Krugman on the Euro Establishment’s “Suicide Pact”

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Krugman has a very strongly-worded op-ed piece in The New York Times today, arguing against the fiscal austerity strategy of the Eurozone.  The article is inside a paywall (you are allowed ten visits per month without paying) but here is a fair-use quote that gives a sense of his views:

“When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause. Nonetheless, the prescription coming from Berlin and Frankfurt is, you guessed it, even more fiscal austerity. This is, not to mince words, just insane. …… Rather than admit that they’ve been wrong, European leaders seem determined to drive their economy — and their society — off a cliff. And the whole world will pay the price. “

Pretty scary stuff to read.  I am not sure what alternative he is offering for countries running out (or run out) of fiscal space, like Ireland.  He seems to think that Germany should come to our rescue — good luck with that.  It is quite pessimistic in tone so perhaps he knows that his alternative non-austerity strategy is also not a politically feasible outcome.

103 Responses to “Krugman on the Euro Establishment’s “Suicide Pact””

  1. Brendan Quinn Says:

    Why can’t that man admit that over 30 years of deficit raising, credit expanision, pension promises, health and welfare promises has created the mess we are in. He won’t answer the question on what to do when there is no money left to borrow or price is so high you’re into market equivalent of loan sharking.

  2. The Dork of Cork Says:

    If we can credit Bond holders with base euros we can credit citizens accounts with base euros.
    Its time to bring down this sick Soviet experiment.

  3. Jagdip Singh Says:

    At the end of this year, Spain will have a debt to GDP of 80%. Yet Spain has not confronted the mess in its banking system and indeed its property is still artificially propped up at levels that do not reflect supply:demand. Looking at Spanish banks and their lending spree in the 2000s, it is easy to see that Spain may indeed need shoulder a debt to bailout its banks, and that debt could easily be 40% of debt:GDP, bringing Spain right alongside Ireland in the debt stakes.

    Will the Spanish take on 40% debt:GDP to save banks, and the lenders who provided cash to those banks in the 2000s. We did, but we are schmucks.

  4. Kevin Donoghue Says:

    “I am not sure what alternative he is offering for countries running out (or run out) of fiscal space, like Ireland.”

    Gist of his view is that we’re screwed and won’t have any freedom of action unless the EZ falls apart, which is looking increasingly likely.

    @Brendan Quinn, he can’t accept your thinking because he has taken a great deal of trouble to educate himself. If he sustained a serious head injury he might see great merit in your point of view.

  5. Longtail Says:

    if you google “krugman europe economic suicide” you get a link – the NYT seem to have left the paywall porous enough that with some work you can get in.
    Another fair use quote
    ” What is the alternative? Well, in the 1930s — an era that modern Europe is starting to replicate in ever more faithful detail — the essential condition for recovery was exit from the gold standard. The equivalent move now would be exit from the euro, and restoration of national currencies. You may say that this is inconceivable, and it would indeed be a hugely disruptive event both economically and politically. But continuing on the present course, imposing ever-harsher austerity on countries that are already suffering Depression-era unemployment, is what’s truly inconceivable.”

  6. David O'Donnell Says:

    ‘What we’re actually seeing, however, is complete inflexibility. In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems. Meanwhile, key officials at the central bank are making a point of emphasizing the bank’s willingness to raise rates at the slightest hint of higher inflation.’ Paul Krugman

    There is no evidence, whatsoever, of a significant change in the remit of the ECB. At a broader level,

    as Jürgen Habermas puts it: Democracy is at Stake

    The Eurozone crisis has raised calls for greater political integration of the EU. However, Jürgen Habermas argues that the tactics adopted by European leaders have sidelined what should be their main priority: the well-being of citizens, established within a democratic framework. Excerpts.

    http://www.presseurop.eu/en/content/article/1106741-juergen-habermas-democracy-stake

    @Gregory Connor

    Do you know of any economist who could defend the social scientific validity and reliability of the constraints (0.5; 60.0; 1/20], drawing on empirical evidence, within the so called Fiscal Compact [I prefer der Spiegel's Fiscal Corset] to a standard that would be acceptable in a reasonable economics journal? Could you? Could Paul Krugman?

  7. David O'Donnell Says:

    European Economy – Good Graphical Update [h/t Barry Ritholtz

    Unemployment, Youth Unemployement, GDP per person, DEBT

    http://www.ritholtz.com/blog/2012/04/european-economy-guide/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

    Youth unemployment in Greece and Spain at 50% is horrendous.

  8. bazza Says:

    @Gregory

    Actually, Krugman has never advocated a “non-austerity strategy” and has been pretty consistent on the problems and potential solutions in the Eurozone.

    See for example this list of entries on his blog:

    http://krugman.blogs.nytimes.com/?s=Germany+inflation+deflation

    These specific entries capture this opinions well:
    http://krugman.blogs.nytimes.com/2011/04/08/why-people-say-eeh-when-they-learn-about-the-ecb/
    http://krugman.blogs.nytimes.com/2011/11/22/neo-calvinists-and-the-euro-crisis/

    In particular:

    “Now the bubble has burst, and one way or another those relative costs need to be brought back in line. But should that take place via German inflation or Spanish deflation?
    From a pan-European view, the answer is surely some of both…But what the ECB is in effect signaling is that no inflation in Germany will be tolerated, placing all of the burden of adjustment on deflation in the periphery.”

    Krugman’s arguments are quite like those of Martin Wolf and Wolfgang Munchau – there needs to be adjustment in the periphery but there also needs to be adjustment in the core.

    Germany is in the middle of a undervalued-currency-induced boom and it essentially has a choice: It can accept some moderately high inflation, say 4%, for the next few years, along with more intervention by the ECB in the (primary) sovereign bond market (Soros had a good suggestion in this area in the FT last week). Together this would give adjustment in the periphery a reasonable chance of success. The end result would be a small loss of competitiveness in Germany, but the survival of the Euro would be assured.

    Alternatively, it can insist on self-defeating simultaneous austerity and low inflation everywhere and high unemployment and a depression in the periphery. The result will be the break-up of the Euro and a massive loss of competitiveness in Germany.

    So, what should be the policy response in Ireland? The answer that is obvious to me anyway is to continue with our adjustment but to shout the above facts from the rooftops. We should build alliances with Spain and Italy and tirelessly point out the idiotic and circular arguments that pass for policy in Berlin and Frankfurt. In short, we need to win the intellectual policy battle in Europe and this can and should be done in parallel with our adjustment.

  9. david burke Says:

    Steve Keen the australian economist and Krugman had a major spat last week and RT had a major spread on it. Basically Keen states the only way out of this mess is to cancel all debt and start with new principles based on the austrian economist Minzst ( incorrrect spelling). Whereas Krugman states his case on monetary expansion yet again. Keen called this financial disaster and is now predicting a massive property crash in Australia. the world is not in a recession but a depression. The term Recession just lets so called world leaders off the hook.

  10. zhou_enlai Says:

    As I understand it, the appropriate level of inflation for economic stability in the EU is set by a committee of sorts. This is the target inflation rate for the ECB. Howe come we have had no calls for this committee to revise the 2% target??

    Krugman delivered a kick in the rocks to Spain with this compelling paragraph:

    “Consider the state of affairs in Spain, which is now the epicenter of the crisis. Never mind talk of recession; Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent. This can’t go on — and the realization that it can’t go on is what is sending Spanish borrowing costs ever higher.”

  11. John Says:

    I don’t think its a full pay wall. I registered for free to post to a blog. Since then I have being untroubled by the “10 Articles a month” message.

  12. Gregory Connor Says:

    Sorry JMG I had to delete your post due to an obscenity.

  13. PR Guy Says:

    By coincidence, I was just reading this article on the reduction in disposable income in Ireland. I would be interested in finding out if there are similar figures to these for other EZ countries:

    http://www.irishtimes.com/newspaper/frontpage/2012/0416/1224314764193.html

    Does anyone know?

    @Jagdip Singh

    “Will the Spanish take on 40% debt:GDP to save banks, and the lenders who provided cash to those banks in the 2000s. We did, but we are schmucks.”

    It’s a good question and I believe the property/bank situation there could eventually be worse than 40% of GDP – really putting it right up alongside Ireland. Let’s face it, Morgan Kelly was probably right and we are going to see somewhere in the region of an 80% drop in value from peak to trough in property prices here (by 2013-14?). Why wouldn’t a similar drop occur in Spain – and possibly in a faster timescale? IMHO the Spanish won’t take it (the bank debt) on and will react violently if anyone tries to make them.

    I have a horrible feeling it is really going to hit the fan big time in Spain. Maybe not immediately (given they are probably funded OK for the next six months or so) but that kicked can is going to meet a cliff edge one of these days.

  14. grumpy Says:

    @jagpid

    I haven’t kept up with the Anglo derivatives book, but I think they sold credit protection on real estate loans to Spanish banks. Are they being marked to Market, model, myth? Have they been hedged?

  15. The Dork of Cork Says:

    @David Burke
    Minsky was no Austrian .
    He merely tried to observe how the banking operated in the real world.
    Most Austrians with the exception of perhaps FOFOA don’t go there.
    Krugman is a trade economist , he has made a fool of himself by delving into stuff he knows little about.
    For God sake the man called for a housing boom to stimulate the economy post 2001 – he has no credibility.

    @DoD
    A classic stock & flow phenomena.
    The European Experiment prefers to depreciate people rather then cars.
    It will just not let its symbol of progress go without crushing more & more subjects.
    Despite the fact it eating more and more end use consumption.
    http://www.youtube.com/watch?v=d1Sq-Yd3D5Y
    It will probally continue eating people until it cannot.

    Remember Ireland exports many billions of high value Euros for Oil & cars , it does not export Punts for cars & oil.
    1990 : 800,000 private cars
    2011 : 1.8+ ~ million cars

    Go figure that one out ….. its not really that complicated – its the principle reason why we have a BoP crisis – its not a fiscal crisis , it never is – that is absurd.

    You merely tax the money supply.

  16. Joseph Ryan Says:

    Great article by Krugman. He writes with honesty and passion.
    Does anybody believe that Europe would be pursuing the same pilicies if Germany’s Unemployment rate was 23.6% and youth unemployment 50%?

  17. Jagdip Singh Says:

    “In March, European leaders signed a fiscal pact that in effect locks in fiscal austerity as the response to any and all problems.”

    That’s a fair point on the Fiscal Treaty – it removes monetary policy as a response to financial distress. You may say the ECB as an independent institution with control over money supply and interest rates and a primary remit to control inflation, has already removed monetary policy as a tool, but the Fiscal Compact certainly puts that in stone.

  18. grumpy Says:

    I wonder if K-dude had a vote in the Irish referendum, if he would do what he probably considers to be the right thing and vote against, or go for a bit of short term expediency and vote ‘yes’ in order to guarantee ESM funds for the second bailout?

  19. Steve Says:

    Not directly related to this topic but interesting nonetheless:

    http://www.spreadbetting.com/news/2012/04/14/ecb-caught-changing-embarrassing-transcript/

  20. The Dork of Cork Says:

    @JAG
    Surely the Anglo bond prom note / base money printing proves the ECB has no direct control over the money supply.
    Treausries print money or at least give banks letters of comfort.

    Steve from Virgina
    “Central banks provide credit against collateral. Their efforts fail because of the waste-based economic system that falsely labels non-remunerative activities as ‘production’.
    Since industrial enterprises cannot pay their own way there is no relevance to central banks’ strategy. Because industry cannot earn, all industrial collateral is worthless.
    Central bankers swap impaired assets for ‘new’ assets, the swapped assets are buried on the central banks’ balance sheets. The impairment has been temporarily shifted from one account to another, not eliminated. The expansion of the central bankers’ balance sheets accompanies the shrinkage of private sheets elsewhere. Meanwhile, more finance assets become impaired because the central bank swaps do not represent either new business or new credit, only buckets of liquidity sloshed from one part of the Titanic to another.
    A problem is the slowdown in the expansion of private credit, much of which is unsecured. What is called a ‘boom’ is an expansion of un-collateralized or under-collateralized credit. This includes credit cards, student loans, HELOCs and poorly/fraudulently underwritten mortgage/business loans as well as loans within (shadow) banking secured against phantom/re-hypothecated collateral. There is no business activity that provides a return except for Hyman Minsky’s Ponzi finance schemes. Loans must be retired with new loans. Meanwhile, collateral worth shrinks across the board.
    Central banks are collateral constrained, that is the nature of central banking. A bank making unsecured loans cannot be the central bank. Otherwise, collateral would be of indeterminable worth: all banking would eventually cease because there would be no unambiguously worthwhile collateral or ‘risk-free assets’.
    The purpose of the central bank is to defend the worth of collateral. It takes onto its own balance sheet collateral that the market refuses. By doing so it insures there is always a bid for it in the marketplace. This is a form of institutionalized moral hazard: because the central bank takes on collateral at par the other banks are given the incentive to do the same. Banks become secure enough in the quality of the collateral offered … to lend against it, at least that is the desire.
    There are two basic money systems in this world: the debt money system and fiat money. The term ‘money’ includes both currency and credit. Both systems are binary: the debt system binary is ‘asset = liability’, the fiat binary is ‘issue = tax’.

    In the debt-money system the central banks don’t ‘print money’: currency increases as government securities are exchanged for at-par loans from the bank. The loan from the bank becomes currency in the hands of the government. In a fiat money system the government issues currency without offering security or borrowing. Because the government is the issuer, security is presumed: consider Abraham Lincoln and the ‘Greenbackers’. Unfortunately, governments choose not to issue fiat currencies. Otherwise the massive overhang of dead-money debt could be swiftly reduced, there would be no generalized increase in the money supply (inflation) as applying currency to existing debt would extinguish both.
    Dead-money liabilities that exist on ledgers are phantoms: taken on as collateral they do not exist in any meaningful form. Companies borrow trillions to buy hydrocarbons. Where are these hydrocarbons so that they might be repossessed by the lenders? In the atmosphere in the form of CO2 and nitrous oxides. Let the bankers repossess these gases. More accurate liability is the damage CO2 does to the atmosphere and the life support system, let the bankers possess these liabilities as well.

    Any banker stupid enough to make pointless and destructive loans is well deserving of ruin and much worse.
    The bankers would see this as a form of repudiation as it indeed would be. Issued currency would be no different from the loans themselves, created with a push of a button on a keyboard: printed money for printed loans! It is the force of the lenders’ habitual oppression combined with reflexive cowardice on the part of governments that sanctifies the bankers and their ‘money’ over everything else.

  21. David O'Donnell Says:

    @Steve

    Ta for dat. I’ve passed it back to the relevant thread.

    @JMG

    Tut tut – did you mention the unutterable? i.e. “Fiscal Compact” – Fairly Obscene al_Roight!

    @The Dork

    I gave up on driving cars years ago. Don’t own one. I like trains. I love parachutes.

  22. Gavin Kostick Says:

    @ grumpy

    “I wonder if K-dude had a vote in the Irish referendum, if he would do what he probably considers to be the right thing and vote against, or go for a bit of short term expediency and vote ‘yes’ in order to guarantee ESM funds for the second bailout?”

    Which way will you go do you think? Feel free to say ‘none of your business’.

  23. christy Says:

    It seems Krugman’s solution is stimulus in teh core that will cause both growth and inflation in the core that will allow growth and improved competitiveness in the periphery.

    But are we convinced that we can cause inflation in the core to rise above the level of inflation in the periphery? What level of fiscal stimulus in the core is required to do this? Is this at all plausible?

    Furthermore, if we look at inflation rates in Germany, Spain, Italy and Greece we would expect to see inflation to have been higher in Germany (given its stronger growth and the fact that it is operating at or near potential output) and lower in the periphery. But we haven’t really seen that over the course of the crisis.

    The relative inflation rates between euro zone members appears to have behaved strangely during the crisis

  24. Brian Woods Snr Says:

    A succinct, if inadequate definition, of a ‘terrorist ideology’ is that it recommends the destruction of a rival ideology: no matter that human folk will be casualties. Krugman and Keen are only the latest of a long list of arrogant, opionionated tom-cats to bare fangs, hiss and meowl at each other. Its not that one is ‘right’ the other ‘left’ – its just an abject failure to understand the foundations of our economic processes, and how these processes lead to very bad outcomes. Keen is somewhat more realistic than Krugman.

    The various programmes for ‘fiscal responsibility’ recommended and advanced by IMF, WB, ECB or other such socially irresponsible institutions and groups, result in lots of human folk ending up as serious (even fatal) casualties of vast, hazardous social experiments, based on some incredible economic ideology, grounded solely in theoretical models and the logical arguments of mathematics. Empirical evidence which refutes the models is, conveniently, ignored. That’s a succinct definition of social terrorism.

    Our ruling economic ideology is based on the theoretical folly of continuous expansion within the finite limits of our biosphere. This is not possible, but grappling with the reasoning behind it appears to be completely beyond the intellectual ability of many very intelligent persons. So why is that?

    I wish I was able to post up a diagram of a bacterial growth curve (in a closed container). This is the economic model we actually have. It ends very badly indeed, and you have to revert to Malthus to understand why. If you asked me where we are (in respect of our financial and economic predicaments) on that plot-line, I would guess we are approaching the optimum inflection point.

    I have scoured over a dozen biology sites to see if I could find the full plot-line, but to no avail. The only one that comes close is that of oil production – it shows that ominous Seneca Cliff on the downside.

  25. The Dork of Cork Says:

    @David
    Its not just private cars …..its all high energy activities although private car use is the most energy intensive of these activities.
    People drive to the Post office to collect their dole…..
    They drive their kids to school.
    It has sucked the entire domestic economy down a black hole.
    We have a domestic demand crisis because we export high value euros to pay interest on those Euros , Oil , Gas , Cars , domestic appliances , holidays etc etc.
    http://www.youtube.com/watch?v=ZUvHzvqp0W8

    The European experiment has turned us all into conduits for capital , we are no longer sentient human beings.
    We have become like farm animals to them.
    A credit battery hen economy.

  26. Paul Ferguson Says:

    Paul Krugman could be right in that a breakup of th Euro would in theory allow countries to create their own money again.

    However Central Banks can only create cash and reserve money for bank’s. They cannot create the digital money that’s in circulation.

    That role is fulfilled by the commercial bank’s

    If we went back to the punt, and allowed the commercial banks to create all digital punts nothing would change in principal.

    Still every digital punt would have a corresponding debt.

    A second source of digital money could solve the crisis.

  27. The Alchemist Says:

    Krugman’s usual unresolved chicken-and-egg argument.

    Which comes first? The slump or the credit/debt crunch?

  28. The Dork of Cork Says:

    @PAUL
    They already have created digital money – do you think they gave the Anglo bondholders wads of 500 Euro notes ?
    They created money for them yet expect us to repay this debt with less money in our pocket.
    They can add 000s to any checking account anytime anywhere.

    Our minister for finance guaranteed on behalf of us we pay this debt back with less money supply in our pocket – was that not the letter of comfort ?
    Maybe the great Karl can explain it better but that is how this Dork sees it.

    Debt Peonage.

  29. paul quigley Says:

    @ Christy
    ‘Furthermore, if we look at inflation rates in Germany, Spain, Italy and Greece we would expect to see inflation to have been higher in Germany (given its stronger growth and the fact that it is operating at or near potential output) and lower in the periphery. But we haven’t really seen that over the course of the crisis.

    The relative inflation rates between euro zone members appears to have behaved strangely during the crisis’

    Nos 36 and 37 of Richard Koo’s slides at the INET conference last week may give part of the explanation. Plenty of bearish sentiment in Germany despite record exports and low u/e.

    http://ineteconomics.org/sites/inet.civicactions.net/files/koo-richard-berlin-slides.ppt

  30. Ceterisparibus Says:

    What’s all the fuss about….we are not doing austerity. Just borrowing more and more. Well according to Brian Hayes anyway…

    “At the centre of the current Irish debate on Europe is the issue of debt and the interest rate burden associated with that debt. And let me challenge those who say this Government is pursuing some kind of harsh austerity programme. A government deficit of 8.6 per cent of GDP in 2012 is not austerity. No reduction in basic social welfare rates; taking 320,000 people out of the universal social charge; no increase in income tax rates; staying with the Croke Park deal; restoring the minimum wage to €8.65. Show me the austerity in any of these measures?”

    Show me the austerity guys!

  31. Paul Hunt Says:

    One has to admire the brass neck of these US Nobel laureted economists pronouncing with such conviction on the dysfunction in other jurisdictions, when the dysfunction in their own is even clearer – and should be more easy to resolve. I accept that Prof. Krugman has long advocated a hefty dose of good old-fashioned Keynesianiam which the US could well afford and implement to tackle its crumbling public infrastructure, but he fails to acknoweldege the flaws in the US electoral system that ensures the election of the morons who consistently vote aginst this. And he fails to recognise that a significiant proportion of Republican voters refuse to accept the legitimacy of any Democratic Party president.

    The EU’s dysfunction pales in to insignficance.

    For the decade prior to this blow-out, the PIIGS, either deliberately or unwittingly – and each with its own indiosyncratic variation, decided to pursue an economic strategy that deviated considerably from that of their northern neighbours who sought to respond – some more successfuly than others – to the enormous shift in economic power, resources and demand from the developed to the major emerging economies.

    Germany, as the dominant creditor and confronting the PIIGS, with their hands out for debt relief and fiscal transfer, is not unreasonably asking the question “what can you do to help yourselves?”. The penny has not yet dropped with the PIIGS that they can do a huge amount to help themselves; the desire to get their hands on ‘other people’s money’ remains strong. Will it drop? The jury’s out. But perhaps when they are confronted with what is required to survive in the rapidly changing global economy it might.

    In the last 100 years there have been four major shifts in Irish economic policy. The first was the insurrection, subsequently endorsed by a majority of voters that initiated to drive to independence and a measure of economic policy autonomy. The second dates from the election of FF in 1932 and that ushere in the economic autarky that lasted the best part of a quarter of a century. The third shift opened up the economy and was overseen by the Second Inter-Party government, particularly by Gerard Sweetman, developed significantly by TK Whitaker and his band of officials and subsequently endorsed by Sean Lemass and the public. Joining the EEC, as it was then, simply built on this and the fiscal adjustment of the late ’80s merely repaired the samage done during the previous GUBU decade. The fourth shift, around the turn of the century, set Ireland fair to end up in the mess it currently is in.

    We await the fifth shift in economic policy.

  32. Michael Hennigan - Finfacts Says:

    As with Ireland, the victims of the Spanish recession have been non-union private sector workers who have few protections.

    The pre-2008 world of rising debt and easy credit is not returning and in for example France, the classic male case of entering the workforce at 24, retiring at 59 and living to 80 — 45 years of dependency —  cannot be maintained for only insiders.

    French voters don’t appear too eager to address how the country should live within its means long-term.

    They’ve added to debt every year since 1975, and still they’re prepared to be more dependent on the reviled markets year after year.

    American economists appear to be more eager to focus on the Eurozone than the fiscal wreck in California, the biggest state in the union. If voters turn down tax rises in November, it will be mean further slashing of school budgets and the like.

    Ireland has also to face at some stage what can be afforded in services, pay and the pensions for some while others are left with the crumbs.

    It’s really an emergency but is not treated as such.

    Housing prices are back to the 1990s as are jobs in the exporting sector.

    Spain and Italy are in the early stages of reform while Ireland has managed a few baby steps.

    In Spain regional governments are responsible for half of national public spending and some of them resent restrictions imposed by the centre.

    @ Joseph Ryan

    Great article by Krugman. He writes with honesty and passion.

    Does anybody believe that Europe would be pursuing the same pilicies if Germany’s Unemployment rate was 23.6% and youth unemployment 50%?

    A decade ago, a left-of-centre government introduced severe labour and welfare reforms.

    It could do more in the reform area.

    @ Krugman

    Spain wasn’t fiscally profligate — on the eve of the crisis it had low debt and a budget surplus. Unfortunately, it also had an enormous housing bubble, a bubble made possible in large part by huge loans from German banks to their Spanish counterparts. When the bubble burst, the Spanish economy was left high and dry; Spain’s fiscal problems are a consequence of its depression, not its cause.

    There would have been no bubble without German banks?

    Some 50% of new EU jobs had been created in Spain during the period 2001-2005. As in Ireland, the bubble was surely responsible for public finances windfall gains.

  33. jmg Says:

    @ David O’Donnell
    “Tut tut – did you mention the unutterable? i.e. “Fiscal Compact” – Fairly Obscene al_Roight!”

    No, had only a citation about ECB employees who want inflation protection for their pensions.
    “ECB Wants Its Pensions Adjusted For Inflation”
    LINK No.1: http://www.bullfax.com/?q=node-ecb-wants-its-pensions-adjusted-inflation
    Here is another view on the same topic:
    LINK No.2: http://www.nakedcapitalism.com/2012/04/stephan-ewald-what-hypocrites-are-working-at-the-ecb.html

  34. vinny Says:

    @Paul Hunt
    ‘autarky’!
    Had to look that one up!

  35. PR Guy Says:

    Rajoy today: “The reformist project of my government has deserved the support of European and international institutions, whose mission is to oversee policies that solve the crisis with realism and decisiveness: exactly what we are doing in Spain.”

    Sounds like a request for a bailout from the Troika to me ;-)

  36. Paul Ferguson Says:

    @ Dork

    The Central Bank can only create reserve-account money.

    This is the money with which banks pay each other but it is not in circulation.

    The Central Bank cannot increase any current account anywhere anytime.

    However commercial bank’s can when they finalise a loan.

    This is what Paul Tucker, Deputy Governer of the Bank of England meant when he said ,’Banks extend credit by simply increasing the borrowing customer’s current account’.

    This is why almost every euro in circulation has a corresponding debt.

    Paul Ferguson
    Sensible Money

  37. PR Guy Says:

    I had to look up ‘autarky’ too.

    Hat tip Wiki: “The word “autarky” is from the Greek: αὐτάρκεια, which means “self-sufficiency” (derived from αὐτο-, “self,” and ἀρκέω, “to suffice”).”

    From the Greek… you couldn’t make it up.

  38. The Dork of Cork Says:

    @Micheal
    I don’t understand this concentration on retirement age.
    The Spanish youth are retiring at the ripe old age of 18.

    Capital since the Industrial age has been far more powerful then labour.

    Living withen your means in the future will mean how much energy you import.
    The French will borrow off their own CB if they have to.
    The elite only created the debt crisis so that they could get a yield off oil consumption via interest off sov debt.

    Watch France…… its always first off the mark.
    They have no Nat Gas crisis because of their Nuclear industry.
    They are laying down at lot of light rail at the moment…………..why is that ?
    Its merely Christmas presents for the masses I suppose.
    Old money needs stability so as to keep its money.

    http://www.youtube.com/watch?v=6DR8MiH9e68

  39. Paddy O'Rourke Says:

    @jagdip

    I think Spain will take on the bank debt. Whether or not they can afford or whether they’re schmucks will be irrelavant. Spain is a fairly fractured political entity. The central government can’t risk letting the regional banks (cajas) collapse and then help only the national ones, as it would likely cause further fracturing and possibly outright revolt. It would be interesting to know what effect the economy had on the outbreak of the civil war inthe 1930s.

    Re Krugman, I’ve read most of his articles. I’m not convinced that he has any great ideas. Basically he seems to think that you print money and spend your way out. That hasn’t worked well for Japan(though some would argue differently). He really does seem to believe himself.

    http://news.bbc.co.uk/2/hi/programmes/newsnight/9677356.stm

    That said his diagnosis is correct.

  40. Ernie Ball Says:

    @Paul Hunt
    Prof. Krugman . . . fails to acknoweldege the flaws in the US electoral system that ensures the election of the morons who consistently vote aginst this.

    Have you actually read many of his columns and blog posts over the years? Like, say, this one or this one or this one?

  41. bazza Says:

    @Paul Hunt

    You write:
    “but he fails to acknoweldege the flaws in the US electoral system that ensures the election of the morons who consistently vote aginst this. And he fails to recognise that a significiant proportion of Republican voters refuse to accept the legitimacy of any Democratic Party president.”

    That is 100% not true. In fact, I am amazed you could write such a thing when both of those points have been covered extensively by Krugman on both his blog and in the NYT – these very points are his pet peeves.

    As an example, see the following piece that was just published yesterday:
    http://politics.salon.com/2012/04/15/economy_killers_inequality_and_gop_ignorance/singleton/

    “…the result is a political environment in which Mitch McConnell, leading Republican in the Senate, felt it was perfectly okay to declare before the 2010 midterm elections that his main goal, if the GOP won control, would be to incapacitate the president of the United States: “The single most important thing we want to achieve is for President Obama to be a one-term president.”
    Needless to say, this is not an environment conducive to effective anti-depression policy, especially given the way Senate rules allow a cohesive minority to block much action.”

    In any case, how does your argument deminish the central points of PK article?

    It is lamentable that you feel the need to resort to the ad hominem, but if the paucity of your argument demands that you must, then you should at least ensure that you remarks are factually correct.

  42. Ceterisparibus Says:

    Great tweet of the day….

    “Barroso absolutely confident that Spain can meet its economic challenges. Rides off on his unicorn”

  43. tullmcadoo Says:

    CP,

    That must be Bismarkian dictum “never believe anything until it has been officially denied.”

    PH/Bazza
    “the flaws in the US electoral system”. Would that be universal sufferage? Bazza has you there I am afraid.

  44. PR Guy Says:

    @Paddy O’Rourke

    “It would be interesting to know what effect the economy had on the outbreak of the civil war inthe 1930s.”

    Economic factors (especially the depression) were a big influence in the events/factors leading up to the outbreak of the civil war – but not the only one.

    However, General Primo de Rivera’s (there was a military ‘dictator’ in Spain before Franco, albeit a benign dictator) inability to manage the financial situation – including unemployment around 23% (oops) – led to the 1931 elections in which the republicans won all of the major cities. King Alfonso subsequently abdicated, Spain was declared a republic and the monarchy abolished.

    The Catalonians and the Basques caused major break-up concerns, the catholic church stuck it to the republicans, the Germans viewed the place as an ideal testing ground for new weapons and tactics (I kid you not – well documented e.g. Stukka dive bombing, blitzkreig, Panzers, etc.) and stirred the pot up no end, etc.

    Being an agricultural nation by and large, the depression hit prices badly and things like olive oil and wine fell big time, agricultural land fell into disuse. What littel industry/iron and steel production there was fell by 40-50%. Those who managed to stay in work had wage cuts and austerity imposed on them.

    To cut a long story short, the government tried to attack the 1% and get them to take their fair share but they had the money, clout, influence over the people with the weapons, wherewithal, etc. to fight and also recruited fascist Germany and Italy to their cause (the Brits did sod all to help matters either).

    The rest as they say is history. And….. we don’t seem to learn much from it.

    My grandad fought in it. He then went on to join Popski’s private army and the LRDG. He was a ‘bit of a character’. Broke his arm skateboarding when he was 83!

  45. Ceterisparibus Says:

    Follow up to Barrosso tweet….remind you of anything?

    From Der Spiegal..
    “”We’re back in full crisis mode,” Rabobank strategist Lyn Graham-Taylor said, according to Reuters. “It is looking more and more likely that Spain is going to have some form of a bailout.” For weeks now, markets have been rife with speculation that Spain may have to borrow money from the European Financial Stability Facility (EFSF) in order to shore up its foundering banks. Figures ranging from €50 billion to €100 billion are being bandied about.

    The Spanish banks are so saddled with a mountain of non-performing real estate loans that few other European banks are willing to continue to lend them money. Instead they must rely on the European Central Bank (ECB) for fresh infusions of cheap money. In March, the banks borrowed a record €316 billion from the ECB — close to twice the amount borrowed in February.”

  46. Ceterisparibus Says:

    What’s the Spanish for NAMA?

  47. Kevin Donoghue Says:

    mañama.

  48. Gavin Kostick Says:

    http://www.youtube.com/watch?v=8N_tupPBtWQ ?

  49. paul quigley Says:

    @ Paul Hunt

    ‘The penny has not yet dropped with the PIIGS that they can do a huge amount to help themselves; the desire to get their hands on ‘other people’s money’ remains strong’

    Ohh I git the Blues, when people try to take the Shirt off me back.

    The Irish taxpayer is bailing out the creditors of failed private banking entities to the tune of billions. Even the Red Branch Knights would have balked at that.

    http://paddybloggit.com/the-fianna-the-army-of-the-high-king.html

    ‘The second (shift) dates from the election of FF in 1932 and that ushered in the economic autarky that lasted the best part of a quarter of a century.’
    Ireland was never Albania. The global record shows that most governments resorted to protectionism at one stage or another, and often with very excellent results. It should be remembered also the quarter century of ‘autarchy’ also included Depression and World War. These were the tough circumstances in which economic development had to be pursued.

    The immediately preceding CnaG regime took pride in reducing income tax to less than the British rate, and failed to house our many agricultural labourers. The Dublin poor had to wait until the 60s for indoor toilets. It wasn’t just Ireland which ‘opened up’ economically and socially at that time, it was the western world more generally.

  50. Bundesboy Says:

    Crisis part n…ECB continue to do the same thing expecting different results…

  51. The Dork of Cork Says:

    @Paul
    Ok – I can accept now they can’t directly increase current accounts…. the fiscal authority can add to my accounts via civil servants wages , the dole etc etc
    I tend to not think of commercial bank operations as money creation , rather debt / credit creation.
    But what happens when M1 begins to sink as is happening in Ireland now ????
    M1 is also the money supply from the peoples perspective , it is electronic cash & Physical notes …i.e the medium of exchange / the mechanism for debt repayment.
    But do all Euros in circulation really have a corresponding debt ?
    FOFOA in his strange way believes Gold is a form of debt also but not in the way we know it captain.
    Do banks bid up the price for Gold to provide a corresponding asset for the cash in existence or do goverments / treauaries print greenbacks that find its way into checking accounts indirectly ?
    Its the Gold vs $ dynamic I guess.

  52. Bunbury Says:

    @ Kevin Donoghue

    Brilliant!

  53. grumpy Says:

    @Gavin K

    “I’d say I sometimes make up my mind rather too quickly, and then find it difficult to change my mind”

    That’s Ken Clarke with a remarkably frank answer to a question along the lines of “What is your biggest weakness?”

    I personally think that the Irish establishment shares that fault, and I have found the speed with which very bright economic commentators, who must know that they don’t know what the right answer is, have nailed their colours to one particular mast rather disappointing, but not in the least bit surprising.

    I don’t know what is the correct choice (yet), but I am 95% certain there will be very little real reform in the country, and/or the process will take much much longer, if the Treaty is passed and the ESM umbrella is definitely there.

    Commenters above complain the K-crusader doesn’t offer an alternative. I would remind people he has consistently said that inside the Euro, the periphery “faces years of grinding deflation”. We now know that sheltered private sector, Public sector and semi-state costs and salaries are able to resist deflation in Ireland because of the power structure and the ‘bailout’ money – we have proved by experiment that they are super-sticky.

    The conclusion, if K-man is correct, is that the weaker, more vulnerable sectors of society are going to have to compensate for that with years and years of grinding deflation and a half. Oddly, Keynesian economists, many of whom are supposed to be left-leaning, in Ireland seem not in the least bit bothered about that.

    Those vulnerable groups do not contain members of the establishment.

    My inclination (not stronger than that) currently, would be towards trying to do the right thing, but I think the Treaty will be passed if the message is got out there that passing it is the only way to preserve the Croke Park Agreement.

  54. grumpy Says:

    @Ceteris, Kevin D

    If they look at the Irish version, learn from that, and get it right:

    Na Na Na Na Ma!

  55. grumpy Says:

    How is Argentina doing with its reputation these days?…Oh, hang on, what’s that…?

    http://www.bloomberg.com/news/2012-04-16/argentina-to-send-bill-to-congress-for-control-of-51-of-ypf-1-.html

  56. Bunbury Says:

    The Dork is in brilliant form today also. I must say he’s made some excellent points above. For example:

    @PAUL
    They already have created digital money – do you think they gave the Anglo bondholders wads of 500 Euro notes ?
    They created money for them yet expect us to repay this debt with less money in our pocket.
    They can add 000s to any checking account anytime anywhere.
    Our minister for finance guaranteed on behalf of us we pay this debt back with less money supply in our pocket – was that not the letter of comfort ?
    Maybe the great Karl can explain it better but that is how this Dork sees it.
    Debt Peonage.
    [Note the use of ‘this Dork' above. If that doesn’t keep Karl away nothing will.]

    and

    @Micheal
    I don’t understand this concentration on retirement age.
    The Spanish youth are retiring at the ripe old age of 18.

  57. Ceterisparibus Says:

    Your assessment is correct…we aren’t doing austerity according to Brian Hayes and if we get the insurance of ESM then we won’t do it at all. I suppose you could say it is a threat…or perhaps worse.

    Pity about the endless borrowing though.

    And we will be the leading country in water meters. 1.6 m x 300 euro. Wonder who will get that gig. I’m sure it will be an open and transparent process….or will we have to have an inquiry down the road?

  58. Ceterisparibus Says:

    @Grumpy
    Meant to address the above to you.
    Re Argentina…50% of the supplies controlled by YFP …no wonder they want control. I saw Repsol were down 20% in NY.
    And the Brits have two warships heading down there. I suppose the Spanish navy will follow.

  59. The Dork of Cork Says:

    @Bunbury
    In fairness to Karl I think he sees this practise as obscene also…… although I guess technically the bond holders left with their credit cash ….. the CB added 000s to fill the void temporally I guess……… I really don’t care now.

    I think our debate should concentrate on us providing life support for ourselfs ……… if this means the exchequer producing its own tokens as a viable means of exchange then so be it.

  60. Paul Ferguson Says:

    @Dork

    Yes, every euro really does have corresponding debt because it’s created through the bank loan process.

    On the banks’ aggregate balance Loans to Irish Residents’ is always higher than Deposites from Irish Residents.

    Paul Ferguson
    Sensible Money

  61. Paddy O'Rourke Says:

    @Ceterisparibus

    Thanks for that. I’m familiar with a lot about the politics of the Spanish Civil war and the role of foriegn powers. But not the economic backdrop, excluding the great depression. Was really more interested in the economic indicators which given your input seem fairly similar.

    @grumpy

    Interesting assessment of the austerity program. I’ve long thought the CPA was really about a bunch of auld codgers bilking as much as they can from the taxpayer before the state goes bankrupt. That basically this is a kind of structured default or slow motion bankruptcy. Ireland being so small the EU could afford this.

    It’s hard to believe that the CPA is even legal since it effectively (unintentionally or not) discriminates against the young (new entrants will be predominatly young). Though I suppose as long as there’s a recruitment embargo no new young recruit is going to challege this.

    But back to Spain. Even if there was an alternative policy as suggested by Krugman the lag on its effect wouldn’t be enough to achieve a swift enough turnaround. The window to change course has passed. If the EU doesn’t help Spain I think it will most definitely go bang. After Spain the markets will move on France irrespective of wins the election, or Spain is seen to be bailed out. If the Euro can survive the year intact it will survive.

  62. Paddy O'Rourke Says:

    Meant that first part to address PR Guy

  63. David O'Donnell Says:

    CARTOON OF THE DAY

    Spain
    Same old song
    16 April 2012 La Vanguardia Barcelona (Catalonia …

    http://www.presseurop.eu/en/content/cartoon/1817911-same-old-song

  64. Joseph Ryan Says:

    @Ceteris
    re Der Speigel quote
    “The Spanish banks are so saddled with a mountain of non-performing real estate loans that few other European banks are willing to continue to lend them money. Instead they must rely on the European Central Bank (ECB) for fresh infusions of cheap money. In March, the banks borrowed a record €316 billion from the ECB — close to twice the amount borrowed in February.”

    I have to say I think this is no more than ECB/German propaganda.
    European bank funding (with the exception of ye olde trusty depositors) is dead in the water and will remain so for years to come.
    My view is that it is the job of the ECB to provide bank liquidity without limit to all EZ banks. If the ECB do not want to provide liquidity, the it has no business calling itself a central bank.
    The propaganda part seems to me that this is ECB/German pressure saying that borrowing from ECB is not kosher. Of course Germany benefits royally from this propaganda. German borrowing for both State and banks becomes cheaper while pressure is kept on the peripherals to toe the line.

    The real problem in all this is that bank deleveraging is doing umpteen times more damage to economies that government austerity programs.
    Of the C+G+I, the I is dramatically reduced by bank deleveraging. So too is C but to a lesser extent. Austerity directly affect G only and in relatively small amounts.
    [I am not an economist but these are the observations that I see every day].

    @Grumpy
    re “I wonder if K-dude had a vote in the Irish referendum..”

    Krugman is correct. There is an insanity at the heart of current policies.
    One does not necessarily have all the answers to know that a course of action is insane.

  65. Joseph Ryan Says:

    @Kevin Donoghue
    re: Mañana.
    +1

  66. seafóid Says:

    What’s interesting about the whole mess is that nobody is in charge and it is very hard to say what the contours of the mess will look like 12 months hence. I saw a while ago that the big consumer multinationals like P&G are expecting zero growth in the OECD area for the foreseeable .

    The Germans will try their best but I imagine that the market is going to wake up soon to the fact that austerity without anything else is economic suicide and a little inflation is a good thing. Especially when France and the Netherlands get sucked into the vortex.

    The bond market (outside Ireland) has been on a 30 year bull run and all good things come to an end.

  67. seafóid Says:

    Nothing Lasts… But Nothing Is Lost
    http://www.youtube.com/watch?v=RsIEvj6RgsE

  68. Ceterisparibus Says:

    @Joseph

    Sarkozy may be our salvation if he succeeds in his efforts to have the ECB mandate changed …… Or he might be gone.

    http://www.nytimes.com/2012/04/17/business/global/politicians-look-to-ecb-for-more-relief.html?hpw

  69. David O'Donnell Says:

    55 to 45 – He is gone.

  70. Darragh O'Neill Says:

    I am becoming increasingly worried that Ireland will miss it’s deficit target for 2012 and that our debt-to-GDP ratio, far from stabilizing next year at 119% according to our government’s estimate (118% – IMF view) will increase further. I think our economic is headed for even more volatile waters ahead. A second bailout seems likely at this point.

  71. Bryan G Says:

    Perhaps we’re all in danger of losing sight of the real victim here, kindly explained by Deutsche Bank – which is obviously Germany itself. It’s all a clever plot to engineer inflation in Germany, so that the peripherals can party on without making any reforms. The proof is in the TARGET2 league table. How the “ECB ATM in action” works is also explained.

    Clearly this has got to stop at once. One suggestion made is to ensure that all non-standard ECB measures are intermediated via the ESM. By a happy coincidence that would give Germany (or more accurately the 600+ member Bundestag) a veto over any such free money handouts to the undeserving.

    Mr. Krugman may think the story so far is pretty insane, but perhaps he underestimates the ability of the scriptwriters to shock and awe in the upcoming episodes.

  72. Mickey Hickey Says:

    The back drop to the Spanish Civil war is complicated. They lost the last remaining large chunks of their vast empire namely, Cuba and the Philippines at the turn of the 19th/20th century. Times were tough, poverty was rife and the Catalans and the Basques were making secessionist moves. The there was an unsuccessful coup which further divided the country. That is when the rightists, extreme religionists and proponents of iron fist rule encouraged the Generals led by Franco to wage war against the left, Catalans, Basques indeed anybody who was not a supporter of the military dictatorship. A vicious civil war waged from 1936 to 1939 with Franco and the Generals winning.

    Divisions remain deeply embedded in Spanish society to the present day. I am surprised that overall unemployment at 23% and youth unemployment over 50% has not led to breakaway movements by the Catalans and the Basques followed by the Galicians (dems our boys), Castilians and others. There is a very definite limit and when it is breached there will be a blood bath that will make the Greeks look civilised. A march on Berlin, Frankfurt, Basel and Brussels is not out of the question.

    There is an interesting presentation by Michael Hudson at INET day 2.

    http://ineteconomics.org/conference/berlin/all-videos-day-2

  73. Ceterisparibus Says:

    @Bryan G

    Interesting that Nicky has broken rank with Angela. If he sticks to his agenda, and this is perhaps doubtful, his proposal to change the mandate of the ECB is probably the single most important event in this long drawn out crisis. Post election he might renage but at least someone at the centre of power in the EU has recognized the central failing…a central bank not fit for the purpose of maintaining stability in a monetary union.

    All other major central banks in the world can influence the course of events.
    Not the ECB, an entity which is stuck in a limited mandate dictated by the Bundesbank.

  74. Ceterisparibus Says:

    @DOD
    55…45

    It’s not over until the obese lady sings…..

  75. Bryan G Says:

    @Ceterisparibus

    The change that the French wanted, until they agreed to stop talking about the ECB late last year, was for the EFSF/ESM to be given a banking license. This may be more achievable in the short-term than a formal change in the ECB’s mandate, given that Germany has a veto over that, though in practice Germany has a veto over everything. In general it never made much sense for France to be so closely allied with Germany, since its own economy has more in common with the sinner current-account-deficit ones than the saintly German/Dutch/Finnish ones.

    It is now interesting to note that both Deutsche Bank (as proxy for German opinion) and France, appear to want the same thing (ESM access to ECB money) for two completely different reasons. The Germans want it to slow down the flow of new ECB money (via LTRO, SMP etc), while the French want it to speed it up, or at least make its use more flexible.

    One more thing to throw into the mix. The TARGET2 German balance is now growing at 10% per month (not annualized, but by 10% each month). The trajectory is Jan +7.5%, Feb +9.8%, Mar +12.5%. There is massive capital flight from Spain and Italy to Germany. This is clearly unsustainable. Overall the laws of arithmetic and economic identities will win in the end – but it isn’t at all clear which piece of the puzzle will blow up first.

  76. Michael Hennigan - Finfacts Says:

    @ The Dork of Cork

    Retirement costs, including public outlays on health, are just one factor of rising public cost burdens.

    They are relevant in particular in countries where public pension payments can be 75 to 80% of final salary.

    The likely President Hollande will find that isues like this matter as international investors hold about 65% of his country’s debt.

    @ All

    Here we go again with the merry-go-round of German banks, the Bundesbank, the ECB, the German government etc as being the main instigators of the crisis or being the sole repositories of solutions for it.

    Japan provides a vivid example of what can happen a developed country that fails to reform and the situation gets worse as the country ages given the bias in political representation towards sparsely populated rural representation.

    On Monday, a report published in Tokyo warned that the country faces the real prospect of ceasing to be a developed country as its economy faces successive annual contractions from 2030. It’s not a coincidence either that Sony, its once commanding electronics giant, is also badly listing. The report observes that this is a weird situation in what is called the ‘Asian Century.’

    Yes indeed and in the US, the American Dream of each generation doing better than the one that went before it, is also no longer valid.

    The Eurozone faces a grim ten years and EU’s institutions and Germany have important roles to play but no progress will be made if individual countries do not embrace change, end the stranglehold of vested interests and face the challenges of what mix of tax and public spending is sustainable.

    Pre-2008 is not returning.

    In Ireland, the national welfare budget and public pay/staff pensions (ex-local authorities with a staff of 30,000) at €38bn annually account for 69% of public revenues. Something will turn up appears to be the preferable option to facing home truths.

    When was the last time that an Irish government presented an unvarnished assessment of the challenges facing the country?

    Last August, Minister Richard Bruton in a comment on goods exports said: “These trade figures show what our entrepreneurs can achieve when the conditions are right and only encourage me further to pursue this agenda so that we can continue to support export-led growth and recovery.”

    Besides claiming American firms as ‘our entrepreneurs,’ the claimed rise in exports may have been illusory!

    Does that matter? It should unless you’re a sucker for fairytales.

    http://www.finfacts.ie/irishfinancenews/article_1024185.shtml

  77. paul quigley Says:

    @ Michael H

    Excellent work. Keep scribbling. Those big Ireland Inc hoardings are an eyesore.

    ‘Something will turn up appears to be the preferable option to facing home truths.
    When was the last time that an Irish government presented an unvarnished assessment of the challenges facing the country?’

    It’s a bit like the alcoholic. Our PTB still have some more drinking to do.

  78. Paul Hunt Says:

    @Cet. Par. – & Tull having a swipe as usual,

    I accept that Prof. Krugman recognises that the failure to implement his preferred solution in the US is down to flaws in the system of democratic governance there. But he fails to recognise that the reason his preferred solution in the EU is a non-runner is that we are caught in a trap between a group of reasonably well-governed creditor countries and a group of relatively poorly governed debtor countries.

    In Ireland, for example, we have a great big black hole where a properly functioning parliament, effective local governance, the proper holding to account of the system of public administration and the representation of the collective interests of consuemrs should exist. These deficiencies exist to varying extents – with some further problems – in the other debtor countries and arise in the creditor countries only to a very limited extent.

    For example, the reason the Bundestag finance cttee sees Irish budget projections before the Dail is that the Bundestag is a properly functioning parlaiment; the Dail isn’t.

    Voters in the creditor countries have not been told the full truth about how their banks went off the rails, but they are rightly sceptical of the debtor countries with their hands out for debt write-downs and fiscal transfers. They are perfectly entitled to say:

    “We were net contributors to significant cohesion, structural, social and regional fund transfers since you joined at low levels of per capita income. In the past you made considerable efforts and we all benefitted from the bigger and more open market we have all made and from the pooling of sovereignty in many areas and the harmonisation of many arrangements. But we expected you to be responsible and you weren’t. We believe you are in a position to do more to help yourselves than you are letting on. We will help, but we need to see you do more to help your selves before we will feel comfortable making any further binding commitments. You have fooled us once. We have no wish to be fooled again.”

  79. David O'Donnell Says:

    @ceterisparibus

    I’m opening a bottle of Remy when he is gone; simultaneously, Patricia the Irish_Sovereign_in_Exile will be re-establishing cordial relations with Les Vrai Francais.

  80. Michael Hennigan - Finfacts Says:

    @ David O’Donnell

    Le roi François II!

    Let’s not mention Vichy and Roi François I!

  81. Colm Brazel Says:

    Interesting article, I’m reminded of the Jonestown Jim Jones suicide pact that led to the mass suicided of nearly a thousand of his Jones’s followers in Guyana 1978. What makes people do this? It must have something to do with a cult that has the ability to infect the cognitive process on a mass scale.

    Then recently we had the funeral procession of Kim Jong Il with images of grief and mass wailing to the point we wondered if these were paid actors acting out prepared roles before the world’s media?

    Is the euro beginning to achieve a cult following blinding people to its flaws and failures? Lucinda Creighton often leans on the phrase ‘our euro’ as if to draw on some affectionate national longing ownership of the ill euro currency. Similarly, Eamon Gilmore spoke of the euro in similar glowing terms at the Labour conference last weekend?

    Krugman, writes of “exit from the euro, and restoration of national currencies”; or, another choice involving Germany and a vague prescription for expansionary budgetary policies.

    The choices involved are not at all complicated. Sure, a confetti of documentation, statistics, analysis, reviews, research, economic data exists, to cloud the plain facts, just as it did in Enron, but the plain fact is, the euro doesn’t work, it hasn’t worked, it won’t work. Der euro ist fertig!

    Expansionary fiscal policies on the part of Germany won’t make it work, these will only bleed Germany and will do little to help peripheral countries such as Ireland and Greece; eventually infecting as we see today, Spain; tomorrow, France, Italy?

    How long more will it take the penny to drop in Ireland?

    Is Govt in Ireland intent on driving Ireland into a similar condition to that of Spain?
    “Spain is in full-on depression, with the overall unemployment rate at 23.6 percent, comparable to America at the depths of the Great Depression, and the youth unemployment rate over 50 percent.”

    The answer appears to be a resounding,Yes! I’ll be voting NO, the sooner we get out of the euro ship with fire in the hold, the better. Will the Bundestag be foolish enough to pour good money after bad and go for some vague expansionary policy, perhaps even a eurobond Marshall plan for peripherals, it won’t; unless perhaps national governments in Europe secede and give up their democratic entitlement rights.

    I would imagine there is a point in business where crippling losses that continue to mount must be faced. This unfortunately is where we are at now. Nostalgia, dreams and aspirations when it comes to the point of costing jobs, need to left to one side. Ireland Inc if it were decently run by business people instead of people blinded by the illusions of a euro given cult status, would surely not have left us with the bill for the banks and the bill for staying in the euro that rises on a daily basis!

    We should exit out of the euro and return to PuntNUA, or better still rejoin the sterling zone, having done a deal with our creditors, on the basis of what we can pay back, not on the basis of what they can odiously extract from us in pursuit of a dream that is not commercially viable or viable in terms of the democratic makeup of the democracies that make up Europe.

    I’ve no wish to be alarmist, but If we don’t back out of Europe, we face the wrath of Animal Farm’s Mr Jones and to extend Krugman’s analogy, perhaps led there by a suicide pact similar to that followed by another Mr Jones of Guyana, this time fed by Irish business closures.

  82. Gavin Kostick Says:

    @ grumpy

    Thanks for the considered reply above.

  83. Mark Says:

    re- David O’Donnell:”The Eurozone crisis has raised calls for greater political integration of the EU. However, Jürgen Habermas argues that the tactics adopted by European leaders have sidelined what should be their main priority: the well-being of citizens, established within a democratic framework”

    Part of the problem that we are in now was exacerbated when at the crucial moment hardline federalist/integration monkeys exemplified by the likes of Barroso saw the crisis as an opportunity to slip in their plans; putting their impatience with the implementation of their democratically suspect ambitions ahead of solving the problem.

    Even now, who believes that laying the foundations for centralised budgetary control will solve the problem, when in at least the Irish instance it was ceding to the requests/demands of the ECB that caused the problem in the first instance ?

  84. Mark Says:

    re-Paul Hunt:”For example, the reason the Bundestag finance cttee sees Irish budget projections before the Dail is that the Bundestag is a properly functioning parlaiment; the Dail isn’t”

    - If a properly functioning parliament is defined as one that presumes to extend it’s competences beyond it’s territories and upon the budgets of peoples which is does not represent,
    and a disfunctional parliament is one that co-operates in this,
    then you’re right.

    But if you think this situation is evidence of ”effective local governance, the proper holding to account of the system of public administration and… representation”,
    then I’m afraid that you’re deeply mistaken.
    I’m sure that on one level there is validity to your point, but interrogate it a little and see where it leads.

  85. Devil's Avocado Says:

    Where is John McHale? Surely he should be arguing against Krugman’s view

  86. tullmcadoo Says:

    PH,
    I will go part of the way with you on governance in this country…probably a good part of the way. However, I see no evidence in either the long run and more to the point in the short run that the core is particularly well governed.
    I will take out record on human rights and harm to individuals since 1922 over Germany, Belgium and France any day. More to the point we are where we are now due to a lack or recognition on the part of both the core and the periphery of the problems facing the EZ. The vaccilation of Merkel and the outdated ideologues at the ECB along with the colourful characters in the periphery have all but destroyed the EU.

  87. Shay Begorrah Says:

    @Mark on current EU standards of propriety as regards Irish vs German parliaments.

    If a properly functioning parliament is defined as one that presumes to extend it’s competences beyond it’s territories and upon the budgets of peoples which is does not represent,and a dysfunctional parliament is one that co-operates in this,then you’re right.

    I can be of help here.

    I think that in the current EU the words “properly functioning” and “dysfunctional” are references to power relationships rather than any judgement on to how justly or efficiently the institutions actually function – Europe for instance has a functional financial sector and dysfunctional peripheral states, it has a functional inter governmental policy formulation mechanism and dysfunctional popular democratic inputs.

    It might help if you just imagine that every statement on current European economic policy is preceded by the words “Since might makes right…” and the confusion will ease.

    Try it out with these test sentences:

    “senior bank bond holders are parri-passu in status with depositors.”
    “Ireland is reposnible for the debts of its private banking sector”
    “Ireland must sign the Fiscal Compact.”
    “the European Bank and the structure of EMU are not to blame for the European component of the global financial crisis.”

  88. David O'Donnell Says:

    @Michael

    Won’t mention the war … simply looking forward to a brief sojourn and

    Gold, Frank_in_sense, and Mer.

  89. The Dork of Cork Says:

    @Micheal
    That famous James Carville quote comes to mind.
    “I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market”

    This only works when when a country chooses not to be sovergin such as the R. Rubin US treasuary or when a country is locked into the Euro bank vice.
    When / if we go back to national economies , wage /welfare arbitrage extraction games used to extract a yield on a declining wealth base will not function as it did in 1990s America.
    You see wage /welfare arbitrage decreases wealth as it creates unnatural trade relationships & commercial activities……… it is however very effiecent at transferring wealth.
    Because there is little wealth remaining to extract the Bond market has been neutered……. A countries ability to build internal wealth will become paramount, at least until enough wealth can be extracted again.

    Yields on sovereign debt is merely the rate of extraction, its all extracted out so therefore they have no power.

  90. Ceterisparibus Says:

    @Bryan G,
    Interesting analysis of the French position. The T2 figures are frightening and it would seem that something has to blow.
    It would now seem that both prospective presidents are singing from much the same hymn sheet…question is, can Angela hold out with her veto?

    @MH
    Don’t know about Japan. They seem to be doing just nicely…lending 60 b to the IMF. As for the lost decade(s) , I recently read an article about the myth of the lost decades in Japan. The decline of Sony was inevitable..selling overpriced electronics which many willingly gobbled up on the pretense that they were superior to all others. Samsung put a halt to that.

  91. Mark Says:

    re- Shay
    I’ll give it a go on this one:

    …”by intervening in budgetary policy at a constitutional level, the Fiscal Compact is a necessary first step in breaking the assumption that decisions relating to national expenditure must be related to consent from the local populations, who have provided the said funds through taxation. Once this psychological, obsolete taboo has been broken, further incursions into the particulars of the budgets will be opened by the inevitable future treaties and ceded competences.”

  92. Paul Hunt Says:

    @Mark,

    When a parliament has to vote funds or to vote to expose the citizens who have elected it to possible contingent taxation liabilities to support countries whose parliaments have proved incapable of functioning in the interests of their citizens, then that parliament is perfectly entitled to exercise some oversight – and would be negligent in discharging its duties to its citizens if it were not to do so.

  93. Michael Hennigan - Finfacts Says:

    @ Mark

    Even now, who believes that laying the foundations for centralised budgetary control will solve the problem, when in at least the Irish instance it was ceding to the requests/demands of the ECB that caused the problem in the first instance ?

    Is an economics problem ever solved?

    You must have spent the period before the crash in Rip Van Winkle’s land?

    @ Ceterisparibus

    Japan’s offer to the IMF is from its fx reserves – - mainly a legacy of past success.

    As for the ‘myth of the lost decades,’ people can choose the statistics to suit any argument.

    As in Ireland during this brutal recession, a significant section of the population can be largely unaffected.

    Germany and Japan’s annual GDP growth was 0.8% in the period 2001-2010 and it was the worst decade of growth for the US since 1945.

    The trends do not look good for Japan and it wasn’t by accident that 90% of the staff at the stricken Fukushima nuclear power plant were low paid temporary workers with few rights.

    The government has introduced some limited protections for such workers in recent months and the number has risen from 20% of the workforce in 1990 to 34% in 2008. Temps have poor work conditions, they generally earn less than the Irish minimum wage in a high-cost economy and companies haven’t the incentive to train them.

    Japan’s biggest companies have been losing relative market share over the past ten years: their proportion of the Fortune Global 500’s total revenues decreased to 13%, from 35%, between 1995 and 2009. One of Japan’s longtime strengths is electronics, for example, but its share of the world’s export value of electronic goods has fallen from 30% in 1990 to less than 15% today, according to the Japanese Ministry of Economy, Trade, and Industry.

    Recent McKinsey research shows that Japanese high-tech companies lost a decade between 2000 and 2010 and on current trajectory could see their global market share drop by 20% from 2008 to 2013. That represents a cumulative loss of more than $30bn in potential revenue.

    Over 50% of all US firms in the current top 1,000 R&D spenders were founded after 1975, in Europe the figure is just 18% and in Japan a mere 2%.

  94. Shay Begorrah Says:

    @Paul Hunt

    When a parliament has to vote funds or to vote to expose the citizens who have elected it to possible contingent taxation liabilities to support countries whose parliaments have proved incapable of functioning in the interests of their citizens

    Germany’s parliament has access to Ireland’s budget before Irelands elected representatives do because a power imbalance in the current EU between Germany and Ireland allows Germany to practice a form of economic imperialism. I imagine they see this as “leadership” and the prerogative of superior power, as imperialists of every hue always do.

    @Mark’s point about Ireland’s population gradually being trained that their consent is no longer necessary for their rule is well made. The new EU has already replaced two heads of governments when they failed to tow the German/ECB line and this is a precedent that shows no sign of being reversed.

    If we sign the suicide compact the choice of the peripherals in the future EU likely consists of either being explicitly told what to do under threat (demonstrated by our friends Jorge and Lorenzo) or that their national government becomes agents of the EU in Ireland rather than representatives of Ireland in Europe cutting out the need for reprimands (a la Mario Monti in Italy) – we will end up electing the German Chancellors lieutenant governor.

    This is nineteen thirties stuff Mr Hunt and your relentless focus on Irish failings fail to address who these inadequacies are being exploited by and why.

  95. Paul Hunt Says:

    @Shay,

    Your last sentence is a totally unwarranted breach of Godwin’s Law. Further engagement is not possible.

  96. PR Guy Says:

    Anyone here have any experience/recommendations for Spanish newspapers with business reporting… but in English language. I have zero knowledge of Spanish media.

    I specifically need the English language version of preferably a Spanish national but not one that is too far either way in the political spectrum and not one that is aimed at UK/Irish expats. I need to look at Spanish business news as reported to and by Spaniards.

  97. PR Guy Says:

    Thanks in advance

  98. Mickey Hickey Says:

    @ PR Guy

    Try economia.elpais.com, you could use the translate function of Google Chrome, works well with el pais.

    El Pais is the newspaper of record in the Spanish speaking world.

    Local blogs for foreigners are usually not very useful. In Yahoo Groups there is a BANewcomers group that is very useful for Buenos Aires.

  99. Mark Says:

    re- Paul Hunt – ”When a parliament has to vote funds or to vote to expose the citizens who have elected it to possible contingent taxation liabilities to support countries whose parliaments have proved incapable of functioning in the interests of their citizens, then that parliament is perfectly entitled to exercise some oversight”

    - the first part of that I grant you – but not oversight. And proper procedure in matters of the national budget is not a mere nicety. I think you’ve acknowledged the role of German & other banks elsewhere, so I’m not raising the issue with you; but it is rarely if ever acknowledged publicly by ECB or German officials – except in terms of a contagion/disease from sovereigns to those banks.
    So I do take extreme issue with the capitulation our govt. are performing – a deliberate and conscious crime that far exceeds the more typical petty crookery and ineptitude that we’re used to expecting.
    The most important thing to look at, and accept; for it is undeniable, is the danger inherent in severing the relation between government and people that is being carried out. If – leaving aside the illegitimate situation that has led to it – Germany do have some right to look at the spending template of an outside-nation, it should be happening in a public arena with Germany as supplicant to the citizenry. The sphere is our national one and it must be no other. What decision they then choose to make is of course their to take in their own ambit of freedom.
    I agree with the above diagnosis of the situation by Shay as almost a perfect imperialist-subject one; and it mirrors it further in that in many historical instances it is after the interloping power has corrupted and assimilated a tactical portion of the local powers to itself,& then destroyed the existing socio-economic structure, that it will suddenly declare that the locals are degenerate and cannot rule themselves. This, far from being a caricature, is the pathology of the oppressor. We are yet another case-book victim of it.

    Lastly, I have no anarcho-adolescent desire to see a mass-overthrow of governments across europe; whatever devils may be exorcised thereby will clear the fields for worse, but if, as I said (and other far more qualified people have expressed their deep unease about it), the natural and hard-earned relation between peoples and government is being severed, some very large-scale breakdown in the type of life we are used to is inevitable.

  100. Mark Says:

    re- Michael Hennigan – ”…You must have spent the period before the crash in Rip Van Winkle’s land?”

    - thanks for that, and for the last time I brought up the great likelihood that ECB duress ‘stimulated’ the bank guarantee and you accused me of making up fantasies. Though it escapes me how the official position carries greater weight than mine; a fantasy countered with a fantasy.
    I’ve never exaggerated the strengths or hid the limits of the matters I’ve cited in support of this belief, but there has been an emergent consensus leaning towards similar conclusions for quite some time now.

    ”McCarthy has said that Ireland’s multi-billion bank debt burden was taken on by the State “under threats” from the European Central Bank…part of the Irish debt was incurred “under duress and inappropriately, under threats from the European Central Bank”….”

    http://www.thejournal.ie/colm-mccarthy-irish-bank-debt-was-incurred-under-threats-from-ecb-388798-Mar2012/

    I agree that this does create an oxymoronic conundrum for those trying to make the case for the Fiscal Treaty.

  101. Paul W Says:

    @ Bryan G “The TARGET2 German balance is now growing at 10% per month (not annualized, but by 10% each month). The trajectory is Jan +7.5%, Feb +9.8%, Mar +12.5%. There is massive capital flight from Spain and Italy to Germany. This is clearly unsustainable. Overall the laws of arithmetic and economic identities will win in the end – but it isn’t at all clear which piece of the puzzle will blow up first.”
    +1 Very interesting….Question – does this provide Germany (Bundesbank) with a TARGET2 “absorption buffer” in a downside scenario? Are TARGET2 “debit” balances attachable to /offsettable against “credit” balances? (simply put yes, but I’m aiming at some basic understanding of what happens inter-CBs if the proverbial hits the fan).

    Eureka has previously asked what will blow up first. Where do all the thousands of austerity cuts culminate? I’ll bet again that it is external to Ireland (no surprise there…Ireland is not an economic or political island). I’ll go further and say that it will simply be driven by cr interest and self-preservation. Our N Europeans will blink….don’t know when; but they will. It won’t be black and white. There’ll be plenty of further summits, etc. They have the higher ground and strength…..and don’t do charity.

    One question will be how will Ireland fare by following the larger Spains, Italys, etc in the (bread) welfare line? Again therefore, are Ireland’s best interests in following others (over the cliff) or getting ahead of the tsunami (self determination)…?

    This will work out eventually. It will likely be grinding and slow, in the absence of a war, and given the political context. Does anyone foresee anything else?

    Ireland is an open, flexible economy. It will rebase and survive (initially) and subsequently do better again (as per my Dutch banker friends). I agree.

  102. Bryan G Says:

    @Paul W

    My interpretation of the TARGET2 numbers was as an indicator of bank runs/capital flight away from Spain and other countries to Germany. I don’t think there are any limits within TARGET2 itself – it just reflects what is going on – so I doubt that TARGET2 mechanisms will seize up in some manner. When I wrote “unsustainable”, I really meant from the impacted banks’ point of view rather than the inter-CB system itself.

    Spanish bank borrowing from the ECB has jumped from €150bn to €315bn in a month, as they stocked up with LTRO, and seems like there was a flow of about €55bn from Spanish banks to the core last month. I think both banks and sovereign in Spain are now funded for a few months, but when the LTRO money runs out it looks like bailout time. It is very unlikely that such a bank run will reverse all by itself, and the underlying insolvency will need to be dealt with. I see no alternative but for Germany to approve such a bailout. As mentioned on another thread, if Spain does begin to catch fire, it would make Greece look very civilized indeed, given the divisions in Spain itself, and its 20th century history.

  103. EV Says:

    http://www.eurointelligence.com/eurointelligence-news/home/singleview/article/a-modest-proposal-for-ringfencing-europe.html

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