Kevin O’Rourke on the eurozone crisis

Kevin O’Rourke delivered a hugely insightful talk on the crisis and the global situation at a conference in Dublin last week. His presentation is here.

38 replies on “Kevin O’Rourke on the eurozone crisis”

Thanks for this Frank. Excellent presentation from Kevin.

I really liked this bit

“Need a move towards fiscal union

One that will promote counter‐cyclical adjustment in depressed regions
We are being offered surveillance guaranteeing pro‐cyclical adjustment”

I had been meaning to write a two sentence post pointing out that people have long mooted the need for fiscal union to go with monetary union but that the proposals that people on RTE keep calling “fiscal union” isn’t at all what my understanding of the term means at all — it’s just some kind of balanced budget rule overseen by Brussels which is a recipe for macroeconomic trouble.

Anyway, there’s my two sentence post as a comment.


Agreed, this is an excellent presentation.

I also agree that we should not use the term fiscal union for more central control over fiscal policy.

Yet it is hard to avoid the fact that more central control seems to be the price demanded for an effective LOLR. An without that LOLR the euro zone is deep trouble. What do we do?

I thought the FT captured the dilemma well in an editorial today. The closing two paragraphs:

“There are arguments for deeper political union – some are non-economic, such as the need for a coherent EU foreign policy. Mr Sikorski is also right to tell the UK that if it will not join the euro, it should allow others to integrate further. But these arguments cannot be conflated with the need to end the current crisis. Short-term imperatives and long-term logic overlap, but they are not the same. The debt crisis must be resolved now. A new constitutional settlement for the EU or the eurozone must be rooted in the patiently cultivated soil of political support.

Europe has to avoid the twin dangers of constitutional reform effort paralysing responses to the crisis, and of crisis measures irreversibly creating constitutional facts on the ground that lack popular consent.”

@john mchale
I fear that you have fallen into several of the traps that have been laid for us. For example, the ECB clearly believes it is already behaving in classic Bagheot fashion and lending in abundance to liquidity troubled institutions. But those institutions are banks, not sovereigns. Where is it written that the lolr function is to finance sovereigns?
If the ecb buys bonds in return for ever more austerity, albeit centralised, then the euro is still doomed. The only solution to the euro crisis is growth. Until we get our heads around this simple idea, disaster beckons. And yet who agrees with this proposition other than, ironically, the hedge funds?


In the first chart, the “shocks are rare” slide, there is data missing around 1910-1920 and 1940-1950.

How comes?


I think there are two distinct fantasies about ‘fiscal union’.

One is that you get transfers from Germany to subsidise the cost of debt / sustain costs, inefficiencies and employment terms (for the right people) superior to those in Germany, in exchange for little more than a re-named ‘stability and growth pact which essentially says: ‘we really, really mean it this time’.

The other is that the other, dysfunctional, states have the elite’ commando receiver force’ abseil in through the windows with stun grenades to veto all the non-Germanic behaviour – thereby turning them into proper countries and negating the need for all those fiscal transfers from Germany.

I suspect the updated ‘pact’ will be a bit of a fashion victim via the austerity-everywhere fad, and that periphery governments won’t be able to sign up to it quick enough, so long as the show stays on the road for a while.

What a shower.


Colourful stuff — and more than a grain of truth.

Though I’ve got to ask you: If there isn’t movement in this direction, what do you think will happen? And are you good with that?


“and of crisis measures irreversibly creating constitutional facts on the ground that lack popular consent.”

The proposal so far are unlikely to ever garner popular consent.

The central problem is that we have a banking sector that has filled the political ether with falsehoods as they always tend to do – the big difference now is that all poltical parties of both the left & right actually believe them or are giving a good impression of it anyhow.

Did anyone catch the farcical “tax” debate on the VB show tonight ?

You had the left who wanted to increase taxes on a declining domestic money supply !!!!! with the tax exile problem the only valid argument while Leo & the Blue shirt brigade bringing up the old Balance the Budget kipper for supper no less.
Glad to know FG has joined the Full Money Movement but someone better tell the foot soldiers first don’t you think ?

Can’t figure out why the left has not read Micheal Hudson – it merely confirms my suspicion that Marxists are the Bankers friend when all else fails them – class war is their get out of jail card me thinks.

I would love to see a video of the presentation but if Kevin O’Rourke is out there in the ether I would like to ask him whether the bullet point:

* Need a banking regulation and resolution framework – Almost forgotten amid the focus on state finances

might not have deserved some more attention?

It is rather remarkable that in the aftermath of the global financial crisis global finance appears to have avoided any blame, that it has if anything more influence than before and that it has successfully thwarted all attempts at reform so far.


* No significant inquiries into the financial sector.
* No real idea of the state of many Eurozone’s bank’s health despite there apparently being an open ended commitment to supporting them.
* No progress on a financial transaction tax.
* No bank resolution framework.
* Continued socialization of banking debt (no or very limited “Private Sector Involvement”)

From a layman’s point of view it would appear that rather than trying to adapt the international financial sector to the needs of society policy is instead focussed on making society more responsive to the needs of finance. How do we tame the beast?


How do we tame the beast?

We don’t. When a rogue beast is down; one finishes it off quickly – under no circumstances should one allow it to get on its feet again, which can be fatal. The hunter-gatherers of yore had this well figured out – but the lesson appears to have been erased from the collective memory.

@Kevin O’Rourke

What was missed was the role of cross border capital flows … would really like to see a strong statement on this from ECB Executive Board …

Rodrik: (if he is on the ball; and we had thread on this before here) – the nation state or democratic politics – I’m firmly on the side of the latter if, and only if, I’m to be convinced that this is the choice … and I don’t know enough yet: this message is not in the EU public sphere to any real significant extent imho hence a massive political challenge, and if anything, both nationalism and anti-EU sentiment are both increasing due to failures in political leadership at EU level.

Crisis: absolutely …

The question animating Kevin’s presentation is why we haven’t seen a rise in protectionism despite a crisis as severe as past crises.

One answer: because we’re looking in the wrong place. It’s not manifesting itself as a Smoot-Hawley trade war over trade in goods. It’s protectionism for the banks.

@ John McHale

I loved Europe, though for me, we are close enough to this new beast or new ‘Europe’, I don’t want us to get any closer. The fact that those at the heart of it have played a game of chicken with a multi-generational project, resulting in it’s near (and possibly full) write-off in a matter of months, should set alarm bells ringing, even in sleepy Leinster House. This is something we should run from not towards.

The fact that this is fundamentally once again a energy crisis caused by a lack of investment as rentier capital has off shored to the Caribbean / Dublin / London etc etc is at the very core of the problem.

That they – the banks – can survive longer but not forever by driving down labour into a empty dark well is no longer in doubt now , as a recaptilisation of the global economy would deprive them of leveraged profits and perhaps more importantly their political power over us.

BANKS MAKE MONEY OUT OF DECAPTILSATION OF THE PHYSICAL WORLD that is manifested in short term profits – don’t people get it ?? , they will always opt for frugality (which is just a form of slower depletion) amongest the populace over wise defecit spending until the very end of time when we including the bankers will be all F£$ked.

“The drama always comes back to the ECB. Will it blink?”
From Ambrose at the Telegraph.

Don’t think so.

The missing data may be on account of some minor European military issues in those periods.

How does growth correlate with EU treaty changes? Has the increased bureaucratization and ‘professionalization’ of EU been good or bad for growth when looked at over a twenty year period?

It seems clear that access to credit has been used to paper over growth cracks in the EU (and the US) for years. Now that credit is in retreat, the outlook for small businesses and employment is bleak. Maybe I am take my news from all the wrong, but unemployment as a long term problem, its implications, doesn’t seem to get much attention in Ireland.

@ Karl Whelan

re “We are being offered surveillance guaranteeing pro‐cyclical adjustment”

Is that not purely ideological ? The reason we are in this mess in the first place is that the PTB believed that whatever price the market set for asset prices was the right price. There was no need for any counter cyclical controls on the bank lending that drove house price bubbles, for example.

And here is the fallout

A first floor two-bed apartment at The Cubes in Beacon South Quarter, Sandyford, D18, with parking, sold for €152,000. A good bargain for someone in the room but not such good news for Jim Kelly who was waiting for the lot to come up. His daughter bought a similar apartment in Beacon South Quarter four years ago for €420,000. “She told me not to tell her what it got,” he said.

Its a mistake to think this is a euro crisis that can be solved by the ECB. This is a world currency ‘floating’ dollar crisis on the verge of getting out of control. The chaos we have now was there in the floating currencies of the 1930’s. Bretton Woods was required then to intervene and created the dollar as the world reserve currency with the dollar at $35 an ounce. Unfortunately, the dollar/gold peg was removed in the early 70’s and aided and abetted with the birth of financial intruments such as derivatives and OTC’s instability and finally chaos beckons as it did in the 1930’s. We need a global solution, a new G20 world reserve currency, such as that proposed by Keynes, ‘the bancor’, with a new FOMC type body composed of reps from each of the world’s major economic zones with fixed exchange rates based on gold. 💡

The slides of that presentation are fascinating. Is there a podcast of the event? It would be great to hear the discssions.


+1 There are many streaming technology, self recording/broadcasting solutions out there such as ConnectPro. Also eg Quicktime, Snagit, Screenflow software is there to record your laptop screen. Even a video made that could be edited and made available somewhere for download. To grab participants other than main speaker for above including podcasting software you need a professional mike eg Acousticmagic

Re Shay: ”It is rather remarkable that in the aftermath of the global financial crisis global finance appears to have avoided any blame, that it has if anything more influence than before and that it has successfully thwarted all attempts at reform so far.”

National Budgetary oversight, certainly; but they won’t countenace any increased regulation of the lending practices of financial institutions.

Has any European leader or ECB vox ever admitted that Ireland’s situation is almost completely the result of the ethereal regulations that prevailed here ( that, if we are to believe Kathleen Barrington’s pieces in the Tribune, was the result of lobbying on finance minister Cowen by a coterie of German banks).

I don’t think it can be pretended that nobody outside Ireland was aware of what was going on here; just as long as it wasn’t happening under their jurisdiction, for which they might later be called to account, they were quite happy with it.
All those ‘Ireland the Wild West of Finance’ pieces, etc.

It seems to me to be just one of many weak points in the public stance that FG are moulding; ie, that external fiscal governance is de facto both foolproof and benign.

“Chinese manufacturing activity has contracted for the first time in almost three years, adding to fears about the health of the global economy”.

The EZ crisis is hurting demand. Sports goods chains and jewellers and companies in between are all reporting falling EZ sales. Austerity without any form of support for demand is driving the global economy backwards.
George Osborne confirmed this yesterday.

@ All

The second leg of Rodrik’s trilemma states; “If we want to maintain and deepen democracy, we have to choose between the nation state and international economic integration”.

Where is the evidence for this contention?

The European Union is living evidence of the fact that no such choice is necessary. Opinion polls show falling support for the EU as economic difficulties mount but on the essential point of democratic confidence, they also show consistently that the citizens of Europe trust the institutions of the EU more than those of their own country.

There is a tension between democracy exercised at a national level and at an international level in the EU but no necessary incompatibility. (One cannot speak of any other international organisation as these are inter-governmental in character and no sharing of sovereignty is involved).

It may be argued that the introduction of the euro was a step too far but that is another matter.

I agree on the comments with regard to the need to give a precise definition to “fiscal union”.

The fact remains that the EU is a sui generis construction in which nation states have agreed to exercise competences in common subject to shared institutional democratic controls. This exercise is federal in character in many areas but with no watertight distinction between the powers of the federation and those of the states, as evidenced by the fact that it is the states, and not a federal authority with millions of employees, that are responsible for implmenting the legislation agreed collectively.

American observers, from President Obama down, seem incapable of getting their minds around the sui generis character of the EU; but they are learning!

The world is flat and getting flatter and that is a good thing says Thomas Friedman and like-minded trade ‘liberals’. As you say, Mr. O’Rourke, labour is unimpressed and it is right to be – what’s the point of cheap goods if you have no income to purchase them with?


We discussed Rodrik before on this blog – a EuroIntelligence piece by KO’R

as I put it then:

Yes. What is lacking in ‘global governance’ is an institutional mechanism at the ‘zonal’ level – EU, ASEAN, Americas etc …. While this institutional deficit lasts, imho, Financial Sector holds all the cards over nation-states, the EU, and over democracy itself as evident in present ECB policy, which is biased towords financial system as distinct from the lifeworld of ordinary democratic citizens. Classic Baseline Scenario example [in link – due to austerity on linkages on the blog]

This was back in April – this is December – still holds. Must find time to seriously read Rodrik ….

.. and from that link … to today

The MatrixsQuid tosses a little cluster-bomb seeded with its DNA to ensure its propagation and eventual total control of the planet formerly known as Earth. Little wonder 7_of_Nine legged it ….

And locally – seek the tentacles – one is never more than ten feet or two nano_seconds from a tentacle ….

Interesting evolution of the crisis.
Next step is ECB lending to IMF whilst closer fiscal union is coordinated from behind the scenes.
Our weakness in negotiating – we need the money
Our strength – they can’t afford us to go bust (not just yet anyway).
So this is a position to bargain from.
We need to decide how much we want the currency and what level of debt write down we would like. In terms of planning for life without the single currency we need mix of economists, gamblers, farmers and lawyers etc. Economists sometimes get too close and don’t get that life is poker not chess. Well worth looking into this

I’m surprised at how little comment there’s been in the meeja today about Merv the Swerv’s (King) statement this morning that it’s a solvency crisis in the Eurozone, not a liquidity crisis. Everyone knows that but very few are calling a spade a spade so fair play to him.

There’s a real, hard push on the message about clear and present danger in the EZ coming from the UK at the moment. A real push. Almost… almost as if they know something that they feel should be passed on to those that are willing to listen…..

Reminds me of that kid jumping up and down shouting, “the emporer’s got no clothes”… and when people eventually got round to hearing him, they all agreed en masse and the whole facade fell apart.

Jill Kirby seems to have taken the debate to a new level today when she predicted the imminent collapse of the Euro with utterly disastrous consequences for anyone daft enough not to have got their money out of the banks before now (and into gold etc). Of course we can’t predict the future with any certainty but some of you very bright economist chaps must know if the Euro does collapse (or break-up) what exactly happens to money one has in the AIB/BoI – or, say, in France or Germany where lots of Irish people have shifted their cash, not to mention Sterling where hundreds of millions of Irish money resides. The issue is usually discussed in terms of Ireland reverting to Punts, devaluing and selling lots more exports. But is Kirby right to warn that European banks could collapse across the continent, leaving ordinary depositors with nothing? And I assume if it does go this way, government guarantees won’t be worth the paper they were written on and will be seen as merely psychological props without material substance. And, finally, if Kirby is right, where would an all-knowing economist stash his cash these days? (Gold isn’t feasible for most people and the entry charges are prohibitive.)

@Almost Pennyless

Sweden, Switzerland, USA. It makes good sense not to put all your eggs in one basket. Spread it around to reduce risk. This does not constitute financial advice as the regulator would know it!!

@Almost Pennyless

Jill Kerby has been making bank-run comments now for some months. If she were trying to start one whe couldn’t try harder. She has also remained a big fan of gold which I think is a mistake, crisis or no crisis.

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