Germany, Greece and the Marshall Plan

Another viewpoint with some areas of congruence.

http://www.nakedcapitalism.com/2012/06/satyajit-das-the-euro-zone-debt-crisis-its-now-about-germany-not-up-to-germany.html

I posted this link to a relevant article by Philip Stephens on another thread.

—
@ All

To situate the ECB discussions in their proper context, this article by Philip Stephens makes a quite outstanding contribution.

http://www.ft.com/intl/cms/s/0/81b7a26e-b4af-11e1-aa06-00144feabdc0.html#axzz1xYqFF8jf

Hollande is, indeed, standing in the shadow of de Gaulle. The euro, for the management of which the ECB is responsible, is the sword of Damocles which will either make or break Europe.

—

Many of the points made in the Satayjit Das contribution have been adverted to repeatedly by some commentators on this blog.

The point that is most striking in these contributions, however, is the omission of any reference to decisive facts (leaving aside Professor Sinn’s contribution which is on a par with his other contributions). One would imagine that Europe was not recovering from a devastating bout of mutual destruction, and that the Cold War never existed, in relation to the debate on the Marshall Plan. And that all the economies in Europe were of an equal size when the reality is that the divergence between the German and the French economies is the core of the problem.

As Philip Stephens points out “To decouple from Germany and put France at the head of Europe’s Club Med would be to tear up half a century of French European policy”. It seems that now is not the best moment in history for France to have a president who has never previously exercised government executive authority.

FYI

Transcript of a Conference Call on Ireland

http://www.imf.org/external/np/tr/2012/tr061512.htm

MR. BEAUMONT: On the first point, it’s certainly the case that Ireland’s ability to regain market access depends very much on broader financial conditions in the Euro Area, especially in 2013, and so that remains a risk.

In terms of the point about political support and the promissory notes, in fact, everything we write is directed to our Board, so we’re helping our Executive Board understand the domestic situation in Ireland.

These promissory notes used to recapitalize failed banks entail repayments of 3.1 billion euros annually, which is quite similar to the amount of fiscal consolidation that is done annually. These notes are very difficult politically to keep servicing in the current manner, and that’s what we saw at the end of March where instead of making the repayment in cash, the repayment was made in the form of a long-term government security.

MR. BEAUMONT: Yes, this is specifically in relation to a potential shortfall in growth in 2012. Currently we have no signs that, but if it were to happen, we would support accommodating a revenue shortfall rather than trying to offset it within the current year.

Great response. Really well reasoned and comprehensive smack down of a somewhat ridiculous argument.

Arguing about the direct cost of wars as a retorque I feel I bit more uncomfortable with. As wars start for many reasons.

@DOD

Cheers for the link. Basically they’re saying:
1)There’ll be no mini budget this year
2)Europe is holding up any talk of PN discounts.
3)We’ll need to dump tracker mortgages in to IBRC
4)Ireland needs a deal on PN if it’s to have a hope of returning to the markets to borrow.

@DOCM

I have not read the article by Philip Stephens but the sentence you quote must be challanged:

“”As Philip Stephens points out “To decouple from Germany and put France at the head of Europe’s Club Med would be to tear up half a century of French European policy”. ”
The reference to “Europe’s Club Med” is a bit rich.

The fact is that, what is now almost if not a majority of countries that joined a particular club, the EZ /ECB/Euro are distinctly unhappy with the way the club is being run by the principal members. Those disaffected members have not been able to influence club policy in any appreciable way and have had to watch from the sidelines as the principal members do very well.
So it is not putting France in charge of “”Europe’s Club Med” that is the issue. The real issue is can the principal members of the club accommodate its more ‘mediocre’ members as Merkel would call them.
In the absence of the mediocre attaining the superlative or the superlative accepting that she will have to live with lesser mortals, then this particular club ist kaput.

Prof Ritschl gave an interview to Der Spiegel last year.

A period of competent government in Greece could open up a lot of possibilities. Its FDI record is abysmal compared with its neighbours despite having superior partly EU-financed infrastructure.

The Greek government “has an extraordinary portfolio of assets” and the balance sheet of the government’s Real Estate Development Company amounts to €280bn, according to the IMF.

http://www.spiegel.de/international/germany/economic-historian-
germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html

SPIEGEL ONLINE: The Germany of today is considered the embodiment of stability. How many times has Germany become insolvent in the past?

Ritschl: That depends on how you do the math. During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a “haircut” in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990.

SPIEGEL ONLINE: Really? A default?

Ritschl: Yes, then-Chancellor Helmut Kohl refused at the time to implement changes to the London Agreement on German External Debts of 1953. Under the terms of the agreement, in the event of a reunification, the issue of German reparations payments from World War II would be newly regulated. The only demand made was that a small remaining sum be paid, but we’re talking about minimal sums here. With the exception of compensation paid out to forced laborers, Germany did not pay any reparations after 1990 — and neither did it pay off the loans and occupation costs it pressed out of the countries it had occupied during World War II. Not to the Greeks, either.

@ DOCM

France has run out of road and is struggling with twin deficits. It has run a trade deficit every year since 2002 and a financial deficit every year since 1975.

Hollande’s problem is that he has no additional reserves to spend domestically; even during a boom, the country had a trade deficit and EIB spending across Europe will not have a significant impact.

It doesn’t help Europe that US consumers in recent times have had income rises less than inflation while middle class incomes have been stagnant for decades. In China, the health care obligation of companies was removed in the 1990s, health care costs are high while the insurance market is not well developed. Meanwhile, the rising middle class have a problem shared elsewhere: mortgages, running two cars and with the one child policy, an obligation to support two sets of parents.

France does gain from the luxury goods market which it was recently reported is now equivalent to the national output of Spain or Australia.

@Albert Ritschl

Danke for the precise and informative tutorial.

Love that line: “The German position is that these debts have ceased to exist.”

A Joycean note for Greeks on Bloomsday

Saturday, June 16, 2012

Austerity Kills: How the EuroCrisis is Being Used to Break the Social Contract

One aspect of the Eurocrisis that has not gotten the attention it deserves is the way it is destroying not just jobs, but the very underpinnings of society. People who took actions that were prudent at the time are increasingly at the mercy of forces beyond their control. And this isn’t a tsunami-type disaster but a man-made one whose severity is worsened by the callous attitudes of the European elites.

http://www.nakedcapitalism.com/2012/06/austerity-kills-how-the-eurocrisis-is-being-used-to-break-the-social-contract.html

Any chance of a link to these eminent commentators?

The ECB just blinked .. or maybe it just winked .. or was it a mere twitch?

Text from Blind Biddy: Hey Gov’nor! What’s up?

early exit polls must be out ….. in Greece and in Egypt ….

@ All

It seems that the Elysee has decided already that the tone of conflict with Germany needs to be lowered.

http://www.lefigaro.fr/politique/2012/06/16/01002-20120616ARTFIG00389-l-elysee-veut-dedramatiser-les-tensions-avec-l-allemagne.php

The elements of a possible agreement would seem to lie in the following;

“L’objectif français pour le Conseil européen de la fin juin a sensiblement évolué. L’urgence, c’est la stabilité financière de la zone euro. «Le but est de donner des éléments à court terme pour déstresser la zone», explique-t-on à l’Élysée. Les instruments existent et pourraient être mis en place «dès cet été». Côté français, on plaide pour plus de souplesse dans le Mécanisme européen de stabilité, ou un système d’obligation à court terme, à travers par exemple le «fonds de rédemption». Une idée allemande, n’oublie-t-on pas de souligner…”

Germany, France, Spain, Greece, even America gets a mention above.

The reaction to the Tol et al publication or “unpublication” showed that there is very little appetite in Ireland for honest self-scrutiny.

When it came to benefitting from the Marshall Plan Irish official cack-handedness played its hand.

More energy needs to be devoted to the use of the next bailout or ‘Marshall Plan’ and whether anything useful will be done in the meantime to address unemployment in the Irish economy.

For goodness sake all this gaping at the ins and outs of antics between , Merkel, etc. is a futile distraction.

The domestic policy package that came in (West) Germany with the Marshall Plan is very different from what Greece has now.

http://en.wikipedia.org/wiki/Ordoliberalism

@The Alchemist

Yes – response to misery of a million is very poor …. p1ss poor.

Did you note the IMF comment on cross-departmental policy?

@Ministers Burton, Bruton, Quinn & Reilly + The Revenue

Any comment? Or are you all just ‘cross’ with each other?

@Rich
Rich – you must be rich……
We are already transferring a huge amount of real resourses (blood) to the cores cold dead heart.
Short Sharp Shock !! – have you been living in a tree or what ?
I live in a hole and even I know whats going on (to a small degree)

Please forget about the debt thingy for a second – thats a metaphysical concept used to control both nations and individuals.

The question always boils down to – who is burning the Diesel.
omrpublic.iea.org/demand/ge_dl_ov.pdf

Stalingrad was more then a political battle.

You take the Caucasus area – you take the oil.
Autobahns and Imperial overstretch go hand in hand….. just go ask Eisenhower when you release this mortal coil.

@The Dork

http://www.businessinsider.com/chart-of-the-day-peak-oil-2012-6?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_061412

Wonder is Vassily V. from Stalingrad still alive?? Biddy wants to know.

@ The Alchemist

+1

The narrative of being all victims of international elites – – claimed by the local elites and the voters who supported them — is a little threadbare at this stage.

When Donogh O’Malley, minister for education, proposed the plan for free secondary education, my mother asked: “Who will do the dirty jobs when everyone is educated?”

I also recall that term ‘educated’ when it was used in a forward to a once infamous book, which I have commented on elsewhere and reproduced below.

Last week, Jimmy Deenihan, minister of the arts, launched Yeats Day and said: “Ireland has long been recognised internationally for the important role that Irish creators have played nationally and internationally for many generations.”

We now of course trade on the international recognition when contemporary local recognition was in short supply.

In the year before Taoiseach Éamon de Valera spoke in a radio broadcast on St. Patrick’s Day 1943 about “the laughter of happy maidens, whose firesides would be forums for the wisdom of serene old age,” the fireside tales of Tadhg Ó Buachalla, a tailor, and his wife Ansty, about life in the area of the beautiful Gougane Barra in the Cork Gaeltacht, were immortalised by Eric Cross in the book ‘The Tailor and Ansty.’

The book was banned and Frank O’Connor wrote in an introduction in a later edition: “But we were all too innocent to anticipate the effect the book would have on Mr. De Valera’s well-educated government. It was banned for ‘being in its general tendency indecent.’ I didn’t mind them saying that about my own work. After all, you don’t take up a dangerous trade like literature in Ireland without developing the hide of a rhinoceros and renting a house in a strategic spot with direct access to the sea. What alarmed me was that the Tailor and Ansty lived in a mountain townland where people still believed in fairies.

The man [who defended the book] was a Protestant landlord, Sir John Keane, who tabled a motion in the Senate condemning the Censorship Board. Everyone interested in either censorship or in Irish public life would do well to get hold of the four day debate in the Senate Proceedings of 1943. Reading it is like a long slow swim through a sewage bed.”

I have a lot of sympathy for rebeleconomist, as much as I love Karl Whelan that post is both ridiculous and offensive – These World War 2 references really need to end.

Someone as intelligent as Karl Whelan can’t possibly believe, as the post implies, that the United States entered World War 2 for solely, or even primarily, altruistic reasons

Why not mention the war?

Germany with the full fanatical support of most of its population did lay waste to the whole European continent (and north Africa) they did kill millions of people in an industrialised fashion on a scale never seen before or since.

If the Germans can not face up and accept and learn from their history then who is to say all of that will not repeat?

The Greeks are not saints (neither the Irish) but neither are the Germans for that matter, the last time the Germans got all smug and superior about themselves bad things happened, burying head in sand and forgetting the past is a bad move.

@ EIS

I rest my case!

@ All

On a more pertinent topic, this link to today’s Indo gives a balanced view of what is actually in the IMF report, apart from the reported soothing noises about Ireland’s sore point; the PNs.

http://www.independent.ie/business/irish/imf-demanding-more-wage-cuts-for-public-sector-3139960.html

I didnt say that – I said comparing German intentions and capabilities in 1939 and the present day is pointless. As is sinking to the level of some of the more obnoxious anti ‘periphery’ commentators

… something to do with the concept of ‘time’.

@ RebelEconomist

“What I would be more interested to know is when Whelan is going to offer an apology for repeatedly criticising misrepresentations of Sinn’s views, and for misleading people by denying Germany’s massive exposure to real wealth loss arising from its TARGET2 credit.”

I noticed that, their exposure will be almost a trillion by the end of the year. I also preferred Laura Noonan’s realism to Karl’s hypothesis on the PN’s though in fairness I think he did apologise to her.

That’s one of the disadvantages of running your own blog, especially when you don’t allow for interaction from those you expect to read it. A lot of our intelligentsia prefer to operate in a vacuum, they feel it is enough to be challenged by a few students.

should say…a deeper impatience as a result of their internal standards….

Ciaran to Rebel Economist: “Any chance of a link to these eminent commentators [who support Sinn on TARGET2]?”

Eminence is in the eye of the beholder I guess. For my part I’d prefer to see something in the nature of a coherent argument. Sinn hasn’t come up with one.

Dork

Your rhythmic chant around transport infrastructure, diesel and EIB investment is from a parallel universe, these issues rank up there with global warming and overpopulation they are not issues for our time. The electric car will reduce emissions and enable cheap mass individual transit with lower carbon footprint and less transfer of wealth to the middle east

This flow of capital to the core is another drum beat that permeates this site – the Germans/French loaned the money and are desperate to get it back to protect their own banks, i remember the rubish spouted about Ireland giving loans or contributing to loans for some one or the other and listening to how well we would do on the margin of interest we would earn! This is typical if not entirely fair. We borrowed the money to inflate our egos and embody the Irish fantasy of being a modern economy deserving a first world standard of living well the votes are in and the reality is different the best we can do is reboot and reformat the economic model for another crack, the staus quo is a mirage in a credit desert and reincarnation is our tomorrow

David

Does my employment situation lessen my opinion or is it the content that you warrants your dismissive remarks?

@Rich
You will get no argument from me when you say the Irish are fools …..& traitors

But we were but a conduit for the cores mercantile & interest earning ambitions.
We however owe money to the core…..which is a advantage, – I however don’t want to see the continent tear itself apart but if the Germans want our money to sell real energy intensive goods to Asians they can go F$£k themselves.

PS Electric cars are absurdly capital expensive , lithium for example is very very very expensive – the French loan you the battery for a reason.

Private Cars also have this habit of being unproductive – they sit in driveways and outside workplaces all day doing nothing.
Its a Luxury we cannot now afford – infact we never could.

David

I dont understand your stance to be direct, I gather your position is the current unemployment assistance level is sacrisanct? Unemployment assistance among the range of social transfers in Ireland are expensive in the shadow of a €16 bn deficit and 121% debt to GDP – can we afford them? State sector Wages and welfare must fall by an amount approximate to the budget deficit (similar to what might happen in the event of a new punt vs euro), perhaps more I believe in a budget surplus to regain international confidence. Employment taxes would worsen the Richard Tol % (ie those better off on welfare). What else is there to do?

@docm

“The French objective for the European Council in late June has changed significantly. The urgency is the financial stability of the euro area. “The goal is to give some short term to de-stress zone,” says one as president. Instruments exist that could be set up “this summer”. French side, it calls for more flexibility in the European Stability Mechanism, or a system of short-term obligation, for example through the “redemption fund”. A German idea, remember it does not emphasize …”

No muffs in this one.

Any linguists care to improve?

@ Michael Hennigan

“I also recall that term ‘educated’ ”

Here it is from George Hook ”

The law student from Queens passes to the medical student from UCC who then transfers to the commerce student from UCD

(but it was a fabulous try)
http://www.youtube.com/watch?v=5NCH29cPQt4

Starts at 1.26

It always brings me back to Morgan Kelly’s point about the banks being run by slightly dim former rugby players.

@Rich
You simply don’t know what we can afford as there is no we…..as in us….. this is not a collection of European sovergin states competing for capital – there was simply a artifical tooth extraction operation which directed capital to the core.
We were a conduit during the credit hyperinflation phase and now a conduit again during the money deflation phase.
I would recommend you watch the latest Keiser report where Max interviews Yanis V. – they describe the latest money deflation phase as a sort of Ponzi austerity where the austerity actively promotes the acceleration of debt…… this “austerity” is not trying to save real resourses, it is trying to save a stock of debt by destroying Physical capital on a huge scale.

Germany would find it impossible to bid for such a large share of BTUs if it were a national economy again and we are likely to get a larger share as our resourses are going chronically underutilized at even these collectively low European energy ration levels.

http://www.ft.com/intl/cms/s/0/e2d944f8-b572-11e1-ab92-00144feabdc0.html#axzz1xi1DR91c

Below is a comment on the above Financial Times article;

1. William Thayer Sr | June 15 1:26am | Permalink
I recommend everyone take a look at the link offered by John Corcoran below.

The true value of a real estate property is the present value of its income stream. For example, if you own an apartment building and the rents fall in half, then the value of the building falls in half (assuming the same discount rate etc.).

What happened in Spain is similar to what happened in the US (as far as price increases). In the US, property values went from 100 in 2000 to 200 by 2008. In Spain it was worse. The values were 100 in 2000 and 300 by 2008. The US property values have dropped to 140 by 2012 but in Spain they are at something like 270. They need to drop to somewhere in the 140 range like the US. This means prices will drop by half. This hasn’t happened yet which means the worst is yet to come.

Let me get back to the income stream. With 25% of the people unemployed and therefore contributing nothing to the GDP, what does this say about Spain’s present value? It is, unfortunately, overvalued. This means its bonds are going to be a tough sell.

I really feel sorry for the Spanish people because they are so nice.

The solution for Spain is more job creation. Spain is weak in advanced technologies and marketing which are the key to new jobs. What should it do? It should do what China did. It should use Special Economic Zones. China has the kind of growth that Spain needs. Of course, it will be pointed out that China has the wage advantage since they only pay their people about $4/hour. Here is what I think Spain should do. Use its unemployed people. Have Spain continue to pay their unemployment (say $10/hour for example). However, charge the companies coming into the Special Economic Zones the same wage as China….just $4/hour. Then a US or European company would have as much incentive to put their shoe plant in Spain as in China. There would be fewer unemployed people in Spain and these unemployed/Special Economic Zone people would be making $14/hour which would improve their lot. It would also improve Spanish Exports vs. Imports.

In the last decade, the Eurozone has lost about half of its manufacturing to China. Why not get some of it back rather than just paying the unemployed to sit around?

http://www.independent.ie/opinion/letters/bubble-values-3034584.htm

@ grumpy

Hunting around to find the reference, I came across the attached.

http://www.project-syndicate.org/commentary/which-eurobonds-

Whatever Paris is looking for, there are considerable obstacles in the way.

@Ciaran, a Krugman blog post that is sufficiently recent for me to recall in which he mentions that Germany might ultimately be “on the hook” for the TARGET2 balances arising from capital flight from the eurozone periphery is this: http://krugman.blogs.nytimes.com/2012/05/14/euro-reversibility/

The key error that I think Karl Whelan makes is to assume that the potential loss of Germany’s TARGET2 credit does not matter because the Bundesbank could create money to cover the loss without burdening the German taxpayer. I explain why I think his view is incorrect in a comment on his VoxEU post 7921 here: http://www.voxeu.org/index.php?q=node/7921

Hopefully Kevin Donoghue will find my argument there to be coherent.

@RebelEconomist

Sorry that was a bit cryptic. By “that stuff” I meant the lengthy post on your blog.

As for the Krugman remark, it was obviously an off-the-cuff comment; there’s no reason to suppose he cares much about TARGET2. Worrying about central bank balance sheets would not be in keeping with his (eminently sensible) way of looking at the world.

No, Rebel, it isn’t reasonable to use the word literally for statements which are not literally true.

Further on you say “a choice can be made not to maintain the solvency of the central bank, that would be tantamount to a lack of commitment to the inflation target.” No, it isn’t “tantamount” to that.

But anyway, what on earth makes you think it’s up to me to show that this claim is factually incorrect? You’re the one seeking to establish an equivalence between central bank insolvency and inflation. It’s for you to show your work.

When a private deposit is moved from private periphery bank to a German private bank, the claim could, if the system had been designed differently have remained a claim against the periphery central bank. If that had been the design then a Euro collapse and default would have left the private German bank with a Euro liability to its new depositor but its asset would have been a defaulted on claim against periphery CB.

Instead, the design is such that the new depositor has a claim against the private German bank, which has a claim against the German Central Bank – which has a (Target 2) claim (now defaulted on) against the periphery central bank.

Instead of private banks and likely private depositors being defaulted on, the German central bank is defaulted on.

However it might have come across, I imagine Karl would have agreed, prior to his exile to the international space station, that the (smallish) annual interest due on that defaulted Target 2 claim was a clear loss to the Germans. You can argue he might have over-egged the argument that the default on the actual capital amount didn’t matter at all – perhaps in an attempt to counter some of the opposing OTT arguments – it very likely does not cause any inflationary consequences through printing the defaulted amount and the vagaries of fiat currency valuation (ie FX) would be unlikely (though not guaranteed) to automatically result in any depreciation or loss of purchasing power via dilution to holders of the new German currency.

Personally I think the impression that the default would just not matter is a stretching the anti-Sinn line a bit far.

I also think that the question of debt forgiveness for Germany and the context in which that occurred (including the W word) are entirely proper subjects for discussion.

@ David O’Donnell,

Colm makes interesting points regarding the history and Germany has a higher moral obligation to Greece than Ireland. It after all provided us with 40 years of foreign aid without strings and just expected us to be prudent!

The problem is in how can blame be apportioned and we Irish know well that passing all the blame for our woes to the Germans, at a minimum puts them on the long finger.

Just consider two aspects of Irish health costs and the continuing gravy train for pharmacists, GPS and others…

The Competition Authority says that the cost of visiting a GP has risen rapidly in recent years, significantly outpacing the general rate of inflation in the economy. There are indications that a substantial number of private patients are delaying GP visits due to cost factors and are “shopping around” for cheaper consultation fees. The State paid an average of €65 for every GP visit made by a public patient in 2008…A GMS contract is very valuable to a GP practice; very few GP practices operate without one. The current GMS system favours existing GP practices and protects them from competition from newly qualified GPs.

The impact of the GMS on private patients is often overlooked. It is assumed that “the market” will take care of them. This ignores the fact that the market for private patients is itself significantly affected by the operation of the GMS. The GMS system impacts directly on the commercial behaviour of almost every GP practice in the State, affecting decisions on where GPs locate, the number of GP practices established, the nature of such practices and the profitability of individual practices. This in turn affects the provision of services for private patients and indirectly influences the price GPs charge private patients.

The ESRI said last Jan that pharmacy costs have continued to rise as a percentage of public health expenditure and the State bill came to €1.9bn in 2010. Last February, a Dail committee heard that spending on drugs was growing by 9% a year, compared to 2-3% in the UK.

It’s necessary to enact a drugs reference pricing Bill that will allow patients and pharmacists to replace branded drugs, prescribed by a GP, with cheaper generic ones. 

During the 2000s Ireland experienced one of the highest annual growth rates in pharmaceutical expenditure of any OECD country. In 2009 Ireland spent more on pharmaceuticals per capita than any other OECD country (with the exception of the US, Canada and Greece).

Greece

We call ourselves Celts but apparently the Keltoi (in Greek) never made it to Ireland.

The modern Macedonians are Slavs and are quite an irritation for their Greek neighbour.

A giant statue resembling Alexander the Great has in recent years been erected in the heart of Skopje, Macedonia’s capital.

“This is our way of saying [up yours] to them,” Antonio Milososki, the state’s former foreign minister, told the Guardian in an interview in October 2010.

“Alexander the Great, in fact, had no passport or birth certificate,” he said, sitting in the foyer of a government building brimming with relics dating back to the warrior king. “This project is about asserting Macedonia’s identity at a time when it is under threat because of the name issue. We all live in a geographic area where we share a common past but our attitude towards history is inclusive. The Greeks’ is exclusive.”

@ciaran, actually Krugman accepted the Sinn argument, as passed on by Martin Wolf, from the start: http://krugman.blogs.nytimes.com/2011/06/01/the-euro-living-dangerously/

The big names do not so much investigate the TARGET2 debate and explicitly give an opinion; what you see is that they include the TARGET2 balances in the potential losses in the event of Grexit or euro break up, like this: http://georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/

For those who are interested in keeping up with the most recent writing about TARGET2, this website is useful: http://www.robertmwuner.de/materialien_euro_literatur_target2.html

That website alerted me to the latest post on TARGET2 from Felix Salmon, who has been one of the holdouts: http://blogs.reuters.com/felix-salmon/2012/06/15/dont-fear-target2-fear-its-opponents/
Note how he now admits that it is arguable that TARGET2 “saddles the Bundesbank with potentially unlimited liabilities”.

I’m not sure the linked articles say what you think they say
From Felix salmon:
” I don’t think that arguments about hypothetical wealth
figures are particularly
compelling, and the
amount of money that the
Bundesbank earns each
year is so small — less than a billion euros, last
year, which is less than
one tenth of one percent
of German GDP — that if
the Bundesbank stops
remitting profits to the German fisc, no one will
really notice.

The real thing to worry
about Target2 in
Germany, then, is not that
the euro will fall apart and
the Bundesbank will have
to write off lots of paper assets. Rather, it’s the
fear that someone will
challenge the whole
system in Germany’s
Constitutional Court, that
it will be found unconstitutional, and that
the entire financial sector
of Europe might fall apart
as a result.”

I cant access the Martin wolf article but all’s I see krugman saying is that the bundesbank is worried about the imbalances ( hardly news) and that there will be catastrophe if they pull the plug on it.

How to win friends……

“Both comments received a negative reaction in Greece but a letter by Germany’s Bild newspaper to Greek voters went down even worse. The tabloid warned Greeks: “Tomorrow you have elections but you do not have any choices.”

“If you don’t want our billions, you are free to elect any left- or right-wing clowns that you want,” the newspaper said in its open letter. “For more than two years, thought, your ATMs are only issuing euros because we put them there.

“If the parties that want to end austerity and reforms win the elections, they will be breaching all agreements and we will stop paying.”

No comment.

@ciaran, regarding the small amount of money that Germany’s TARGET2 credit presently pays, see my comment at 10.06 am today (perhaps our comments crossed if you are as slow at writing as I am!)

BTW nice to see WW2 making it to the mainstream – I used to get blasted for bringing it up.
Real problem is that NAZIism prospered because of:
1 Groupthink
2 Shortsightedness and
3 A superiority complex.
Unfortunately all three elements characterise the current German approach too.
This isn’t about blame really. It’s about national and European reform.

@Joseph
On history being ignored or forgotten…

http://www.guardian.co.uk/business/2012/jun/17/remember-great-depression-no-doesnt-seem-anyone-does

@michael h

One could argue that Turkey, after centuries of mismanagement and pilfering, has a moral obligation to the Balkans in general, not to mention The Levant, North Africa, etc.

Germany’s recent military brutality does grant it a unique role, but there is no evidence in German politics or civil society at present that the past will be repeated.

Greece has issued a deal of oil exploration licenses recently, especially around Cyprus. A Greek friend tells me that Turkey’s response has been a number of military flights which she claims accidentally violated Greek airspace. I have no independent verification of this but I have no reason to doubt her.

Often overlooked in the debate is the reality that Greece for its size is very heavily armed and a conflict with a neighbour is probably the last thing Europe needs but it could happen by accident in a situation of political drift, more or less.

So, here we are staring into the ….. insert overused economics-related phrase here ….. as Greece votes to …. insert etc.

I see that journilism is living up to its usual standards this Sunday.

The only story I haven’t seen is that Greece will be kicked out of Euro 2012 if they don’t vote the right way. I’m not sure which they wouldn’t get more upset about – the Euro or the soccer.

@ The Alchemist
Ahem….that’s the Independent you linked to. Dinny just sore about media ownership rules and all that.
It does a good job dealing with fake boobs though….

MH

Your figures regarding pharmaceuticals in ireland in terms of cost per capita are incorrect as they include non drug costs including vitamin supplements that are flung about on the GMS. Irish drug prices are set at wholesale level based on a ‘reference basket’ of 9 countries the average which must be taken
http://www.ipha.ie/alist/price-of-medicines.aspx

The mark up by pharmacists remains obscene as much as 50% for putting the pills in a bag. Of course the issue of generics is completely misunderstood, at present generics cost the state approx 5% less than brands, the generics companies offer unto 80% discounts to pharmacists so all the savings go to pharmacists not the state, this explains their enthusiasm for substitution.

If drug wholesale prices are slashed parallel exports will clean out all new medicines and companies will not be able or motivated to maintain local supply. Be careful what you wish for

As for GP costs I entirely agree with you

@ grumpy

This Reuters report gives some clarity on what Hollande is seeking; money (and not much else!)

http://www.reuters.com/article/2012/06/17/us-eurozone-france-idUSBRE85G00B20120617

@Rebel: “What is special about a central bank?”

It can’t run out of money. Let’s not go chasing hares. Have you retreated from your claim about the link between central bank solvency and inflation?

Willem Buiter hit the nail on the head with his statement
“European leaders are only capable of acting at the point of a gun.”

Looks like Greece will cock and point and only then will there be action.

@ Ceteris
You could be right.
Is it people looking for a safe haven?? Are they recession proof assets?? They’re also probably fairly resistant to further inflation….

@Rebel

Okay so there is no hard link between central bank solvency and inflation. What makes you think there’s any link at all? The US ran high rates of inflation during the 1970s despite the fact that the Fed had abundant AAA assets. The harsh Volcker response which brought inflation back down did not depend in any way on the Fed’s possession of those assets. High interest rates were enough. Lenders don’t need fancy assets to screw the bejaysus out of borrowers.

@ Rebel Economist

Your post at 12.42pm yesterday possibly ranks as one of the stupidest that this blog has yet received, which puts you at the top of quite an impressive list.

1. “Besides his insensitivity in using WWII to attack a German”

Sinn brought up the Marshall Plan, which was the direct consequence of WWII. How would you prefer KW reference it, something like “….which resulted from a complex political skirmish that took place in the 1940s”??? Sinn tried to moralise on the Marshall Plan, which is indeed ironic given that Germany both caused it’s requirement as well as became the primary beneficiary of it. KW smacked him upside the head on the stupidity of raising the Marshall Plan and Sinns complaints against the US government’s urging for German action on the current EZ problems.

2. “Karl Whelan forgets that he is from a country that shamefully persecuted its own men who contributed to that freedom and prosperity”

Most countries shot deserters during national emergencies, we took away their pension benefits. While a stupid decision at the time, I think we’re happy where we stand in the overall morality of such decisions relative to other countries. Almost every country did something “wrong” during WWII, so if this issue, and a politically naive, though thoroughly correct per the diplomatic protocol of a neutral country at the time, act of sending condolences on Adolf’s expiration, are the worst acts we performed, then I’ll sleep contently tonight. Many thousands of Irish men and women put their lives on the line to help in the fight against the German Nazi tyranny. We had a weak, immature and conflicted government at the time, but we have always had a strong and brave people. I’ll not have you wagging your finger at my “countries decision” 70 years ago – we chose to fight for freedom, even if our government at times remained on the fence. You genuinely don’t want to get into an argument on this.

3. “Karl Whelan forgets that he is from a country that shamefully persecuted its own men who contributed to that freedom and prosperity”

Karl was becoming subject to many personal attacks on here as a result of his economic views. People claiming he was trying to curry favour with the Irish government etc. Basically the blog was, and is, becoming prone to slightly nutty and potentially libellous commenters. Can anyone blame him for wanting to take personal control of what and where he writes? Given that you blog anonymously, you may not fully appreciate this issue, and so you rather too easily throw around comments like “he’s a complete idiot”. To be honest, why should anyone have to “respond” to such comments just so you can feel good about yourself???

@ Eureka

I’m generally loath to bring up WWII on here, but when someone starts moralising about Ireland’s positioning in that tragedy, at the same time as complaining about the “insensitivity” of mentioning it to a German, well I will then make an exception…

Bhttp://www.independent.ie/opinion/letters/saving-ireland-3080801.html

@Bond Eoin Bond
Lets not forget our American cousins who gave their money and their lives to save Europe before and after WW11;

@ Those involved in revisiting the past

FYI

http://en.wikipedia.org/wiki/World_War_II_casualties

Perhaps this might be an appropriate point to bring the discussion to a conclusion.

A post on Paul Krugman’s blog, highly relevant and quite short:

What A Real External Bank Bailout Looks Like

Something I’ve been looking at: Texas after the savings and loan crisis of the 1980s.
The cleanup from that crisis cost taxpayers about $125 billion, back when that was real money. As best I can tell, around 60 percent of the losses were in Texas. So that’s around $75 billion in aid — not loans, outright transfer.

Texas GDP was about $300 billion in 1987. So this was equivalent to giving — not lending, not even taking an equity stake — Spain 25 percent of its GDP to bail out its banks.

And in the US it wasn’t even treated as an interstate political issue.

@Eoin

Steady on there. There is a strong argument that there was something peculiarly vindictive and sulky about the decision not just to take away pension entitlements of those that disobeyed the Irish state and went to fight with first the British and then the British and Americans, but also to ban then from ever being employed by the state – something which employed the power of the state to reduce most to decades of poverty.

The comparison with deserters being shot I think might be a stretch. It was a traditional army enforcement tactic used not only during the war itself, but usually at the point where it had a deterrent effect on others so its effect was pertinent to the battle. The Irish comparative was a cold, calculated, nasty act of revenge.

Then of course there is access to the Atlantic ports…..

I don’t agree with docm. I think ww2 has background resonances that have an at least subliminal effect whether they are openly discussed or not. It might even be advisable to discuss them.

apologies for the terrible spelling…

Michael if it wasn’t Ireland then these companies would move to any number of other offshore locations.

It’s not US or UK that Ireland is competing against but Caymans and Seychelles and about dozen UK island “territories”.

Interestingly enough half of tax havens belong to the Queen… something to ponder about.

@ grumpy

The only “background resonance” that WWII has, as far as I am concerned, is that the experience should not be repeated.

@ grumpy

FYI

http://www.businessweek.com/news/2012-06-17/eu-mulling-introduction-of-short-term-euro-bonds-spiegel-says

Michael politicians in US are openly bribed (erm lobbied) by the very same large companies, and despite all the promises of “change” and “hope” its business as usual.

And yes as a director its unfair how Revenue treat SMEs compared to Googles of this Island, for example every few months I have to invoice Google and wait months and months for them to pay VAT they “hold onto” only to handover every single cent of this over to Revenue. Would be much faster if Revenue actually send the bill to Google directly cutting out on my paperwork, or Google paid the full amount including VAT.

@EIS,

I’m not familiar with the particulars but it might be that Google Ireland are approved for zero-rating of VAT. Their turnover is certainly likely to consist of at least 75% exports, the particulars are what you supply to them and if they manage their cash efficiently and have asked revenue for zero-rating of VAT:
http://www.revenue.ie/en/tax/vat/forms/vat13a.pdf

Am a bit surprised by Googles behaviour, usually big companies pay all or nothing (when they get around to paying).

Bit more detail on Greece

http://www.reuters.com/article/2012/06/17/us-greece-election-idUSBRE85F05320120617

It’s looking even closer than forecast. What now?

History matters …

Dimitris Dimitriadis
Playwright, novelist and translator
A native and a resident of Thessaloniki, Dimítris Dimitriádis (b. 1944) is a playwright, essayist, poet and also the translator of a large number of authors including Shakespeare, Tennessee Williams, Samuel Beckett, Jean Genet, and Marguerite Duras. He is the author of several novels and close to three dozen plays including I Am Dying like a Country, which has been widely translated and performed in several countries.

So the cause of the crisis is historical rather than political or economic?

Yes, although I don’t deny the economic and political dimensions. But you cannot say it enough: the political system under which we live in Greece, which dates back to the Ottoman occupation (and is thus several centuries old), is completely clientelist. The big landowners of times past have been replaced by the political parties, but they have the same relationship to the people. The state belongs to the party, and the party utilises and exploits state resources to maintain its systems of patronage.

http://www.presseurop.eu/en/content/article/2184271-dimitris-dimitriadis-living-light-dead-star

Grumpy,
Sadly you put your finnger on it. From the perspective of a large part of the Irish republican family- ranging from most of SF, a lot of FF and a small few FG- it was a pity that the Germans liost. Whose flag was burnt by who on VE day in Dublin. This inste anti Britishnesd on the part of the establishment contributed to the Ill fated decision to join the Euro.

@Ceterisparibus

The call will no doubt go up from Syriza later on:

“Απαιτώ μια επανακαταμέτρηση”

Who left all that chad laying around?

My guess is that ND/PASOK might just get enough to get back into power. Only just squeeking it because it mustn’t be made too obvious must it?
What do they need between them? 40’ish% plus the 50 seats for the winning party? Something in that order of magnitude. You don’t need to rig too many boxes to squeek it.

The last time the Irish economy was really in the mire, back in the 1980s, we used to joke that election-winners should have the option of making the other side bat first. If Syriza are good bowlers it could be a short innings.

It’s probably the best result the Greeks could hope for, given that they want to keep the euro. The EU can’t just put a firewall around an ND-led government, even if it knows how to build one (which I doubt), so negotiations must go on.

@PR Guy / @CP

re:”My guess is that ND/PASOK might just get enough to get back into power. ”

If so there will one last slim chance for ‘Europe’ to get its act together. But on reading the ‘Bild’ spittle referenced by @CP it seems that Germany believes that she has all the answers.
All answers but no solutions.

Eureka,
I am disappointed that the lefty loon did not win in Greece. Basically, the more Socialists that are revealed to be fools the better.
On the other hand a lefty win might also expose the utter lunacy of German policy.

Grumpy

Agreed that it was shameful. There was very litle honour around WW2 really, greatest generation mythology notwithstanding.
The Brits sent Ukrainians and other Soviet citizens who had fought with the Germans back to Stalin at bayonet point after the war.
They went to war to save Poland from the Nazis but agreed to let Stalin and the communists have it afterwards.

@ All

Moving on! The Telegraph has obtained and published the initial draft of the conclusions of what promises to be the make-or-break 22nd (or is the 23rd?) meeting of the European Council on the crisis.

http://www.telegraph.co.uk/finance/financialcrisis/9336766/Exclusive-Secret-EU-summit-document-shows-first-step-to-banking-union.html

Il Sole 24 reports tonight that following contact between the ‘Eurogroup’ and the White House, there is an agreement (not formal yet one presumes) to give Greece more time to get its financial affairs in order. Sisyphus Shrugs, perhaps?

Third bailout on its way?

Meanwhile back in Ireland two government ministers can’t even agree on which department should take responsibility for the rent supplement payola…

Oh well, I guess Greece has taken the longer – probably more painful – road to eventual exit. I expect there are a few who are disappointed that the left didn’t win so that there was an excuse to dump them now.

In the meantime, who only knows what a bigger mess the country has become in the past few weeks in between elections. After there’s a big announcement at the G20 that Greece will be given more time to pay back its debts (rah rah rahzmatazz) they will then need to get around to the third bailout soon because it sounds like government revenue has been going off the rails in the past few weeks.

Time to move on. Cloak the problems for a few more weeks then I guess it will be time for someone to discover just how big a hole there really is in Spain (and even then, it will be understated)….. or some other yet to be discovered disaster waiting in the wings.

What’s up next, other than Royal Ascot?

@ PR Guy

The race card for Ascot is the series of meetings to the end of June, including the G20 this week. Greece is a sideshow except to the extent it might have been the trigger for the start of a panic. Now that it appears not to be, it will leave centre stage (together with the debate on WW II, it is to be hoped).

http://www.bloomberg.com/news/2012-06-18/greek-vote-a-sideshow-with-spain-needing-aid-blejer-says.html

After WW11 Irish America controlled the Democratic Party.In 1948 the Democratic Party President Harry Truman organised the Marshall Plan to rescue Germany and mainland europe from economic ruin. Irish America’s control of the Democratic Party reached it’s zenith twelve years later in 1960 when the Irish big city bosses of the Great Eastern and Midwestern cities combined to nominate the grandson of Honey Fitz as the Democratic Party candidate for president.

On the 26th June 1963 President John Fitzgerald Kennedy spoke at the Berlin Wall and commited all America’s resources to the defense of West Berlin. Kennedy arrived at Dublin airport later that day and was greeted by another american born president, President De Valera. JFK spent eight hours in Germany and four days in Ireland. On the day he died the President of the United States,The Speaker of the House of Representatives, the Majority Leader of the United States Senate and the Chairman of the National Committee were all Irish, all Catholic and all Democrats. Irish America rescued Europe after WW11. Perhaps Germany and the rest of europe should be reminded of this important fact.

@Rebel

You accept that a solvent central bank can generate inflation. Fine. The next step is to see that an insolvent central bank can bring inflation to a halt, simply by raising the cost of borrowing. Clearly you don’t need CB solvency for that. So what’s left of the postulated link?

@Ceterisparibus

“It’s already moved on…”

Yes, but I miss the likes of Berlusconi, Sarko and GPap coming out of their late night sessions to tell us everything is OK and any crisis has now been resolved. Perhaps RTE should make one of those “Where are they now?” documentaries?

I see Samaris is talking as though 99% of the Greek people had voted for him and for the austerity measures and general BS about Greek unity and concensus. The other 1% are of course too busy with buying London property or counting the money they currently hold in Bunds and in Swiss bank accounts to bother with elections.

@PR Guy
Re Samaras.

That’s what a Harvard education does. BUllshit on a higher plane.

I just saw a photo of Spanish miners firing homemade shoulder launched missiles at riot police in norther Spain. A bit of an escalation to say the least.

Here (scroll down)

http://www.guardian.co.uk/business/2012/jun/18/eurozone-crisis-live-markets-rally-greek-election

@Kevin,

Assuming that the cb does not hike the interest on reserves (which as mentioned earlier would not help its balance sheet), it can run down its assets (reducing loan rollovers if not actively selling assets) to reduce the stock of reserves to raise moneymarket interest rates. Clearly, the cb needs assets to execute this operation.

But look, I said that the link was a question of risk, which I dare say Germany would choose to eliminate by recapitalising the Buba whether you are right or not, and we are getting off the key question here, which is whether the loss of an asset like the Bundesbank’s TARGET2 credit represents a loss to Germany. Even if Germany did decide to leave the Buba insolvent, there is still the loss of an interest paying asset on its balance sheet to contend with.

@Kevin,

Yes, if you are prepared to run a significant inflation risk by not recapitalising an insolvent central bank, that seems tantamount to a lack of commitment to the inflation target to me.

I have explained why I think that not recapitalising the central bank represents an inflation risk, and hence why the Germans would probably do it. You can explain why you think that not recapitalising a central bank is not an inflation risk if you like, but since the purpose of my original comment was to criticise Karl Whelan for “misleading people by denying Germany’s massive exposure to real wealth loss arising from its TARGET2 credit”, and since that Buba asset is no doubt getting bigger as we write, the question of Germany’s exposure to loss is what I want to settle.

You know, Kevin, not enough assets to sell to withdraw base money etc….I am not writing it out again. But as I said, I think the Germans lose whether they recapitalise or not. Now you tell me something.

By the way, when you talk about “interest rate hike”, Kevin, I wonder whether you appreciate the difference between interest on reserves and the interest rate on overnight interbank loans that settle in reserves? If so, I apologise for teaching you to suck eggs, but if not, you might find this old post of mine informative: http://reservedplace.blogspot.co.uk/2009/04/easing-understanding.html

When you appreciate that, you can understand the connection between running down cb assets and raising (the latter) interest rate. Most of the time, the contraction of cb assets necessary to raise the interest rate is marginal, but the cb might need to get a bit more brutal if inflation expectations pick up, which is where the risk gets significant.

@RebelEconomist & Kevin Donoghue

Hey, would you two like one of the NAMA 5* Hotel Suites for a weekend in Dublin – gratis – full service bar – WiFi … Close to the Wood Quay Folly and a stone’s throw from PollyShawneen’s Folly and report back to the blog in your own time with a neat 1,000 word ‘working paper’ understandable by financiallly challenged ministers, junior ministers, and all Irish bankers earning in excess of €250,000 p.a.

Thank you.