Simon Wren-Lewis on conditionality in bond-buying programmes

Simon has an interesting post that challenges arguments against unconditional bond-buying (QE) by the ECB.   He makes a convincing case that such bond-buying for specific countries to avoid a “bad equilibrium” would not violate the ECB’s price stability mandate.   

But I think his analysis misses another key (if implicit) aspect of the ECB’s mandate: in a highly incomplete political union, the ECB must minimise the risk of redistributions between members through its monetary policy (see this earlier post).   Losses on bonds will be shared across the monetary union.   Concerns that monetary union is a vehicle for such redistributions could doom the entire project.   Of course, there is risk of such losses even on normal monetary policy operations.   But this is why these operations take place within a strict risk control framework.   For bond-buying, fiscal conditionality can be viewed as an effort to reduce the risk of losses, and ultimately redistributions between monetary union members.  

Now it could be argued that fiscal conditionality actually increases the risk of losses.   This would be the case if fiscal conditionality is self-defeating — that is, slows the economy so much that the fiscal situation actually deteriorates.   Opinions differ on whether this is the case.   However, if influential members believe that the ECB’s actions would unacceptably increase the risks of losses without conditionality, then the ECB would find it difficult to proceed with bond-buying, and find it particularly difficult to make the strong commitment necessary to keep yields low enough to credibly remove the danger of the bad equilibrium (see here).

The bottom line that redistributive politics within the monetary union mean that the kind of strong commitment needed to keep yields low is near impossible without conditionality.   The choice may be for the ECB to act with conditionality or not to act at all. 

86 replies on “Simon Wren-Lewis on conditionality in bond-buying programmes”

I posted this link just now on the other thread.

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.


Finnish Prime Minister Jyrki Katainen
‘There Are No Simple Tricks to Resolve the Crisis’

In a SPIEGEL interview, Finnish Prime Minister Jyrki Katainen, 40, urges the crisis-hit countries of Southern Europe to issue bonds backed by state-owned assets and rejects a proposal to give the euro rescue fund a banking license. The euro zone, he says, is like a family in which some members broke their promise to respect the rules.

FYI for the pessimists

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.

John, repeating this from you earlier bond buying thread which did not get many comments – key point is to look at power and who sets the ‘conditionality’ parameters if conditionaly is demanded … as we await a new admin in Germany and moves to EuroBonds ….

@John McHale

‘This leaves “conditionality” as the only feasible disciplining device. But I don’t see how the ECB would be in a position to make a credible commitment to do what it takes unless this alternative disciplining device is in place, which explains the requirement that benefiting countries enter a programme.’

I cringe every time I see the term ‘moral hazard’ following the odious socializaion of financial system debt on the citizen serfs – immoral hazard. I view ‘Conditionality’ at this time and in context as first and foremost designed to fit Angela’s flawed narrative so that it can be sold to the Geman Citizenry – and both Angela and Wolfgang have since come out in support. If one observes the make up of the drafting team this is fairly obvious … see below from Der Spiegel … and also see the continuing power dynamic of Gaullism with this German administration out Gaulling the long fellow by a mile …

‘ECB Executive Board members Jörg Asmussen of Germany and Benoît Coeuré of France began to develop a version of the program that could placate critics’ doubts. The effort also involved Thomas Wieser, permanent chairman of the Euro Group Working Group, as well as senior German officials Thomas Steffen of the German Finance Ministry and Nikolaus Meyer-Landrut of the Chancellery. Finance Minister Wolfgang Schäuble, who met last week with his American counterpart Timothy Geithner on the German resort island of Sylt, was also kept constantly in the loop.

The group came up with a classic compromise: The ECB will intervene in the bond markets so as to fulfill Draghi’s London promise, but it will also require the countries benefiting from the action to continue with reforms.

Time and Context always matter. So does Power.

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.

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.

Conditionality in practice in respect of Spain and Italy may not require any significant changes in their current fiscal programmes.

It’s easy to see why the ECB would want the European Commission to take responsibility for monitoring progress.

However, there is no prospect of a political union and change is mainly dependent on countries themselves rather than external monitors.

How France handles reforms in the coming years of low growth will be key for the euro.

It’s 100 days today since the election of François Hollande (less in office) and while there was no chance of emulating the excitement and dread of Napoleon’s last adventure in Europe, the president faces tough choices ahead – – street protests or do as little as possible and hope like the Irish Micawbers, that something will turn up.

The Guardian reports today: “The government dodges any mention of the dreaded A-word. But even the leftwing daily Libération is growing tired of this culture of: ‘Don’t mention the war.’ The paper complained this week that while the rest of Europe springs into action on the economic crisis, France is in a ‘strange torpor.’ The nation knows there must be some kind of collective belt-tightening; there’s an impatience about not being told plainly what it will entail.”

The NYT has an article in the context of the US election choice. The author says “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.”

The arguments evoke the line in Harper Lee’s celebrated 1962 novel, ‘To Kill a Mockingbird’ where the character Atticus Finch says to his young daughter: “If you can learn a simple trick, Scout, you’ll get along a lot better with all kinds of folks. You never really understand a person until you consider things from his point of view, until you climb inside of his skin and walk around in it,” was a reference to racism in the American South but it also has application elsewhere.

The Troika has raised the issue of fairness in respect of Ireland and as in other countries, it is very difficult to counter collective power.

The echoes of the refrain from the passengers on the bubble-time gravy train drowning out dissent from climed critics of ‘wealth creators’ can be heard today from defenders of the status quo. They hate us! They’re doomsayers! They’re jealous of us!

For those following the trails (rather than trials) of banksters, The Wall Street Journal reports today: “HSBC Holdings PLC is hiring a former U.S. government official who policed U.S. sanctions against narcotics traffickers and terrorists, following allegations that HSBC moved funds for drug cartels and other suspicious groups.”

@ 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%).


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?

“….the ECB must minimise the risk of redistributions between members through its monetary policy”

Isn’t that the ONLY way a monetary union can work. Isn’t only through this mechanism that it has worked in the US?


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 excuse about the computers does seem a bit of a joke. Why not ask people above the income threshold to declare the amounts and impose escalating penalties blah blah?

Since 1843, the US Treasury has operated a system where the public can donate to reduce the national debt.

In fiscal 2012, $7.3m was collected up from $3.3m in 2011.

Total debt to the penny today:



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.


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

All here -you have to go to somewhere between the 8th and 9th decile-probably around 1200 per week before taxes and social contributions exceed social transfers.
It is the same all over the developed world, there are less people contributing to than drawing from the public purse. So debts on the next generation keep rising. Don’t tell the kids that we have saddled them with debt-they might vote for Paul Ryan!!!

@ 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?

@ Veronica

The answer to your last rhetorical question above is no. However, it is best if policy is made in a dispassionate way on the basis of a comprehensive package based on correct and publicly available data. We may be slowly getting there.

Incidentally, I do not think that the discussion is off topic. It is what “conditionality” is all about.

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.


“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. ”

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.


It is the same all over the developed world, there are less people contributing to than drawing from the public purse.

<Randian bull droppings alarm>

Do you think, just possibly, that this is because income has become less fairly distributed and governments have been left to take up the slack caused by the resulting disparity of wealth? This is compounded by the erosion of the tax base by MNCs and wealthy individuals using elaborate tax evasion strategies (and spare me the distinction between “avoidance” and “management”)?

So debts on the next generation keep rising. Don’t tell the kids that we have saddled them with debt-they might vote for Paul Ryan!!!

Paul Ryan might sink Romney, so finally Ayn Rand and her libertarian crusade against compassion might contribute something to Western civilization.


On of the only good side effects of the explosion of the credit bubble is that it has killed the European/Democratic PArty model of universal entitlement by gouging the taxpayers and putting debts on the credit card of the future generations.
Social Democracy is dead.


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.

“Germany need europe less than eurpoe needs Germany. That’s the point.”
It is a point of view. Many others would not agree.

If the only solutions to the Euro crisis are those being forced on Europe by Germany over the past four years, then we can be crystal clear that the Euro will collapse and so will the EU.

The German solution is now yielding unemployment levels in other EU countries that simply would not be tolerated in Germany. Why there is not a more forceful reaction in some of these countries is an open question.

Europe is now double-dipped in recession. We need to ask why is that?
The German solution has failed everywhere except perhaps in Germany.
Therefore the German solution is not a European solution. It is a solution designed to protect Germany while increasing the ravages of recession in other countries, by stripping these countries of mobile capital, savings, investments, and their internationally mobile human capital.

It cannot and will not last much longer.

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.

“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.”

Good post but on what basis do you reach the above conclusion. If fact history teaches us that Germany, like other countries, may adopt irrational solutions. The concept of Gotterdammerung as I understand it, is a German creation.
To paraphrase the former AIB auditor article (Sun Ind, I think), Germans have been told that the ‘cats’ (PIIGS, this time) are spreading the problem plague. They seem to believe that. It is only when the ‘cats’ (read PIIGS) have been removed that it will become apparent that it was the ‘rats’ (read banks) all along that were the problem.

@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.

Isuppose that is the point of the narrative. The rest of Europe and the anglo banks want the germans to give them a mulligan and Germany is resisting. Politicians, ever eager to obfuscate, point to current conditions and say, well its the Germans. In reality, the bubble is never coming back (in our lifetimes anyway) and we have to get around to accepting that. The Germans say no to bailing everyone out and the rest say no to assuming responsibility. The Germans, I must point out, were as irresponsible as anyone, but they have real trade relationships with the rest of the world and they have world class multi national companies that will survive whatever happens. In fact, they may even increase profits if they decided to move production to newly cheapened fall away peripherals.


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:

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.

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.

I dont see ridiculous at all. The Italians joined the Euro with a chronically inefficient economy and an already indebted public sector and they effectively transferred their Lira debt for Euro’s. Bank funding went from being deposit based to interbank based so today, if Italy were to leave they would owe Euro’s to German, US, Uk etc banks. If they refuse to pay Euros, then the that would be a massive default and would be enough to kill the Euro and possible the EU.

Spain, same thing, their banks went to the interbank cesspit and they now owe a lot in Euro’s. Mexico’s problems stemmed not from having too much debt, but from having too much debt owed to foreigners and denominated in a foreign currency. That is effectively the same problem facing the peripherals. If we move away from the Euro, it would mean dafault and devaluation.

We are asking too much from the Germans, in my view. if they said tomorrow, Ok devalue away, but we aren’t lending again for obvious reasons, they would still be blamed for the destruction of the Euro. Germany is said to be forcing others into austerity because it won’t step up and PAY for past losses AND stand full square behind future ones even though that was NEVER part of the Euro project.

To say that, today the Euro is a mess we should leave smacks of defeatism of the worst kind. no politician or economist in power said that we should walk away from the Euro in the 99 to 08 period because the benefits of being felt too good. Now that we hit the wall of reality, its all, ooooh no, we didnt sign up for this, but we did! There is no excuse for politicians to say that they didn’t see this coming. It has happened again and again in history and it has always led to disaster.

And the reason I am saying all of this is because Ireland and the preiphery are truly alone in all of this. Frankly Germany only cares about Ireland to the extent that if it falls out, then German banks will take a hit. In 08 Ireland had power (if it failed it would take everything with it) but today it has NONE. Same goes for Portugal, Spain, Italy and Greece. They are irrelevant. The Euro project depends on France and Germany. 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.


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.

Nationalism is on the rise everywhere in Europe and particularly in Germany. If you listen to Rossler and particularly the CSU you hear echoes of a by gone era.
The Greeks are feckless and must be made an example of. Southern Europeans are weak and corrupt. ( sound familiar). Sinn even said something about the youth of Germany going into southern Europe to get their money back.
Previous crises have ended in wars. Why is this one different.

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.


Previous crises have ended in wars. Why is this one different?

Lets start with the fact that Germany has nothing to gain from military adventurism, very bad memories of what war entails and a national self image that is incompatible with military aggression (Greece has a bigger land army than Germany).

The most serious threat of military action in Europe are coups in Turkey, Spain or Greece or the overflow of an Israeli instigated middle Eastern war into the med.

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.

The only good thing on Fox is the Simpsons. I prefer Simpson-Bowles myself. Obama has run up quite a bill on the corporate card with his adventures in Afghanistan.

If it was a forecast rather than a statement it would have some validity. With negative real rates, massive capital inflows and a monetary policy beyond control (maybe) Germany will probably have an asset bubble just like Ireland did. You are correct that pointing out that devaluation and default are not silver bullets. Argentina and Greece are serial defaulters-that worked out well. However, it might be the only solution to the current EZ situation.
You say Finland has negative debt-not sure that is correct-low levels of absolute debt maybe. BTW, Sweden & Denmark have high levels of personal debt -mostly mortgage. Denmark has a huge percentage of interest only, negative amortisation mortgages.

“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.

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.

Aimagine indeed. I suppose I could try to state a lot of exceptions (Sweden’s bank collapse in the early 90’s that only got better in an environment of extraordinary easing, Polands massively lower average wages than Germany’s and its FX flexibility, all of them practically contiguous to Germany and all offering pretty identifiable competitive advantages to feed the German ecconomy)

but I will leave all of that, and say just this. Those countries never joined the Euro, they didn’t say “hand of heart” we want to be at the heart of Europe and will take to rough with the smooth. We did. We took the benefits of lower interest rates and we signed contracts in Euros in both the public and private sectors and we let our fat arsed politicians tell us that all the good stuff was our own doing.

Now when the reality of having given away our sovereignty and the true consequences of tying ourselves into a union designed to be anti-inflation hit us, our first response is, No, we didn’t sign up for this, we only want the good stuff. The fact is we are in it. We can chose to get out, we can choose to default and stay in, or we can leave it to others to choose for us, but I guarantee that whatever we do, the consequences are horrendous.

My vote is to refuse to assume more debt and tell the lot of the UK, US French AND German banks to stuff it. Oh yes, and BTW we signed up to the Euro as a sovereign country and we will stay thanks.

“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.
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.

and it is simplistic to say the EC was a way to “rehabilitate” Germany as if German “crimes” were completely unforgivable forever and at any price. Germany did horrible things in the 1930’s and 40’s but it sufered horribly in the 1920’s and nobody gave them a break. They elected a madman who took them on a ride to hell, and for the first five years (’33 to early ’38) the rest of the world was thrilled with them.

France was just as eager to tie in German productivity and at least try to keep the Russians away from the Rhine. ‘Cos that’s Europe’s age old problem, Germany is too big and too productive for the rest of the continent. Europe only “works” as a balanced, multi cultural reasonably civilized place if either Germany is extremely weak (prior to 1870) or it is tied in (1950’s till now). If France and Germany split then, Houston, we have a problem” as they say.

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.

Hey Guys & Gals

Germany is not Merkel – her day too shall pass


Speaking of Politics and Power PAUL GILLESPIE has an insightful piece in Saturday’s IT – especially on the Alternative Admin in Germany and the role of leading intellectuals …. European Social Democracy is certainly not dead!

‘Systemically this is an economic crisis of banking, refinancing and institutional deficits. But that it will be resolved politically is often underestimated in economic comment. The systemic problems faced by the euro may prove irresolvable, so that it will fragment or collapse. If not, the political will may be found to put in place a deeper institutional framework to allow it survive.

Such constraints of domestic politics in dealing with the crisis have provoked an impressive intervention from the German philosopher Jurgen Habermas, along with two other authors, in the influential German daily Frankfurter Allgemeine Zeitung, which editorially pursues a strict monetarist line on the euro. They see the need to link up domestic politics with transnational EU bargaining on the euro and also, crucially, to citizen outrage about the loss of democratic control over this, also expressed in protests against austerity.

…Interestingly their piece has been echoed and endorsed by the German Social Democrat opposition, whose leader Sigmund Gabriel called this week for Germany to end its opposition to pooling euro zone debt in exchange for mutual budgetary oversight and joint fiscal policy.

My money is on German Pragmatism, of the Kantian variety, to win out.

@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’?

I’m looking forward to the next Chancellor of Germany …

08/14/2012 Letter From Berlin
Pressure Building to Pick Merkel Challenger


Germany’s main opposition party, the center-left Social Democratic Party, is agonizing over who to choose as its candidate to challenge Angela Merkel in the 2013 election. None of three main contenders is ideal. The party wants to wait until January to decide — but faces growing pressure to make the nomination.
The SPD could enter government next year, possibly as junior partner to Merkel’s conservatives in a repeat of the grand coalition that ruled Germany between 2005 and 2009 in her first term, or as the senior partner in a center-left alliance with the Greens. Merkel’s current coalition partner, the pro-business Free Democratic Party, has seen its support slump and may be too weak to help Merkel secure a third term.

The SPD has supported Merkel’s euro policy in parliamentary votes so far, providing her with comfortable majorities that have lessened the impact of increasingly vocal rebels in her own ranks. But the SPD has criticized her handling of the crisis and last week called for common debt issuance — a step southern European nations have been clamouring for, and which Merkel is vigorously opposed to.


“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.


I’m not sure what you mean by “done and dusted” – can you link to another thread?

What I mean by “do not matter” is that the ECB would not have to be recapitalised by money from national exchequers in the event of losses incurred on government bonds. The Swiss government does not have to pay for FX losses incurred by the SNB in its unsterilised and non-inflationary printing and Euro buying.

I’m not sure what you mean by “Target 2 credits written off”. If the ESM was used to purchase the bonds then the QE wouldn’t directly affect Target2 balances (if anything, the injection of cash by the ECB into the economy would lessen Target2 imbalances).

I also don’t know what you mean by “Widen the argument a bit”…

@ 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!

@ bazza

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.

Take comfort in common currency conventional wisdoms, as suits.

The official Swiss GDP growth forecast for 2012 is 1.4%; Sweden’s has been cut to 0.3%.

So the rise in the SFr hasn’t been exactly a disaster.

A sudden breakup of the euro would create serious problems for all EMU members.

I don’t dispute that a new DM would rise in value but there would be no apocalypse.

Big Japanese companies complain about the value of the yen but most of the former stars are already dim.

Sony has had 4 straight years of losses and apart from the PS3, what compelling products has it to sell compared with Samsung?

As for German companies, the big ones are globalised. Take the car industry as an example.

In 2010, the industry produced more cars outside Germany for the first time. It used to only produce in Spain — now it produces on very continent bar Africa.

Germany has a small import surplus with the rest of the EU and besides lower costs following devaluations, it would gain from cheaper oil.

Germany had to deal with high DM values in the past but it has run a surplus with several European countries since at least 1980.


In case you haven’t noticed, the Swiss are so worried about currency appreciation that they have put in place a peg. This has cost them billions in supposed SNB “losses”, without hardly any inflation. Without the peg Switzerland would be experiencing deflation right now and have 0 growth.

My point is that the exchange rate matters (I can’t believe I have had to write that). East German exporters were devastated after reunification because their old marks were swapped for Western D-Marks – their customers in the East simply couldn’t afford to buy from them anymore.

It is irrelvant that most German companies are globalised. Most German manufacturing employees work for German firms that sell their goods on the international market. If the price of their goods were to appreciate overnight by 50% on a trade-weighted basis, I think you would find many of those marvellous global companies moving their production overseas.

You hit the nail on the head with your last paragraph. The last time Germany was able to sustain a strong Mark alongside a low inflation, exporting economy was about 1990. The world has moved on since then and removal of trade barriers, the free flow of capital and the globalisation of all Western economies means that the price of German goods in foreign currency matters. A lot.

If the Swiss, Chinese, Japanese, Americans and the British are all debasing or manipulating their currency to some extent, it would be very interesting to see how a hard money Bundesbank would get on with a free-floating Mark.

@ 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.

“I don’t dispute that a new DM would rise in value but there would be no apocalypse”

couldn’t agree more and that goes equal for us going back to the punt I should add.

you also state:

” Germany has a small export surplus with the rest of the EU and besides lower costs following devaluations, it would gain from cheaper oil.”

Really? Germany has one of the largest trade surpluses in the world – a significant portion of this is attributtable to trade with its Eurozone partners that has only recently been on the wane in recent times for obvious reasons. But that decline is now being compensated by the drag on the currency outside europe helping to shield it further from the crisis. As someone above says – exchange rates matter. This is not isolated thinking:

….2soars off the charts” and despite a 30% decline in trade with its Euro partners still makes up a very signfiiant portion of its very significant trade surplus

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

“FX should be a reflection of a real economy and not an “engine”. ”

So can you say the Euro has been a reflection of the real German economy?

What about the economic discipling of capital flows that FX could have mitigated in the absence of a single curreny. Would the disproportionate flows of capital (now debt in the periphery) have occured under the self correcting mechanisms inherent in freely traded currencies. What would have happened to german inflation if it weren’t for the capital release valve into the periphery that eventually found its way into bricks and mortar.

Using an historical reference tothe greenback as supporting evidence in the case you make is inappropriate in my view – the US dollar exhibits characteristics not shared with any other currency not least that the fate and faith of the entire international economic system is pinned to its survival.


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.

I can’t believe after everything thats happened that people do not seem to get that a single currency can ONLY exist when there is “redistrubutional effects”

Indeed, even beyond single currencies, international harmony can only survive when there is redistrbutional effects….Keynes tried but failed to get this across at the Treaty of Versailles….the yanks copped it themselves the second time round with the Marshall plan.

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.

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.

@ Bkyln

I agree fully with your analysis. Devaluation was the easy path chosen (on occasion camouflaged as a revaluation of the D-mark).

But the near doubling of the percentages in respect of Germany in relation to export/import share as quoted by MH cannot be attributed solely to this phenomenon. It was the result of the Agenda 2010 policy adopted by Schroeder and the entrepreneurial class in Germany – undoubtedly the best in the world – cooperated fully with the active cooperation of the unions. They overdid it and cannot now easily retreat from a situation in which they are making mega-bucks but destabilising not just the EA but the entire global economy.

What is frankly astonishing is not that this happened – Germany was perfectly within her rights in adopting an export-led policy; we are attempting to do the same – but that the other countries of the EU went along with it, including a big bang Enlargement which restored Germany’s access to Mittel Europa without, however, agreeing uniform conditions for it. Both Germany and Austria availed of the full seven year derogation with regard to free movement of labour to cite one of the most glaring examples. 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 (!).

We may have reached a situation of the immovable object and the irresistible force. The saving grace would appear to be the fact that the French economy – which is much better integrated than that of Germany in the sense that it is not as skewed in relation to particular sectors – is responding better than many expected.

Apart from Germany accepting some responsibility for the adjustments required, the other absolute priority must be freeing up the major remaining sectors of the single market, a step which would reveal major weaknesses in the German approach and help create the necessary level playing field required for a balanced economic development in Europe.

Monti knows all about it. He authored a report on the subject.

I have not gone through the whole report you attached but, as someone working in the sector, have looked over the Digital single market section and if the rest of the diagnosis and recommendations are as ill-informed and misguided as presented in this section then it is hardly worth the paper its written on. The obsessive one size fits all harmonisation aspiration is doing significant damage to innovation and investment in this sector.

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.

You guys really don’t get it do you!
Look at these terrible stats

This is what you need to be talking about – an economy and country in real decline.

It’s like that thing about the guy falling from a building and at each floor he says up to now everything is fine. There is a world of worry ahead:
1: Pharma is in wind down – the expiration of patents is beginning to bite
2: The country is dependent on 18bn a year dole money that our children will have to pay back

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.


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.


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?


“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.

@ V Barrett

I have read the report and the gaps that it identifies in the single market are as glaring as they are long-standing. You may well be right with regard to the approach in the digital area. But this is no evidence that the report is lacking in other areas.

The best method of comparison is to draw parallels with the situation that pertains to the US. The EU is light years away from the level of integration of the US market. Despite this, the academic debate is about ‘optimal currency areas’, ‘re-distribution’ and ‘multiple disequilibria’. In other words, not related to the actual mundane reality of what can and needs to be done.


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 ? 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,”


some anonymous at the BBC made some claim, 3 years ago.
No specifics, what clause, called how, where to find, in what year.

I look around at the money go around site. it is more specific on who paid what/ got what in which year. Germany is by far the largest net payer, Spain the largest net taker, there is even another special GNI rebate for NL and SE.

A very typical EU mess.

It seems to me that this rebate of a rebate thing happened 2006 – > 2007, but I am not completely sure. It would be a reduction of 380 – 294 = 86 Mio, roughly one Euro per capita, 0.5% of relative to 180 per capita net paid.

Would you call 0.5% a “major concession”?

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


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?


thanks for the followup. I do not think we contradict each other.

Your EU link is very typical (I am not blaming you for that!), very general, lots of pointers to endless documents in multiple languages, but carefull avoiding any systematic overview of “total payments”, one page per year and country, easily to compare, like

The guy who runs that site actually wants his Czechs to leave the EU and has put it up to show the whole madness of the Brussels regime (and his computer skills, I believe 🙂

The EU intransparency makes it easy to pit one country against the other, demanding special goodies like rebates from rebates from rebates, as here, and in the end Germany always pays, somehow gets the blame, and the only profiteers are others, in this case NL and SE, who effectively now have their own rebates, paid by Germany and France .

Would you have seen this in the EU link ? No, and I say this is intentional.

I still have your Monti convolut pdf open, and flagellate myself through some more pages. Endless general blather, a new database here.

Unifiying the patent system, nice, but Italy and Spain effectively dropped out.

Lamenting that non-EU labor migration into the EU happens a lot more often than intra-EU. Yeah, people stick to their roots, until it gets really bad. Eastern Germans are even returning a lot from Western Germany.

But are new EU government databases (and lots of jobs related to them 🙂 the answer. In the area, I came from, people have all kinds of global job databases (experteer, jobleads, and some others). No need for bureaucrats.

Did you find something remarkable in this Monti PDF? Please tell me!

The more I look at this, the more I see Merkels dictum “If the Euro fails, the EU fails” not so much as a threat, but as an opportunity.

@ 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.


going into the weekend, I am taking your silence as that there is nothing remarkable in the Monti statement, you referenced. He is just another empty stuffed Euro shirt, blathering away in Brussels bureaucrat language.

Was that your intention, to show this?

We both see his remarks to the patent situation as unconstructive.

We both loath the EU financing as violating basic principles, like “universal rules”.

You gave me the idea, let the whole EU organisation just crash, and then find out, what 5 or 10 % have any value to the citizens.

And then rebuilt a smaller, much more cost efficient successor of nations with a good citizen/credit history.

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