Re-Designing the Eurozone

I argue that the fiscal ‘compact’ will not turn the currency union into a full monetary union in this paper from a conference before Christmas;

and in another that Croatia, which voted to join the EU a couple of weeks back, should think carefully about joining the currency union as currently constituted:

It would be nice to get solemn acknowledgement all round that fiscal rectitude is a good thing. It would be even nicer if some political attention could focus on what kind of EMU 2.0 might actually work in the long term.

125 replies on “Re-Designing the Eurozone”

As posted elsewhere, my two cents:

– Financial regulation should be a Eurozone level, not a national one.
– The ECB should have a mandate to tackle trade imbalances in the Eurozone. This should have equal weight to the current inflation-based mandate, so that mildly higher inflation (in Germany, say) would be tolerated if this were required to reduce trade imbalances.

Perhaps, eventually, with sufficient hindesight, the “Euro-(stick that up yer jumper Yanks and Brits)-zone might transmogrify into the “Oh!-(that was a bit more complicated than we realised)-zone”.

Well , that was a fine paper Colm ,
But the wealth has escaped…. – I see it as a transfer of real resourses ( much of the remaining physical energy) to the core but others might see it as harder money.
The Core has essentially destroyed Iberia , Ireland , even Greece & possibly Italy via a outward movement of credit deposits / bonds and not real money from the euros inception especially – creating a malinvestment nightmare.
The opposite of the somewhat positive but still misdirected in my view EU fiscal structural funds.
The Core has turned us into a 1990s Turkey.
Therefore using a new Punt as a medium of exchange and Tourist $ & £ as a store of some value is a option I guess.
I disagree with Buiter who has skin in the game of a Euro future.
The Greek default will probally set off a chain reaction in the Euro , it was finished when it did not devalue sufficiently against Gold.

Anyway countries that cannot recycle their wealth into long term viable investments are known as second & third world countries in my view.
The Euro and “free market” ideology has turned this place from the lowest rank of the 1rst world into a more friendly version of Albania.

The Market state simply cannot produce the goods , in its defence it was not designed to either.

Renationalisation of state utilities should be a priority so as to recycle whatever we can into rational scientific investments & not based on silly trends.

@ Colm
in contrast to your expectations,
“Ireland returns to international bond market” 1/25/2012
“He said Ireland had also managed to differentiate itself from Greece by consistently meeting all its bail out targets.”

10 year yields on e.g. IE0034074488 are down to manageable 6.7% (coupon 4.5%) and dropping rapidly, liquidity is OK, timing at least 6 months ahead of plan agreed with the Troika.

What your paper conveniently forgets to mentionis that you signed up to the Maastricht treaty, making investors believe in solid financial behavior,

The US FED didnt bail out the US States in the 1830s either.

The no bailout, no money printing clauses were exactly meant to protect the savers and tax payers from Core Europe from the criminals.

The Job of the ECB is to manage Euro wide inflation to 2.0% – epsilon.
Of which Germany is only some 27%. 4.5 % Inflation in Germany, 1% everywhere else makes about 1.94% on average = on target

The really stunning aspect to all this is that even Germany has become a Industrial weakling -leaving itself open to the Russian Bears Gas claws.
There are very few winners in this now post monetarist world………just ever more desperate gamers.

Total German energy self sufficiency
Y1980 : .5197
Y1990 : .5298
Y2000 : .4012
Y2009e : .4023

Total German TPES
Y1980 : 357.2
Y1990 : 351.4
Y2000 : 337.3
Y2009e : 318.8

TPES / Population (toe per capita)
Y1980 : 4.56
Y1990 : 4.42
Y2000 : 4.10
Y2009e : 3.88
So much for those solar panels at 51 latitude………..
Efficiency is Fantastic but where is the supply ?
Add scientific illiterates with credit junkies and this is what you get – COLLAPSE.
The Germans have been better at gaming the remaining supply back to the Motherland , but in the long run there is no way out without massive reallocation of investment from exports to real capital / wealth creation………….see spliting atoms

Germany was & indeed still is in a very weak position – it must export high value mercantile consumer durables so that it can afford the Gas bill.

Once its Nuclear goes it is toast like the rest of us as its coal fields appear to be declining.
(can’t get its domestic production graph up – but it is stunning – its shows it nearly halved from a peak of 200 +MTOE in the late 80s)


This is a useful summary of the situation and choices from Colm but it could do with some context and maybe a recognition of some positives.

The ECB has made some mistakes but it hasn’t generally stuck to a rigid rulebook and when required has faced down the two German reps on the governing council.

On this week five years ago there was a key signal of a crisis brewing but few reacted to the tsunami warning,

Finfacts reported on Feb 08 2007 that global bank HSBC had been burnt by a slowing US housing market and the percentage of HSBC mortgages more than 60 days past due was climbing. The world’s third-largest bank by market value had set aside $1.76 billion, higher than analysts’ consensus estimates for 2006 subprime losses.

Seán Quinn and others should have reacted 2 weeks later and sold at the market peak: February 21, 2007 when the ISEQ index rose to an-all time high of 10,041 and the Financial sub-index rose to 18,098.

Bank of Ireland closed at €18.65; Anglo Irish closed at €16.64 and AIB closed unchanged at €23.95.

Denial was common, even after the onset of the credit crunch in August of that year and it took another 13 months – – after the collapse of Lehman
Brothers – – for panic to set in.

It’s an interesting question to ask about all the hurlers on the ditch with their many proposals, would the world be different if they had chosen a different profession?

I don’t think so.

While the mantra was a ‘soft landing’ in Ireland, Ben Bernanke, Fed chairman, former Princeton economist and an ‘expert’ on the Depression years, spoke of the subprime crisis as being ‘contained.’

What crisis?

In June 2007, Irish Life & Permanent said in a trading statement that its Irish residential mortgage book was expected to see growth of about 20% in 2007 and there was a big selloff of Irish shares.

20% mortgage credit growth wasn’t enough?

As with the Depression following a long period without a serious bust, politicians and policymakers have stumbled in search of solutions – – it’s even more of a challenge in a multilateral situation .


‘The Core has turned us into a 1990s Turkey.’


‘In conclusion, Turkey’s experience in the 1990s and beyond confirms the theories which state that financial liberalisation needs to occur in a strong institutional and regulatory environment, characterised by sound bank regulation and supervision, effective law enforcement and good governance in the private and public sectors. Turkey did not meet these conditions’

Neither did Ireland in the Noughties. Good governance and sound banking regulation is still a distant dream.


“This means centralised bank supervision and resolution, centralised deposit insurance and an end to moral hazard and the implicit subsidisation of capital for banks. It does not need fiscal union, for which there is no democratic consent: fiscal discipline for the foreseeable future can safely be entrusted to the bond market vigilantes, who have thankfully risen from their slumber.”
(Conclusion of your Croatia-related paper)

Completely agree with the first sentence, but, AFAIK, the establishment, empowerment and functioning of the necessary EU-wide bodies is grinding away behind the scenes. (This is Karl Whelan territory.)

But from there on I beg leave to disagree. Banks and governments throughout much of the EU remain locked in a deadly embrace and it is proving damnably difficult to release the grip they have on each other without both falling down. Many banks were given carte blanche to load themeselves with risj and to make out like bandits because they were doing what governments of all complexions wanted.

Over the last 30 years the labour’s share of income has declined inexorably in many of the advanced economies as production patterns changed with significant changes in technology, the traditional industrial base was hollowed out and much of basic manufacturing and some service provision shifted or was outsourced to the major emerging economies. This was accompanied by wage repression and the extent to which this is the cause or the effect of the continuing decline in labour’s income share is a matter for much debate.

In addition there were persistent current account surpluses at a global level and within the EZ. Governments, keen to ensure re-election, were perfectly happy for the banks to re-cycle these surpluses in to a mountain of credit to comspensate labour for its declining share of income. As Raghuram Rajan has put it: “let them eat credit”.

Now that the banks have screwed up magnificently, as all parts of the capitalist system inevitably will do from time to time, if it is not shackled by effective democratic governance, governments have been forced to put their sovereign signatures on the line. (Since all unhappy families are unhappy in their own ways, the PIIGS exhibit different mixes of pathologies, but all share a failure of democratic governance and the capture of rewards far in excess of the underlying economic value of any output generated.)

Untangling this mess is proving to be painful and time-consuming. And the badly governed countries will suffer far more than the better-governed. I agree that any sort of fiscal union is extremely unlikely for the foresseable future as each country is fixated on solving its own problems, but effective, co-ordinated fiscal governance will have to be part of the mix.

The stock of sovereign debt will have to be reduced and its quality enhanced. And, irreseptive of the technical criticisms that have been advanced, I see this as the over-riding objective of the fiscal compact. Tax and spend decisions should be subject to effective democratic governance. It would be far better to have bond market participants demanding the issue of more sovereign debt as a safe home for their ‘good money’ than to have governments begging them to buy their paper. The people should decide; not bond market vigilantes.

And this has major implications for the financing of investment in public infrastructure and utilities. These have to be taken off the government’s balance sheet to the greatest extent possible so as to shrink the stock of sovereign debt. The revenues to finance these activities should come from users directly and not from general taxation.

In the Irish case this would mean a major programme of privatisation which not only would shrink the stock of sovereign debt and allow a near term re-entry to the sovereign bond market, but it would also benefit all citizens by removing the financing tax imposed as a result of the current gloriously inefficient financing of investment.


lets us wholeheartedly celebrate, that we both agree on something: photovoltaics is expensive and does not work when you need it, like…. now.
With panel prices reaching 1 $/Wp, the incentives have approached German retail prices.

Beyond that I was wondering what German energy supply has to do with McCarthy’s paper about Irish solvency. If that was me commenting, this would be not so good.

I also agree with you, that energy security and price are very important.
But wind is actually pretty competitive nowadays. Thermal Solar in the Arab desert is something to be considered carefully.

At first I was not happy with the nuclear phaseout, but the thing is: New Nuclear has actually become pretty expensive (> 10 c /kWh, a recent paper: and makes you also dependent in the long run on the folks who have the fuel.

Somewhat ironic, that the first European institutions were actually about steel and coal and the ability to do something with it, and now listing German Resources unconnected with the total.

What Germany actually has plenty of, is lignite and bitumous coal, which are right now providing twice as much energy as nuclear. And those power plants could be built pretty quickly, can be switched on off quickly.

We even built some 12 Gigawatt recently without the Eco mob marching in the streets.

@ Colm McCarthy

The Commission staff working paper on the state aid aspects of the banking crisis is a useful read.

If the ECB has made errors, it was not alone in doing so, and these were not confined to Ireland.

The turn around in Irish bond yields is also not reflected in the spreads chart. (The IT has a chart on the most recent favourable developments today).

The fundamental difficulty with taking a root and branch reform of the euro as a point of departure is that it is politically unrealistic. The EU is not the US and will never have the same degree of homogeneity which would allow the development of a federal state with similar structures. The only approach that will work is that which has been used from the very beginning of the EU, that of the methodical step by step approach.

One step may be on the way, fortuitously as hitherto, as far as Ireland is concerned!


“Mr Kenny’s comments follow those of Minister for Finance Michael Noonan, who said that Ireland may try to take advantage of any “arrangement” that Greece agrees with the European Central Bank on the country’s debt.

Any concessions that Greece gets from the ECB could help Ireland’s negotiating position, Mr Noonan said”.


I agree that it is absolutely vital that some arrangement is agreed as a matter of urgency to minimise the fiscal leakage the IBRC legacy is imposing, or it will prove impossible to secure democratic consent for the deep-seated structural reforms that are required. It should be possible to spread these payments out almost indefinitely. It is only relatively recently that Britain made its final payment on the ‘Lend-lease’ programme initiated in 1940.

At the moment Ireland is treading water and I sense that the public patience with the continued salami-slicing of public expenditure and incremental increses in tax and charges is wearing increasingly thin as no real gains are apparent following the administration of all this pain.

It strikes me that if Croatia does decide to join the euro, there are a some preliminary measures it needs to protect the country from its banking system.

One is to impose a legal requirement that ordinary depositors rank ahead of all other sources of funding.

Another is to establish a constitutional requirement that the government may not provide or guarantee funding for any bank that gets into trouble, beyond what may be needed to make good depositors’ funds to the limit of its deposit guarantee scheme once all other sources of funding have been wiped out. A legislative requirement that all government, central bank, court and public sector documentation and correspondence on this topic should be published immediately on penalty of a heavy prison sentence would make it difficult for the “bad faith” merchants at the ECB to find ways around this in a crisis.

I was thinking of when we pull out of this experiment – the Turkish Lira was used as a very crappy medium of exchange but not a store of value during those years.
Yes its my Hobby Horse -But this paper was about the future of Europe – the western banking system had not created wealth / recycled surpluses that could create more wealth for some time now.
Which means the entire western world is becoming second world.
From a energy perspective this happened when Nuclear programmes were abandoned in a rolling fashion by various European countries during the 1980s as their Utilities were set up for privatisation.
I could not get the graph up on the screen – but German domestic production including coal has collapsed since its peak in the late 80s possibly because of Eastern German shutdown programmes but the line is clearly about to fall off a second cliff when German Nuclear goes the way of the Dodo.
Go to
click by Country , Germany ,related Graphs ,energy production.

I find these Anglo like Monetary discussions very interesting but there is a almost complete divorce from the physical scientific world which I find disturbing – the German banking system appears to have caught this disease with little attention to core Industry.
I also blame the change in the poltical Geography syllabuses more then 20 years ago.
When you can’t define a border however artificial , you can’t define progress.
Anyway I think GDP metrics , Hedonics etc can’t compete with core energy data such as TPES or TFC

Colm M has covered a lot of ground there which makes it difficult to comment briefly on. Plus I got to read his 2nd .pdf later. My own position is der euro is fertig. A euro mark 11 gives me the chills. Euro mark 1 is nothing but an out of control Greenspan hedge fund showing all the toxic symptoms of pre 2008 as we await the Lehman’s Greek crash.

For Euro MArk 11 to work an experiment like the following is required, but it comes with a health warning and has been tried unsuccessfully before November 1942 – May 1945 🙂

Basically Ireland has been turned into a financial Frankenstein by the Troika and our membership of EZ.

We are a bellwether signal of what the future of EZ is as we await lightning recovery to lift all boats.

The only question is: a) whether lightning will strike Frankenstein lying like a zombie in the ECB castle; b) will Frankenstein run amok if it does.

The Troika is not likely to breath life into the Irish Frankenstein.

RE “Whatever caused the sovereign debt crisis in Ireland, it was not breaches of the Eurozone’s fiscal policy rules. ”

Agree, the only Greenspan policy from the ECB was here’s the money, vague S&G exhortation and you’re on yer own:

This was a homegrown crisis fueled by lack of rules from ECB

RE “A state-run asset management agency was established to purchase distressed assets from the banks at what was expected to be a limited discount. These measures were based on the presumption that the Irish banks were illiquid rather than insolvent or that if insolvent, the capital deficiencies would turn out to be manageable. This was a massive and costly miscalculation”

Agree, taking a loan to value write down of losses was a disastrous mistake. Banks across Spain, the cajas, Belgium, eg Dexia and many other EZ banks besides have made creative use of the ‘bank loan book’ not only not to mark to market value; but not also in our case to mark to the sovereign taxpayer to make up market loan losses. If we waited, even set up a ‘good bank’ buffered by the state; instead of making zombies our pillars, we cuda done a lot better.

Re ” It is unprecedented for bondholders in defunct banks to be paid by a country already in an IMF programme. ”

The IMF betrayed Ireland by agreeing to do this.

ECB is a product of Greenspan era …ECB nothing but a large out of control hedge fund

Reading his critique I came upon the seeming self contradictory “…. governments will have to admit to their electorates that banks have to be re-capitalised, by the national fiscal authorities or by European institutions if necessary.” Here Colm M having deduced 2+2=4, now says 2+2=5. The problem is deductive arguments never prove arguments based on inductive principles. All banks don’t have to be recapitalised: some, to shareholders, bondholders, management, you say ‘off the chapter 11’ and the state is not bailing you out.

Colm M quotes Buiter:

“The option of a smaller Eurozone is impractical. As Willem Buiter (2011) has argued recently, it would make little sense for Greece to choose Eurozone exit: the economy would remain dollarised (with Euros). Capital controls would not work; there would be little inflation tax revenue from a currency nobody wished to hold and every prospect of financial disorder, fears of further Eurozone withdrawals and economic dislocation. A Greek exit could of course happen by accident. ”

ŹŹŹŹŹŹŹzzzzz 🙂 No, the world will not end for Greece if it defaults and leaves the eurozone. Greeks will get their democracy back. The same snake oil, siren nonsense was offered to Iceland. In their case, China proved of great help. China could be of great benefit to Greece. Austerity won’t be avoided whatever scenario is chosen. But signing up to destroy its own economy and be doomed by the ECB as well? Its clear the main beneficiaries will be the 1% at trough ECB while the Greek population get reduced to District 9 status.

According to Colm M, the half formed EMU project for completion requires:

“This means centralised bank supervision and resolution, centralised and pre-funded deposit insurance and an end to moral hazard and the implicit subsidisation of capital for banks.”

This was a bit of waffle on Colm M’s part. Its clear he hasn’t an idea of how EMU Mark 2 should pan out 🙂

But he makes a great point here:

“Some banks with substantial sovereign holdings have been allocating 90% and more to the banking book, fuelling market suspicions that losses are being hidden and exacerbating volatility in bank share prices. Holdings other than European government bonds, including US mortgage-backed securities, may also have been marked at prices that could not be realised in liquid markets.”

Clearly if EMU Mark 11 were to come about, it would need to operate along the lines of FOMC in the US managing loan to deposit ratios, keeping deposit reserves, raising interest rates, the discount window it keeps above the FED rate. Anglo deposit reserves would have been kept below freezing by the ICB, its lending would have had to be covered by loans from the ICB at its discount window. The FOMC would have been watching and sending in crisis management teams as it saw Anglo growth rates.


The problem with the above solution is the ECB is not the Fed and it does not have the degree of political union required to overshoot independent and democratic national legislature.

Consider a situation where a country such as Ireland requiring infrastructural investment or plain business investment allows its banks to breach their capital reserve requirements. It approaches the newly designed ECB discount window to borrow more to make up these reserves. But the ECB ups its rates. This amounts to the ECB controlling our economy in almost its entirety with subsequent loss of sovereignty. Some would argue with ELA we are already there.

But the most compelling argument of all against EMU Mark 11 is to do with the shadow banking sector and the growth in global debt since 1970 onwards, fueled by lack of regulation in the shadow banking and derivative based sectors.

Investment banking at the levels of pre 1930 Wall Street crash has already led to Lehman’s and volatility in the bond markets and currency exchange movements. The ECB hedge fund is bankrupt and should go into Chapter 11. It needs to be broken up and made fit for purpose in a new world supporting the changes required following the 1929 crash.

The Banking Act of 1933 known as Glass Steagall which also set up the Federal Deposit Insurance Incorporation with its many reforms needs to be enacted at global G20 level in a newly revised update to manage the deep faults underlying the global financial system. This would provide the bedrock for a new EMU Mark 2. Until then, it’s chapter 11 for the EMU; not breaking the EMU up can only make its current malaise go from bad to worse.


You get it. Your constitutional ‘contingent liability brake’ is right on the money, and would help ensure that any Croatian Anglos would not get funded in the first place. There is more to it than that, but the fiscal compact would not have prevented the bank guarantee.


‘The fundamental difficulty with taking a root and branch reform of the euro as a point of departure is that it is politically unrealistic.’

You may well be right, but be clear on the implications. A half-way house currency union, without the necessary architecture of a full monetary union, may prove to be permanently vulnerable to financial sector bubbles, a risk excacerbated by the moral-hazard machine that has been created. If there is not to be an EMU 2.0, why do you think the current one will prove durable?

Paul Hunt:

‘…the establishment, empowerment and functioning of the necessary EU-wide bodies is grinding away behind the scenes.’

Indeed, and there are plenty of proposals from the Commission, BIS and others. I was careful, for once, to bemoan specifically the lack of ‘political’ attention to these matters. The political attention has been poured into the pretence that budgetary discipline alone will do the trick.

Michael Hennigan:

Financial bubbles happen. They happen less frequently with good regulation, and can be resolved more cheaply with good architecture. There were plenty of ‘hurlers’, including some in Ireland, who drew attention to these problems along the way. Quo vadis?

Colm makes a important point about national account aggregates and their treatment of items that could take 30 years to pay off.
Lets ask ourselfs what is this Bank Credit ?
In my view it is the monetory translation of energy brought from the future into todays world.
So its a bet on future expected GDP if you will.

So this is what has been happening to “credit cycles” over the past 30 /40 years or so.
Banks take oil & gas from the future during the credit bubble phase . losses become apparent after some time.
Recession follows.
The Economy eventually recovers as more oil / gas is brought online.

Banks repeat the process but on a greater scale , a bigger recession follows…………
Banks manage to hold it together but rinse & repeat again – supplying even more credit for consumer durables and not core Industrial enterprises & Utilities independent of its present credit teat.
A Gigantic crash follows – but this time Oil / gas production does not recover …..ever……………..

The important point to take from this is that during the entire boom bust cycle Banks have been depleting resourses over time.
I.E. – no real wealth capital was generated.
A long decline into the stone age follows.

The oil age has been characterized by very low capital inputs / planning relative to the 19th century coal age – this has changed the nature of banking profoundly.


I would still contend that the balance of political attention makes some sense. The design and subsequent application of the ‘regulation’ and ‘architecture’ (as you put in your response to Michael H) are largely technical matters. There is a huge body of theory and practice. Ensuring democratic legitimacy for these institutions and procedures ahould not require huge effort.

I suspect though we both agree about the baleful impact of the continued political deceit and pretence about the implications of unwinding the Faustian pact between governments and banks in most of Europe.

However, I would continue to argue that the stock of sovereign debt must be reduced and its quality enhanced and I see this as the primary objective of the fiscal compact. In my view pouring ‘political attention’ in to this is justified on two grounds – it will restore more effective democratic governance of taxing and spending (and reduce reliance on the bond vigilantes) and force the laggards to tackle meaningful structural reforms as this is the principal unexploited source of economic growth.

And this pincer movement – the regulation and the architecture governing banks from one side and the focus on fiscal governance (and the atttendant focus on the real sources of economic growth) from the other – will unwind the Faustian pact over time.

@Colm McCarthy

“I argue that the fiscal ‘compact’ will not turn the currency union into a full monetary union …”

I honestly didn’t think it was designed to do/be that. I thought Merkel had always described this fiscal compact as ‘one step’ along the way… although… on the way to what, she’s never been entirely candid about.

@ Paul Hunt

Re “However, I would continue to argue that the stock of sovereign debt must be reduced and its quality enhanced and I see this as the primary objective of the fiscal compact.”

Such may be the intent, but the result will be the opposite of the intent implied there.

The only way this intent has a hope of being realised is through burden sharing. The ‘Compact’ is a seal against burden sharing.

Unfortunately, our bank guarantee remains our largest obstacle to recovery inside or outside the EMU.

The EMU has attempted limited banking regulation including the whole question of windup.

For a set of documents, see here; you get a torch but not a full beam to look at LTRO funding/ELA and bank book scrutiny re sovereign bond relationships 🙂

Its not insignificant that Ireland has been left out of the following studies:

“Study on the feasibility of reducing obstacles to the transfer of assets within a cross border banking group during a financial crisis.”


“Study on Pre-insolvency – Early intervention – Reorganization – Liquidation”

It might be helpful if some Irish authorities took the questions raised in those national study documents and applied them to Ireland’s banking sector.

This MOPE trope might have some germs of truth buried in the layers of bovine excrement but it won’t do anything to help Ireland secure the relief it requires – and might even harden the hearts of those on whom Ireland relies to provide it.

Many, many moons ago I suggested here that, by opting for a blanket guarantee, Ireland went in to orbit and presented Frankfurt with a completely different problem than the one it would have had if the ‘then ‘power-that-be’ had persisted with “Frankfurt, we have a problem” and followed on from the alleged JCT response of “Save your banks at all costs” with “We can’t on our own”.

But the then PTB didn’t and it has proved extremely convenient for the EU’s Grand Panjandrums ever since.

But we are where we are dealing with the fallout from a blanket guarantee endorsed by an overwhelming majority of the last Dail.

So some reduction in the fiscal leakage from the IBRC legacy is probably the best that might be achieved. The rest is totally in Ireland’s hands, but all of this is terribly difficult and it’s much more fun to rant about the evils being perpetrated against the MOPE by these oppressive foreigners.

@ Colm McCarthy

The short answer is that I do not consider the euro as presently organised durable unless there is action on the lines put forward by Monti. (As Tullmacadoo points out on another thread, the action by Draghi – effectively acting like the Fed – on LTRO provides a breathing space of two to three years to bring this about).

The question posed is, in reality, a very simple one; does Germany believe that the rules of the single market should apply right across the EU as a desirable objective and within the Euro Area as a sine qua non? Up to this point the answer has been no. The single market exists for trade in goods – which suits Germany – but does not really exist for anything else. The competition authority in Germany tends to see competition issues solely in terms of how they affect the domestic economy and is very reluctant to yield any ground to the EU level.

Germany, apart from the administrative measures deliberately supportive of the export sector, also has very restrictive measures in place right across the economy, in retailing, the professions, company law (e.g. prevention of takeovers, easier accounting rules for SME’s etc.). The problem is that other countries, incapable of keeping up with Germany, have failed to see that it is essential that they stop the competition for the protection of national sectoral interests. The core countries, for example, emptied the omnibus Services Directive of any real content with the argument of preventing “social dumping”.

The difficulties of the euro flow from this lack of integration, not the other way around.

I am no fan of Merkel’s and, were it not for the ECB, in my opinion, which may surprise you, the situation that she has largely created would be immeasurably worse. Derek Scally gets brilliantly both her capacities and her limitations in his piece in today’s IT.

She obviously believes that Germany must play to her strengths in the international arena but has great difficulty, as with many in the German establishment, in distinguishing between the interests of Germany and the EU as a whole. Nobody believes in the moralising lectures from her for this reason – although it may make her popular at home – and against the background of the possible loss of an entire generation because leaders wish to pursue nationalist agendas.

I think that, collectively, the leaders in Europe have woken up to the fact that they are sitting on a time-bomb. Going about defusing it will involve tedious negotiation across a whole range of long outstanding and new Commission proposals where the existing treaties already provide the means; it is the political will that has been lacking.

Monti is ready to make the change for Italy and I think that Germany may now also be willing to move; e.g. from Derek Scally’s report.

“When a young man in the Berlin audience asked how politicians can win back the voters’ trust in the European project, Merkel proposed boosting worker mobility by integrating national social welfare systems”. A good place for her to start would be to agree to the introduction of a statutory nationwide minimum wage in Germany!

@ Paul Hunt 2:28

Didn’t detect where your ‘MOPE trope’ rant was coming from, or where it was meant to land: perhaps it was meant to land on that inconvenient document called, the Irish Constitution.

Do agree ‘EU’s Grand Panjandrums’ have milked the bovine Panjandrums of DOF, NTMA, ICB and attendant political pig in pokes.

So, would that be a listless EU moped you are referring to, or some self induced anagram/acronym I’m unaware of? Perhaps a little triffid BORG ‘you must comply’ expletive 🙂



“Germany, apart from the administrative measures deliberately supportive of the export sector, also has very restrictive measures in place right across the economy, in retailing, the professions, company law (e.g. prevention of takeovers, easier accounting rules for SME’s etc.).”

The only quibble I have with this is that I would replace your “apart from” with “in addition to”. The requirement for deep-seated, meaningful structural reform is more pressing in Germany than it is in Ireland. However, for the avoidance of any doubt, that doesn’t let Ireland off the hook.

Iceland has had a long history of responsible government, the same cannot be said of Greece. China being ruled by a meritocracy came to the aid of Iceland secure in the knowledge that the aid would not be wasted. China is not likely to wade into the Greek morass where defeat is often grasped from the jaws of victory.

The EU and the EuroZone will be medium to long term successes. There may be societal breakdowns in a couple of countries but the Union and the Zone will soldier on. Even the largest countries in Europe cannot thrive in a world where China, India, Brazil and Indonesia are rising. To trot out that trite Irish slogan “united we stand, divided we fall”, or as Clausewitz stated “countries have interests, not friends”.

There will be a lot of breast beating, weeping and gnashing of teeth but in the end European countries will cooperate with each other or become irrelevant.

@ Paul Hunt

Thank you for that! To head off any suggestion of Germany bashing for the sake of it, I am taking the precaution of providing this link to the WSJ Q & A with Monti (who is being received by Obama today and is increasingly sen as a vital player at both the European and international level).

Notably the following extract which is worth quoting in full.

“WSJ: Just as there are strict rules on fiscal policy, should there be strict criteria for boosting growth?

MONTI: No, that is less crucial…I understand the argument often made by the U.S. and the U.K. cast in terms of macro economy: if there are deficits then there has to be surpluses and vice versa. That makes a lot of sense. But I think it isn’t going to be the winning argument vis-à-vis Germany. Namely, for Germany, economics is still a part of moral philosophy. In the sense that they make a much stronger correlation between the moral virtue of economic behavior and the good or poor results of a country as a whole. The way to penetrate, productively, the German frame of policy-making—rather than urging them as was done over the decades through the locomotive theory to expand their deficit of the public sector in order to generate a higher dynamism of the German economy, thereby helping other EU member states through exports to Germany to increase their growth—I think we should urge the Germans to go the full extent into their virtuous notions of the social market economy. The more Germany goes fully in that direction-for example liberalizing more than is the case today their domestic services market-the more they’ll achieve growth from the supply side, which will then allow other member states to export more to Germany.

WSJ: Is there a way to give the push for growth more teeth?

MONTI: There is a proposal I made at the European Council the other day, on which we’ve collectively asked the Commission to report. We’ve been discussing for the last several months the fiscal compact, which is the culmination of enforcing discipline concerning the budget. Whereas we have teeth for enforcement of the budgetary rules, the teeth the Commission has to enforce the rules of the single market are much smaller, because it takes 4, 5, 6 years for the Commission to remove a violation, a restriction by a national government on the recognition of professional qualifications, or a golden share against a hostile takeover bid, et cetera. So, I said: ‘Let’s study ways, maybe without at treaty change, to enhance the legal powers of the Commission so that the speed of resolving violations of the single market is increased.’ And we made a specific proposal, which is now being considered by the Commission, which will report back. What does this have to do with growth? A lot because if we give more teeth to the Commission to remove national obstacles to the functioning of the single market, we’ll finally create a large level playing field, which the business community always insists is a key component of growth”.

How long can the ECB be allowed to have conflicting interests in program countries?

The ECB is, as part of the Troika, recommending whether or not funds should be released to a program country AND as it also holds government bonds of the countries in programs it is also very much dependent on funds being released to the program countries and minimum haircuts.

Politicians might be gullible, however, technocrats are even easier to fool. The technocrats at the ECB are now fronting hedgefunds and the like, I’m not sure if that is what they intended to do but that is what they have been tricked to do by buying government bonds.

ECB is guaranteed independence from political interference, for the same reason it should be prohibited from interfering in politics.

From the CBI website on the collateral extensions:

“The Central Bank of Ireland today announced that it will participate in the Eurosystem’s Additional Credit Claims initiative as stated in today’s ECB press release: ECB’s Governing Council approves Eligibility Criteria for Additional Credit Claims.

Under this programme, the Bank will accept pools of secured (including mortgages) and unsecured credit claims (other loans) as collateral against Eurosystem operations. Such credit claims will be subject to the Bank’s valuation and risk control criteria and will be accepted by the Bank under contractual arrangements with individual counterparties. The Bank intends to phase-in the various collateral types which it will accept under this initiative over several months.

Counterparties may contact the Bank at to indicate expressions of interest.”

No indication yet of the rescheduling of assets having no impact on ‘valuation and risk control criteria’. Wonder how those pro note ‘negotiations’ are proceeding, or indeed how foreign central banks would view the idea?


Prof. Monti obviously still has unfinished business even after two terms as Competition Commissioner. More power to his elbow, but I doubt that DG COMP will be given the competences or powers to dig as deeply into the sheltered sectors in national economies as he would like. That has to come from within – and there have to be clear incentives for doing so.

He might be on sounder ground urging “the Germans to go the full extent into their virtuous notions of the social market economy”.

What was/is the point of the Eurozone ? Does the current set up work in that context? If not what would be required to make it work ?

@ seafóid

“What was/is the point of the Eurozone ? Does the current set up work in that context? If not what would be required to make it work ?”

That’s a really good question and in the interest if pursuing it, taking this first “What was/is the point of the Eurozone ?” but in no particular order; to:

(a) fulfil the dream of Charlemagne
(b) destroy the dollar
(c) annoy the British
(d) stop the French and the Germans going to war
(e) cement the neo-liberal dream (end history)
(f) assert classicism over barbarianism – well tie them together
(g) accept that Europe is smaller than America and Asia and do something about it
(i) stop banks making money from exchanging currency
(j) promote tourism
(k) shift the mentalite of people living in Europe from national to European
(l) try to ensure energy supply but within a pretty short time horizon.

“Does the current set up work in that context?”

Just to keep it short, yes in some cases but the majority, no.

“If not what would be required to make it work ?”

If you can answer that, then yours is the horn of Roland. Crudely: lots of little things, plus the calm and pragmetic view that Keynes was pretty much right allowing for the fact that some things have changed.

@ Paul Hunt

It is the change, it seems to me, in both the economic background and the mood that is important. Monti is making it respectable for everyone, Merkel included, to look at issues affecting Germany which would have given rise to a hullabaloo in the coalition even a few months ago. The great tragedy is not to have anyone of standing in the Commission who could pull its act together in the same way as Delors did more than twenty years ago. cf. the rather overlooked conclusions of the most recent informal summit.


There’s probably little point lamenting the calibre of the Commissioners or the various presidents. The concession of keeping a commissioner per country rather than reducing the number to 15 to encourage Ireland to ratify the Lisbon Treaty at the second time of asking is part of the problem. And Delors was dealing with national polticians that had not lied as much to their voters as the current lot have and, as a result, did not have so many angry and disgruntled voters.

But, as you say, it’s the change in the economic ‘mood music’ that’s important. It would be wonderful if the leading politcians, policy-makers, economists and commentators were to discover that labour is not the only input to the production of goods and the delivery of services and that the cost of labour is not the only cost of production. The ‘labour theory of cost’ seems to have finally and fully supplanted the Marxian ‘labour theory of value’.

It would be even more wonderful if they were to discover that there are huge inefficiencies in non-labour inputs (in terms of monoply profits, rent-seeking, inefficient co-ordination and management of resources and inefficient financing of investment). And it would be most wonderful of all if they were to discover that the extra costs these inefficiencies impose increase the costs of business and the cost of living and compel workers to demand and to defend levels of pay that are considered excessive.

@ above
what is the point of the eurozone: ‘common market’ – ‘ease of trade’ – ‘solidarity’, ‘eurovision song contest’

@ Kostic
you wrote “2shift the mentalite of people living in Europe from national to European”
you can be Irish and European – just as you can be someone’s son and someone else’s life partner – at the same time

some EU countries prefer to not look back and have issues with their nationalism/history, and other EU countries are in the opposite position to that such as is the case with “an sean oilean seo” (this old island)

@ some extra flavour for the blog

My surname is Kostick. My first name is Gavin. Some, such as Mr Paul Hunt, go so far as to call me Gavin K.

Perhaps if I’d said ‘shift the emphasis of the…’?


“She obviously believes that Germany must play to her strengths in the international arena but has great difficulty, as with many in the German establishment, in distinguishing between the interests of Germany and the EU as a whole.”

Interesting you should say that. She was in Kazakhstan (yesterday I think) sealing a deal on supply of rare earths for a consortium of German companies. Surely, a good European would have sealed such a deal on behalf of the EU? 😉

@ Herr Kostick

(a) fulfil the dream of Charlemagne
meaningless in the gaelic tradition
(b) destroy the dollar
do you understand our loyalty to Irish-America?
(c) annoy the British
many of our relatives live in Britain
(d) stop the French and the Germans going to war
we are not on their borders – no impact at any time, and if needs be: break glass and call the penatgon
(e) cement the neo-liberal dream (end history)
we do not want to give up cultural, democratic, christian traditions of fairness, (end history? end humnankind?)
(f) assert classicism over barbarianism – well tie them together
big buildings for cruel aristocrats – google ‘republic’
(g) accept that Europe is smaller than America and Asia and do something about it
we like to get along with the US and the globe, we are happy atout 1945
(i) stop banks making money from exchanging currency
boys will be boys and banks will be banks and regulation will be regulation
(j) promote tourism
tourism happens, just like babies happen
(k) shift the mentalite of people living in Europe from national to European
depends on your national duchas/heritage
(l) try to ensure energy supply but within a pretty short time horizon
we have ports, ships come, russian gas means nothing to us, we have wind/tide/and a lot of ocean floor but hey don’t the central europeans know that bit very well

guten nacht mien freund

@ O Donovan Rossa

That’s a big pseudonym you have there.

I was trying to offer some starting points to answer the question, ‘What was/is the point of the Eurozone ?’ not ‘why did Ireland join the eurozone?’

‘End history’ was a glance towards Fukuyama.

Since my initial comment, I’d also offer, “So that Denis Healey will reach the end of his life in the hope and expectation that another young man would never have to stand on the beachheads’.

As for the implication that I am German – no. Irish-Jewish on my father’s side.


One-Pager No. 24 | February 2012

L. Randall Wray

Delaying the Next Global Meltdown

It’s a mistake to interpret the unfolding disaster in Europe as primarily a “sovereign debt crisis.” The underlying problem is not periphery profligacy, but rather the very setup of the European Monetary Union (EMU)—a setup that even now prevents a satisfactory resolution to this crisis. The central weakness of the EMU is that it separates nations from their currencies without providing them with adequate overarching fiscal or monetary policy structures—it’s like a United States without a Treasury or a fully functioning Federal Reserve. Without addressing this basic structural weakness, Euroland will continue to stumble toward the cliff—and threaten to pull a tottering US financial system over the edge with it.


You continue with your allegations, that Germany is doing anything unfair
“administrative measures deliberately supportive of the export sector”

We had the same discussion back in 2011.

I think I then have answered all your allegations thoroughly.

Maybe I missed your reply, so I would kindly asked you to be more specific,
in order that I can go and fix anything my people might do wrong to others.

It is my understanding, that Europe is not only a single market for goods,
but for European people as well. That any EU folk can settle in any other EU country,
just not being entitled to the welfare payments immediately, without working there for a few years.
Looks pretty fair to me.

I do in fact expect that I could move to Ireland, Spain, whereever, anytime, if I choose so,
as long as I do support myself. Is that not the case for me in Ireland, or you in Germany?
Please be specific.

In the beginning right after WW2 there was the Benelux customs union. Three small countries cuddling up for safety. In 1951 they were joined by Germany, France and Italy to form the European Steel and Coal Community. The arrangement was Benelux (collectively) and the three larger countries. Benelux still exists having agreed to and signed a new treaty in 2008. The European Steel and Coal Community morphed into the European Economic Community (EEC) in 1958 (Rome Treaty) (six countries). The Maastricht Treaty established the European Union (EU) in 1993. The Euro was established by provisions in the Maastricht Treaty. Remember “Strict Criteria” for membership, there was many a slip twixt cup and lip. The Lisbon Treaty signed in 2009, just to prove we are different we were the only country that held a referendum where we first rejected and after sobering up in the second we accepted. We were the second last signatory, the Czechs were the last.

As the members became intertwined politically, economically and fiscally agreements were tweaked to remove friction. For example the Euro and the EuroZone addressed the problem of ruinous debasement of currencies, a problem that had existed for centuries in Europe. Given all our problems the Euro is still as solid as a rock. We still have ruinous competition in corporate taxes. This problem too will be addressed with a formula based on a tax window and relative competitiveness. The ECB has showered our Gov’t and Banks (one and the same) with funds that have allowed us to live in hope for the past four years. No major shocks visible before 2013.

The EU today is not the EU of the forties and fifties. Today it is a living breathing organism that has a life of its own upon which all 27 members are dependent. A market of 500 million which provides economies of scale that benefit all of us. A stable currency, civilised competition, civil rights, labour rights, business rules and regulations, public health provisions. Armed forces that will keep the sea lanes open for all necessities. What more do we need.

@DOCM on Merkel

She obviously believes that Germany must play to her strengths in the international arena but has great difficulty, as with many in the German establishment, in distinguishing between the interests of Germany and the EU as a whole.

You are too kind. This is a part of an ongoing problem with the representation of Merkel in Ireland illustrated nicely with an article in todays Irish Times on a question and answer session between our Teutonic Thatcher and some of the little people.

The article has a touched difficulty reconciling the idea of a munificent and wise European leader (She must be, right? She is Europe’s most powerful political figure after all.) with the fact that Merkel clearly does not care in the slightest what happens outside of Germany in the EU except as it pertains to maximizing the benefit of the EU to Germany.

This is not a radical thing to say, she is an entirely conventional political figure of the centre right. Her interests are catering to the economic interests of capital in Germany and the need for self actualization among the portion of labour she represents by selling a story of their moral superiority over the feckless countries not bordering Germany.

In Ireland our long and damaging tradition of deference to authority is now being repeated on a European scale with potentially much more damaging results. Twenty years ago we knew how divisive and awful a figure Thatcher was, the best among us still despise the monster, but Merkel is an equally dangerous character, though her plan involves destroying European social democracy (by making it illegal) rather than simply tearing the fabric of society into strips as her spiritual predecessor did.

@Paul Hunt

you say: “The requirement for deep-seated, meaningful structural reform is more pressing in Germany than it is in Ireland. ”
Could you go into any specifics, which need fixing in Germany?

I am interested, and these are not hollow words.


you seem to get some of the anger directed at real Germans, like me, who dare to talk back, sometimes : – )
Otherwise, I think it is a jewish mother, which counts. There was a paper from a Jerusalem university, that about half of present european Jews can be traced back by DNA to just 4 mothers roughly a 1000 years ago.

@Gavin Kostick

Where I come from rootless cosmopolitanism is the one of the highest compliments that one can unintentionally be paid, along with being unserious, militant and a crackpot leftie.

I like your exhaustive list of motivations for creating the Euro. I would have thought that (b) was the one that was held most widely in European policy elites. Self described strategic thinkers in the EU yearned for a Euro denominated market in oil and other international demonstrations of status that would mean they could make steadier eye contact their American counterparts at conferences.

It is such a shame that the need for grandiosity in Europe did not find another outlet.
This gives a summary of where Germany is in relation to its views on the EU.
Basically Germany want more centralised control and fiscal discipline without a ‘transfer union’. In simple terms they want more control and discipline in the EU area without having to give anything in exchange.
Most other states would like the opposite – a ‘transfer union’ where they could benefit from the strenght of the German economy without centralised control, fiscal dicipline and harmonization.Where do they meet in the middle?
A full political union including a transfer union – A United States of Europe.


Your directness is welcome. And any voice from outside of Ireland that might provide some measue of an antidote to the incessant insular navel-gazing that goes on here is even more welcome.

But you may have to accept that, while many of us here are economists, many are not and, even for those of us you are, we may not have – nor, perhaps, should we be expected to have – the detailed knowledge, data and information to be able to respond adequately to your respects. But many of us are capable of drawing some tentative conclusions from the data and information to which we are exposed.

Since I continuously make the case for structural reforms in Ireland, I am frequently asked to spell out what and where. Sometimes this is from people who, although highly competent economists, specialise in specific areas and may not have, or believe they do not have, detailed knowledge or expertise. Have established a reputation in some area or other they are reluctant to move too far outside of this and expose themselves to critique or ridicule.

Sometimes this is from people who are knowledgeable, but, because of their positions are conflicted or compromised, and cannot make the case themselves. Among these are some who would be pleased to see the case being made; but there are also some who would prefer to leave ‘sleeping dogs lie’.

But many times the request is from people who know there are problems that need to be addressed, but are fearful of the possible impact on their own interests or on the interests of the group with which they are associated. The continuous demand is: ‘Please be specific’. (I’m not saying you are in that camp, but I rarely encounter anyone who demand this who isn’t . perhaps you are the expection that proves the rule.)

They want a case to be advanced so that they can demolish it. And if this case is advanced they will advance all sorts of spurious reasons to dismiss it, or will feign to misunderstand key elemnsts seize or will seize gleefully on any factual error, irrespective of how tiny or how immaterial it might be in the context of the case being advanced, and use this to demolish the entire case. Those who are in the huge ‘industry’ in Ireland who manufacture the policy-based evidence for the government-machine to sustain the optical illusions it wishes to project are highly skilled at this. And I have encountered it this at the EU level and in many other countries. And, beleive me, it happens in Germany as well.

In addition, in most sectors of the economy, but in particular in the sheltered sectors where structural reforms are most required, a huge edifice of legislation, regulations, procedures and contratcual arrangements has been constructed. It often requires knowledge of a discipline or some technical training with a focus on these sectors to navigate the edifice that has been constructed. Very few of us have that, and most of those who do are so embedded in the nooks and crannies of the edifice – and are probably making a comfortable living – that have no incentive to recognise, not to mind speak out about, the inefficiencies it is concealing – or, indeed, facilitating – and that damage the interests of the vast majority of citizens as consumers and taxpayers. And every incentive not to.

This is not an attempt to evade your question. It is simply highlighting the difficulty those of us who try to speak out encounter. It won’t stop us speaking out – at least it certainly won’t stop me – but it is frustrating, thankless task. And it is made all the more difficult when those who can see what we see – and probably much more clearly – feel constrained, either by external restrictions or by an assessment of what is in their own narrow personal interests, and are unable or unwilling to speak out.

@Gavin Kostick Esquire,

Apologies for appearing on occasion perhaps too familar. No disrespect intended. It’s just that, possessing a monosyllabic given name and family name, I occasionally and inadvertently apply that economy in the use of syllables when addressing others. 🙂

@Gavin Kostick

Could be worse. You could be a professional soccer player and they would call you ‘Gazza’ or ‘Gavva’ or ‘GaKo’ or something similarly infantile.

Although you would of course have the minor compensation of earning about a €$£gazillion a week.

What does Germany want? Germany wants what we all want:
1.The 500 million market.
2. A stable currency. (it is a miracle that we still have that)
3. A level playing field.
4. Competent government in each of the 27 member countries. (Without
having to send in the Wehrmacht or Luftwaffe.)
5. Stabiliser mechanisms available to the EC and ECB that do not rest solely
on the German Chancellor or German taxpayers. (Share the burden.)

The Germans do not want their Chancellor, hard work, good judgement, prudence, thrift to be sneered at by people who have screwed up royally.

Germans are very much like all of us. They have erred in the past and they will err in the future but since 1945 they have their act together. I wish I could say that since 1922 we have had our act together.

@ Paul Hunt

I completely understand that regulation things are often not easy to explain, and I would be the last one to say that the German bureaucracy is perfect. The Bundesrechnungshof (duuh, how to translate this: accounting judges ?) draws up every year a list of government waste, and this sometimes also involves improperly solicited offers. But very often, what is waste in some eyes, is a useful, social necessity in the eyes of the majority.

Just one short example, in my city of Dresden, most hospitals are still in public, City (erm old leftie) hands. They are inefficient, make losses.
As Jack Welch said: Fix it, sell it, or close it. 20 years later I think most people involved have pretty much given up on the “fix it”, and wanted to move to “sell it”. But the lefties organized balloting, and got a 84 % Majority. Soo I have to accept that and live with it, for a while. In the End it will move it probably more likely into the “close it” phase. For eastern
Germans it is just “my hospitals”, “my power plants” (which we bought back, after selling at least “my public housing” pretty successfully to the american Fortress hedge fund).

This is not the first time (not even here) that I ask for details, when Germany allegedly does something wrong or unfair. And in most cases this actually turns out more the opposite. I can give you about a dozen examples, for which people do not have to be economists or need a lot of detailed knowledge.

Just one very short example.
Last year DOCM claimed here, that the “flexible working accounts” in Germany are unfair. This thing means that normal workers run up additional hours in busy years and draw them down in slow years, like start of 2009. (counting hours in Germany is done not by “highly skilled”, but normal employees, is that different in Ireland ?)
And after that “Kurzarbeit” is done, people work only 60% (just some rough illustration of typical cases), the employer pays 80 %. the government adds another 10 %, and the people do additional training for something like 10 – 20 % of the time, often job related, but I know a mechanical engineer, who took an English class, and learned to program C.

This is a good and fair thing, and we will certainly not destroy this in Germany. Instead, since you think about structural reforms in Ireland,
you should think about how an intelligent Irish copy could look like.

This is not tiny immaterial nitpicking, but me defending something good in Germany, … feels good actually: -).

I could give you about a dozen similar examples of what happens, when you go into the details, I talked with non-German colleagues,
people who tried to convince me to invest in some balkan countries, etc.
Very often people harbor resentments against more successful others in general, and Germany is then not the only victim.
The examples Heineken / Greece, Nokia / Romania, US credit conditions for UK after WWII come to mind immediately.
In the long run these people are mainly hurting themselves, people will not invest there, and they will somehow pay the cost of the risk dealing with them. This is not some abstract blather. The cost of insuring the non-payment risk is just added to the bill.

In general I think Germany is often actually correct to a fault, just look at the photovoltaics feed in tariffs, the German consumer financing chinese factories, who just laugh at German naivite.

The more general point is:

Do people see the EU as a win/win opportunity, where you learn from each other (like Merkozy demonstrated on TV this week),
profit from organizing things together like the Montan Union, which started all this.
The french family policy is a good thing, but it is more beneficial for higher income kids, and that will be a tough sale to german lefties.

The US approach is pretty clearly shown in the Clint Eastwood Super Bowl Ad. It is two teams, “US versus them”, and only one can win.

I understand that you dont want to go into details, but What would you just name as “sheltered sectors” in Germany, in general ?

We now have an existential crisis in Europe, and we will not solve that by making vague allegations against each other. But we hear out for legitimate complaints and then go and fix it.

I am pretty sure that the old mainland europe core will stick together,
Merkozy just made clear that nobody gets a single shred of air mail paper between France and Germany, melting ever even tighter than
de Gaulle / Adenauer, Giscard d’Estaing / Schmidt, Mitterand / Kohl, Chirac / Schroeder, no matter who is left or right.

I think that most people now realize, that they put the cart before the horse with the Euro monetary union.

Folks like Marty Feldstein said long ago, the correct sequence would have been the US version:
political union
(civil war, if somebody tries to segregate)
fiscal union
monetary union

It was not Germany asking for the monetary union.

But there will be no transfer union in a way, where one part decides how much she needs, and the other part just has to pay up for it. And there will be no war, if somebody wants to leave.

Soo maybe some countries do not like the consequences of this, and might prefer to drop out and revert to simple trade union status (EFTA), like Norway. well, how did this work with their 7 Euro butter last Christmas, because irish and german butter do not meet the specifications of norwegian stomaches? Paul, do you have some comment on that ?

I ll hope that the rest forgives us, that I talk with Dork of Cork about the topic German energy production / consumption,
maybe unrelated at first glance.

@ Dork of Cork

I looked up your graph, being directed by you, works fine.
You can read this in more than one (completely correct) way. First, as you say, our production is falling, from 200 mega tonne coal equivalent to about 125,
and …..erm (ongoing thought process) …. this word “production” is actually misleading, it is “production from internal sources”.
The other view is that “production” equals consumption, with some minor exchange of electricity, where Germany was still slightly “exporting” in 2011.
Well, just noise.

I mean, we try very hard to reduce our energy consumption, but we are definitely not that good. 40 % reduction, in your dreams.

Somehow those IEA numbers
are allways much lower than what I read in German sources

Consumption dropping by 5 % in 2011, despite german industry roaring on all 5 cylinders.

The main point I want to make is, Germany has lots of RESERVES of lignite ( Kohle/Tabellen_und_Grafiken) like 300 years of present consumption, and all of that close to the surface and at competitive cost, as the definition of “reserve” vs “resource” is :-),
which could cover at least half a century with a massive electricity infrastructure.
Internal german numbers on “usable at present prices” were twice that at somewhat higher oil prices early 2008.
I stumbled upon that only a few months ago via: William Nordhaus, BPEA 1973 “The Allocation of Energy Resources”.
Pretty interesting read, in my age it doesnt happen that often, to see some significantly new thought, so I cherished and remember it.
There is actually some other interesting stuff at bpea as well.

At present people cringe their noses, because lignite is somewhat dirty, and 40 years ago, without the ability to eliminate the sulfur output, it very clearly was.

A majority of people in my place (Dresden) are still somewhat neurotic (from my perspective) on owning their power plants, hospitals, no matter the deficits. With retail prices of electricity at 29 c/ kWh. What do you pay? just curious. In some of my weak moments I do envy my US colleagues, who pay just 8 US cents. We just had a local public vote on the hospitals, with 84% deciding to keep the loss making public ownership of hospitals.
But as long as the people voting on it are paying the price, this is democracy.
Same for the power company. I do not start to sue for a right to get me cheap french (or czech) nuclear electricity, I would be fine with.

Anyways, in case some drastic things would happen, my present, somewhat vague guess is, that Germany could become energy supported to a degree of less than measurable dead people in about 3 years. My expectation is, that in such a case of freezing people, they might value habitats of a rare species of cock roaches less than more energy output.

Just to make the rest of discussion very short, for today, just some opinion (a.k.a. not strictly quantitative, carefully researched) statements:

I do agree with you that the size of the finance sector relative to real production is too high, should be more like 3 than 10 %.

I do not agree with you, that tonnage of coal or steel output is a good measure of well being ( not talking “rich”). We had that until the 1970ties, especially when comparing countries like Russia, India, China,
for which any public definition of exchange rates was a poisonous and useless affair.
GDP is certainly not perfect, see the US. Driving every days 2 hours or more in an SUV, paying some illegal hispanic for taking care of the lawn and children,
certainly increases nominal GDP, but not really your Quality of life. But all those attempts to define some Quality-GDP,
and I know these discussions since at least 30 years, HDI is an attempt, somehow do not cut it, really.
Too many ways ideological people can inject all kinds of ideological stuff into the calculations.

Actually I made somewhat of a personal peace in the last half year with the energy politics, I did not like from my perspective: who pays for what and how much.

@ Paul Hunt

Hey, no, I meant to imply that Gavin K is acceptable, particularly if a reasonable relationship of taking on board other positions has been built up.

paul quigley is the master of referring to people in the way they wish to be referred.

@ PR Guy

A good while back I used to be unsure as to whether I believed in God or not. Then it came to my attention that I was known as Gavin Kostick the agnostic. Hence my atheism.


Many thanks for your comprehensive response to my comments. What you have written is almost identical to comments many of your compatriots (and people in neighbouring countries) have made to me in the last couple of years. When I refer to the ‘sheltered sectors’ I mean the entities, businesses and professions (in the public or private sector or sometimes between the two) which provide services that, generally, are not tradable internationally.

Some are financed by general or local taxation, some by user charges, others by professional fees and others still may rely on some combination of these. Most are characterised by natural monopoly, a monopoly or concession granted by public authority or a monopoly that has been secured by virtue of ‘custom and practice’ or an ability to restrict entry and competition. I think you may now have a better idea of what I am talking about.

But when I contend that the sheltered sectors in Gernmany need structural refrom as much as, if not more than the shelteres sectors in Ireland do, I am not attacking Germany just for the sake of it. I believe they do, but I am making a more subtle point to Irish readers that the inefficiencies in the Irish sheltered sectors are not unique. They arise in sheltered sectors everywhere; local ‘custom and practice’ means that they often manifest themselves in different ways.

If it is difficult to make the case for structural refrom of the sheltered sectors in Ireland, then it is probably almost impossible to make the case in Germany when, by any objective standard, its economic performance is so impressive. But, although we may not have the hard data and evidence, DOCM and I seek to highlight areas where Germany’s export performance may be aided by wage repression, by cross-subsidisation where costs are shifted from the export sector to the domsetic non-traded sectors and by other administrative measures. The effect is to reduce most citizens’ disposable income and to restrict their propensity to import which, in turn, damages the economic prospects of Germany’s trading partners.

I accept that all governments will seek to curtail their citizens’ propensity to import, to seek to maximise exports and to cosset certain industries and favoured interests in the sheltered sectors (your example of the particular composition of the butter required for such delicate Norwegian stomachs is just one of millions). But the whole idea of the EU as an economic area is to break down and banish these prejudices (for that’s all they are) slowly, painstakingly and consistently over time.

I realise that Germany is seeking to build a strong global economic position for itself and the rest of EU relative to the major emerging economies. And, in this respect, it is being remarkably successful. But achieving this objective is conflicting with what it may have to do to assist its EU partners who are less focused or less successful or who succumbed to the snake-oil salesmen who convinced them that property bubbles would keep expanding for ever.

I realise it is difficult being in this position. And it is doubly hard when the ignorant and prejudiced keep dredging up history on which the chapter should be closed – and has been closed in so far as all sentient beings are concerned. But Germany is now the EU’s indispensible power. It must exercise it wisely.

The IEA accounts are different from many national energy balance sheets because they use a different methodology.
The chief reason for this is the subtraction of international aviation & Marine Bunker fuel from national energy accounts.

German Industry was roaring in 2010 & 2011 because the energy not burned by us was transfered to the core.
I do not have access to the IEA energy balance for 2011 but strongly suspect this monetory / energy transfer.
In fact I would put serious money on a continual decline of TPES in the PIigs but a stabilization and /or increase in Germany during 2010 / 2011.

European Economies are now in a Zero sum game.

@ Genauer

I missed your earlier comment. By way of initial reply, herewith a link to an FT article on the Volkswagen “golden share”. This is representative of a common thread in German policy. “National champions” must remain “national” but this is entirely contrary to the very concept of the EU.

Germany and Austria, the main beneficiaries of Enlargement, availed of the full seven year derogation with regard to the free movement of workers. It came into force on 1 May 2011, seven years after Ireland which placed no barriers in the way of free movement from the very beginning (except in the case of Bulgaria and Romania when all countries copped on to what was happening).

Further examples to follow.

@ Genauer

I could keep this up indefinitely and find similar examples for any of the countries of the EU, notably the Continental ones. I will close with a link to the Commission’s homepage on the Services Directive.

It’s a joke! Can you imagine such a situation in the United States? Get on to your “single (friendly) point of contact” and the staff will explain all the local rules and regulations with which you must comply and which will make it next to impossible for you to actually compete.

And the leaders of Europe decided to share a single currecny against such a background!

My objective is not to single out Germany but to demonstrate the point that, without the creation of a genuine single market, with something approaching equality of treatment across all the factors of production (the level playing-filed to which Monti refers), the euro will collapse.

I have followed endless discussion on this blog about the euro crisis which is simply a symptom of the inevitable imbalances which result from this situation i.e. the lack of balanced growth across the EU. The resultant footloose financial surpluses are what caused the financial damage. But what caused the surpluses?

When you state 29c/kWH I assume that is Euro and roughly 40c/kWH US.

Where I am now in Canada I pay 6c 7 PM to 7 AM, 9c mid peak and 11c peak (CAD).

There is also a Delivery, Regulatory and Debt Retirement charge. These make the total 9c, 12c, and 14c (CAD).

As you can see there is a three tier system Generation which is competitive with a large state owned portion, Distribution state owned arms length regulated not for profit, local distribution which in this case is Powerstream owned by a number of municipalities. Oversight is by the Provincial (Lander) government using an arms length not for profit agency. All the costs are passed on to the consumer.

The stranded debt charge is to rescue the large Nuclear Power Generation entity owned by the Province which ran up debts caused by the Province
not allowing it to pass on the cost of production in order to save the industrial sector (steel and auto manufacturing) during recessions. Nuclear is seen as safe and essential here along with being cost effective. My first job in Canada was designing and fabricating communication and control modules for the experimental Nuclear facility at Chalk River. The bread and butter business was modules for the pulp and paper industry. Quality control in the nuclear industry was extremely demanding I have a lot of respect for that business. I might add that either the federal or provincial governments owned and operated the businesses with the major player in production being Atomic Energy Canada Limited (AECL). I moved on in government into communication and control in Air Traffic and Weather Services also areas where your first mistake is likely to be your last.

My take on wind and solar is that on the longest coldest night of the year there is not a puff of wind and on the warmest longest day of the year the winds are light and the power of sunlight is much diminished. Until storage technology becomes cost effective I do not see wind/solar as being anything but a niche industry. This means the base power generation capacity cannot be reduced but will become the swing supplier that makes nuclear non competitive but favours natural gas and to a lesser extent coal. The Ontario Gov’t is presently paying up to 80c/kWH for residential rooftop PV panel installations tied into the grid with less than 10kWH capacity. All costs passed on to the end users, already a political hot potato. I am familiar with the widespread use of wind/solar/PV in Germany but I am not familiar with the subsidy details. I see your 40c (US)/kWH charge and I am wondering if the green power generation industry is being heavily subsidised with the costs being passed on to all end users. I heard a lot of complaints in Germany about Angela Merkel’s knee jerk reaction after the Japanese debacle where she accelerated the shutdown of nuclear power generation. I heard no complaints about the high cost of electricity which if they are all paying 40c US surprises me. Helmut Kohl’s involvement in the Baltic gas pipeline that bypasses the pesky Poles is also a lively topic of conversation in right wing circles. A lot of people I talk to in Germany know the cost and value of everything as opposed to Oscar Wilde’s people who knew the cost of everything and the value of nothing.

A link to micro fit power generation with the tariff.

@Colm re Croatia

As I understand it for the last ten years all accession states have to “aspire” to join the monetary Union.

IMHO the majority of accession and “acceeding” states have a history of quietly distinguishing between political rhetoric and political reality.

In my experience the easiest way for a new member state to “think seriously” about joining the monetary Union is to sign on the bottom line and narrowly (but of course “unfortunately”) continue failing to meet the the EZ criteria.

For former members of the Yugoslav Federation, Soviet Union and Marxist (or “whatever your having youself socialism”) one party states, the distinction between political reality and political rhetoric is no problem whatsoever.

Sometimes it seems to me that the only countries who really take democracy and the European Project seriously are Ireland and a ( slowly diminishing) number of West European states. Perhaps it is time for us to become alert to the fact that Western Europe has “compromised” a lot (possibly too much) when it comes to democracy and the European Project.:)


– your ft link I would have to pay for.

– your Spiegel International link about opening hours in Germany.
What has that to do with being unfair to Ireland or anybody else ?
Opening hours are local rules. The locals decide.
Where I live I can buy a bottle of wine or spirits until 3 am in the morning, just walking 50 meters. The supermarket is open on Sunday.

Germany and Austria are not the “main beneficiary”. That we used up the temporal movement restrictions, and Ireland decided otherwise, how is that unfair ?

Your gegen-hartz link, what is it supposed to show ? Especially in relation to Ireland or Greece ?

Your NYT links says: “In 1969, the law was amended to permit non-Germans to be sweeps”
Where is the discrimination ?
Yeah, we had some relicts of the old guild system, like most of our neighbors. And I think most still have them somewhat, taxi driver licences is a pretty typical example, go for a cool one million in New York nowadays.

Your EU link, same thing.

Please try to focus on what these links are supposed to show, and how that relates to Germany being unfair to other EU countries.

Look at the energy balance figures….. other then Hydro in places such as Norway they add very very little energy – they are sucking resourses from new Nuclear Build with very little to show for it.
The value of Nuclear is hidden – it frees up natural gas for its true calling – direct combustion.
Its all about reducing the opportunity costs by burning fuel for its optimum purpose.
Denmark has a large wind industry with the highest cost for the finished product in Europe – electricity is 30cent per kilowat hour !!!… , Germany is number 2 because of its renewable dreams.
Check out the contribution of wind energy to Denmark’s energy balance……..

Before France privatised EDF it poured a massive amount of money into Nuclear but got real results.

Notice the Nuclear peak in 2004 – the Year EDF became a limited liability corporation – coincidence ?
You can see this more clearly in the electricity graphs.

We are simply looking at a massive systematic failure of Europe’s Energy / Industrial policey.
Although I don’t believe it has had a rational Industrial policey since at least 1987.

@ Mickey Hickey,

first let me as a German thank you for the nice summary of “what Germans want”. One thing I would add is, that I would be fine with others electing crazy governments, as long as I dont have to pay for. I have lived for quite some years in the US and I also say “no taxation without representation.

My fellow neighbors and co-citizens are that crazy, to not complain about 40 US cents / kWh, but get mad at me, if I want to reduce taxes.

Of all the countries in the world, Germany is the last one which needs raising taxes, they are already high, we have a balanced budget. But the left / green did decide on this, and if there would be elections they would have the majority. And from all ….. let me be polite … despicable persons in the whole European Union, whom did the invite for the tax raising party
congress ? Papandreou, after his resignation ! You could actually see him smile at these useful idiots.

And we have more than our fair share of all kinds of crazies, trying to sue the treasury for bankruptcy, cancer as a purely mental problem, just to name the favorites of the people I could buy booze from 3 am in the morning 🙂 birthers are just boring in comparison.

Nuclear phobic are the clear majority here around.

But how is any of that unfair to Ireland or any other EU country.

With that baltic gas pipeline, it is actually Schröder, and not Kohl being involved with that, it is working since this summer, and in the last few days it actually became clear with it, that whatever blackmail, quibbling between Russia and Ukraine (whose former PM sits in jail in relation to that, and gets no medical treatment until she confesses), at least part of the under delivery is due to underproduction in Russia, which they nevertheless try to convert into some forced ownership of German distribution companies. Epic. With the new direct pipeline they can not blame Poles or Ukrainians anymore.

We did not privatize the power companies to see a foreign government taking direct control of them, we are at least not that crazy.

Bringing actually up the question of who owns the power companies in Ireland ?

You are right it was Gerhard Schroeder of the SocialDemocrats. He accepted a post as head of the shareholders committee of Nord Stream AG. The people I was communicating with were diehard Free Democratic Party supporters who were opposed to Putin in particular and ideologically from birth anti left. They were sure that Angela Merkel would wring Putin’s neck and oust Schroeder by stopping the Nord Stream deal. The Ukraine was stopping gas shipments to the west at the time. I used to point out to them that Angela Merkel would kiss Putin’s patootie because she would have enough sense to see that Poland could close down Germany by shutting off Russian gas. Ideology is a very powerful force even amongst highly educated economists working for Frankfurt development banks. Angela is a pragmatist.


I have had close and good relations with Germans through good times and bad for many years. The least I can do is be supportive now and again.
Ireland had a national electric generation, distribution and billing company called the Electricity Supply Board (ESB). Germany played a large part in the growth of the ESB when Siemens funded by the National Socialist Government built a hydroelectric generation plant on the Shannon river at Ardnacrusha in 1937.

The ESB up until recently had a monopoly position. It is being broken up into its component parts generation, distribution, sales and billing although the market is too small to support anything but an oligopoly/monopoly. The Irish government no doubt will divest its holdings in the near future under pressure from the ECB/IMF and the EC.

@ Mickey Hickey

In 1925, the Irish Free State awarded Siemens the contract for the electrification of the entire country. The power plant at Ardnacrusha was commissioned in 1929 and an extension of the plant was completed in 1933.

Siemens−Bau union (German construction Co) suffered losses of about RM 24.2m on the project.

(The RM isn’t Malaysian ringitts!)

@ Colm McCarthy

I like this line from your op-ed article in today’s IT:

“The public, willing consumers of spoon-fed Celtic Tiger rhetoric for a decade, has shown no appreciation that things could have been much worse. Purveyors of the daily diet of complaint (‘austerity has failed’) promise, but never articulate, a coherent alternative.”

You are one of the few who advocate a reform focus wider than the narrow concentration on finances.


I have followed endless discussion on this blog about the euro crisis which is simply a symptom of the inevitable imbalances which result from this situation i.e. the lack of balanced growth across the EU. The resultant footloose financial surpluses are what caused the financial damage. But what caused the surpluses?

Unless countries first take responsibility for what they have responsibility for, the merry-go-round will continue. Other issues are relevant but the fairytale that a minority of massively misgoverned countries were innocent victims of gnomes of Frankfurt or Zurich, only feeds delusion.

Italy for example stagnated all through the last decade. Its World Bank ranking on ease of doing business is 87th, behind former communist ruled Mongolia.

‘La Repubblica’  estimates that in 2009, as much as €119.6bn in taxes that should have been paid were evaded – – amounting to 28% of Italy’s total tax revenue in that year.

Germany cannot wave a magic wand to solve endemic problems like this.

In 1991, mainly Germany gave Ireland a gift of over €6bn — enough to cover all the interest on the national debt. We blew it and much more.

Since 1973, Ireland has not paid 1 cent in any year to the budget of the EEC/EU. In fact we got cash of more than €40bn. Some will say of course that we have paid it back now — as with ‘payback time’ in 1997, we did after all vote for it.

@ Genauer

We could bat this ball back and forth indefinitely. Let me sum up the situation in the following way. There are two major problems;

(i) countries of the EU, and notably Germany, are failing to create a single market on a par with that which exists in the US in terms of freedom to conduct business across borders, other than trade in goods, although the treaties dictate that this should happen

(ii) major areas of the conduct of economic, employment and social policy remain a responsibility of the Member States but coordination and equalisation of conditions are a prerequisite if the euro is not to function as a major source of destabilisation rather than the opposite.

The point you make about taxi drivers is a valid one. There is no cross-border hindrance but there are innumerable other examples where there is. This is the difficulty with the Services Directive. It is ineffectual because it leaves the decision on the appropriate level of rules and regulations with the receving country.

If German companies are to have the freedom to take over companies in other countries, the same must hold true for foreign companies in Germany. The French are equally expert in blocking foreign takeovers.

That is the point that Monti is making. The most hopeful sign is that both Merkel and Sarkozy seem to have grasped it. The question is whether what they will attempt to create is a version of Germany writ large. This is the scenario which the UK fears and which is most likely to split the EU down the middle (if the euro does not succeed in doing so beforehand).

@ Micahel Hennigan

The transfers to Ireland were part of the policy of economic and social cohesion spelt out in the treaties which was the counterparty for the opening up of the markets of the weaker economies. They were not charity.

Now that Ireland has moved up in the economic stakes, it moves to the other side of the equation.

The EU is a trade-off between countries, the details of which are set out in the treaties. If countries wish to scrap the contract, the EU will come to an end and there will be a return to protectionism, competitive devaluations etc. The process may well start with Greece.

Livonian: One of the absurdities is that non-Euro members, fearful of the incomplete monetary union and mindful of what happened in Ireland, now have an incentive to ‘just miss’ the Maastricht requirements.

@ Michael Hennigan,

good thing to bring the discussion back to Ireland and Finances, the topic of the original paper and I also like the IT article a lot.

btw the Reichsmark (RM) was most of the years pretty close to 4.2 Dollar.

The experience from Germany is, that people get used to new circumstances after a few years, both up and down.
And happiness (Utility) has very little to do with “objective” income levels, but how high they perceive that relative to their peer group,
the past, and, not to forget, their expectations. So if people expect to rise every year 3 % relative to 2007 they are for some time pretty unhappy going back to levels,
with which they were happy in 2003 or 2005. Once people get used to “no raises”, they are happy about 1 % plus in good years.

@Mickey Hickey
Since you are in Canada, which also went through some austerity, with the executing politicians re elected, and not as sensitive as an example as Germany, maybe you want to comment on your austerity experiences ?

With this North Stream pipeline, neither Poland, Ukraine, or Russia were ever even remotely in a position “to shut down” Germany. Gas is about 20 % of the energy supply, and only half of this comes from the east, I believe. Cutting of the gas would have caused some inconvenience. But we have some 100 days reserves bringing us over a winter, you switch on all other power plants, buy oil based local units. And there a quite a few things Germany could do to openly hostile others, without resorting to the Bundeswehr. So Schroeder was as little smelly, but getting around Kazcynski in Poland at this time was clearly necessary.

And if the Berkeley paper I referenced earlier is correct, building new nuclear power plants in Germany is actually not financially attractive,
and it would be a political nightmare

@Dork of Cork
my original answer to you was much longer. It contained about 6 links to your IEA Site and some other, with discussion.
But that didnt pass “waiting moderation”, so I cut all that out, after waiting like 20 hours.

for the 5 % drop in 2011:

In general, I dont see european energy as a Zero sum Game. Why ? Everybody buys as much as he wants on the market.
I ll take the price for Brent and the EURO / Dollar exchange rate, and I can tell you to the penny, how much gasoline costs around the corner.

@ Michael Hennigan

On your other points, you will know from my contributions that I do not subscribe to the fairytale either. There is no magic wand that Germany can wave.

The debate on this thread is, in a sense, trying to distinguish between cause and effect. Some believe that the design of the euro is flawed in such a manner that a new start has to be made e.g. in changing the mandate of the ECB beyond that of price stability. I, on the other hand, believe that there is not that much wrong with the design of the currency, given the heterogeneous nature of the EU, but that a lot has gone wrong with regard to the carrying out of their responsibilities by the Member States.

The most obvious example is that there is ample power in the treaties for them to confer on the ECB the missing mandate for the supervision of credit institutions (other than insurance undertakings) but they refuse to do it. Instead, they have set up a cat’s cradle of a structure which effectively leaves supervision with national authorities (Bafin being one of the most reluctant to move).


Foreign Companies buy German ones all the time.

General Motors bought Opel in the 30ties, and kept it.
Some Arabs bought part of Mercedes in the 70ties.
ACS Spain bought Hochtief in 2011.
American Fortress bought “my public housing” here in Dresden for a cool billion. We were debt free for a few months !
Until they decided to buy back “my power plants”.
The deutsche Börse is held by some US hedge funds, who fired CEOs around 2006 when they did something they didnt like.

I read somewhere that less than half of German stocks is actually held by Germans, with many of them phobic about “Capitalists”.
Only 5.7 % of Germans hold direct Stocks.

I do not say, that this doesnt happen somewhere, but you and Paul and all the other people have not shown me a single shred of evidence,
that Germany is being somehow unfair to others and closing off markets to others.

You have this one single company Volkswagen, with a weird history.
And their was this intra-family feud with Porsche, about which part of the Porsche family (the Piech line is running Volkswagen)
rules over the other. The bidding war turned one of my lousiest investment into one of the best, selling close to the maximum : – )
The local Niedersachsen government holds some special voting right shares, which is in general something frowned upon, but is not uncommon.
E.g. Mark Zuckerberg holds some facebook shares with 10 times the voting rights, and they still have to do their IPO.
I am with you to say the local government should get out, but this is now fought in the courts, and it is not a sign of Germany in general being closed.

“equalisation of conditions” does not imply money transfer entitlement.
We made this mistake once 60 years ago, with the intra-German “Länderfinanzausgleich” and we are on the way to fix that.

@Colm McCarthy
Lets not forget that Estonia joined the Euro.
I understand Poland completely, when they say to us: first you sort out your Euro mess (and probably take some significant financial losses),
and then they decide on joining. They know that we thought to have an iron-clad Maastricht treaty (no bailout, no money printing) and what did we get.


Yes , I have experienced a similar moderation of my views when responding to Mickey.
Everybody buys what they can….not what they want , I would vant everything.
That link appears more like a religious text rather then a scientific or statistical document…….. maybe something is lost in translation but their definitions of energy use is very confusing.
They don’t seem to use the standard definitions of Total Primary energy supply and total final consumption.
I have seen that in a lot of energy documents with a Green Bias over the years but in truth solar & wind don’t add much if you look at typical energy flow charts eventhough there is no transformation losses
Its best to look over similar documents with a constant methodology to get a accurate trend of energy use.
But there are two chief ways a country can become a energy exporter if it so wishes , it can produce more fuel , or consume less internally.
But the energy must flow somewhere.
They may indeed have been demand destruction in the electricity sphere over in Germany given it now has the second highest electricity prices in Europe for household consumers (Europortal shows 27.81cents per Kilowatt hour !) which may mean it has exported more energy abroad.

Energy & money / energy credits are funny things and interact in strange ways hard to quantify into little boxes.
These higher Utility prices means less money is available for discretionary activities such as tourism which partially explains why the pIigs are collapsing.
You can follow this by watching the collapse of international aviation bunker fuels.
Anyway I find the Green purism coming out of Germany very disturbing – everything is about efficiency using the Danish method of demand destruction through fuel poverty – very little new production is coming on line.
Its hard to escape the conclusion that Europe is deindustrializing on a massive scale although I will still bet German TPES & TFC increased during 2010 & 2011.

It could be the number of links – too many and it does not compute.


Look at the energy balance figures….. other then Hydro in places such as Norway they add very very little energy – they are sucking resourses from new Nuclear Build with very little to show for it.
The value of Nuclear is hidden – it frees up natural gas for its true calling – direct combustion.
Its all about reducing the opportunity costs by burning fuel for its optimum purpose.
Denmark has a large wind industry with the highest cost for the finished product in Europe – electricity is 30cent per kilowat hour !!!…, Germany is number 2 because of its renewable dreams.
Check out the contribution of wind energy to Denmark’s energy balance……..

Before France privatised EDF it poured a massive amount of money into Nuclear but got real results.

Notice the Nuclear peak in 2004 – the Year EDF became a limited liability corporation – coincidence ?
You can see this more clearly in the electricity graphs.

We are simply looking at a massive systematic failure of Europe’s Energy / Industrial policey.
Although I don’t believe it has had a rational Industrial policey since at least 1987.

It could be the number of links – too many and it does not compute.


Look at the energy balance figures….. other then Hydro in places such as Norway they add very very little energy – they are sucking resourses from new Nuclear Build with very little to show for it.
The value of Nuclear is hidden – it frees up natural gas for its true calling – direct combustion.
Its all about reducing the opportunity costs by burning fuel for its optimum purpose.
Denmark has a large wind industry with the highest cost for the finished product in Europe – electricity is 30cent per kilowat hour !!!…, Germany is number 2 because of its renewable dreams.
Check out the contribution of wind energy to Denmark’s energy balance……..

Before France privatised EDF it poured a massive amount of money into Nuclear but got real results.

I have split my post in two.

Notice the Nuclear peak in 2004 – the Year EDF became a limited liability corporation – coincidence ?
You can see this more clearly in the electricity graphs.

We are simply looking at a massive systematic failure of Europe’s Energy / Industrial policey.
Although I don’t believe it has had a rational Industrial policey since at least 1987.

@Colm McCarthy,

In general I do like your second paper.
e.g. “It is extraordinary how often the failure of a policy leads to demands that the failed policy be intensified”

Who said, real madness is doing the same thing all over again, and to expect a different outcome? European summits, yeah, give it to us flagellants.

But real deposit insurance has to be backed up by somebody credible and very large, and that is only a sovereign, who pledges his full faith and credit, like Germany, with a tax raising crazy majority. Hah, sometimes crazy can be good, …. cough.

After the experience of Summer 2011, with both Rome and Athens repeatingly pledging to make reforms, others did 30 years earlier, like retirement age 67 in 2025, got some money, and then turned around and just laughed at gullible Europe, a lot of trust has been destroyed, and it will take many years to restore it. I think the original montan union core was built on people giving their heart a big push (after WWII) (and needing german industry and soldiers), and starting to trust each other, and then continued to built on, based on lots of positive feedback (and against a common enemy: Russia, this helps a lot with unity, what could that be today?)

That means that any guarantee of Germany without clear, strong, and fast strings attached (fiscal compact, not union)
would be a predictable crime against the German taxpayer. This and eurobonds and things like that, I will fight very hard.
In the last 2 year my resolve has stiffened a lot: Most problems are not solved by just throwing more money at them.
Coming from looking carefully at intra-German problems (Finanzausgleich, socialist teachers not performing, etc.).

And it is perfectly ok, that Poland, Croatia, etc stay out until the dust settles. If we pay for 40 % or 43 % of the mess, doesnt really make a big difference for us. If something crashes, and people think later on about new configurations, it is more important that they dont get burned now with us.

@ Genauer

I have never said that anything Germany has done is “unfair”. This is not a word that belongs in my vocabulary in relation to discussion of international and especially European issues. Countries defend their interests and are perfectly entitled to do so. Those that make up the EU are democracies and defend the rule of law. This is what holds the entire edifice together.

The Hochtieff takeover was a test case and I followed it with interest. It was touch and go and the fact that it went ahead reflected a significant change in Germany. That, and the fact that there was no legal means of blocking it.

I return to the theme of the completion of the single market repeatedly because I believe it to be the key to resolving the crisis. Countries cannot presume to dictate how other countries run their affairs without making themselves also subject to similar scrutiny. There are numerous examples, by this stage, that the successful economies with strong trade surpluses surrounding Germany are unwilling to accept this simple fact. This attitude has resulted in a series of contentious court cases in relation to the treatment of posted workers and companies providing services where the ECJ has concluded that the countries concerned were in breach of their obligations.

@ All

The recent article by Dan O’Brien belongs on this thread. What he fails to grasp is that the ECB is independent, and cannot be made subject to democratic control in the manner that he suggests, because the euro would have zero credibility were it to become subject to vagaries of the political demands from the political systems of 18 countries. When the EU itself becomes a state, a change in the situation might becontemplated. In the meantime, this is how the system works and this is how it will remain.


I read the Dan O’Brien article and in theory agree with your premise that the ECB is ‘independent’.
But the ‘independent’ ECB stuck its nose in national affairs by insisting that nations bail out ‘their’ banks at the expense of their citizens and other creditors.
It seems to me that under Trichet the ECB grossly abused it power by firstly becoming involved in the decision to ban the normal rules of capitalism in relation to failed banks. Secondly in deciding who would bear those losses and thirdly in deciding to effectively downrank other national creditors vis a vis bank creditors.

I think that it is that kind of rogue involvement, masquerading as independence, that should have been prevented and must be prevented.

I do hold that Trichet was the right man in the right place at the right time for the banks, in particular the French banks.
The ECB may have been independent but its independence was grossly abused in favour of a selected class of creditors and countries.

[Going out now]

“Lets not forget that Estonia joined the Euro.”

Lets not forget that Estonia (under the same Government) also “narrowly” missed meeting the EZ criteria in 2007 when doing so would have “put the brakes” on inflation, a housing bubble, sky-rocketing stock market and a booming economy.

Lets not forget that , except for a stability fund “stashed-away” in the 90`s and a “banking sector” which is Swedish owned ,Estonia would have out done Iceland, Latvia and Ireland in the “crash-landing stakes” of 2008.

Lets, finally, also ponder what promises Estonia may have extracted from Finland for becoming a “low risk” (GDP 15Bn) extra flag on the Euro banner and what potential risks Finland may have taken on ,if the Euro collapsed, or by gaining a solitary Euro neighbour in an effort to avoid being “left out in the cold” if the Euro decided to”retreat to the core”. 🙂


“because the euro would have zero credibility were it to become subject to vagaries of the political demands from the political systems of 18 countries.”

It’s political economy, dude. If the ECB made a horse’s a*se out of it and it threatened the US economy it would become most political indeed and the rules would go out the window . Everything is subject to politics and power in the end.

@ seafoid

‘Everything is subject to politics and power in the end’

But, pace Fukuyama, we are not yet at the end. And od the ECB must be seen to operate as if it is no subject to power and politics, because it could not be what it is, or do what it does, if that were to be generally recognised.

The ECB has its rightful domain. That’s what Pierre Bordieu calls social magic, or a well-founded illusion. It’s a serious game. As Sammy David Jnr said: ‘Sinccerity is everything. If you can fake that, you’ve got it made’.

@ genauer/DOCM/Dork et al

Lovely hurling. That’s the kind of informed dialogue which will get us all though this somehow.

@Dork of Cork

Since I do belong to the penny pinching minority here. I would be perfectly fine to buy some cheap 5 cent french nuclear electricity. At some point I even thought about suing for that, for a short moment.

And to your “green purism” wording I would even add “a good measure of ignorance and intolerance”. I mean, back in 2010 we actually managed to get a majority to extend running the existing nuclear plants by 20 years.
But the consumer prices paying for green energy stuff were already decided in 1998, a majority wants them, and it is not that they were sold on wrong promises, and after Fukushima a clear majority wants to get out of nuclear as fast as possible and is willing to pay the price. It is their right.
It is not that we take anything away from other people. And the intention is to reduce demand by replacing it with energy savings, and raising revenue, of course. But I am also not aware that any EU country is really desperately in the energy selling business, and would need our demand.

I think the connection to tourism is pretty simple. You can spend each Euro exactly one time. According to wiki tourism German “International tourism expenditures” still beat everybody else, and that this is not even more is “why the pIigs are collapsing”, that is really stretching it.

I buy Ouzo and greek cheese, I would buy Irish butter, if it would be offered at a competitive price, we have a market.

@ Mickey and Dork
We have some experience trading with the russian bear.
My anchestors traded glass with Russia before those 13 colonies rioted,
one of them even sold them a military submarine he built (“Brandtaucher”, 1855). The former Mercedes CEO Reuter was the son of a Soviet Republic Prime Minister.

Putin is coming over every second year, visiting his old office (he was the KGB resident here) and has a jolly good time with our prime minister Stanislaw, who of course swears he had nothing to do with the KGB in the old times. Sometimes Angela Merkel, the former propaganda secretary, joins in. We keep the old monument of the heroic red army soldiers handy for him, at the military museum, 20 minutes from here, together with my submarine.

We have lots of russians in the streets, and they have money, a lot of the old folks speak Russian, and we write the street names and restaurant menues also in Kyrillic.

Russia is interested in trade, and their gas is in demand. And they (incl. Putin) make no fuss, not like Obama, when I had 100 police men loitering in my street.

But as long as Gazprom is under direct control of the Russian Government, they can not have control about our local energy distribution, sorry.

Hochtief is not just a test case, and there was no discussion that the Spanish could not buy it, just one lonely union boss. My Malaysian colleague around the corner works at a chip factory here, which now belongs to some Arabs, this time from Qatar. When General Motor went bankrupt, the German government tried to facilitate (just talking, not finance) the sale of the local Opel factory to some russian company and a canadian Supplier (Magna). My used air conditioner I bought from an american friend here.

But it was the irish and scottish colleagues, who had after 3 beers some weird ideas about the duty of government to provide jobs, how one can print money forever. The british felt sometimes that the german success must be due to some hidden sinister moves, just like you, but he also felt it unfair. that the US insisted after WWII that fresh credits have to be actually paid back and even demanded an outrageous interest rate of 3 %. The loan was actually paid back just last year. What is it with your islanders ?

I am ok that you also dont want to go into any details of some individual cases where people feel to be treated unfair on a personal basis,
for me an open market, not only with the EU, is a reality, not only for goods, but companies and people as well. My Chinese colleagues found better pasture at home, the Spanish prefers to stay here.

@paul quigley
I know, but I see this here as a pure self defense against endless wrong claims without any evidence about Germany, which should help people to focus on changes at their own home.

From my perspective Germany really behaves more correctly than good, we do not owe other folks anything, and the sooner they understand that their present problems are just their own fault, and have to be solved by changing their own policies, and not demanding endless handouts from Germany and other core countries, the better.

Since 2 years no private persons gives any money any more to greece, now they do a hard default, and they still dont get it, think that they can have a higher minimum wage than in donor countries.

Brings me to the last point:

@Paul Hurt
Maybe you try to sell your clients more on this story.

After Reunification Germany run faster out of money than other EU countries. After trying everything else we engaged in significant structural reform, the right raised taxes, the left cut benefits, endured the pain from that, learned from other countries like finnish education, nordic welfare state cuts, turned public and private deficits around, happily escaped the
housing bubble, and now look actually not too bad, especially in comparison. Maybe you try to take a page from what we did, and in just a few years you will get over the pain, just as so many other countries before you.

@ Joseph Ryan

But the ‘independent’ ECB stuck its nose in national affairs by insisting that nations bail out ‘their’ banks at the expense of their citizens and other creditors.

Ireland reacted to the aftermath of Lehman Brothers by guaranteeing ALL bank debt including that of a failed bank (if begging for help from an arch-rival is not a signal of impending collapse, what is?).

As for the ECB sticking its nose in national affairs, since the previous Aug, it was providing funding to many of the banks in the EMU – – it should have insisted earlier on establishing the true state of these banks.

Regarding Dan O’Brien’s point on communication, some members of the governing council are voluble; most appear to say nothing that merits attention from the newswires.

It’s up to the Irish gc member to explain to an Irish audience the reasons for particular decisions.

@ All

As regards breaking rules and bending agreed procedures, there are few that can cast the first stone.

France, once required Japanese video players to be cleared through a tiny customs office in the inland town of Poitiers.

Switzerland is an example of a small country that got away with facilitating tax evasion for decades until recent times.

The US is in pursuit of 11 Swiss banks and units of foreign banks that facilitated tax evasion by US citizens. Switzerland is seeking to avoid criminal prosecutions of the banks in a year when the Democrats are likely to make hay from the news that the likely Republican candidate for president maintained funds in Switzerland and the Cayman Islands.

Ireland facilitates tax evasion by corporations — also people, in the view of Mitt Romney — but better stick to the foreign examples.

Why would we worry about that liitle perk when it may be worth at least €2bn annually in cash terms?

Colm McCarthy is in the Sindo today with an article entitled “Let’s benchmark”. The Sindo this week is a long jeremaid of pain and unfairness.

Carol Hunt expects a revolution

McCarthy had an article in the IT the day before . It is instructive to benchmark what appears of his articles in the Sindo and the Irish Times . The theme is the same but the delivery is very different. The IT is presumably for grads and the Sindo for leaving certs.



1. Budget deficit


“There is one thing worse than having to rely on official lenders, and that is having no official lenders to rely on. The Irish budget deficit will be zero in four or five years time. This will happen either as an explicit condition of continuing support from official lenders, or as a re-entry test for access to the bond markets.”


“Neither official lenders, in the shape of the EU and the IMF, nor the sovereign credit markets will finance continuing deficits for Ireland. One of the few predictions that can be made with confidence is the budget deficit will be zero in four or five years from now. In any plausible scenario for economic performance, this means more spending cuts and more tax increases.

2 Cuts


“There has been extensive coverage, including a week-long series in The Irish Times, of the squeeze on Middle Ireland. Job loss, negative equity and tax increases are exacting a heavy toll. It is not possible to exempt the broad mass of the population from further impositions: the challenge is to choose the fairest path for an unavoidable further cut in living standards”


The “Ireland’s Squeezed Middle” series carried in The Irish Times over the last week divides the community implicitly into three groups. The middle: squeezed to excess, it would appear; the poor: presumably to be spared squeezing; and the rich: promising squeeze material, but rather less numerous than a few years back. If the bottom 20 per cent are to be spared, and the top 10 per cent unlikely to deliver 8 or 10 per cent of GDP on their own, it follows the 70 per cent who self-select themselves into the middle class are due for further reductions in living standards.”

@Michael Hennigan,

Paying tax is the fundamental expression of the civic common bond that binds a polity and participating in the democratic process (where one exists and functions in some sort of meaningful sense) is the right and duty of all to ensure democratic consent is secured as to how this tax is spent.

Globalisation was greatly weakened this common bond in all jurisdictions and has vastly increased the number of people who believe they are entitled, by fair means or foul, to minimise their contribution to the common good.

It is is interesting, but not surprising, that the US appears to be leading the international charge against those who seek to maximise their returns, which are secured in large measure as a result of the institutions and processes funded by taxation, but who appear determined to minimise their contribution to the funding of these institutions and processes.

The Economist recently highighted the ‘El Dorados’ that are facilitating this evasion of civic responsibility:

It doesn’t provide the breakdown for ‘these islands’, but there can be little doubt that Ireland is ‘punching above its weight’.

There can be little doubt that this common civic bond has weakened in Ireland, following the bubble years when levels of taxation were reduced and the tax base shrunk, but it appears that it is contributing to the weakening of this bond in other jurisdictions.

Ireland appears to be facing a double bind where increasing international pressure on corporations avoiding/evading (?) tax by locating certain activities in Ireland will result in these corporations deciding that the game is no longer worth the candle and where there is a real limit, and one that we may be approaching rapidly, to the public willingness to accept domestic tax increases.

Colm McCarthy’s piece in today’s Sindo:
focuses on the latter and on what needs to be done as this limit is reached.

It is regrettable that there has been such little interest in following on from his magnificent piece a fortnight ago:
on the structural reforms required.

Pay levels may be high in some areas, but they are high and being defended ferociously because, to a great extent, non-labour costs are excessive in the sheltered sectors. This fetish with the ‘labour theory of costs’ is a negative sum game.

A ferocious assault is required on excessive and unjustifiable non-labour
costs in the sheltered sectors to increase real disposable incomes so that pay levels which are deemed to be excessive may be reduced subsequently and the space to increase tax levels, to broaden the tax base and to levy efficient charges for utility services may be secured.

About corporation tax:
Sweden made some changes in the tax-code in 2009 and some loopholes were closed. As a result the Swedish revenue has sent a tax bill of an additional 400 million EUR to be collected, the claims are being tested in court but the tax authorities are confident that most will be seen as valid claims. If the claims are upheld then I believe some tax-havens will lose about 100-200 million EUR in tax revenue. Bigger countries will sooner or later do the same.

About the energy discussion:
Last year I went to a presentation held by the CEO of a Swedish power-company. He claimed that the monetary cost per energy unit produced was almost identical for new hydro- and wind-power (at least in Sweden). The company he represented does both hydro- and wind-power and almost any other kind of industrially produced energy. The company is profitable. He also claimed that the closure of nuclear energy plants in Germany will increase the price (before taxes) of electricity in Sweden – interconnectors will be built to export energy to the higher price area, it is already happening domestically within Sweden so it will happen across borders. The higher expected price is expected to make more investments viable so more production capabilities will be built and this will to some extent reduce the upwards price-pressure.

Deregulation of the energy sector in Sweden is constantly debated. A fact is that now there are so many electricity suppliers that the state has had to make it easier for consumers to find the best deal:
Sweden is different to Ireland but surely Ireland will be big enough to have more than the current number of energy-producers?

The reliability of nuclear & what can happen to electricity prices in a market economy during times of shortage:
The good thing about market economy is that prices has been close to zero during times of excess.

I got that old Enron feeling when I read that last article.
French “reliability” of reactors were at there highest in the early naughties before it became a limited liability corporation……..
Market States do not do gluts…… as it socialises wealth – only Nation states build reactors – market states run them down or worse play some very naughty games.

Profits from a natural utility is a contradiction in terms , what it really means is the subtraction of wealth to pay a rent.

@ Paul Hunt

‘When I refer to the ’sheltered sectors’ I mean the entities, businesses and professions (in the public or private sector or sometimes between the two) which provide services that, generally, are not tradable internationally.

Some are financed by general or local taxation, some by user charges, others by professional fees and others still may rely on some combination of these. Most are characterised by natural monopoly, a monopoly or concession granted by public authority or a monopoly that has been secured by virtue of ‘custom and practice’ or an ability to restrict entry and competition’

That’s an interesting take on ‘sheltered sectors’. The term is usually used to refer to non-tradable local monopolies such as state companies, or professional services with restrictive entry. If you consider our little ESB to be ‘sheltered’, I suppose it begs a question as to how one should categorise an entity like Gazprom.

Genauer has brought Mr Putin into the thread, and provided some fascinating insights into the realpolitik of Niedersachsen. I imagine that our Russian or Chinese friends take the chat about ‘free markets’ for what it is. Mostly chat. They can’t fail to note the cartels operating in Big Pharma for example, and naturally direct state resources in response. All very Orwellian.

While the preceding discussion has entered into quite technical and specialised realms, the power structures which limit competition come in lots of forms. No reform of state structures will work unless it is also accompanied by overhaul of business governance. Maybe the Bundeskanzlerin should think less about Greek conduct and more about what goes on in Frankfurt.

@The Dork,

you’re not the only one with an Enron feeling, people in Sweden are not happy. The plan is to address it by getting more competing suppliers trading here:
Compare the price on the 2nd of Feb with the price on the 22nd of Jan 😉

The current Swedish governments strategy:
Swedish government borrowing costs are close to zero & it wants to sell profitable companies to raise revenue….


I remember vividly, when we in Germany looked in horror at these all including Irish guarantees, unilaterally, late 2008.
this was for something like 20 kilo Euros per capita in Germany, limited liability.
And Angela succeeded to calm the markets, without being forced to utter the word “unlimited”, a fine, but important distinction.
Some folks say, inventing limited liability was as important to the european miracle since 1300 as anything else.

Your Irish 2 b$ from the tax evasion, lets say “facilitation”, the famous irish double-dutch sandwich, are some kind of chicken shit in the greater picture, so far,
without the context. But you might see some interesting things below.
As far as I know, FR, DE, UK, and some others actually signed up with the US this week for some real teeth in tax evasion procsecution,
something Germany (DE) fought for since, like 1985 ?

And lets not forget the Japanese refusing french Skis, as being unsuitable for japanese snow, back in the 80ties.

Hey folks, competition, lets come up with some German transgressions (at that time, now, naagh, impossible, LOL).
I am sure there were some, I ll promise one barrel of fine german beer for every good story.

@Jesper & Dork
I really tried to find some wholesale and retail electricity price increases after Fukushima, in order to (verbally) beat up my green politician sister with them.
I am usually good with numbers (a recent GMAT test was in the upper 10 %, more like 3% for my age).

The market around Germany:,property=file.xls
page 5.10.1 e.g. column B or I

but I failed to make a case in good faith.

A case of beer, if you succeed at that.

The file contains a lot of interesting numbers, also for many other countries.


Lets just get the geography right.

The Putin connection is in (formerly eastern germany) Sachsen.

The Volkswagen connection is in western Niedersachsen (both former Prime ministers: Schroeder(left), our lovely Bundespresident Wulff(right),
at least for the next few weeks, the one who fought tooth and nail for the golden shares for the “Bundesland”, AWD Maschmeyer, financing both Schroeder and Wulff,
and peddling 2.25 % annuities (Riester-Rente, formerly Volkswagen) to the poor folks, a few years ago, before selling out to some swiss company).
And not to forget Volkswagen union boss Hartz, the one with the reforms with his name.

The Saar Connection is Flassbeck, Lafontaine. Turning one of the richest German States into a poor-house,
which will probably face some german style insolvency, financed by the taxpayers in the rest of Germany, as usual.
Socialism always works, until you run out of other peoples money. gnashing my teeth, “Laenderfinanzausgleich”.

@ genauer

Thanks for the correction, but by your account there is just as much realpollitik in Niedersachsen. We have our version here too. Maybe it’s chicken shit, but, no offence to you, there’s plenty of bull shit in other places.

‘I remember vividly, when we in Germany looked in horror at these all including Irish guarantees, unilaterally, late 2008.’

Did you look look in horror at the capture of your political leadership by bankers ?

“Financial markets have become highly political over the past years,” Ackermann told Bloomberg News this week before heading to Davos, Switzerland, for the annual conference. “ Politics and finance will become even more intertwined in the future. Accordingly, bankers have to think and act more politically as well.”

Lets’ face it. Socialists aren’t the only ones who like to build empires with other peoples’ money. The cleaning up of the private credit debacle has scarcely begun.

@ All

The discussion is rather drifting away from the thread topic. What is at issue is “Re-designing the Eurozone”.

My view is that, given the heterogeneity of the European countries and economies involved, no re-design of the monetary aspects of the euro can, or will, be contemplated. However, for want of a better word, all the ancillary aspects can be greatly improved upon, the most important of these being the creation of a genuine single market to accompany the rather premature decision to sign up to a single currency.

One of the most important related elements must be to try and equalise the cost of the treatment of labour in the production mix, a very difficult topic as countries have done little more in the treaties than agree to “coordinate” their policies apart from issues covering employment law and the rights of workers that are directly related to the single market (free movement of labour etc.).

However, events are pushing them towards a recognition that the euro will collapse if they do not do something.The euro will simply become insupportable for most of the participants. To quote Lagarde, “it takes two to tango” and it is easier for a country whose workforce is overdue a pay increase to move than for one that is trying to recover excessive pay increases in the past.

The encouraging aspect is that the necessary debate has begun in Germany cf.

On the point raised by Genauer as what the website devoted to reversing the Hartz reforms in Germany has to do with the discussion, the answer is a simple one; the reforms in question have distorted the labour market outside the skilled sectors in the export oriented industries.

Even the current minister for labour in Germany recognises the need for a change of direction having in the past days argued for a generous wage settlement by employers and a reversal of the situation where many in low pay jobs have to have their incomes topped up by the state under the Hartz reforms. She has also been in open conflict with Merkel on the subject of the introduction of a general nation-wide minimum wage. (Guess who is in favour and who isn’t!).

On movement in respect of the single market itself, the most recent summit committed to finding a solution to the remaining problem affecting the “European” patent viz. agreement between Berlin, Paris and London as to where the head office of the new organisation should be located. Whatever the outcome, the agreement will simply underline the growing divisions in Europe as Italy and Spain are not participating (and, indeed, Italy has taken a case before the ECJ on the use of the procedure of “enhanced cooperation” – a first – in this particular case).

The average minimum wage in France is about 12 euros, in Germany, in the low wage areas where it exists, it is below 8 euros. Merkel is proposing to campaign fro Sarkozy in his presidential bid (!). Her foreign minister in the Grand Coalition, Steinmeier, has qualified her present government as “the worst since 1949”.

@ Colm McCarthy

I heard you remark on RTE at midday, if I am not mistaken, that Ireland has a good “moral case” with regard relief on the Promissory Notes. This is a concept foreign to legal disputes at a national level and I fail to see how it can have any relevance at an international level, any more than that of “fairness”. My view on this would also contradict what Seafóid says above about the political role of the ECB. The EU is a political undertaking and to that extent everything that it does has a political connotation. But no valid comparison can be made between those participating as elected politicians with a mandate to play a particular role in the interplay of the various institutions and those that are appointed as servants of those same institutions. If any of the players step outside their role, means are provided in the treaties to correct this, mainly by way of recourse to the ECJ.

I mention this here because the debate about the role of the ECB is about to start up once again.

@ All


Before I draw any misdirected fire, I should emphasise that I think Ireland has every good case with regard to easing the repayment terms for the PN. It is not, however, a moral one but of recognition by two parties to a dispute that it is their mutual interest to come to an amical solution. This cannot include abandoning the assessment of risk in relation to the creation of credit.

@DOCM, (this crosses with your last post)

your youtube reference and friend Dr. “class war” Heiner Flassbeck.

Let us first notice, that his reference point is 1999, a classical “framing” (e.g. Kahneman) thing. I will come back to this in another post.

Lets have a look at his wiki bio (only in German!).
PhD in 1987. Not much to be seen after that. 1998 deputy finance minister under Oskar Lafontaine (english wiki bio available), fired with him after just 4 months. Appointed on what merits ? ….. hmmm, being a loyal underling from the Saarland socialist mafia?
Technically, Oskar (1990 candidate for chancellor !) was not fired, he just resigned from all positions, even Parliament, due to “lack of cooperation”
after his social democratic comrades (“Genossen”) found out, that he really is a communist mole. Nobody really talked with him anymore, not in Cabinet, party, fraction, union.

Now Oskar is the head of the German Communist party (technically “Die Linke”, fomerly known as WASG, PDS, SED, DKP, KBW, KPD, MSB (this is a good one, Spartakus!), SDAJ, and some other acronyms, I can not remember) and formally he is not “head” in this moment, just the one,
who openly decides, that the head is not decided by ballot vote, but “in certain circles”, classic bolshevik, together with his eastern friend Gysi,
who some call informal collaborator “Notar”, but this is still pending in courts)
His present official (offical count 5?) bed companion, Sahra Wagenknecht (she is a beauty, even age 50, styling like Rosa Luxemburg at her prime,
with a honest PhD, I believe so far, not like Guttenberg, and can convince prominent arch-conservatives of money printing, a feat, I admit) is less shy, and is the official head of the “communist platform” within that party.

One of the things, they were really after, and this is really interesting for you in Ireland, was “prompt tax harmonization” (look at the wiki).
(scaring you with a little Good Cop / Bad Cop).

1999 this was in Germany 53 % tax, 9 – 11 % mandatory tithe, 7.5 % “Solidaritätszuschlag”, AND, dependent on which way you go, 13 % VAT or 35 % corporate tax (with the usual tax cheating), and the usual local / timely obfuscations. At lower income you exchange “tax” for “health / retirement insurance” etc.

Dependent on how you calculate it, you end up with somewhere around 75% marginal tax rate. At a level for “really rich” like gross 120 000 DM / year, at 1.95 DM / Euro , 1.1 inflation correction according to Dr “Class War” Flassbeck, like 68 000 Euro per anno present value, pre tax. The rich moved in droves to Switzerland, I escaped to the US.

And this was what Flassbeck / Lafontaine wanted to force down your sorry unrepentant Irish throat as well, via such a sweet thing like harmonization.

I mentioned before, that we have our fair share of crazies, but that was even too much for kind of normal German lefties. But they never die out.

In an Germany, where half the board seats are taken by the unions, he now declares (citing the wiki) “The workforce needs to have a far greater say in their companies than has been the case so far”. The unabashed propaganda slogan for the 2009 elections was “Luxury for everybody”.

FYI: The Atlantic [h/t baselinescenario

Special Taxes for Special Wealth: Why Is Investment Income Different?

(or Why do the lowly serfs pay more …. ?)

‘… If lower taxes on investment income don’t increase savings and don’t increase economic growth, then we’re left with a purely distributional issue. Given the large deficits and growing national debt that politicians and ordinary people say they care about, does it make sense to have a special tax break for the rich that will cost the Treasury Department more than $50 billion next year? ($43 billion under 1997 law, another $13 billion if the Bush tax cuts are extended.) Obviously Mitt Romney and his hedge fund donors think it does. ‘

@ Genauer

I said his commentary had a place on this thread. That’s all!

We can all play the man rather than the ball but it does not get us very far. People should be left to make up their own minds on the basis of the arguments advanced. I am neither a fan of the left nor the right. What interests me is the debate in Germany. It affects us all very deeply, Ireland having hitched her wagon, for better or for worse, to the euro.


Law, Morality, & Democracy are inter-linked – otherwise we are in a dictatorship – which of course we are at the mo …

@Paul quigley

It is really getting kind of strange.

In former times I always thought of myself as a kind of boring engineer guy, to whom never something really interesting happens.

Increasingly, and especially in this blog page, it is me, who doesnt have to resort to some general vague, unspecific arguments, like Paul Hurt,
but seem to be able to adress everything with numbers, statistics, AND personal, local, experience, facts, and color.

Soo, about Ackerman and his Deutsche Bank.
I hold both in the highest regard, and I got repeated ear washes for that, from middle age MBA folks to anybody else.

That doesnt change a thing, that I sold them in 2008, for precisely the reasons, he mentions now in 2012. I am a socially responsible, mostly long term, investor. And all I have comes from my own labor.
I do scan income distributions (even back to the Roman Empire, before that I would be interested in help, a little hobby horse likes dorks energy),
human rights reports. Not just because I am just such a good, grandstanding person, some green hypocrite, but because I believe it makes good business in the long run. Scanning blogs like this, to get to unofficial real information as good as I can, and not only the bloomberg, wsj, ft versions.

But I am not a fool (at least I think so). Banks have become a political punching ball, and that is not my business. When I look at Deutsche Bank, I do not see empire building, I just see people somehow trying to keep their nose above the flood. Otherwise I would buy. If they fail, the german tribes (D-A-CH) provide social minimum to every member. And that is it.

Coming from an extreme quantitative point of view, the older I grow, the more I value judging character.

“It is extraordinary how often the failure of a policy leads to demands that the failed policy be intensified”

You mean. like austerity? Curious how it’s continued to appeal as a strategy, in the face of its failure, to die-hard free-market types like the PD-associated Mr. McCarthy, and the English Tories. One might almost begin to wish a second look at this Greek horse at the gates of Troy.

@ genauer

Fascinating. If you did not exist, you would have to be invented.

‘Soo, about Ackerman and his Deutsche Bank.
I hold both in the highest regard, and I got repeated ear washes for that, from middle age MBA folks to anybody else.’

Those ear washes were well deserved.

‘Still, it remains the most leveraged among the 10 biggest banks by assets in Europe — total assets exceeded Tier 1 capital by 49 times as of Sept. 30’
This Ackermann movie is coming your way too, so you are right, it isn’t going to be boring.

You would think that PD bashing would be such a cruel sport in such strange days – but they still amazingly try to arise from the dead.
Witness Pat Cox and his cabal……………..

There entire economic policey was based on producing bank credit to eat up Crude as quickly as possible – for no particular reason other then to make a short term killing and yet people remain surprised !

Romans did eventually embrace the Barbarians for a reason – the cuckoos were just too much trouble.

@Paul quigley

Now where do you have this nonsense from ? On your link I cant find it.

If you would know anything about Finance and Banks, you would know that even Basel II requires 4 % Tier I, just look at wiki, and if Deutsche Bank would have only your 2 %, they would have long been taken over by the government.

But it was Deutsche as the only German Bank begin 2009, which didnt need any loan from the Government, and then socialist finance minister Steinbrück (the one who wanted to ride with the cavallery into switzerland)
wanted to force it on Deutsche, with the openly displayed desire to then taken over the wheel of their credit policy.

I ll do find 9.7 %

@ genauer (per PQ)

Deutsche’s TOTAL assets are 49 times total capital. Risk weighted assets are different to total assets however, and its RWA that you need to have capital against. If you knew anything about finance and banks, you’d understand this…


where do you get this stuff ?

The discussion about meanungful wage increases in Germany has not “just begun”. There were rises by real (after inflation) 2 % (2010) and only 1.5 % in 2011, inflation was a little higher than expected.

Your IT articles says the unions ask for only 3 % nominal. No, they are asking for 6.5%, and as the usual ritual goes, they will get around 4 % (nominal).

Nobody is opposing this, in moderation. No Prof Sinn, not me.
I remember when on a family barbecue in 2010 I told that the worst is behind us, unemployment goes down, unions will have bargaining power,
and that there will be now years with raises above inflation, and my brother in law looked at me, as if have smoked some dope. He could not even remember the last year he got a nominal pay raise.
I know how austerity looks like.

Also not former liberal economy minister Brüderle (“mal einen ordentlichen Schluck as der Pulle nehmen” in 2010; lets translate that as “take a robust step”), who was then also told that he as a politician keeps out of wage negotiations between employers and unions.
Same holds for von der Leyen.

Now lets bitch a little bit about her. She is the daughter of former Niedersachsen prime minister Albrecht (sounds familiar, this connnection ?), has 7 children, and a medical Doctor. Since Merkel does not and will not have any kids, somebody has to cover this conservative topic, and 7 of them! And with the “von der” she covers the aristocrats as well.
There is some really good nockherberg youtube about her, (I dont find it in the moment) when she pissed of her conservative colleagues as well, with letting it be known, she is a better person, combining 7 kids and academic / political career. Well, just, as long as we dont adopt the french family policy, favoring affluent kids, you can do this in Germany only if you a rich girl, and can pay for a few domestic servants.

Now, obviously she still wants to make some more career, which means she has to become popular by promising social goodies (this works the same way in Germany) and to somehow position herself a little bit against Merkel (who is one of the very few, who never did the goodie thing), who is in her way.

Meddling a little bit in other political resorts, wages, universal minimum wages (set by a “commision”), even the unions do not want, and of course she lost the fight, you cited in your “Zeit” link.

One of her accomplishments was a censorship law (hence her nickname Zensursula), which the clever girl masked as a fight against child porn,
threatening everybody opposed with a ruined career. This law was so bad, that the then bundespresident Köhler refused to sign it, I think happening for the first time in Germany. After that one got fired (sorry, “resigned abruptly”), Volkswagen-Wulff signed it, but it was not enacted (another rare feat, having a law, but ignoring it), until it was somehow made disappear about half a year ago.

The organized resistance against her sits now as the “Pirate Party” in the Berlin Parliament.

What you forgot to mention about Steinmeier calling out Merkel, is that he was and wants to be her socialist competitor for chancellor. What is he supposed to say about her ? “She is great, vote for her, and not for me”. Now what is the information content of you citing him ?

The poor guy, first he did enact the Hartz laws as the puppet master (Kanzleramtsminister) of Schroeder, now he and Steinbrück got officially lectured by the 3rd socialist contender, Gabriel, to be silent about that these laws will stay.

@ Paul & Bond

sorry for the verbal slippage, but I am so fed up with this constant slander of Ackermann. And the constant politician attempts to get their fingers into this pot. When we had these EU stress test results last years, Deutsche was looking pretty good, especially in comparison.

And with 9.7 % Tier I he will get to Basel III without Government “help”.

Ronald Reagan: ‘The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’

@ genauer
Here’s the quote:

‘Deutsche Bank has boosted capital levels, cut its dependence on borrowed money, or leverage, while increasing liquidity reserves to more than 180 billion euros, a record. Still, it remains the most leveraged among the 10 biggest banks by assets in Europe — total assets exceeded Tier 1 capital by 49 times as of Sept. 30 — and has the sixth-highest core capital level among the group with 10.1 percent, data compiled by Bloomberg show.
JPMorgan Chase & Co. (JPM) analysts estimate the bank’s capital gap at 7.6 billion euros at the end of 2012 if new Basel rules are applied fully.


Ah, the old Risk-Weighted Assets. There’s only one problem. The risk models were and remain completely unsound. Go and see Margin Call 🙂

‘Flaws in earlier Basel rules, known as Basel II, allowed the financial crisis to gather in the first place, many economists say, enabling the illusion that banks were comfortably cushioned against risk. In fact, the banks had badly underestimated the malignant potential of their holdings. Faulty regulation also worsened the European sovereign debt crisis, assigning government bonds virtually zero risk. That encouraged banks to extend billions in credit to countries like Greece and Italy, setting up a dangerous correlation between the solvency of countries and the health of banks. The thinking, in effect, was “Why imprison capital to insure against losses that were unlikely ever to happen?”

The technical term was “risk weighted assets.” It was as if a homeowner only had to make a down payment on the part of a house that might catch fire. Other parts of the property, like the swimming pool and the lawn, would not count.
The flaws in this model became obvious in the days after investment bank Lehman Brothers collapsed in 2008. Banks that appeared to be well capitalized discovered that they had hugely underestimated risk. Derivatives tied to the United States real estate market, with top credit ratings, suddenly became impossible to sell and effectively worthless.


Sorrry. Misread you and thought it was me you were having a go at.

I withdraw the dig about Margin Call, but it’s still a good movie.

@ Paul Quigley

I just saw your withdrawal. You actually have some point with that discussion, whether those Basel Rules are the magic solution. One thing I would add, is that they are also very pro-cyclical.

But as of now, those are the rules on the book and not total assets. And deutsche Bank is good with them.

One comment how that might (might, not is) come about. The Deutsche Bank recently overtook the, formerly german postal service. just look it up. You know, back in the good old times, those folks with savingsbooks, handwritten entries certified with the stamp ? And you could only withdraw 1000 Euro in a month per book, I am not sure on the deposit guarantee. This is the most conservative and old customership you can get, so their deposits are more likely guaranteed by short term german t-bills, which might contribute to this high total asset number.

I wondered a little bit, how we got to this topic.
I thought I made clear that real lefties (at least the german ones) are really good at destroying everything and not at building (empires).

And well, with the intense mutual love I feel between Deutsche Bank and and the various deutsche Regierung, cough, I dont see any empire (building) there either.

@ Genaeur

the problem with risk weighted assets, in some peoples eyes, are that they are too lenient on some types of assets, in particular mortgages and sovereign debt, but previously AAA-rated CDO’s as well, on top of favourable treatment of some derivative positions. Basle III will seek to close some of these loopholes, but until then its fair to query whether a bank like Deutsche Bank, with a truely enourmous balance sheet relative to capital, is as safe as the CT1 figures would suggest.


I was just watching bavarian TV. Our populist from the deep black south, Seehofer, now paying for half the transfers in Germany, certainly not short on self-confidence, was today on a self described “learning trip” into Switzerland, trying to understand how he can better listen to his customers, the voter, giving him more direct control, earlier participation in public projects.

When german PISA results were only average, we sent delegations of politicians and teachers to the best teacher we could find, Finland.

The Volkswagen boss Winterkorn, targeting to become Nr 1 car manufacturer, a tough thing with a reborn General Motors and Toyota certainly not sitting idle, demonstrated it very openly ( that he learns from others as much as he can.

I miss this spirit a little bit, when I look at Greece or hear here these Zero Sum Arguments.

You seem to have real talent to bring up our best clowns. Keep going. I actually see some things in German politics now more clearly, like:

Now we have a Kristina Schroeder in the cabinet, wiki Pizza-Connection_(Politik) the first one to get a child in office.
As soon as she has the second one, the backstabbing rich bitch Ursula, who suddenly discovered her heart for the poor, is not needed any more.
She already tried to pick on Kristina !

Since you seem to understand German pretty well, maybe you enjoy:,1518,812415,00.html,1518,814860,00.html

and for Valentines Day,1518,814928,00.html

@ B-E-B
I think we are actually pretty close. What Ackermann said:

banking has now become a pretty political risk, also cheating people out of their CDS insurance (that was at least in the beginning the purpose), and whoever decides what private sector involvements. (disclosure: I never bought into that, or southern bonds, I am not talking my wallet, like I feel that for Soros)

And emigration to Switzerland is not really a solution, they are locked into the EU either, as demonstrated with the Franc/Euro peg of this poor Hildebrandt, from Paul’s nytimes link. The FX transaction of his wife was probably the most costly ever, LOL.

@ paul

dont worry

@ all

I still owe you some comment on the content of the Dr “class war” Flassbeck,
which requires a little work, but that, I think, could be helpful for you.

@paul hunt

“The economist” is less shy than you and more specific.
(and comments)

1. The Economist is claiming that German service “productivity” was dropping in the last 15 years, not only relatively, but even in absolute terms. Something
a) most commenters (including me) familiar with personal comparsions do object to, and is
b) mostly the usual rant to deregulate everything, and to find just something to pick on with Germany

I think this “falling productivity” is mostly just falling real wages in the service area, which nobody disputes, and a subsequent accounting head fake.

I ll bring this up, because I am “direct” : – )

And to add to this a little bit, I think the German apprenticeship myth is significantly overhyped, but it helps with the social peace.
And I dont see how that hurts anybody outside.

And the more people bring up these “German miracles” like
Scott Sumner

the more I get convinced that the very most of that is just involuntary “expectation management”

Comments are closed.