Simon Wren-Lewis on conditionality in bond-buying programmes

I posted this link just now on the other thread.

http://www.ft.com/intl/cms/s/0/4ea5c456-e55a-11e1-8ac0-00144feab49a.html#axzz22Q7FSkEB

What can be the explanation for the behaviour of French bond yields?

One possible conclusion is that it matters not at all, or, at least, not much, what the ECB does or does not do as far as intervention in the bond markets is concerned. What matters is that individual governments convince the markets that they are capable of getting on top of their budgetary problems. France is being given the benefit of the doubt for the moment. This, nevertheless, bears out the general point being made by you with regard to conditionality in the context of any ECB bond intervention.

It also suggests that, as far as bond investors are concerned, in the present political climate, the closer to home they are the better. How that is to be factored in to models on multiple equilibria, I have no idea.

FYI for the pessimists

08/13/2012
Currency’s Days Seen Numbered
Investors Prepare for Euro Collapse
By Martin Hesse

Banks, companies and investors are preparing themselves for a collapse of the euro. Cross-border bank lending is falling, asset managers are shunning Europe and money is flowing into German real estate and bonds. The euro remains stable against the dollar because America has debt problems too. But unlike the euro, the dollar’s structure isn’t in doubt.

http://www.spiegel.de/international/business/investors-preparting-for-collapse-of-the-euro-a-849747.html

What about the very real and current redistributions (as opposed to the phantom future redistributions referred to above) from peripheral to core states due to capital flight caused by the very real risk of the disintegration of the Euro?

Oh, wait, I forgot. Those redistributions don’t violate Bundebank dogma and they benefit Germany, so they don’t matter.

@DOD
I love these statements by core politicians and central bankers (including our very own bearded one) – “there are no simple tricks”, “there’s no free lunch”, “nothing is costless” etc.

I’m quite willing to accept that nothing is costless, but those that utter such banalities should be forced to explicitly outline the costs and the specific mechanisms by which they can occur and weigh their risk up against the current disastorous policies.

Its almost as if some solutions are not painful enough (for others) to warrant implementation.

@ All

From the Household Charge website.

“The EU/IMF Programme of Financial Support for Ireland commits the Government to the introduction of a property tax for 2012. We are one of the last countries in Europe that does not fund local services through local property-based charges.

These services are essential to your community. They include: fire and emergency services; maintenance and cleaning of streets; planning and development; public parks; street lighting; libraries; open spaces and leisure amenities. These facilities benefit everyone.

A property tax, requiring a comprehensive property valuation system, would take time to introduce and accordingly, to meet the requirements in the EU/IMF Programme, the Government has decided to introduce a Household Charge in 2012.The Household Charge is an interim measure only and a comprehensive and equitable valuation-based property tax will be introduced as soon as possible.”

Over one million people have now paid the charge and the supposed blanket opposition to the introduction of a property tax does not seem to exist. More importantly, the development underlines the benefits of conditionality by forcing pusillanimous politicians into unpopular but necessary decisions. An added benefit is that slowly but surely the state is modernising itself in terms of providing the necessary data to resolve the problem identified by the NYT (“two doctrines of fairness — the universal view and the first-person view — are both compelling in their own way, but only one of them offers moral clarity impartial enough to guide our policy decisions.”) through the collection arrangements for the HC and Non Principal Private Residence Tax, coupled with moves to track down who gets what in the context of social welfare benefits. The hesitancy with regard to using data acquired in the course of tax collection is also disappearing (although we have yet to get to the level of acceptance in Scandinavia that personal taxes are everyone’s business; Mitt Romney, please note!).

The fact that Ireland is actually doing it is what distinguishes the country from the other peripheral countries and which explains, in my view, the dramatic improvement in bond yields. In terms of administrative efficiency and integrity, France and Ireland are light years away from Italy and Spain. This is what explains the leniency of the markets. The issue of bond intervention is a red herring and explains the lethargy of the ECB in actually doing anything.

The Finnish view (from the vantage point of an indebtedness below 50%).

http://blogs.r.ftdata.co.uk/brusselsblog/files/2012/08/Finland-CoveredBonds.pdf

@ All

Did I speak too soon?

http://www.irishtimes.com/newspaper/frontpage/2012/0814/1224322139092.html

It is hard to know which is sillier, the political advisers that briefed on it or the paper that led with it.

@DOCM

Austerity, Irish style.
Multimillionaires get to keep ‘their’ children’s allowance, and their adult children get educated for free.
I hope the Troika stop paying those cheques.

@John McHale

Further thoughts on redistribution risk. As the post from Karl Whelan explained very clearly, losses on the Central Bank balance sheet do not matter, unless of course we are in a hyper-inflationary environment where printing money becomes self-defeating (the scenario outlined in Buiter’s paper).

So, it is disingenuous to suggest that there is a real risk of redistribution because of unconditional purchases of Spanish and Italian debt. Unless of course you believe that the unconditional purchase of Spanish and Italian debt will turn the Eurozone into Zimbabwae (for which there is no evidence at all), in which case you should join the Tea Party or go work in the Bundesbank.

Look, let’s not bend over backwards here to find legitimate economic reasons for the ECB’s half hearted and conditional response to the possible break-up of the Euro. Instead, let’s acknowledge that the ECB’s hands are tied because of the belief system of the Bundesbank (which can be out-voted) and, more generally, the German establishment.

Central Bank independence, how are ya?

@DOCM

It is the ‘silly season’,so the IT is open to the ploys of politicians setting out their stall for the ongoing Budget process. The notion of those nice, rich, privileged families who don’t ‘need’ CB being provided with a special mechanism to donate the payment back to the state is about as daft as it gets, but there is a political rationale involved for a Minister who wishes to maintain a party political line on universal payments, and on CB in particular.

Remember that ‘magic beans economics’ moment on RTE radio between Michael Noonan and Joan Burton before GE 2011 where the then Labour Spokesperson on Finance provoked her Fine Gael counterpart to that comment with this challenge: “Michael, there’s a lot of big houses all around the country where, inside those houses, there’s actually very little money because people are at the pin of their collar paying their mortgages and the child benefit is a critical income support to put food on the table. I’m just asking you, Michael, to think about this..”

In a Dail debate in 2009, Ms Burton had previously identified Child Benefit as a ‘wonen’s issue’, stating:
“I have been quite amused by the number of male TDs and economists offering up Child Benefit as the easiest cut, proving that Child Benefit most certainly a woman’s issue….
“Every time the country is facing economic difficulties, there is talk about “targeting” Child Benefit at low income families. This is always dressed up as a requirement of social equity. In fact, it is just an excuse to cut the benefit…
“Child Benefit is society’s contribution to the rearing of the next generation. It is simple to administer and treats all children equally. It makes no sense to give it with one hand and take it back with another.”

And in launching Labour’s Chld Care policy beofre the last election, the current Minister gave an explicit commitment not to tamper with CB:

“Labour will not cut child benefit because:
• Family incomes have already taken a substantial hit in the last few budgets.
• It is the State’s only recognition that Ireland remains a very expensive place to raise a child.
• To do so will create poverty traps, work disincentives, & increase the number of children in poverty.”

The placement of this story in the IT thus signals desperation or kite-flying or a simple re-run of the tactics deployed by Ms Burton – and other members of the Cabinet – before last December’s Budget. The political intention behind voluntary payback mechanism for CB is clear, and understandable, given Ms. Burton’s long-stated views . The contortions implicit in a voluntary pay back scheme are politically preferable to a breach of long-standing principle.

The rationale advanced for not taxing CB – that IT systems in the DSP and Revenue can’t ‘talk’ to one another – may not withstand much scrutiny however, given that last January the DSP had no problem sharing bulk data with Revenue in respect of pensioners’ tax liabilities.

And while all this may appear severely off topic, an analogous mix of processes and beliefs, political pressures and ideological persuasions must surely apply to key figures within the ECB faced with difficult policy choices?

@Veronica

The Irish Welfare State is a Middle Class Construct

College grant system favours farmers and self-employed
FARMERS AND the self-employed are more than twice as likely to get college grants for their children as PAYE workers.

According to the latest figures from the Higher Education Authority, more than 40 per cent of farmers and close to 50 per cent of all self-employed people secure a college grant for their sons or daughters.

By contrast, only 17 per cent of those from families headed by a “lower professional” can expect to be grant-aided in college. The percentage is also relatively low for a range of other groups including non-manual workers (27 per cent) and “higher professionals” (10 per cent).

The figures for 2010/2011 also show that 17 per cent of those from an employer/manager background secured a grant.

Minister for Education Ruairí Quinn has signalled how he would like to broaden the means test for third-level student grants to include capital assets in addition to income.

…
The de Buitléir report revealed how one farmer had 122 acres and net assets of £215,000, but his annual income for grant purposes was only £15,000.

http://www.irishtimes.com/newspaper/front/2012/0814/1224322139129.html?cmpid=morning-digest&utm_source=morning-digest&utm_medium=email&utm_campaign=digests

@Economists

Has anyone calulated the size of the Middle Class Welfare parcel?

@ David O’Donnell,

Hmm yes. One can be asset rich and cash poor at the same time….which is the argument Joan Burton has made consistently down through the years with regard to recipients of Child Benefit. But when it comes to the farmers, her colleague, Ruairi Quinn, is swinging with a different bat.

It’s overly simplistic to put this sort of inconsistency down to any kind of ‘class’ bias. I would suggest that voter allegiance may provide a more fruitful line of enquiry. If memory serves me correctly, there was a sizeable transfer of votes within the farming community from Fianna Fail to Fine Gael in GE 2011. However, Labour’s share of the farming vote remains negligible. Electorally, Labour don’t have to worry about the farming vote, since they don’t have any of it to speak of. But FG do.

In the end, it may all come down to an old-fashioned political trade-off between the Coalition partners, probably at the level of the so-called economic management committee, between cuts to Child Benefit for higher earners (possibly a scheme along the lines suggested by MH above, or some variation on it) and a formula for keeping the farm assets out of the equation for means-testing third level grants, so that backbenchers are mollified and the vested interest groups whose approbation is, respectively, important to each of the parties in government is maintained. Laughable I know, but such is the way in which policy is made. Is it any different in the ECB or any of the other European institutions?

Conditionality means politics, but the Euro was always about politics. Maastricht and the Euro exist as a way to keep Germany locked into the EU post reunification. The Germans always doubted the feasibility of a common currency and they always insisted on German, not French, leadership in monetary matters.

The point is we knew this going in. We, along with Italy, Greece, Spain etc, chose to get into the Euro because we believed that life would be worse outside it. Politicians across Europe at both national and EU level either cheated to get in, or they turned a blind eye to the cheating of others. Now those chickens are coming home to roost, we have to choose again. It’s that simple.

and if the Bundesbank’s belief system is outvoted, then Germany will leave the euro and if Germany leaves there will be no Euro and no EU. Germany need europe less than eurpoe needs Germany. That’s the point.

http://www.spiegel.de/international/germany/the-price-of-unity-was-the-deutsche-mark-sacrificed-for-reunification-a-719940.html

@Bklyn_rntr

Its not at all clear that the rest needs Germany more than they need the rest. The Euro is a millstone around the necks of Spain and Italy. Without the Euro those nations could follow the time-honoured, tried and tested route out of financial and debt crises – namely, debasement and inflation. Without the Euro, Spain and Italy would be no worse off than the UK – in fact, with its huge manufacturing sector and low household debt levels, Italy would probably be in a much better position than most. In addition, as it is a G7 country, it could conceivably redenominate its debt in Lira without even triggering a credit event.

On the other hand, Germany is currently in the middle of an export bubble based on a vastly under-valued exchange rate. In addition, huge capital flows into Germany are inflating the balance sheets of its banks and reducing the costs of borrowing to nothing. If the Euro hits the wall, so will the German economy. Furthermore if you are a creditor nation on a massive scale, it is generally not a good idea to spark the kind of widespread default that would ensue following the break-up of the Euro.

I think you are also ignoring the cultural and political aspect to this. Of course Germans are nostalgic for the D-Mark, but for historical as well as economic reasons they will not trigger the disintegration of the European project.

Bazza, I respectfully disagree with most of what you say. If Sapin and Italy had NEVER joined the Euro and had NEVER run up the debts they did, then you would be right. But they did join and they did run up massive debt, partially through fiscal overspend, but mostly by borrowing from the interbank market. If they leave the Euro today, they will default on the debt and their economies would be destroyed, much as Latin American Economies were ruined in the early 1980’s.

Germany’s banks (along with those in France and the UK) would collapse in an exit scenario and governments would decide (based on current philosophy) to bail them out. Germany would see a much reduced trade surplus or even a deficit with the rest of the world, but its massively competitive real economy would absorb that over time. This would not be true for France or even the UK.

We are dealing with a) where we are today and b) relative outcomes. In a leave it to rot scenario, Germany would suffer but it would survive and reinvent itself as the leader of an eastern European block. France Italy, Spain would be ruined and the UK would be close to destroyed.

@Joseph Ryan

I don’t see Germany “forcing” anything on anyone. That may be my warped perspective, but my read is this

Peripheral country: Ohh sh@t, we are screwed, our banks are bankrupt and interbank funding is not available. ECB, absorb these losses and print.

ECB: Well wait, that’s not what we agreed when we set up the Euro. Do you want to change the rules?

Peripherals: yes, change them so we can wipe these debts and get back to where we were.

Germany: Do whatever you want, but Germany’s not paying.

@Bklyn_rntr

Most of what you say is just not correct. Italy did not run up debts in the lead up to the crisis – almost all of its debts are a hangover from earlier times and it has done quite well up until now managing its debt burden. Italy’s main problem is that it doesn’t have a central bank standing four-square behind it, as the UK does. By the sounds of it, KO’R agrees:
http://www.irisheconomy.ie/index.php/2012/08/06/simon-wren-lewis-the-emu-chess-game-italy-and-the-imf/

Spain is in the midst of an old fashioned banking crisis but its sovereign debt is lower than the UK’s. To somehow claim that without the Euro both countries, which are integral parts of the European economy, would suddenly regress to the economic state of Mexico in 1980s is clearly ridiculous.

I have no doubt that Germany would reinvent itself following a Euro break-up (I didn’t claim otherwise). However, it is currently in a position of strength that has been facilitated by the existence of the Euro and, as such, it has far more to lose from a break-up than countries such as Spain and Italy, who are already suffering the full effects of the crisis.

@JR
The European project has been the vehicle for the rehabilitation of the German nation since the war. I very much doubt it if Merkel is going to undo the work of generations of her predecessors from Adenauer to Kohl.

@Bklyn_rntr

I
If they hang together we have a major world currency that will be tough to stay in, but tougher to stay put of. If they don’t we are back to some nasty Realpolitik world that truly scares me.

Imagine being in the parlous state that poor Sweden, Poland and Denmark find themselves in, not being part of a “major world currency”.

That truly is an appalling vista.

With their easy government financing and their healthy economies they must be simply sick with envy that we are safely locked in the cage of EMU with the 800lb Gorilla of German mercantilism looking out while they wander outside looking in. Poor things.

Staying the course has been a failed policy and, in case anyone has forgotten under German/ECB dictat Ireland could still face more losses from the banks.

The sad reality is that the European component of the global financial crisis has been extremely good for Germany on many different levels even while it has inflicted enormous damage to the disenfranchised periphery. However with German banks and government finances benefiting so much from the plight of the periphery we can be certain that Germany will prolong this crisis until it threatens their vital interests.

Since the ECB is so ideologically compromised I see little chance of it being reformed and exit from the Euro at the most advantageous time for us should remain Ireland’s focus.

Seriously, lets stop pretending that Germany cares about anything other than Germany and start behaving likewise in the most intransigent way possible. Not until the crisis hurts German well being will we see a resolution – if we ever do.

@Tullmcadoo
Ive no interest in getting into “someone is wrong on the internet” territory but hot damn son, read a newspaper or something. Most America debt has absolutely nothing to do with “entitlements” (how revealing the use of that phrase is!) if anything was ran up on the credit card it was Republican tax cuts and military adventres. And of course which European countries have done fared best in the crisis?? oh right yeah – its the northern (broadly) social democracies.

See the thing is man, your not supposed to actually believe the stuff they say on Fox, the wall street journal etc. Its only propaganda to get the rubes all fired up.

Lots of assumptions being made but no supporting data.

“an export bubble based on a vastly under-valued exchange rate.”

Sounds simple: why a bubble? countries like Germany and Sweden have strengths in particualr products in demand. what does ‘vastly’ mean?

Sweden outside and euro and Finland inside, have strong economies and negative debt.

These countries introduced significant reforms following their experiences in the early 199Os.

The Indian rupee is down about 20% against the US dollar in the past year; the trade deficit has widended for an number of reasons and inflation declined to 6.87% in July — but more than double China’s rate, which is preventing the central bank from lowering interest rates.

Devaluation also would provide no easy routes to prosperity for Spain and Italy.

@MH
“Lots of assumptions being made but no supporting data.

“an export bubble based on a vastly under-valued exchange rate.””

Are you suggesting that Germany does not have a vastly under-valued currency vis-a-vis its European trading partners and by extension the rest of the world? What supporting data do you need for this – is it not self evident and if so has it not contributed in some measure to its export boom. To deny this would be an affront to one of the few things we can be certain in economics that is true in the real world as it is in theory i.e. for the vast majority of products there is a negative relationship between price and demand and in a free float currency exchange the price of German exports would have been dearer over the last decade than was the case? Surely this is not in dispute.

But if supporting data is needed, check balance of trade data pre and post Euro for Germany and toggle with comparisons for Spain, Ireland, Portugal and Greece. The trends for all countries reversed from pre to post euro.

http://www.tradingeconomics.com/germany/balance-of-trade

Is it purely coincidence that the undoubted advantages Germany have over any of the aforementioned nations only really began to manifest themselves, totally coincidentally, in these figures at the outset of the Euro? Of course not…the implications of the single currency has meant that German advantages (independent of currency) recieved a massive shot in the arm from the single currency. By contrast, the relative disadvantages other countries endured were compounded for the same reason.

@Bazza
“The European project has been the vehicle for the rehabilitation of the German nation since the war. I very much doubt it if Merkel is going to undo the work of generations of her predecessors from Adenauer to Kohl.”

You may be right, but modern Germany, including Merkel and its politicians, is more informed and led by the the tabloid ‘BILD’ than by history, the sixth largest selling tabloid in the world. Germany’s collective memory of the early 20th century seems to be more influenced by the economics of hyperinflation than by the ugly lessons of international conflict and the strive for domination.

http://en.wikipedia.org/wiki/Bild
Judith Holofernes, frontwoman of Wir sind Helden (We Are Heroes), wrote a scathing open letter to Bild’s advertising agency after they asked her to star in their latest campaign. “Bild is not a harmless guilty pleasure”, she wrote, but a “dangerous political instrument – not only a high magnification telescope into the abyss but an evil creature”.[12]

An evil creature with a large and unthinking audience.

@MH
Maybe you should ask the SNB what “vastly” means when it comes to exchange rates. Given the safe have status of the former D-Mark, I think it is safe to assume that a new Mark would behave more like the CHF than the SEK.

Wtih the current global economic problems, debasement by the Fed and BoE, capital controls in China and Bundesbank idealogy, a new free floating German mark would appreciate massively against all the major world currencies. If you think this wouldn’t have a huge effect on the German export economy then I don’t think there is any point debating with you.

@bazza, anyone else

“@John McHale

Further thoughts on redistribution risk. As the post from Karl Whelan explained very clearly, losses on the Central Bank balance sheet do not matter, unless of course we are in a hyper-inflationary environment where printing money becomes self-defeating (the scenario outlined in Buiter’s paper). ”

I thought this was done and dusted months ago.

I thought you (or Karl) could use “do not matter” if you were only narrowly focussed on inflation or national poverty for the country that prints to repl;ace Target 2 credits written-off. Widen the argument a bit and you (or Karl) have to abandon that statement.

Politics and ‘redistribution’ are inextricably linked in my view.

btw, I’m taking the helicopter view, from the international space station.

How would one explain to a German or Finnish teacher what peripheral EZ coutries used much of their first redistribution/subsidy (aka Euro spread compression) for, and why it is not reasonable to expect the second to be used to either prop up or replicate those ‘achievements’?

How Germans would vote today – interactive monitor

http://www.spiegel.de/flash/0,5532,21034,00.html

@Grumpy

“How would one explain to a German or Finnish teacher what peripheral EZ coutries…”

How does one explain to one of the many millions of unemployed youth, that all the financial wealth of their country has flown towards Germany/ Finalnd/France, either to pay for loans made by the private banks of those counties or to use these countries as a safe haven for private wealth, and there will be no private investment in that peripheral country until there are old and wizen, and they must accept that their lives are superfluous and secondary and there is not a damn thing anybody wants to do about it, because the golden rule is that wealthy cannot and will not accept that their investments have lost, and they want somebody else to pick up the tab, and they appear to be powerful enough to succeed in that objective.

@ JR: Well put. You do not explain. You lie. Works.

The wealthy are vulnerable. They obtain and maintain their (relative) wealth because someone else becomes (relatively) poorer. But – what if the poor run out of money (to purchase anything but their necessaries? Or worse, need state to provide them with the means (Food Stamps for everyone in the audience!) What if the middle-class (whomever they are) decide to reduce their discretionary spending (they have to save)?

Ah! Yes! The ‘wealthy’ game whatever is left – just get their prostitute politicians to oblige. Yes, but those pol critters need to get themselves elected now and again.

This carosel has a bit of momentum yet but gravity and friction will eventually succeed in bringing it to a halt. Then the ‘fun’ really starts!

Should read: Germany has a small export surplus…

@ All

The common denominator in the developed economies is the inability of governments to control their budgets. The situation has arisen because of the related inability to get on top of rent-seeking. The economies that do best with regard to the latter are the ones with the least problems because rent-seeking is a major drag on efficiency.

The problem with regard to Germany is that it has an economic model skewed towards the promotion of exports. The creation of a common currency area shifts the cost of rent-seeking to other countries. Prior to the introduction of the euro, countries could offset the impact by devaluing.

The burden of the process of adjustment is being placed solely on the deficit countries. But this is inherently contradictory because, as many economits have pointed out, adjustment down of costs in deficit countries must be matched by an increase in costs in the surplus countries if the overall level of inflation avcross the EA is to be “near or below 2%”. Indeed, the Bundesbank has grudgingly conceded the point but not an extent that would make any difference.

The problem with the German position is that it is untenable except by way of the adjustment pushing all countries in Europe, and not just of the EA, into a major recession.

@ All

FYI

http://www.chinadaily.com.cn/world/2012-08/14/content_15674057.htm

The entrepreneurial class in Germany, presently in control of policy, have no intention of making any major changes. Neither has the SPD, controlled as it is by organised labour that also benefits greatly from the current structure of the economy. In the meantime, it is a statistical fact that poverty levels in Germany have been rising!

Generally, FX prognostications are worth little if anything. In 08, when the US banks collapsed the expectation was for the US$ to devalue a lot, but of course it strengthened as money flowed to relative safety. A Euro collapse would be a massively disruptive event and would likely produce much the same effect. There is little doubt that the new Punt, Drachma, or Escudo would devalue massively against the new DM, but it is possible that the DM is stable or even devalues against the US$.

FX should be a reflection of a real economy and not an “engine”. One reason whiy the peripher is in thiss mess is because for years (since the late 60’s at least) the strategy has been to devalue against the DM, pocket the short term competitive advantage that this gives and then blame someone else for the inflation. The problem with this plan is it slowly destroys economic discipline and it was not available to Germany. There are many reasons why Germany has some of the world’s strongest and most competitive companies and the long hard years of managing an export business in a strong FX regime is one of them. Maybe it is time the rest of us learned the same lesson

@bazza

Unconditional ESM periphery bond buying “does not matter” is ewquivalent to the previous argument that Target 2 credits written off by Germany “doesn’t matter” – they just write a cheque to themselves.

Both ot these arguments ignore the redistributional effects that ordinary voters will cop on to even if financial analysts don’t want to.

See various threads involving principally KW on here a while ago for the argument.

The interesting question to ask is why Germany has done so well while France has performed poorly? France has run a trade deficit every year since 2002.

Both were helped by the euro as in the 1990’s Trichet at the Banque de France had a ‘Franc Fort’ policy to cut inflation.

Apart from pay and related labour reforms, Germany was in the special position of having a portfolio of products – – cars, power generation and machine tools for factories — coupled with a reputation for quality engineering, to meet the surging demand from emerging economies.   

German exports and imports (including services) as ratios of GDP were at 29/29 In 1999, and in 2011 at 50/45

French exports and imports as ratios of GDP were at 26/24 In 1999,  and in 2011 at 27/30

According to Citi analysts, Germany’s real exports of goods and services have posted cumulative growth of more than 120%, since 1999. Ireland has been the second-best performer. France and Italy have seen their exports grow only 40% since 1999, and Greek exports have expanded by 30%.

Germany’s real imports have increased 90% since the introduction of the euro, easily outpacing the import growth of the other countries. The analysts say this data supports their view that the expansion of Germany’s trade balance has largely reflected strengthening exports rather than an anemic expansion of imports.

The contrasting trade fortunes of the two biggest economies in the Eurozone were vividly illustrated last February when France reported that the negative gap between exports and imports had widened in 2011 to €69.6bn from €51.5bn in 2010. Germany reported that its foreign trade balance showed a surplus of €158.1bn in 2011. In 2010, the surplus amounted to €154.9bn.

France’s previous record deficit was €56bn in 2008.

France’s export growth of 8.6% in 2011 was offset by a 12% rise in imports, and was weaker not just than that of Germany but also of Italy, Spain and the UK resulting in a further fall in France’s global export market share, which has dipped to 3.6% from 6.2% in 1990.

Germany had a deficit in service exports of €7.8bn.

The goods trade surplus with the other 16 Eurozone member countries was €19.4bn while two-thirds of the surplus related to ex-EU27 trade.

@MH
No doubt.

But lets not shy away from honest public debate on this. These issues were not on the agenda when people voted in favour of a single currency. Notwithstanding the de Lors report recognition that a single currency could not survive without these other things you outline, they were never implemented nor could they if treaties were to get over the line. The Irish people must be given the opportunity to decide on whether we want that level of integration that the new Euro order has presented us with if it is to survive. Some on this forum have indicated that when we signed up to the single currency we made our bed, that we signed up to these things – I do not accept that. What we have going on is what I would term ‘federalisation creep’. When “Ludicrous” Lucinda was telling all in sundry that greater integration in no way pared away at our fiscal independence, that was at best wrong, at worst a blatant lie. if it was the latter then she and her cohorts are relying on the politics of fear to push us over the line to something we never signed up to.

I honestly don’t know if the Euro reflected German reality or not. I would argue that it reflected german fundamentals more than peripheral ones for most of the 99 to 08 period in both its level re the US$ and in the interest rate charged. I do fully agree that a single currency without redistribution is an extremely harsh/impossible metric for the losing countries.

you talk about the discipline of capital flows and the natural reflection of these in FX rates, but the UK didn’t have the Euro and it saw a bubble. Also, I pointed out the US$ rate only to illustrate that it is not a foregone conclusion that the new DM would strengthen massively. Instead, it would revalue upwards relative to the peripheral currencies but those countries would be devastated by default. It may devalue relative to the US$ however and for Germany, that is the relevant FX rate as they are a global exporter.

@ All

The report in question in case anyone is interested.

http://ec.europa.eu/bepa/pdf/monti_report_final_10_05_2010_en.pdf

Thanks DOCM. I will read this report and Fully agree that Germany needs to accept some responsibility for the mess. Like a lot of messed up things, this crisis was a team effort.

@Eureka

I hope proper plans are being made. I’m not joking if we hit a crisis involving having to leave the Euro it would be better done before Israel attacks Iran than after.

+1

Let us hope that some less senior and serious civil servants are ignoring the comforting noises from the top and doing some contingency planning. Merkel’s EPP fellow travellers across Europe and the ECB might yet give us a real depression to enjoy.

Also remember our own idiot Foreign Minister channelled right wing nut and former US ambassador John Bolton in an effort to incriminate us in Europes’s next huge foreign policy mess?

From http://www.irishtimes.com/newspaper/breaking/2012/0123/breaking8.html

“Here we’re dealing with an undisputed fact that Iran is militarising its nuclear set-up. There is no argument about the threat that that poses,” Mr Gilmore said after the decision was announced.

That really helped Ireland on the international stage and lowered the chance of a war in the middle East and an oil crisis.

Someone could profitably do an Irish version of Robert Harris’s “The Ghost” based on Gilmore’s behaviour.

@DOCM

I started reading the Monti report, and in the moment I have this feeling, what has this to do with our urgent problems at hand.

Some hint from you on what pages to look first, would certainly help. The summary is extremely vague language.

Your allegation
“Germany also negotiated a major concession with regard to how the UK rebate from the EU budget is funded, leaving France, Italy and Spain effectively with the bill (!).”

Do you have some evidence at hand ? Or show me , and maybe others, where to see this in the numbers, e.g. at http://www.money-go-round.eu/ ? This would be ver helpful for mutual understanding.

@ genauer

I should add that the BBC description of the actual method of calculation of the UK rebate is inadequate. In fact, its complexity recalls the famous saying by Lord Palmerston with regard to the Schleswig-Holstein problem.

“Only three people…have ever really understood the Schleswig-Holstein business—the Prince Consort, who is dead—a German professor, who has gone mad—and I, who have forgotten all about it,”

This is getting even more tricky !

Lookup the data for DE and NL in 2010 !!

Germany pays 249.6 UK rebate , AND 167.8 NL/SE rebate, together 416 ,more than the 380 in 2006, before the shenangigans.

Netherlands pays 54.9 UK rebate, but gets 612 own rebate.
some decent 10 % reduction of their contributions.

Effectively Germany got nothing, but the blame for it.
Where have I seen this before ?

@ genauer

FYI

http://ec.europa.eu/budget/biblio/documents/financing/financing_en.cfm

The BBC report is correct.

There should be no rebates, still less “rebates on the UK rebate” for four of the wealthiest countries in the EU.

It’s that simple!

The sums involved are not large relative to overall government spending in the EU. It is the inability of the governments of the EU to agree a clear and equitabe method of raising the necessary Own Resources to finance the EU budget that is the problem. If they cannot do even that, how do they expect to run a single currency?

@ genauer

I leave to others to assess the material I have linked to.

On Italy and Spain “dropping out” of the EU patent, the three biggest economies, the UK, Germany and France, did a deal to have a language regime encompassing their own languages but not those of Italy and Spain. A majority of member countries, thinking that half a loaf was better than no bread, agreed to proceed on this basis by way of a “reinforced cooperation” as provided for in the Lisbon Treaty. The approach is being challenged before the ECJ by Italy and Spain.

There is still no agreement with regard to where the new head office should be located.