Interests, ideas and EMU

When teaching economic history a question that frequently arises in the classroom is: do governments make policy based on interests, or do ideas also matter? Is it the case, as George Stigler once wrote about the UK’s move towards free trade in 1846, that

Economists exert a minor and scarcely detectable influence on the societies in which they live. . . . If Cobden had spoken only Yiddish, and with a stammer, and Peel had been a narrow, stupid man, England would have moved toward free trade in grain as its agricultural classes declined and its manufacturing and commercial classes grew

Or is Keynes’ famous line about ideas, written in the 1930s, and which is now such a cliché that I can’t bring myself to reproduce it here, more accurate?

This distinction between interests and ideas seems to me to be potentially quite important now, in the context of the EMU crisis.

You sometimes hear the argument made that in the final analysis, the Germans will give in on Eurobonds and the like, since the costs to them of allowing EMU to break down would be so enormous. This is an interest-based, rational choice prediction. But what if the Germans are advocating generalized austerity and internal devaluation in the periphery, not just because they don’t want to bail out other countries, or accept a higher rate of inflation in Germany, but because they genuinely believe that this is what is required in order to solve the crisis? What if they genuinely believe that there are no macroeconomic problems, only microeconomic problems? I think that there is plenty of evidence in favour of this view, and the German chapter in this book helps place it in its historical context. In this case, I don’t see any reason to be optimistic about where this crisis is heading: we can expect to see plenty more headlines about collapsing output, rising unemployment, and political radicalization in the months and years ahead, and eventually something will give.

Just because something is a cliché doesn’t mean it isn’t true.

71 replies on “Interests, ideas and EMU”

Just because something is a cliché doesn’t mean it isn’t true.

Self-referential?

@Kevin That depressing proposition misses a key point. Yes, Germany can veto the treaty changes required to give the EU the flexibility on this. But the benefits of the EU are not just economic, particularly not for Germany.

If economic theory leaves Germany politically isolated within the Union, if economic theory looks like destroying the Union, I cannot believe that an interests based view will not take over. Germany’s interest is to remain in a reasonably stable EU, and Germany’s interest is not to be isolated within that Union.

There is a tendency for people to paint people who they disagree with as manipulative knaves who take an opposing position simply to protect their own interests.

I think the powerless and/or people who have no influence (like me!) are particularly prone to these views.

However, that is not to say that such views are never justified!

In the context of the current crisis I think KO’R is right to point out the GENUINE lack of consensus in Europe about “what’s to be done?”

20% of the vote to Sinn Fein – 20% to Le Pen – one wonders what the share would be if everybody voted!

I mean, that’s a higher percentage than the Nazi’s had in September 1930 (the obligatory nazi reference!)

It’s easy to dismiss this as protest votes – it’s more difficult to accept that a large and growing proportion of the electorate wishes to fundamentally change and in large part unravel the post war European settlement.

Indeed, it’s almost patronizing to dismiss these votes as simply protest votes – it’s also a little naive – because these types of party’s will remain on the lunatic fringe – right up to the day upon which they enter government.

This time last year, a lot of people were speaking about the role that the memory of Weimar hyperinflation plays on Germans reluctance to print money. That never sounded convincing to me, but I wouldn’t have a clue. Can anyone with any expertise on the matter offer an idea on what role those sort of historical memories play on the present day?
Andy Rodrik had a similar article this week, explaining the difficulty of seperating interests from ideas

http://www.project-syndicate.org/commentary/ideas-over-interests

“But what if the Germans are advocating generalized austerity and internal devaluation in the periphery, not just because they don’t want to bail out other countries, or accept a higher rate of inflation in Germany, but because they genuinely believe that this is what is required in order to solve the crisis?”

But in 2009 Germany to my knowledge embraced Keynesian economics when her industry had its back to the wall.
‘Genuine’ beliefs tend to be expendable when self interest is at stake.

Christy

Personally, I think a lot of the hysteria being drummed up against Sinn Fein, by the Sunday Indo especially, is over the top. But I take your point.
Aside from radicalisation though, you also have to deal with the reality that people wont except the hardship that will come from public expenditure cuts, if there are no prospects of getting out of this crisis in the medium term, and if those at the top keep making a killing

Yeah come on, there’s no sinn fein – national front equivalence. The worse you could accuse them of is a slightly demagogic populism. Personally i dont see that they constitute a lunatic fringe at all.

Just realised Kevin O Rourke linked to the Dani Rodrik article (and its Dani not Andi, I think I got mixed up with the tennis player)

+ 1 Kevin,

The origin of private banking can be traced back to Geneva in the 14th century,

http://www.pictet.com/en/home/about/history/gva_history.html

There is a long history of struggle between the interests of private banking, on the one hand, and the public interest, on the other. Its probably true the Germans are also pawns of the global financial system but in return for this role the Bundestag are given undue influence over ECB. History of money (including yak dung:-) ) from Roman times to present use of fractional reserve banking, check out Bill Still on a fairly old and long documentary on public interest vs private interest reforms of the banking system.

http://video.google.com/videoplay?docid=7757684583209015812

One possible reason to be cheerful is that the German view (sound money and discipline roolz) leads to the conclusion that Germans will do fine if national currencies are reintroduced. They will maintain the same mix of low inflation and a strong D-mark that they had for decades and their exporters will respond to the challenge.

Let us encourage them to go that route.

@aisling

You are neglecting Germany’s romantic heritage and its ideological tendancies.

@kevin

There’s a problem with the html tags in your post that’s causing problem with the site in some browsers.

@Kevin

I intend to think that the way governments communicate with the people had changed tremendously over roughly the past 10 years.

The messaged conveyed are more carefully crafted by means of propaganda rather than information and participation.

When I look at the communication style and means the Irish government now displays with reference to the Fiscal Compact,I am remembered to Leon Festinger, and his Theory of Cognitive Dissonance.

http://www.amazon.com/When-Prophecy-Fails-Leon-Festinger/dp/1578988527

1956 Festinger had observed a cult in which members gave up their homes, incomes and jobs to work for the cult who believed the world would end by a flood, and the cult members would be saved by flying saucers at the appointed time.

Then we have what is widely known as the Stockholm Syndrome.

If I combine both, cognitive dissonance and The Stockholm Syndrome, it gives me a personal insight on the state of mind of the greater public, not only in Ireland.

Clinical Psychologists have identified both the above phenomenons in victims of abusive relationships with Cluster B personalities for example, and perhaps it is not so wrong to extend that insight to entire nations and their governments.

In my view it is valid.

Best
Georg

I think the absolute interpretation of the rise of SF / Le Pen is wrong.

I think that what the rise in support for both is showing is that the population(s) want the government to move towards the positions of SF / Le Pen rather than all the way TO the positions advocated by both.

That is an important difference which is not understood. A typical reaction to SF rise in the polls is “…but xyz SF economic policy is lunacy…” – I think this totally misses the point.

Maybe I’m wrong.

On the topic of ideas, Mark Blyth is writing a book on the history of austerity, which might be interesting, but will probably come out too late to have any ‘influence’.
In some ways I think the concern over the rise in popular radicalism is something of a strawman. The common comparison, the interwar years, has little to no relevance to today, and most political extremism appears to be concerned with immigration, rather than clear political ideologies (or even common economic interests). The rise of violent political actions will most likely mirror the context of the atomised, individualistic world we live in, through individual actors like Breivik or small groups like Al Qaeda with no real political constituency.
The real threat to democracy and the common good could far more reasonably be identified as corporate and private power. I don’t have a huge amount of optimism that this will be dealt with in the long run.
But we won’t go hungry and should be able to amuse ourselves online, so who really needs personal relationships or the possibility of genuine independence?

Michael Noonan’s threat that a No Vote means a tougher budget shows that he believes that the Irish people have no real ideas and that they will vote purely in their short term interest.

I expect that Michael Noonan thinks this because he, like most other politicians, has no real ideas and will act for short term gain.

Big ideas are at stake and big questions remain unresolved. We are voting for a treaty which only needs 12 eurozone countries need to approve for it to become law.

How is the EU going to move forward if 12 stike out in one direction? What responsibility will those outside the treaty feel towards those within the treaty?
How will Ireland further its social economic and political progress in the EU in this context?
What will be the effect on us if there is divergence in the economic performance of those inside the treaty and those outside the treaty?
What is the long term effect on our tax independence as compared with our biggest EU competitor, the UK?

I have no doubt but that Enda Kenny and Michael Noonan have limited their consideration to the usual superficial reasoning applied by politicians of their generation, viz:
– Once we get more money it is a good deal,
– The overall direction of the EU is above their pay-grade,
– We desperately need people to like us because the EU (like party politics) is all about influence and arse-licking, therefore we should do whatever others think we should do,
– It would be getting above our station in life to have an opinion on whether France and Germany might be making a mistake,
– The Civil servants have looked at it,
– Ireland is too small to change things so Irish politicians do not have to take any responsibiility for the actions of “Europe”,
– This sovereignty thing is a canard – it is really all about roads and jobs,
– if Irish politicians go against the grain in Europe and things work out badly for Ireland then you will never win a seat again.

@ zhou_enlai Says:
May 2nd, 2012 at 1:50 pm

+1

‘I have no doubt but that Enda Kenny and Michael Noonan have limited their consideration to the usual superficial reasoning applied by politicians of their generation, viz:
– Once we get more money it is a good deal,
– The overall direction of the EU is above their pay-grade,
– We desperately need people to like us because the EU (like party politics) is all about influence and arse-licking, therefore we should do whatever others think we should do,
– It would be getting above our station in life to have an opinion on whether France and Germany might be making a mistake,
– The Civil servants have looked at it,
– Ireland is too small to change things so Irish politicians do not have to take any responsibiility for the actions of “Europe”,
– This sovereignty thing is a canard – it is really all about roads and jobs,
– if Irish politicians go against the grain in Europe and things work out badly for Ireland then you will never win a seat again.’

Absolutely spot on – mediocrity personified one and all.

@Colm Brazel

“The origin of private banking can be traced back to Geneva in the 14th century”

Thanks for link.

History is interesting but I have to confess that it is not one of my stronger points. Is it true that the Bank of England, even though a nationalised entity, still has private shareholders from centuries back and that their identities are a closely guarded secret? I know it also has some kind of ‘court’ but I don’t think anyone knows the identity of those members either (afaik). Does the Bank of Ireland have anything similar i.e. secret shareholders and courts?

With such murkiness around these matters, it does make one wonder whose interests such people would perhaps be acting in most of the time.

Minister Noonan was quite right to point out to the Electorate the salient fact that there is guaranteed honey pot in the absence of the ESM. You have as much change of getting a loan of the IMF post 2013 as you have of getting a loan off a domestic bank.

Given that conclusion, he would have to plan for a sovereign default and put the public fiances on the road towards balance PDQ. The quickest route is to cut Welfare and PS wages to the European averages in short order and to raise taxes on the largely untaxed middle Ireland. That of course would be electoral suicide but it would have to be done.

Of course that might involve leaving the Euro as well with a 20-30% fall in the currency. All of this would be good for the traded sector of the economy in the long run.

I don’t for one minute buy the notion that as the “best boy” we would be looked after. If you refuse to obey orders you are no longer the Best Boy.

@zhou_enlai

We desperately need people to like us because the EU (like party politics) is all about influence and arse-licking, therefore we should do whatever others think we should do,

+1

Great post and it relates directly to Kevin O’Rourke’s original question – is the current insane, counter-factual and ahistorical German position on austerity and economic growth a result of ideological poisoning rather than simply mercantilist homo economicus on speed? Has the Irish government has once again entered a battle of ideas unarmed?

Also remember that like every other grouping the German establishments perceptions of self interest have a very large psychological component and that the domestic political fortunes of the CDU/CSU are the governments prime concern – not some medium or long term view of Europe’s aggregate economic growth.

Many nations have done things in the past where the justifications defied any any definition of rational expectations – the most recent invasion of Iraq springs to mind.

As a prime example Schauble, the likely next head of the Eurogroup of finance ministers, is a true believer and an absolutely committed market fundamentalist. This Guardian article describes the thorough job he did on destroying East Germany to redeem its capitalist soul – the man is one hundred percent comfortable making other people suffer for his beliefs.

Shay,

Ah yes, the Economic miracle that was E Germay destroyed by thos nasty capitalists. I would sy 71% of per capita income of the West is a vast improvement on what went before. Still neever let the facts get in the way of a ULA rant.

Is Zhou really Eamon O Cuiv in disguise. She is certainly on the traditional wing of FF anyway.

It’s not just interests and ideas, there are also national myths.

For example, the messianic streak in US foreign policy can be traced to a Pilgrim leader who wrote a sermon in 1630 on building a model society that would be as a “City upon a hill” setting an example for others.

On economists, interests and ideas are not mutually exclusive and in the US, winning the attention of a national politician can be both very lucrative and an opening for a political appointment.

Germany which is already experiencing ageing, has to reconcile its postwar anchoring within the EU and the fear of raising debt with little to show for it.

Dani Rodrik asks: ‘Are German Chancellor Angela Merkel’s domestic political fortunes best served by stuffing austerity down Greece’s throat, at the cost of another debt restructuring down the line, or by easing up on its conditions, which might give Greece a chance to grow out of its debt burden?’

This is not an easy question to answer without understanding how this very corrupt system can be changed to improve economic prospects and prevent the elites from plundering.

Last year the Greek state and private healthcare sectors spent €4bn on medicines alone, amounting to 2.4% of GDP – the highest proportion in any industrialised country and more than twice that in the UK. Greece spends more per capita on drugs than any nation except the US and Canada.

It’s in Germany’s interest to see a country like Italy to rise from stagnation and falling incomes that predated the recession. However, if another Berlusconi type takes charge in Italy, and junks reform, what should Germany do?

In Asia, ASEAN, China and India may have combined wealth greater than the US and Europe together by 2030.

The world is not standing still and Germany cannot alone make Europe a dynamic force again.

@Tull
Your assessment ignores one critical aspect..”contagion”.
Do you really think that Angela would let us default?

@ tullmcadoo

The Internet has always a ‘fact’ and you’re correct to point out that criticising the level of convergence with the former West Germany is nonsense.

East Germany’s privately produced GDP per capita is about 66% of the West German level. However, in Munich, for example, per-capita GDP came to approx. €85,000 in 2008, while the figure was less than €14,000 in the Southwest Palatinate.

The German example illustrates that it takes decades for regions to converge. It’s not that huge sums of money were not spent in the east.

Economic convergence moves at a snail’s pace, at best. Even if the weakest regions were to grow a steady 4 percentage points faster than the strongest regions, it would them take more than 45 years to catch up.

She may have to “pour encourager les autres”. A little bit of Decimation might steady the troops.

A Greek friend of mine told me that his grand parents have seen their combined meagre state pension go from a grand a month to 500 a month approx in the managed default. I think they also lost the free week in the islands. University Professors in Greece get 30k per annum according to Der Spiegel. That is what default does for you.

“Many nations have done things in the past where the justifications defied any any definition of rational expectations – the most recent invasion of Iraq springs to mind.”

Iraq appears to be a perfect example of ‘ideas (ideology)’ trumping interests – although rhetorically paying heed to those interests. That also cant be removed from Michael Hennigan’s national myths, the ‘messianic streak’ in US foreign policy.
I’v always been curious to know how much our embrace of Europe was a means to cut the chord with Britain, how much we bought into the aspiration, and how much we were simply focussing on our national interests.

One of our most distinguished journalists is John McManus ,business editor of the Irish Times. John had an excellent hard hitting article in Monday last 30th April Irish Times.

I refer you to an article by John on 18th April 2011 headed “Upward-only rent reviews will tell a lot about reform hopes” I am sorry I am unable to produce the thread. In this article John correctly predicts that our government would give in the vested interests and not allow Irish commercial tenants market rents. He went on to say when there is a choice between small but powerful vested interests and the public interest the Irish government always side with the vested interests.

A problem I have with your statement that nations have interests is that a nation is an inanimate object like a machine. It has no interests, only individuals within the nation do. Long and short term interests are usually in conflict. So there are no interests, just factions within what is today called the regime. Who wins and who loses may well be determined in part by who is the best orator.

@Michael Hennigan – Finfacts “Greece spends more per capita on drugs” Maybe I have an explanation.

There are a large number of tourists going to Greece, and they must be buying a certain amount of drugs that they lose or forget or just ran out of.

Drug prices in the US and perhaps other places are manipulated to be much higher than the market price so US medical tourists purchase them abroad. The usual culprit is Canada (Mexico is never mentioned as it would be embarrassing that US nationals are going there for medicine), but large numbers of American tourists may be purchasing them in Greece. I can also imagine Greeks sending high priced pharmaceuticals to family in the US and perhaps other countries.

Greece is very small so medical tourism might be significant.

@Kevin O’Rourke
There is also the possibility that, however unpopular austerity measures (higher taxes, lower state spending – at least higher taxes) might be, however damaging they are to short-term standards of living, that in the longer term they are the correct policy prescription at this time.

I don’t like the idea; like many others I would prefer a way out, but in the face of global competition, I don’t see it, not without dismantling trade liberalisation, anyway.

@hoganmahew

There is also the possibility that, however unpopular austerity measures (higher taxes, lower state spending – at least higher taxes) might be, however damaging they are to short-term standards of living, that in the longer term they are the correct policy prescription at this time.

The correct policy prescription for whom?

It is a serious question – from the point of view of the median earner in what way does the lowered standard of living now that austerity entails ensure an aggregated lifetime living standard that is higher than would otherwise have been the case? The argument that joining in a race to the bottom ends up at the bottom whether you win or not is a fairly compelling one for ending the experiment of the free movement of capital and the neoliberal state.

That is the lesson we should be learning, that if austerity is the answer we are asking the wrong question. Germany has a different idea but it does not seem fully thought out to me.

@Hoganmahew

re “.. not without dismantling trade liberalisation, anyway”

What is the advantge to a country of being in a ‘free trade’ area, while having a permanent BOP deficit.
Like a boxer who stays in the ring just so the other guy can continue to beat the hell out of him. In Ireland’s case of course it is mostly the private sector in the ring with ‘the cornerman’ and management doing very nicely.

There is a fundamental trade imbalance in Europe that will have to go away one way or the other. Germany has a BOP suplus of approx 150 billion per year, probably the equivalent of at least 3 million jobs.
Fiscal compacts or debt/GDP reduction will not rebalance that equation any time soon.

@Joseph Ryan / Shay Begorrah
Indeed, but I think you are focusing on the wrong target. The internal free trade area in the EEA has been reasonably good to Ireland. It is competing with the rest of the world that is the difficult bit.

I agree with you Shay, but again I don’t see how to disentangle from it? (Free movement of capital). How do you do it without a concomitant damage to free movement of goods and services? Do you even want to do that?

In terms of living standards, the choice, whether it is false or not (I’m not sure that it is) seems to be between a controlled descent into terrain and hitting a cloud full of mountain goats.

@Paul Hunt
“A bit of economic sense at last – and, very surprisingly, from The Economist:”
Erm, the solution to austerity seems to be, er, “less” austerity… I don’t doubt that there are fine tunings that could take place, but still, it’s a little wishy-washy.

The european-wide bank resolution mechanism is such a necessity (and has been since the euro…) that it is not even an arguing point anywhere outside the ECB.

The exchequer figures ou show a slight decline but the crucial figure is..”
Exchequer spending was running 64 per cent ahead of revenues in the first four months of the year, standing at just under €19 billion.”

Just keep on borrowing?

@ Joseph Ryan

Are you saying that Germany’s surplus of €100bn ex-EU27 is resulting in jobs being taken from countries like France?

The small Eurozone surplus suggests that other EMU countries also gain.

There are significant areas of trade that are the preserve of big transnational companies. Italy fornexample hasbfewvof them.

Shay
How do you propose to borrow from to avoid austerity. Sovereign Bond markets in the EZ are bust for the forseeable future and we have maxed out our Credit with the IMF. Of course we are going to vote No and thus turn down the ESM.

@hoganmayhew

In terms of living standards, the choice, whether it is false or not (I’m not sure that it is) seems to be between a controlled descent into terrain and hitting a cloud full of mountain goats.

Agile flying mountain goats every time – that’s an available option, right?

My issue with the narrative (that word again) of globalization requiring rapid wage levels and resource usage “synchronization” outside the capital owning classes world wide is that outside the influence of of energy and natural resource costs rising due to competition it makes no sense that things should be getting worse for anyone – how does that accounting identity work?

Where is the wealth that all the extra individual productivity world wide due to improved education, health and technology going? If the EU’s trade deficit with China is collectively impoverishing us why do we live with it? Qui bono?

Kevin makes a valuable distinction, but both factors appear to be at work.

It is far easier to entertain and hold beliefs that coincide with one’s own interests and this, I fear, is what we face in Germany. The most potent force: self interest that is reinforced by (simplistic) ideas (that, in turn, facilitate mutual reassurance).

There are none so deaf …….

Building on Georges point ….. “Who wins and who loses may well be determined in part by who is the best orator.”

Is this short article by Mark Blyth

http://triplecrisis.com/paradigms-lost/

“Thomas Kuhn, the originator of the ‘paradigm shift’ model of intellectual change, argued that the process of change was as much sociological as scientific. As such, who gets to speak authoritatively becomes a critical determinant of paradigm change as much or more than what the ‘facts’ say.
Contrasting Peter Hall’s brilliant examination of paradigm change from Keynesianism to Monetarism in the UK in the 1970s and 1980s with the current crisis gives us some insight for why there has been no paradigm shift in this crisis. In Hall’s case of the UK, the locus of authority, who gets to speak about how the world works, was the Treasury and the Cambridge Keynesians. Surrounding them and shooting arrows of dissent, like so many Hollywood Indians in a Western movie, were a panoply of organizations; think-tanks, the conservative party, the financial press, the City of London, all pushing against the dominant paradigm. One locus of authority, many challengers, each ‘failure’ amplified and distributed, discrediting the source: outgunned and outflanked…..
Authority, as deeply social a construct as one can imagine, trumps mere facts where the correlation of forces is against reform. Mere facts, even two trillion dollar facts, seldom triumph over a good ideology.”

In this context why are we stil lspeaking about “what the leaders of the Eurozone should do, rather than what they have shown themselves willing to do and what we can expect in the future?
Having the right solutions is no good if they are not going to be implemented.

@Rf
Its a classic Fisher debt deflation….. there is very little money in the system that can seek out the most effiecent uses of that money.

Growth as defined by the Euro financial class is only about a bank giving credit to buy a car / buying goverment debt / not giving base tokens to use whats available more efficiently.

We now have a TPES of about Y2000 levels but a even crazier credit built envoirment of Y2008…..
We had 1.3 ~ million private cars back then , now its 1.8 ~ Million
All we need is perhaps 0.8 million.

Bank credit cannot grow , but that does not mean money cannot grow to fill the vast waste void left by this credit debt.

The Germans manufacture goods that are very wasteful of energy , even though they are very efficient in resourse utilisation themselves.

You see they are effiecent as they want to give us more fuel to waste simply because they are sick in the head and we like wasting this surplus fruit given tous because we are stupid and greedy.

Its got nothing to do with Wiemar … although the hidden actors may play on peoples fears to advance their agenda.

But Europe is a Industrial dead end – a leaky entropy loop , we are simply running down resourses.
The Germans want a strong currency so that the remaining top echelons of each european country can afford their goods , we can do this for a period if we continue to throw more and more people under a monetary bus but it is not a viable long term stratergy.

The Euro project has been exposed thank God – we have always been a mercantile conduit rather then citizens.
It had nothing to do with preventing war and such – they won the war after the war was over.
Ask any surviving English scientific Boffin from the 60s – the I.M.F. came into the UK during the 60s and totally destroyed the gaff with the Labour Goverments enthusiastic help.
Roy Jenkins and his sick crew were clearly traitors.

Text from Blind Biddy:

There are none so blind as those ….

Me methods are strange,
they may cause surprise,
to make the blind see,
I throw dust in their eyes. (Jimmy Joyce)

Intergalactic text from Seven_of_9

Earthlings …!

@MH

re “Are you saying that Germany’s surplus of €100bn ex-EU27 is resulting in jobs being taken from countries like France?”

http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-CV-07-001/EN/KS-CV-07-001-EN.PDF

The German trade balance 1997-2006 taken from EU stats is revealing:(BN).

Country 1997 2006 % Increase
Portugal 497 3323 569%
Ireland -2492 -2571 3%
Italy 2575 17955 597%
Greece 1576 4668 196%
Spain 3770 22333 492%
France 4736 22557 376%
Whether we like it or not, these figures translate into more jobs in Germany and less jobs in those countries. They also translate into Prof Sinn Target2 problem.

Prof Sinn would like the account to be settled yearly.
Perhaps there a simpler way.
Shut the trade down and see who survives the longest!
While I am not in favour of that, it is difficult to listen to Germany talking about fiscal and other disciplines without bringing up the issue of who has benefitted most from the single market and the EZ.

@ Kevin

Very apt thread. Ideas matter. We have a deepening crisis of state functioning, so any solutions have got to be as much political as economic. There is no way our of this without utillising our vast store of sociological and social psychological knowledge. It’s a people problem. As the US General said in Vietnam’ I have seen the enemy and it is us’.

Plenty of useful stuff here despite the heavy syntax.

‘In his works Bourdieu especially deals with the issue of the fate of the European welfare state under the conditions of the domination of the neoliberal ideology and globalization, while exposing the myth about a harmonious and uncontroversial concept of European integration and European Union. He points out that, under the influence of mega interests and the neoliberal development strategy, the welfare state in Europe is under attack,
and, that, in truth, the European Union is torn apart inside, split in two and differentiated as “the Europe of workers” and “the Europe of bankers,” that is, into several developmentand cultural circles that overlap but are not always harmonious’

http://facta.junis.ni.ac.rs/pas/pas2005/pas2005-05.pdf

@Joseph Ryan
“`Ireland -2492 -2571 3%”

Er, those are minus numbers.
Probably we have the same minus numbers with most of the Eurozone.
Should we stop exporting, do you think?

“They also translate into Prof Sinn Target2 problem.”
Er, no they don’t – see above.

@Hoganmahew.

Touche! But on the most insignificant number in the data.
My general point still stands.
I do not think we should stop exporting.
But neither do I think we should be listening to lectures on frugality without forcefully bringing such data as the above (all the countries) and forcefully making the point that capital flight to Germany and other ‘stronger’ EZ countries is part of the reason for the deleveraging and destruction of our economy.

In summary, Ireland and the peripherals need to shift the focus away from ‘solutions’ that will have little or no positive impact on their positions and shift the focus back onto those countries that are benefitting from the EZ.

IMHO, the fiscal compact is a very useful and deliberate distraction being used by Germany while she continues to accumulate surplus and while the wealth of the continent flows towards Germany.

But if the crunch came, I would put free trade and the EU on the table.
In fact it needs to be on the table right now. The ‘single’ market is not working. And when there were losers, ie bank bondholders, we saw how quickly the rules changed. It was no longer a ‘single’ market.
Losses were nationalised.
Who finger inscribed those rules.

@Joseph Ryan
Purely from a selfish (national) point of view, I can’t accept that free trade and the EU have not worked for us. For Spain, Italy, Portugal, Greece I can see it. It’s not a new story (that’s why they were the original PIGS), but nothing has been done to resolve it, as you point out.

My concern, though, is with the rest of the world (it’s not just China). It is not German textiles that destroyed the textile industries in Portugal, Spain and the UK and Ireland. It is not rising wages in those countries that did it either. It is cheaper imports. From the countries that grow the cotton. For those of us who are anti-imperialist, it is quite a dilemma.

French presidential debate just ending. I would call it a draw.

Nice riposte at the end from Hollande about not being the one who appointed DSK to the IMF after Sarko had a dig about the SP being the party behind DSK. Those Parthian arrows are so important.

@PR Guy

I’ve a nice bottle of Remy ready to celebrate the demise of that truly awful Kozy. That said, he was truly vichy to the last … Blind Biddy still treasures that golden butter box she picked up in Marseilles .. useful for the turf and balancing her bazooka ready_to_hand …

Must tune to France24 …

Actually, looking at the closing, I think I will give it to Hollande on points.

@David
I’m patial to a drop of Remy myself.
My nickname for him is the poison dwarf.

I think the German perspective on this has been rather unwisely neglected. As they naturally view it, they have already absorbed one periphery (the East) and paid for it with a moribund economy and too high interest rates (thanks to European solidarity) in the nineties. They did so to re-unite their country and they are not going to pay up for the sunny manana zone.

Most people and politicians function on a belief system. It is easy for the Germans to look at globalisation and think they rose to the challenges and threats to their industries and succeeded. as they look around Europe, in the main they see states and economies that haven’t, and by and large cannot compete in global markets – nor do they seem to have much inclination to.

When Alan Greenspan talked Bill Clinton into opening up Western markets without requirements for even vaguely similar social policies, he sold social democracy down the river for a decade of cheap T-shirts.

Germany looks at large parts of Europe and official incompetence, high rates of pay that it can’t afford together with deficits of current account, or primary fiscal balance or both and shakes its head.

German economic beliefs have rewarded Germany and Germany is not going to read the scribblings of clever-clogs economists from failing economies and suddenly realise ‘the error of its ways’.

Even if you think Germany will re-consider sometime soon, how would the plan to fiscally stimulate Spain, Portugal, Italy and Greece actually work out in the medium term? If they stay in the Euro then they will have to reform in the way Germany wants – otherwise they will not be competitive long term, and can-kicking at German expense is all that would be achieved. How realistic do you think the Germans think that the prospect of that reform would be in those countries given the shelter of say, a German guarantee for Euro-bonds or the like?

Ireland is supposed to be much more switched on and competition oriented than the other pigs. Spin aside,and with the sort of inside knowledge available to many readers of this blog, how is the reform agenda really going in even the Posterzone?

@ Joseph Ryan

The common soundbite about Germany’s surplus hasn’t space for the other side of the coin.

France has run a trade deficit every year of the 10 in 2002-2011. Is this all Germany’s fault or 50/50?

Germany itself needs to reform its services sector which is over-regulated with many areas dominated by low pay.

A poorly resourced country like Greece needs foreign investment but despite its superior infrastructure, it’s performance is very poor compared with neighbours: Turkey, Romania and Bulgaria.

However, Chancellor Merkel cannot for example direct Siemens to open a plant in Greece. It has to take the initiative to improve its economic environment and there are EU funds to help.

The New York Times last March reported on a successful Greek web program designer who decided to open an e-business selling olive products.

“It took him 10 months — crisscrossing the city to collect dozens of forms and stamps of approval, including proof that he was up to date on his pension contributions — before he could get started. But even that was not enough. In perhaps the strangest twist of all, his board members were required by the Health Department to submit lung X-rays — and stool samples — since this was a food company.”

McKinsey, the management consultants, described Greece’s economy as “chronically suffering from unfavorable conditions for business.” Start-ups faced immense amounts of red tape, complex administrative and tax systems and procedural disincentives, it said.

That is just one area of national economics but for Europe as a whole, there are big challenges from emerging markets.

In the US and Japan, the expectation that each generation does better than the one that preceded it, no longer applies.

PR Guy,
I have little time for Carla’s hubby but how long do you thing M Hollande will last before he discovers it is still Frankfurt’s way.

@MH
re “The common soundbite about Germany’s surplus hasn’t space for the other side of the coin.”

In my case I do have space for the appalling lack of reform in Ireland and the peripheries.
But how long will it take before even the most ruthless reforms have a significant effect on rebalancing trade within the EU?

And why is capital permitted to have free flight leaving its losses behind it, invariably to the benefit of the ‘stronger’ nations.

@Grumpy

“When Alan Greenspan talked Bill Clinton into opening up Western markets without requirements for even vaguely similar social policies, he sold social democracy down the river for a decade of cheap T-shirts.”

+1, Quote of the week.

@Hoganmahew
Yes, I do accept that free trade, aided by the low corp tax rate has benefitted Ireland, but free capital flight has contributed greatly to its destruction. And of course so have other core originating policies such as no bank bondholder gets losses and no European bank resolution scheme.
Now who I wonder do those policies favour and who writes them in stone.

@grumpy
+1

@Joseph Ryan
Unfettered capital movements and unfettered free trade are sold as a twin-pack…

@Tullmcadoo

“At least the Dwarf has a spine”

IMHO I think you’re confusing spine with ego and personality disorder.

I’m sure Hollande is perfectly aware of who carries the big stick in EUrope.

Personally, I think Frankfurt is afraid of losing it’s grip. Partly why they are ensuring Schauble will replace Juncker as head of Eurogroup and they also know that LTRO plan is starting to wobble. Later this year/early next they are going to have to ditch one or two from the EUro to restore some order. Then we will see if they can hold it together. You’ll be getting lots of PR about existential threats then. They will probably even bring Sarkozy into an unelected EU role by then too.

@Micheal
You are still confusing bank credit creation / grot production with growth.
These factories have been net depleting the commons for at least 40 years , ever since countries were banned from financing themselves at the very least.

Why has debt outpaced global GDP growth during this time ?
Because most of the activities you describe are a function of waste.
You just don’t get.
Even the absurd China syndrome in Athlone will not wake you up I imagine.
Where do these absurd capital flows come from I wonder ?
Its started with bank credit baby.

http://www.youtube.com/watch?v=L3pf7o-9OOk

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