over parliaments and in hock to vested interests got them into this mess and that it needs parliaments asserting thier primacy over governments to get them out of it. This is the only way we will see sensible governance at the EU level.

    Instead, in Ireland, we have Government spinning all sorts of lines and coming up with all sorts of whizzo schemes to confuse the people (cf Karl’s latest posts and others on ‘productive investment’) rather than securing the consent of a suitably resourced, empowered and informed Oireachtas to pursue sensible domestic and EU-related policies.

  26. Jean Pisany Ferry has pointed out the weakness in the govverning structure of the ECB a few years ago. He is right it needs to be reformed as executive council is unreprenseitive of smaller countries.
    Peter Boone and Simon Johnson have been ahead of the curve in predicting the next stages of the crises, interesting ppt from Mr. Boone.
    Just watched Simon Johnson in Iceland. Has been talking about the dangers of too big too fail banks asnd lack of cross border bank resolution methods.

  27. @ DOD

    “Insofar as economic activity was directed to the appreciation of “fictitious capital” in the realm of finance rather than the accumulation of real capital within production, Marx argued, it had metamorphosed into a purely speculative form.”

    Klaus Schwab of the WEF was in the NZZ am Sonntag last Sunday and wrote that “capitalism is out of balance. The ratio of virtual investment to investment in the real economy is off the wall and out of control. Financial deals to manage risk are necessary but those that function solely for the purpose of speculation are not .”

    Koyaanisqatsi means “out of balance” in Hopi. Awesome film

  28. @Paul
    Why would you want to recap Fraudulent & failed institutions ? – that process involves the transfer of the peoples money to criminal private outfits.

    These institutions have CREDIT LICENCES – why ?

    http://www.youtube.com/watch?v=kP3oRwXI558

    Money must be separated from debt.
    Debt contracts do not increase life support , they do not increase the production of goods & services.
    They hyper inflated credit and now want people to pay it back ?
    Come off the stage boy.

    I do not accept the concept of banks with the money power.
    Goverment money which may or may not have a interest coupon on it is not strictly debt – credit is debt and the credit produced in recent years has been worse then useless – its been extractive.
    Now you want us to fill their coffers with our Money again through recaptilisation !!!!
    You may not realize it but you are advocating a monetory tyranny.
    This TINA thing is absurd and just plain stupid if you really believe such nonsense.

  29. @seafoid

    Slavoj Zizek, the philosopher, on Bloomberg interview tonight said something similar. A small but growing number are seeing light – but do we have the matches?

  30. @ DoD

    Monthly Review reckon the top 1% of Americans owned 33% of assets in 2007. They have to grow that percentage by the logic of the system they run. Speculation is the vehicle.

    Even Gillian Tett of the FT was raving recently about agricultural land and food as a growth sector (though she did admit it is difficult for financial untermenschen to deal with the food price inflation that follows).

    Something has to give.

  31. @seafóid

    That’s a great essay in Monthly Review.

    Unfortunately, greed knows no bounds and I’m pretty convinced it will be capitalism that is the catalyst for our downfall i.e. constant need to expand and compete will not only lay waste but will spark terrible wars for assets such as water, arable land, fuel, etc. I expect the Chinese to survive.

  32. @PR Guy @seafoid

    Very interesting and thought provoking essay.

    The essay could also be entiltled what every Liberal/Socialist/Capitalist needs to know.

    I do not agree with everything in it but I like the fact that the authors present alternative solutions which are well worth considering.

    Almost everyone realises that the “captialism”(which is actually an insult to Liberals and Conservatives) that has emerged over the last 30 years has failed and everyone knows that Marxism was also botched up in Easter Europe.

    I do not have much idea about Cuba or Venezuela but I suspect the essayś references to specific parts of Latin America may be slightly “Utopic”.

    Anyone trying to understand what “Occupy Wall street” is all about will gain a lot of insight from this article. We should keep in mind that, unlike previous “revolutions” (where the participants were largely uneducated and ill informed) most of the current “occupiers” are quite educated and very comfortable with social media.

    The future is going to look very interesting and I think a lot of us are going to have to revise our thinking.

    Two interesting facts from the Soviet experiment :

    Stalin believed it was essential that the masses should achieve eight or nine years education (higher education only became widely available to the masses after his death) so that they could read,but not analyse, his propaganda.

    By the time Gorbachev came to power some form of 3rd level education had been available to practically everyone in the Soviet Union and Eastern Europe for some time. Many observers believed the fax machine played a large part in circumventing official Soviet information/propaganda which eventually led to the rapid collapse of the Soviet system.The fact that the Soviet system was actually built on match sticks despite big “shows” to the contrary is not actually that much different from the credit illusion of “wealth” we have witnessed in the “developed” world over recent years

    IMHO now that Marxś “reserve army” in the “developed” world is actually increasing in size, very educated , very informed, very concerned, very insecure and regularly uses social media it doesnt take a genius to figure out that change is going to take place very fast.

    The usual “safety valve” of starting a major war (to divert public attention and evergy) is also not an option because of the presence of Nuclear weapons and the eduaction levels of the “reserve army”.

    Personally I believe that Socialism is not necessarily the “panacea” but certainly many centre right thinkers (including myself) need to embrace many values which are usually, but not necessarily correctly, considered “Socialist”.

    In fact I would venture to say that many Conservatives and Libertarians have a lot of core “socialist” values while many “left wingers” have many core conservative values.

    If this weeks events in Brussels have shown us anything it is that existing methods of governance have actually “run out of road” and “neoism (of the Liberal and Conservative kind)” has fallen off a cliff. However “neo-Socialism” would also have to approached with caution..

    Thankfully in Ireland despite this week`s European confusion and panic /confusion we were able to hold four complex elections on the one day without any hassle. That is something we should not take for granted and assume could be done so easily many other countries.

    As a Political Scientist I am pretty sure change in the “developed world” will occur much faster than many people think but it wont necessarily seem (or feel) radical. In fact I suspect it has already started regardless of how various “spin doctors” present it.

    IMHO everyone should read the Monthly Review essay with an open mind.

  33. Bill Mitchell doesn’t like the deal either:

    “It was some sort of bazooka – aimed at themselves”

    Quote:

    “The whole region needs to grow. But our erstwhile Euro leaders decide to do the exact opposite and kill growth – which is the only way out of this mess. The bond markets realise that austerity is likely to worsen their prospects of getting their money back and so rebel.

    “The Euro leaders impose more austerity. The situation gets even more dire. And the Euro leaders have to stay up all night to work out a plan which will make the current situation worse!

    “This is all because they refuse to order the ECB to take the responsible role of funding growth right across the region – which means they have to fund every member state’s budget deficits and those deficits have to be as large as is required to fill the spending gaps in their respective economies.

    “The economics is not complex at all. The politics is the problem and the cultural differences.

    “The EC President was quoted as saying:

    “‘These are exceptional measures for exceptional times … Europe must never again find itself in this situation.’

    “They are half-baked measures for dire times and unless these power elites take an ego loss and redesign or abandon their monetary system – Europe will certainly find itself in that situation again and meanwhile they will be impoverishing their citizens.”

    http://bilbo.economicoutlook.net/blog/?p=16685

  34. Sarko tells France the country must follow Germany. Everyone is going to export their way out of recession. Everyone is wearing the austerity hairshirt.

    It is madness.

    It would be far easier to launch a Blitzkrieg on Switzerland, seize control of UBS and CS and redistribute all of the Greek, Irish , Portuguese, Spanish, Italian and French loot to their respective governments than to wait for mass austerity to lead to Shangri La.

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