A comment on the European Commission’s Box 1.5

The Commission has provided a useful contribution to the size of fiscal multiplier debate.    The disagreements between different analyses are not really surprising given the limited number of observations everyone has to work with.   A particularly useful addition is the addition of controls for sovereign default premia.    The literature on sovereign default has emphasized the output costs associated with default (see here), even if the channels of causality are murky.   This is likely to lead to a significant “fear of default” effect on growth, underling the importance of lowering default risk in the broad crisis-resolution effort. 

But in one important respect the Commission lets itself off the hook too easily.   Rightly recognising the importance of lowering sovereign bond yields (and with it the perceived probability of a default on private bond holders), it emphasises the importance of lowering debt to GDP ratios.

When discussing the negative short-term output costs of consolidation it is important not to lose sight of what the counterfactual would be. For the most vulnerable countries, exposure to financial market pressures means there is no alternative than to pursue consolidation measures. The alternative of rising risk premia and higher borrowing costs would be worse for these countries, and consolidations are needed to restore fiscal positions and put debt projections back on a sustainable path.

However, for countries without their own central bank to act as lender of last resort (LOLR) in extremis, and with high debt/deficit levels and weak/uncertain growth prospects, creditworthiness will be fragile for the foreseeable future.   Central to creditworthiness will be design of euro zone LOLR arrangements.   Modest reductions in official debt will not change this underlying fact – though would certainly help.   I think Ireland stands a reasonable chance of avoiding a formal second bailout programme.   But we should not forget that if it does avoid such a programme, it will be significantly because of the available of a quality LOLR backup, possibly through the OMT programme.  

The fiscal adjustment conditions underlying this back up should be: (i) reasonable (i.e. do not push the capacity of a government to deliver fiscal adjustment beyond breaking point; (ii) reliable (i.e. investors should be confident that the support will be there without a forced private-sector default); (iii) flexible (i.e. the conditions should not be designed so that the country is forced to pursue ever larger fiscal adjustments if growth disappoints; and (iv) the link between bank losses and sovereign debt should be broken (taking away a lingering source of uncertainty about the country’s true fiscal position.  

The Commission clearly believes that it is critical for credibility that governments meet the nominal budget deficit to GDP targets set down in their programmes.   But what it is really important is that it is credible that the government will meet its conditions – which could be made growth contingent.  

It has to be recognised that such arrangements do require that the stronger euro zone countries take on substantial risk.   We have to accept that the quid pro quo for this will be stronger collective rules and surveillance.   It is a two-way process. 

For the Irish case, there is a common interest in supporting a “well-performing adjustment programme” to demonstrate that this approach can work.   Part of this could be relieving the burden of official debt, with a restructuring of the PN/ELA arrangements holding the most promise.   But the design of ongoing LOLR arrangements is also critical.   The good thing about a mutual advantage argument is that it does not depend on allocating blame for past “sins”.   There is plenty of blame to go around.   But as Derek Scally argues today, arguments based on blame are unlikely to get us very far.  

108 replies on “A comment on the European Commission’s Box 1.5”

Prof McHale. Please correct me if I have picked up the shitty end of this particular stick.

If sovereigns run balanced day-to-day spending (taxes = spending) then they have no need to borrow on any commercial market. Sure, they may need credit to construct the odd large-scale public works. But you ask your own citizens to pony up their savings, and if you’re still short you ask another sovereign to help you out. Hence no markets are required.

Fiscal Multipliers are a joke? Yes? No? I asked what they were and got some answers. But no one has explained how these mysterious multipliers actually work. Do people actually have no clue whatsoever and are just pretending?

If you ADD some credit money into your economy how does this MULTIPLY anything. The new output is the old + the addition? Yes? No?

If the answer is No, then it appears we have a Ponzi in progress. Ponzis end badly.


“the link between bank losses and sovereign debt should be broke”

“broke” requires an “n ” .

The sovereign is broke, however.
“Croke” was another possibility with one letter change.

@Brian Woods Snr

You may be forgetting about the large debt that we need to roll over. You also say that private citizens could pony up their savings. But that also requires a debt market, unless you have gifts or some sort of financial repression in mind.

As to multipliers, just because they are hard to measure (partly because thye are country and conditions specific) doesn’t mean they don’t exist. Indeed, there is I think now overwhelming evidence that they do and they are relatively large under current conditions. Larger current mutlipliers are built into the Commission’s recent forecasts, as they make clear. The basic mechanism is that output is demand determined in the short-run, and government spending, transfers and taxes affect demand

I think the 4 conditions regarding support deserve a wider audience . Any chance of this piece developing into an article for the FT or the Handelsblatt or another Continental financial newspaper?

On ‘sustainability’ there’s a review of politics in Greece here:


This bit might ring a few bells:

“Yesterday’s developments also suggested that implementation of the agreed measures may be close to impossible. In addition to the fact that the government was effectively blackmailed by its own parliamentary clerks, it faced direct challenges to its authority from key vested interests. The Greek Supreme Court declared the measures unconstitutional, because they included elements which would amend judge’s salaries. The prognosis on implementation today looks at least as bleak as it has done at any point in the past. There is little sign of vested interest groups accepting the need for fundamental change, which will make it harder for the Troika to provide a constructive report on Greece.”


AEP also has the same take on the actions of our Masters.

I am coming to the conclusion that Paddy is the reason that the Germans have not abandoned the austerity route as the only mechanism for holding the euro together. I think Greece should be assisted to voluntarily leave the Eurozone…at least for a time.

Message from the Daily Telegraph for a Mr Begorrah…

‘Who will stop the Sado-Monetarists as jobless youth hits 58pc in Greece?’

“Margaret Thatcher’s advisers were tagged Sado-Monetarists in the early 1980s but they never inflicted anything remotely close to this level of suffering. The strange silence of the Left on this is baffling. Sooner or later my Fabian friends will have make up their minds whether they are for the workers, or for the “bankers ramp” — as old Socialists like Peter Shore used to describe monetary union.”


@Brian Woods Snr,

The way I first heard multipliers explained related to the fact that money flows around the economy to a greater or lesser extent. If I earn €10 and give €8 of it to a cafe owner for a sandwich and coffee, who then goes out and spends €6.40 on a taxi ride and the taxi driver then spends a fiver on a magazine and so on, the amount of economic activity is very different to what it would be if I had stuffed the tenner under my bed.

With respect to fiscal multipliers, the question is “If the Government spends an extra €X, what is the effect on the size of the economy?”

Some people (John Cochrane, for example) believe that it’s zero – that if the Government spends an extra dollar, it has to get that dollar from somebody else who would have spent it, and so there’s no net effect on the economy. This also means that if the Government cuts spending, it has not effect on the economy, except perhaps to increase confidence.

If the multiplier is one it means that every extra euro the government spends raises GDP by a euro. And if you cut government spending by a couple of billion, you’ll be cutting GDP by a couple of billion, and so maybe not improving your debt-to-GDP ration by as much as you’d hoped. So the size of the multiplier is critical for working out the efficacy of austerity programmes.

A lot of people advocating higher values for fiscal multipliers make the point that there might be different values at different points in the business cycle – and in particular when the central bank has different options available to it. In the good times a CB will probably neutralise any effect of government spending. But right now in most of the developed world interest rates are pretty much at zero and can’t go any lower, which (some say) makes fiscal policy effective (or even very effective); by which I mean “has an effect on the level of GDP”.

Gavyn Davies had a good blog post about it in the FT here:

@Gavin Kostick

Message from the Daily Telegraph for a Mr Begorrah…

Obviously any time you find yourself in agreement with an opinion writer in The Telegraph you need to count your alcohol units for the day and check your head for lumps you can not remember receiving. However I have been banging on about this particular blind spot among the bougey left for a while so I may not have caught it from Abrose.




The European project needs to be saved from the current flavour of EMU. It is a damn shame we did not start out with with something more like a Euro-bancor than the insane pseudo gold standard we have now.

@ JM

This is an exemplary post which pulls together many disparate threads discussed over past months on this blog.

I venture to suggest, however, that Derek Scally’s message is a bit more nuanced than you suggest. It is not a question solely of the futility of the blame game but the contradiction evident in expecting solidarity from the citizens of other countries when we seem incapable of demonstrating solidarity between ourselves.

That multipliers exist in economic terms is beyond question. It is their inegalitarian impact that ought to drive the debate. The vehicle has stalled. The trained mechanics seem unwilling to look under the bonnet. The passengers are now undertaking the job themselves.

I have drawn attention repeatedly to the existence of a sanctioned nomenklatura in this country which obscures from the citizenry in general how the various elements of the economy interact. The great unwashed are beginning to wake up the reality.

There are numerous ironies in the situation not least the fact that many within the nomenklatura (now including our nationalised banks) would like to see a fundamental change. Another is the spectacle of TDs querying the entitlements – notably pensions – of others when they are themselves in receipt of totally unjustified perks.

The poison has to be drawn at source. The distinction between public servants and public representatives – in charge of the public purse – has to be re-established. The Public Service Mangement Act which blurred the distinction between the two has to be scrapped.

The process, incidentally, would also include the scrapping of the Department of Public Expenditure and Reform which reflects no defensible objective for the management of the affairs of the country but is simply a reflection of a rather tawdry stitch-up between the two ideologically opposed parties currently in power.

“… the contradiction evident in expecting solidarity from the citizens of other countries when we seem incapable of demonstrating solidarity between ourselves.”

I … er … er … er .. agree absolutely.

Think I need to lie down …. for a little while ….


Excepting your upper echelon goughers – what the Leadership of the EZ is subjecting your Citizenry to over time is now approaching the scale of a war crime. In solidarity.


For anyone who doubts the validity of the above analysis, I would suggest that they consult the latest effort of the department in question.


For me, it sticks in the mind as the site with the attractive young lady filmed against the background of brickwork and a drainpipe down which, as one contributor commented, the country may be going.

@ JMcH and Fearghal:

Many thanks for the comments and readings. Quite a lot there. I will also plough through the relevant chapters in the macro texts by Blanchard and Gordon to see what enlightnment I can distill out.

My initial misgivings about these multipliers is not assuaged. They appear to be mathematical variables which are part of a complex demand/consumption model. However, there must be an actual – real – mechanism within the drive-train of the economy where they act – somewhat like a gearbox – albeit its the rate of rotation of the economy’s wheels which is driving the speed of rotation of the economic engine. Bizzare! But maybe that’s economics!

Thanks again.


Good post. Even D O’Donnell is impressed.

re; the Ireland gov site.

That was an excellent presentation by that young lady. The funny thing is that the person who asked or compelled her to do such a video against such a background, is probably high up in the nomenklatura rankings.
Or maybe she was asked to do it over the weekend and had kids to mind and the only place she could get some quiet was outside the back door with the drainpipe to embellish the scene.
That video is a metaphor for where the country is today. Not exactly ‘lions led by donkeys’ but not too far removed from it.

The End of ‘Drachmophobia’?
Greek Parliament Narrowly Passes Deep New Cuts

The Greek parliament on Wednesday night passed yet another package of deep cuts in order to qualify for the next tranche of vital euro-zone aid. But the coalition of Prime Minister Antonis Samaras showed signs of fracturing, while protests on the streets outside grew violent.


60% youth unemployment …


Taoiseach Enda Kenny accepted the Golden Viktoria European of the Year Award in Berlin tonight in “the name of the Irish people” at home and overseas.

“It’s clear the words do not exist to describe their courage their dignity their generosity in how they have faced and are now facing-down such difficulties,” Mr Kenny said at a ceremony tonight.

“Be in no doubt it is because of them, and their outstanding qualities that I bring good news to Berlin tonight. Ireland is on the road to recovery. ,” Mr Kenny said.


@David O’Donnell on a truly pathetic performance from Ireland’s current PPP Gauleiters.

Taoiseach rules out early bank debt solution

An astonishing article if Bild is to be trusted (and they are worse than the Sun).

It seem that once again Enda is wrapping himself in the flag. The white flag.

I can not wait for his stirring surrender oratory, no doubt delivered on his knees to the Bundestag.

“We shall never start fighting, we shall always give in and we will always do our best not to bleed on our attackers – who we should not have provoked.”

If this article is true what a simpering, useless fool of a man our current Taoiseach is.

To pile on the increasing feelings of nausea about being in the EU Paul Krugman points us at this gem of an FT article illustrating the faith based approach favoured by Ollie Rehn’s euro-dungeon full of the fact averse.

EU hits back at IMF over austerity

Enjoy the Joseph Heller levels of absurdity and pathos:

Olli Rehn, the EU economic chief who is responsible for setting budget targets – which, for eurozone countries, come with large penalties and fines if they are missed – defended the focus on “budget consolidation”, saying that while it may hit growth in the short term, it revives confidence in financial markets over the longer haul.

“We are having an open and constructive exchange of analysis with the IMF,” Mr Rehn said on Wednesday. “It is important not only to look at the quantitative effect but to look at the confidence effect.”

So, while the quantifiable economic effects of continent wide fiscal tightening on the various countries are somewhat important, Ollie Rehn wants us to stay focused on the main task of psychologically stabilizing the financial sector by demonstrating how much we prefer it to the real economy.

Totally coincidentally this main task of building confidence is essentially unquantifiable, animal spirits and all.

It can not be long before we start sacrificing the unemployed on huge Euro shaped pyres in the hope it will calm the markets. That will send the markets a monstrous signal of our strong determination to retain confidence in the irreversibility of the Eurozone.

Where are the Red Brigades when you need them?

When I read or hear of multipliers, I always think of Keynes’ example in ‘The General Theory….’

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

More recently is the yarn of how a €100 note could travel around to keep business on credit alive, including purchasing time on the local town bike.


“The profound changes that are happening in the global economy mean that we won’t revert to the high rates of growth but we can revert to growth more quickly if we stick together as a community.”


That was Brian Cowen, former taoiseach, in Feb 2009 and as George Bernard Shaw said about Christianity, it “might be a good thing if anyone ever tried it.”

It is indeed strange that this is the first bust in Ireland since the genesis of the trade union movement that it has abandoned its traditional role as the voice of the people at the bottom of the economic pyramid.

Comfortable ‘people of standing’ are the ones that get attention.

The insiders likely shrug at another story on the gulf between what is accepted from the elites and their victims – – tens of thousands of people with little to hope for.

Minister Brendan Howlin, less than two years in office, presents an exasperated countenance, as he tries to defend the indefensible in a small country with 188,117 continuously unemployed for a year or more.

Surely, the minister of finance is mad as hell when the board of a bust state-owned bank with a top-heavy overpaid management, show him to be a sock puppet?

Maybe not as the view from inside the tent more than appears to be distorted.

Speeches such as Enda Kenny’s bromide-rich one in Berlin, will increasingly be greeted at home with ridicule.

Spin over substance will soon run out of road.

In contrast, on Wednesday morning, President Obama in his victory speech presented a tolerant image of America that his first administration had a prominent role in fostering:

I believe we can keep the promise of our founding, the idea that if you’re willing to work hard, it doesn’t matter who you are or where you come from or what you look like or where you love. It doesn’t matter whether you’re black or white or Hispanic or Asian or Native American or young or old or rich or poor, abled, disabled, gay or straight. You can make it here in America if you’re willing to try.

John Maynard Keynes wrote in his ‘Economic Consequences of the Peace,’on the Versailles Conference, which was published in 1919: “Mr Hoover was the only man who emerged from the ordeal of Paris with an enhanced reputation. This complex personality with his habitual air of a weary Titan, his eyes starely fixed on the true and essential facts of the European situation, imported into the councils of Paris, when he took part in them, precisely that atmosphere of reality, knowledge, magnanimity and disinterestedness which, if they had been found in other quarters also, would have given us the Good Peace…”

William Manchester (1922 – 2004), author of the magisterial social history, ‘The Glory and the Dream: A Narrative History of America 1932-1974,’ published in 1974, presented a picture of a leader, President Herbert Hoover, in an atmosphere of unreality on the domestic front.

“Riffling through Hoover’s papers, one sometimes has the strange feeling that the President looked upon the Depression as a public relations problem — that he believed the nightmare would go away if only the image of American business could be polished up and set in the right light.

Faith was an end in itself; ‘lack of business confidence’ was a cardinal sin. Hoover’s first reaction to the slump which followed the Crash had been to treat it as a psychological phenomenon. He himself had chosen the word “Depression” because it sounded less frightening than ‘panic’ or ‘crisis.’

In December 1929 he declared that ‘conditions are fundamentally sound.’ Three months later he said the worst would be over in sixty days; at the end of May he predicted that the economy would be back to normal in the autumn; in June the market broke sharply, yet he told a delegation which called to plead for a public works project, ‘Gentleman, you have come sixty days too late. The Depression is over.’

Already his forecasts were bring flung back to him by critics, but in his December 2, 1930, message to Congress — a lame duck Republican Congress; the Democrats had just swept the off-year elections — he said that ‘the fundamental strength of the economy is unimpaired.’

At about the same time the International Apple Shippers Association, faced with a surplus of apples, decided to sell them on credit to jobless men for resale at a nickel each. Overnight there were shivering apple sellers everywhere.

Asked about them, Hoover replied, “Many people have left their jobs for the more profitable one of selling apples.”

Reporters were caustic, and the President was stung. By now he was beginning to show signs of the most ominous trait of embattled Presidents; as his secretary Theodore Joslin was to note in his memoirs, Hoover was beginning to regard some criticism ‘as unpatriotic.’

Nevertheless, he persevered, pondering new ways of waging psychological warfare. ‘What this country needs,’ he told Christopher Morley, ‘is a great poem.’ To singer Rudy Vallee, he said in the Spring of 1932, ‘If you can write a song that will make people forget the Depression, I will give you a medal.’


Bull*****ers have been around for ever. A new gong for Enda and everything is sound. Sound as a bell..St Trinians.

‘Accepting the Golden Victoria statuette on the behalf of the Irish people, the Taoiseach said that “words do not exist to describe their courage, their dignity, their generosity in how they have faced and are now facing-down such difficulties”.’…

…before adding, “but they did run mad crazy bananas before that so really it’s all swings and roundabouts. They’re greatest people in the world and I want to say very clearly this is not their fault, except that my advisors tell me it is all their fault what with their insane desire to be secure in their own homes with decking, I ask you. What’s this award for again? Oh, yes and come to the Gathering, we could do with a few quid. I mean, you’d be very welcome guests – paying guests you understand, preferably in the Mayo area. There, that showed Obama how to make a decent speech. He won’t tangle with me again. Though it’s a thought, tangling with Obama. Or Mrs Obama – is this Mic still on?”


When Krugman criticizes Europe, this is good and not bad.

If he stops doing it, we should ask ourselves, are we doing something wrong? Krugman is just an ideologically driven ranter, who was never involved in any practical problem solving or policy setting.

I have asked it here before:

Tell me just one specific Krugman paper, and a very few specific sentences, why it is good.

I still have to meet the first person in this world, who can do this.
What he does is anti scientific garbage.


Noonan hints at U-turn on selling stakes in banks to EU bailout fund

FINANCE Minister Michael Noonan suggested another U-turn in the Government’s campaign to get Europe to ease the State’s debt burden, telling the Dail yesterday that the new bailout fund might not be best suited to run Irish banks.



Does anyone have a copy of the most recent revision of the TECHNICAL NOTE in preparation by the Troika and the Irish Gov on those Promissory Notes?

I just finished reading the EU report. It is nothing more than an exercise of paniced self justification. A report that uses intellectual hubris and technical arguments to justify an ideological belief that more austerity rather than less was neccessary to encourage capital investment and certainty in the markets – particularly in Spain. Oli Rehns subsequent comments that we need ‘more consolidation and more structural reforms’ is an offense to common sense rationality.

To think that more austerity is the answer is not only pie in the sky economics but irresponsible and socially dangerous. Anyone who has been to Spain or had any experience of their education system over the past 12 months will see first hand that the country is falling apart. To satisfy an abstract idea that the nominal fiscal deficit must be reduced by x percentage points the government are decimating the public sector: health and education in particular.

Almost half the unemployed in Spain have no access to income and reliant on family support. Look to Greece – Golden Dawn are handing out food parcels and shutting down theatre productions. 18 seats in parliament which will double after the next election. Look to Portugal – crime is skyrocketing. Look to Italy – people struggle to pay basic bills, wages are being slashed and inflation continues to rise. Look to Ireland – the Prime Minister picks up European of the year award.

@ Joseph Ryan

Mr Noonan told the Oireachtas Finance Committee that the European Stability Mechanism (ESM) had no experience of running a bank.

“There’s a question — do you think a fund in Europe which is designed as a rescue fund are really the best people to run an Irish bank?” the minister said.

The kettle calling the pot black!

Noonan is more deserving of a prize than Kenny: his excuse must be one of the lamest in recent Irish history, for hoisting a white flag.

He should be nominated for the Napoleon Bonaparte Lucky General Prize.

@MH-ff: “When I read or hear of multipliers, I always think of Keynes’ example in ‘The General Theory….’ ”

When I first encounted Multipliers (Chapt 3: ‘Macroeconomics’, Gordon) – a widely recommended undergrad text – I was quite perplexed. It appeared that something was being conjured out of nothing and was then deemed to be real. It was if a series of interconnected, pre-programmed robots were in action: Gerbils on a treadmill if you wish. The term ‘balanced’ gets used quite a lot. And I noticed the absence of empirical data.

Blanchard (Macroeconomics 5th ed) is another widely recommended undergrad textbook and Chapt 4 deals with Multipliers.

Some of Blasnchard’s IMF boyz published a paper (Fiscal Multipliers: SPN/09/11) and there is a remarkable difference between the undergrad versions and the IMF versions of multipliers. The latter appears useful, whereas the former are quite misleading!

If I understand the above texts correctly, multipliers are mathematical variables (and there are 4 different types of these multipliers!) which are deployed in mathematical expressions, which in turn are used to predict possible (or should that be probable) economic outturns (as measured by G*P).

Now G*P is known – and acknowledged – to be a somewhat unreliable metric. So why is it still used? This is most unsatisfactory and smacks either of incompetence or laziness on the part of academic economists. Its simply inexcusable (in the opinion of this scientist) that a more reliable metric has not being developed. Actually, several different economic outturn metrics would have to be available; economies are so varied, that one overarching metric would be quite unreliable.

In the IMF paper the authors explain in detail the different economic factors that will affect Multipliers. There was nothing like this in either of the two undergrad texts! And this (p5: para 2) – under the title: ‘Are Fiscal Multipliers Reliable? How are they Calculated?

“The profession disagrees on the reliability of the multipliers.” [italics in the original]. Words fail me.

The use of ‘multipliers’ should be discontinued immediately. If academic economics wish to retain any semblance of intellectual honesty they should (there are enough of them about) excavate the empirical evidence from previous episodes of QE and follow the ‘money trail’. Then describe the differences they observe and pose some suggestions about the actual workings of real, live economic processes. The continued use of ‘professionaly’ discredited measuring instruments and variables is completely unacceptable.


I would not care whether the both kettle and pot were black, as long as they were hanging over my own fire and not somebody else’s.

The bottom line here, as you have been pointing out on numerous occasions, is that debt relief from Europe is a mirage. We need to take charge of our affairs.
One of the most stupid things we could possibly do now is to sell approx €400 billion of bank assets back to the private sector for a song, because that is all we will get for those assets.
The Troika, and Lex etc, want it this way.
First remove the ELG to make the banks ‘profitable’. Never mind the fact that the loss of ELG makes the State more unprofitable.
Then sell the profit potential back to the private sector for as low as they can get it for. This is not only financial idiocy. It borders on lunacy from a national perspective.

However, I may cringe at Noonans statement, the powerless statement being the worst from my perspective, if they change policy to hold onto the income stream of the banks until all, all, the €64 billion is paid back, that is an excellent policy choice in my book. I doubt they will have the liathroidi to carry it through.
But imagine the ECB argument; You must sell the banks back to the private sector, taking a massive loss on your investment, because the banks are now profitable and therefore should no longer be in the State sector. These very banks that caused the destruction of the State and that you kindly and at great expense kept alive!!
Not a difficult argument to defeat!, if only arguments and logic prevailed.

@Aidan R

As the economic policy is clearly patent nonsense – there must be another agenda, a latently strategic political agenda, as Shay has pointed out: To reconfigure Europe to suit the future benefits of the neoliberal elite by breaking into smithereens the foundations of the European Welfare State.

So what are the Irish Labour Party, and most of the Irish Trade Union movment, doing implementing such an agenda?

I’m not in very good humour this morning; all we need now is another lecture from Mr Draghi on the socially constructed illegality of monetary financing of sovereigns.

@Joseph Ryan

So we signed the Fiscal Compact, strengthening the hand of Merkel, the neoliberals and the reactionary strain in European economic thought in order to get access to the ESM to bail out the banks (no financial sector crisis, no need for a bailout).

Now we realize that the ESM will cost us more than sucking up the cost ourselves (of course it will, otherwise it would be the dreaded monetary financing).

We surrendered completely without checking whether our surrender would be accepted.

It is small of the left to say we told ye so, but we told you so.

But imagine the ECB argument; You must sell the banks back to the private sector, taking a massive loss on your investment, because the banks are now profitable and therefore should no longer be in the State sector. These very banks that caused the destruction of the State and that you kindly and at great expense kept alive!!

If you see the social democratic state as something parasitising off the market then the ECB’s position makes perfect sense.

Neoliberalism is am extreme and deeply unpleasant philosophy that is thoroughly embedded in the institutions of the EU – the ECB and Ollie Rehn’s fiefdom in particular. As a small country our capacity to change this is restricted so we instead need to move to insulate ourselves from it.

And even at the highest levels this is now beginning to sink in….

From the Irish Independent article you mentioned:

While the Government appears to be changing its tune on selling stakes in the banks to the ESM, Mr Noonan repeated that he intends to pursue an accord with the European Central Bank on the so-called promissory notes used to bail out Anglo Irish Bank.

Mr Noonan said the deadline for an accord on Anglo Irish is March 31, when the next payment to the central bank is due. ”Obviously we’re not waiting until then,” he said. “We’re pushing for an earlier resolution on that.”

“Deadline”, eh? Interesting.

Gen Q for anyone – When people talk about reversing austerity what do they mean? What form would it take? PS expansion? Large scale investment in public works? Monetary stimulus? Anything written on this giving an outline of (politically realistic) alternatives?

@ DO’D: “So what are the Irish Labour Party, and most of the Irish Trade Union movment, doing implementing such an agenda? ”

Wallowing in the pig-trough of the privilages and pillagibles (sic) of ‘office’. They were ‘shut-out’ in 1997. Have to wet their snouts now and again – poor dears!

reply to rf: “When people talk about reversing austerity what do they mean?” They have no idea – its just waffle!

“What form would it take?”. Has to be an alternative economic paradigm to Permagrowth. Tax revenue MUST = Tax spend. NO borrowing for any day-to-day stuff.

“PS expansion?”. No. Contraction (in either numbers or pay).

“Large scale investment in public works?” Yes. Railways, water supply and electricity transmission networks. Rehab of brown sites for allotments. NO roads!

“Monetary stimulus?” Sure. But you would have to impose some severe tariffs on certain imports and impose price controls on domestic services as well.

“Anything written on this giving an outline of (politically realistic) alternatives?” Lots. By the Unread!

@ David O’Donnell

“So what are the Irish Labour Party, and most of the Irish Trade Union movment, doing implementing such an agenda?”

Only they can answer that question.

“So what are the Irish Labour Party, and most of the Irish Trade Union movment, doing implementing such an agenda?”

Everyone’s a prostitute
No civil disobedience

@ Brian Woods Snr

The 2009 text gets even more realistic: (page 3)
“Can the fiscal multiplier be negative?
Yes, fiscal expansions can be contractionary if they decrease consumers’ and investors’ confidence, especially if the fiscal expansion raises, or reinforces, fiscal sustainability concerns.5“

NEGATIVE, under the circumstances we have now.

And I agree completely with your „The use of ‘multipliers’ should be discontinued immediately. If academic economics wish to retain any semblance of intellectual honesty they should (there are enough of them about) excavate the empirical evidence from previous episodes of QE and follow the ‘money trail’”

Total ignorance of empirical data is also the hallmark of Krugman and all his acoloytes : – )

What Blanchard (“the state of macro is good”, June 2008) demonstrates, very impressively, how shameless people ignore any resemblance of intellectual integrity and just serve up their new mistress, Madame Lagarde, the politically wanted fairy tale of large multipliers, to further the socialist bankrupter agenda.

Both Blanchard and Lagarde should be fired.

Mercopress in English provides a view of Argentina that makes the EZ look bucolic. Ghana, vulture funds, 30% inflation, pot banging demonstrations. A cheap alternative to the BA Herald.


A nice comment from Germany’s favourite economist, extrapolation of part bof which might be relevant to the tone deemed acceptable on this blog (where we know nobody reads the comments)?

“But even given that, it matters what niche you yourself fill in the intellectual ecology. Insider-type positions, like that of being the senior economist at the IMF, require tact and euphemisms. Outsider positions, like that of being an iconoclastic columnist at the New York Times, require a lot of effort to get peoples’ attention. It wasn’t nice to characterize the doctrine of expansionary austerity as belief in the confidence fairy, but I do believe that it focused the discussion in a way that a less caustic approach would not have achieved.

And one more point: writing effectively requires that you have a voice, that the passion shows — and too much self-censorship can get in the way, making the writing dull and stiff. Obviously no four-letter words — and while I may sometimes envy Matt Taibbi his vampire squid, rudeness in my part of the commentariat has to be within certain bounds. But pretending to respect views that you don’t isn’t, and shouldn’t, be part of the job description for economists trying to grapple with these important issues.”

Argentinian unemployment is quite low. Discontent arises due to the Gov’t declaring a rate of inflation that is less than half the true rate. Those people dependent on inflation indexed income are suffering since the under stating of inflation has gone on for over three years. A hit in the order of 30% is what has led to public protests.

Argentina is the country that has everything by way of natural resources and productive agricultural land. Their idea of bad times is to have to eat chicken when they feel they are entitled to steak.

Now is the time to go there with Euros, $US or Swiss Francs pay cash in the foreign currency and live like a king. When you leave make sure not to take any Arg. Pesos with you.


“In a speech before the German association representing magazine publishers in the country, Oettinger warned against “cheap populism” when reporting on Greece, before saying “my problem children are France and Great Britain.” By way of explanation, he said that with its anti-EU course, London has “taken leave of its senses.” He added that tabloids such as The Sun appear to be trying to force Britain out of the EU. Turning to France, he said the country had too little industry and innovation.

Oettinger’s comments were echoed on Friday by a close confidant of Chancellor Angela Merkel in an interview with SPIEGEL ONLINE. Volker Kauder, head of Merkel’s conservatives in parliament, said that “Europe will not make progress without a functioning Franco-German axis.”

Kauder was critical of France’s socialist leadership, saying that “we can only hope that President François Hollande moves a bit closer to the chancellor” when it comes to combating the euro crisis. He added: “It would be good if the socialists there undertook real and courageous structural reforms. That would be good for the country and good for Europe.”


No mention of that .. er .. award

@ All

The Berlin article.


The key to a successful outcome must lie with Berlin and a change in the approach introduced by Schroeder which, instead of recognising that Germany’s obsession with running an export-led economy required compensating steps elsewhere, insisted that Germany was paying too much for the privilege and should cease being the milch-cow of Europe, as he put it.

The cultural divide that sees steps to reduce female participation in the workforce as appropriate is a measure of the difficulties to be overcome.

A start could be made in the context of the 2014-2020 financial framework negotiations by abandoning, or at least reducing, the large rebate being paid to Germany in respect of the cost of the UK rebate. (France and Italy have announced an alliance in the matter of reducing the cost of the rebate. Hardly surprising, as they are picking up most of the bill).

Hitherto, however, the leitmotif of the approach of Berlin is that there should be no immediate cash cost in efforts to emerge from the euro crisis. This approach is now about to be tested. A considerable degree of pessimism would appear to be in order.

However, as grumpy has remarked, nobody reads the comments on this blog.

@ David O’Donnell

Europe needs a realistic debate on economic growth challenges including barriers such as credit availability.

Every country sees exports as the salvation but the US consumer can no longer be relied on; France’s planned cut in social security payroll taxes maybe of some help for hiring but the evolution of export champions is a combination of a lot of factors, including luck.

About 40 companies are responsible for 69% of Irish headline exports and change comes fast in many industries.

Chips for smartphones and tablets helped US firm Qualcomm to overtake Intel’s market value this week, for the first time, when it was reported that 600 Irish Intel employees were sent home from training in the US.

Imports of Apple’s iPhone 5 in Sept were responsible for 40% of the rise in US imports in that month. Apple’s value has fallen about $140bn since Sept and Google’s Android operating system powered 75% of smartphones sold in the third quarter.

@ grumpy

Robust argument is preferable to a riddle of euphemisms. That can be achieved without personal attack or abuse.

Of course people can hate the facts for various reasons. Where are all those who fell for the fairytale that Bertie Moses had parted the waters and led a grateful people to the Promised Land? Most of them no doubt are as gullible as they were then.

My own experience is that the thin-skinned – for example those at a business meeting who would see a rational colleague’s raising of some work issue as a personal slight – far out-weigh those who can separate the professional from the personal.

Paul Krugman also commented this week on a David Walker, a self-proclaimed deficit hawk who had hoped earlier in the year to run as a third candidate, but who endorsed Romney in the final days:

Walker’s timing was interesting. If you were following the election quants, you already knew that Obama was a clear favorite to win — 3 to 1 according to Nate Silver, much more than that according to Sam Wang. So why would Walker — whose popular following might include some but not all of his immediate family — throw his support to the likely loser? Probably because he was listening to the wrong people, and actually believed the stuff about Romneymentum.

I was lectured elsewhere on the immorality of introducing family into an argument. However, if you talk to a reporter of Toronto’s Globe and Mail, discuss your wife’s job and pay cut and it’s online at source for two years or more, then that is what could be called a different kettle of fish.


A German survey published last summer showed that Germans are astonishingly conservative when dealing with money. It found that they opt for ultra-safe forms of investment and readily put up with declining yields.

Almost 70% of Germans still have a conventional savings book with next to no interest paid, the study found. Other popular forms of safe, but low-yield, investment are life insurance and building loan contracts, the authors write.

Only 6.6% of Germans are reported to hold shares.

“Even if the financial market crashed, the majority of Germans would not be heavily impacted as they don’t own risky equities,” a market researcher who was involved with the survey said.

The survey also found that only about a third of Germans own a credit card. About the same amount engage in online banking. In Norway, the corresponding rate is 83%; 77% in the Netherlands carry out transactions online.

The correlation between the shareholder ratio and the fertility rate comes to 0.39 (the deviation from the mean, respectively). If Japan, which has an extraordinarily high shareholder ratio because of its institutional peculiarities, is excluded from the analysis, the correlation rises to 0.65.

National risk preferences are a topic addressed in the World Values Survey which asks almost identical representative questions to participants from more than fifty countries. Among other things, people are asked to compare themselves with a person “to whom adventure and taking risks are important.” For 18 OECD countries, the answers to this question (ranging from “very much like me” to “not at all like me”) show a correlation of 0.65 with the fertility rate (respective deviation from the mean).

Japan and Germany show the lowest propensity by far to take risks and also come in at the lower end of the fertility scale, together with Russia.

@ MH

I agree that cultural factors are of enormous importance. But only to the extent in this instance that they inhibit finding solutions in the context of international economic cooperative endeavours of which the EU – and especially the EA – are the deepest examples.

One could find equally interesting cultural factors to explain the positions of the other major European economies. They also are of interest but only to the same extent.

It is not possible for the countries of the EU to all run export surpluses with one another. Colm McCarthy demonstrated in his recent paper with a colleague that the imbalances that are undermining the euro are intra-EA.

Such imbalances have a way of righting themselves. Importers run out of money.



On a lighter note, just listening to playback on RTE.
Michael McDowell is asked
Q. What do you think of the quality of our public representative right now?
A. I think its on the way down!!!!


I read some of the comments! Genaeur’s excepted.


Linking back to the theme of multiplier, I was reminded, last evening, of the effect of families of getting them wrong.

The parish of O’Briensbridge is a small Clare parish on the outskirts of Limerick.Electoral division 119, population Census 2100 was 638, population 15-24 was 66. There are 13 from that parish in New Zealand, mostly Christchurch.
I made the mistake of saying to the father, whose son is an electrician in Christchurch, that the young people were right and repeated myself (as usual) before realising that what I was saying was not very comforting, to say the least.

Even if many of those young people never heard of a multiplier, they are certainly at the receiving end of the incorrect calculation of that same multiplier.

@Michael Hennigan

Returning to the ‘multiplier’ theme of the thead one key area exists where we are far more ‘kompetitive’ than Angela’s troops …


Ergo: in the long run we will win out … 😆

Noting the childcare initiative in Germany it simply highlights the abysmal state of early childhood education and care in Ireland in comparison to Scandinavia … in terms of a future smart economy investment here would also have a positive multiplier effect in terms of psycho-socio-economics ….

As for the EZ, give me power for a day and I would park Article 123 of the Lisbon Treaty, print €5 trillion, sort out a few sovereigns, and Europeanize the entire EZ banking system with Blind Biddy as the Chairman of the Board.

Oh, I’d also send Angela to keep poor Nikki Sarkozy company in exile in Northern Mali …


Olli Rehn, austere guardian of budgetary discipline
9 November 2012 Les Echos Paris

Popular in his home country of Finland and much feared elsewhere in Europe, the European Commissioner for Economic and Monetary Affairs maintains a low profile. However, with the introduction of new supervisory rules for budgets role, his emerging role as a key player in Europe’s economic governance will make it difficult for him to avoid the limelight.


@ MH-ff: “Europe needs a realistic debate on economic growth …”

Apologies, if I amend that to; “A meaningful intellectual engagement with economic regression …”

This ‘debate’ on Multipliers has taken an odd turn – making babies! Much more fun!

@DOCM: “It is not possible for the countries of the EU to all run export surpluses with one another.”

But, but, but … my professor of Trade Economics told us – repeatedly! With Free Trade there will be winners and there will be losers, but everyone is better-off in the long-term! ????

I read almost all the comments here, though they seldom serve to inform me of anything but the rights propensity to fight facts with enormous quantities of self belief (“measurable current fiscal multipliers versus intangible issues of predicted future confidence levels” in this case). It is strong determination all the way.

@David O’Donnell

Popular in his home country of Finland and much feared elsewhere in Europe, the European Commissioner for Economic and Monetary Affairs maintains a low profile

The point which started this thread, and which has gone politely unmentioned by our friends on the right, is that the European Commissioner for Economic and Monetary Affairs believes strongly in things that are demonstrably false and has the power to inflict its beliefs on all the countries in the EU. The Commission’s response to the IMF’s statistically sound change of heart on austerity is a pathetic attempt at self justification and obfuscation in the face of the facts, intended only to buy them time to “stay the course” on neoliberal reforms. It should have been the cause of a riot in the European Parliament.

No one on the pro-austerity/confidence worshiping side here (even John McHale, though he politely suggests that the EC is being a little free with the acualité) is willing to acknowledge that Europe is now in the grip of what might be termed “conviction technocracy” and that the economic results and political implications are as worrying as previous episodes of any European drift to the right.

These are unaccountable delusional fanatics who are every bit as deranged as the US Tea Party in their own way.

@ BW Snr/ DOCM

In 2011 the German goods surplus with the other 16 EMU countries was at 12.3% of the total surplus of €158.1bn.

The ex-EU 27 surplus was 65%.

So the euro area surplus is not the the biggest issue facing the EMU. Germany could reform its services sector (there was a €8bn external services deficit) and increase consumption but it would not have a significant impact. It could help Poland rather than Spain.

As for free trade, it has been very good for countries such as Ireland, China and South Korea, providing a unique opportunity since 1945 to enable poor countries to move from widespread poverty.

Dr. Michael Spence, a winner of the 2001 Nobel prize in economics and chairman of the Commission on Growth and Development, has said that sustained high growth in developing economies is a recent, post-World War II phenomenon. Using GDP figures, “high” is above 7% and “sustained” is over 25 years or more. He said that these cutoffs are arbitrary, but a similar picture emerges with variants. Growth at these rates produces very substantial changes in incomes and wealth: Income doubles every decade at 7%.

There are 13 such cases of sustained high growth, and nine are in Asia. These are Botswana, Brazil, China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand.

Each and every one of these miracles had an export sector as a driver of growth and an increasing share of trade in GDP. There are no exceptions. Every growth miracle involved leveraging the demand and resources of the global economy.

In the US, in recent times free trade has mainly benefited the owners of capital and the well-educated who have got the lion’s share of the gains.

I hope President Obama is prepared for Republican blackmail on resistance to tax rises for earners over $250,000 and allow automatic tax rises and spending cuts on Dec 31 if there is no prospect of a balanced compromise on the deficit.

@ Mickey Hickey

You are so right, in raw economic terms, Argentina should be a land flowing with milk and honey.

I looked up the CIA world FActbook, strong oil, gas, electricity surplus, plenty of high value agriculture.

If you are into beef, Argentina is clearly the way to go

Less than a factor of 2 between prices for chicken/pork and beef

Compared to more like factor of 4 or 3 in Germany. Otherwise those prices are pretty similar to Germany, overall more like 10%-30% more expensive.

I did a similar comparison between Germany and US in 2003 and 2010, and would like to do that again, maybe with the latin American guy, Ireland and US, DE, target date: begin of December 2012. A prefabricated list of about 20 items should not take more than 10 minutes to write down in your local discounter, and max another 10 to key it into a post like here. Any volunteers for Dublin? Or elsewhere?

Argentina has no tribal problems, the people are educated. When you look what cars are produced in Argentina, you could get the imagination, that they have more car factories than Germany.

With Food and Energy prices high on riot levels, Argentina, as an exporting nation, should have the time of their live. However, not the poor suckers over there.

When I pull the CIA data for PPP GDP per capita, and how much the lower 10 % get:
Argentina France Germany Ireland UK US
17.4 35 37.9 39.5 35.9 48.1 PPP per cap (k$)
1.7% 3.0% 3.6% 2.9% 2.1% 2% lower 10%
247 875 1137 955 628 802 $ per month

As a poorguy you are better off by a factor of 4 in Ireland. As a richer suitor, going to Bars and Restaurants is a little cheaper in Argentina, but not that much.

There were times in Germany, when chancellor Schmidt said: better 5% inflation than 5 % unemployment. Well, in the end, with tolerating inflation, you get unemployment too, and more so, if you then must do something against inflation.

Now, how do they manage to screw up this potential paradise ? Again and again.

@MH-ff: “Growth at these rates produces very substantial changes in incomes and wealth: Income doubles every decade at 7%. ”

Michael, I am most reluctant to dispute stuff with you. But. The facts are as you assert and I accept your word on them. But. How has that increase in income been distributed? I do not know, but I have a creepy suspicion that it may have been somewhat lopsided. There is also the matter of the different sectors and the manner in which their respective ‘factors of production’ are deployed and the returns on those deployments. [If I see another Cobb-Douglas I will strangle the damn thing!]. As I said above (about my prof of Trade Econ) – “There will be winners and there will be losers – but the country will be better overall”. This also is factually accurate. But! – it a’int the whole truth!

Apologies, if you see this as nitpicking. But I am deeply bothered about the financial suffering being imposed on completely undeserving people (including family and friends) by un-elected folk and their incompetent economic advisors, because of the actions (and inactions) of our feckless politicians and their incompetent economic advisors.


The evidence is overwhelming.

Worth noting the reference to ‘sovereign debt’ in Note #9 in Box 1.5 – again, in a box with more qualifiers than fianna fail veterans in the war of independence, no mention of the ‘fact’ that sovereigns such as Ireland and Spain have been destroyed by their financial systems etc straight from the Lorenzo Bini-Smaghi spin book ….

This is Ideology War & the Ordo NeoLiberals are winning …. easily

The problem in the fiscal multipliers debate is that the state is unwilling to admit that it has little influence one way or the other. It can tax and spend/borrow and tax later and increase economic activity, but the multiplier will fall (provision of goods and services is inelastic to some degree, so imports are required). It can cut spending/repay debt (so-called expansionary fiscal contraction) and this will raise the multiplier at the cost of economic activity (more local substitution, local price competition).

I say the state and not just politicians, because it is an idea embedded in permanent government that they can make a difference that will be unabashedly good. The problem is that there are always trade-offs. Steady, unspectacular growth, avoiding corruption, waste and inefficiency, with a minimum of both incentives and disincentives is the dull way to long-lasting prosperity.

This is not to say that the state doesn’t have a role and should wither away – the state should first and foremost be a vehicle for equality, whether of educational opportunity, health outcomes, workplace balance of power, industrial balance of power (i.e. between big companies and smaller ones). Those projects that are too large to be handled by individual or groups of companies should also be at least run and finance-organised by the state (i.e. the state capital spend). Finally, the state has its assets by which it provides its first and foremost functions and it should maintain and enhance these (schools, hospitals, prisons, transportation networks).

@ MH

The figures that you mention are known to me but the raw data does not adequately sum up the situation. CMc aggregated, as far as I can judge, the extra-EU trade balance but without having regard to the performance of particular countries within the EU. German exporters have eaten the lunch of their French – and other – counterparts in non-EA and third country markets.

How and why the other major countries of the EU acquiesced in this remains a mystery to me, notably that they allowed Germany (and Austria) to retain restrictions on free movement of labour until 1 May 2011. Yes, last year!

This permitted the entry only of labour required by Germany and, of course, did not stop German manufacturers shifting production to cheaper locations across Mitteleuropa.

We are now faced with the consequences. There is absolutely no evidence that Merkel – or the relevant sectors in Germany – know how to deal with them.

@ Michael Hennigan
These financially conservative Germans are a myth. About 10 % have debt they will never pay back, and sadly to say, after accounting for a fair share of easterners, you could excuse for not understanding capitalism, this is also concentrated in the old coal areas, where there are no excuses like being poor to begin with, or too many stupid immigrants from the wrong countries, or whatever.
Most of that credit was not accumulated with credit cards, but with consumer credits on cars, furniture.

@Brian Woods Snr
Cobb-Douglas is wrong, if you talk a careful look.
Solow Growth theory has a fatal real data flaw. Does any of you find it?

@ David O Donnell
I am so glad that you finally found something, where you can and will out-Kompete us easily.

That Germany is numerically very small in comparison to India and China, this does not change that much, whether there are 70 or 100 million Germans. This is the main narrative why to put up with unruly other EU countries.

Now, imagine, you find out, based on some assumptions, that you would think, you are better off per person, with only something like 2/3 of the population, you have now. How fast can you reduce it, without running into social difficulties? 0.2%/a, like Germany now? I think this is playing it safe.

And, as I realize, that most of you don’t know the classical growth theories. If house and industrial investment is like a typical 5 years output, I can distribute 6 % more for consumption, with a 1.2% population growth differential.

If we go on like this, Ireland will achieve in the very short time of just 94 years the same population density per square km as Germany then : – ) and in a mere 219 years you will outnumber us absolutely and take over the eternal quest for world domination ….. . I am so afraid : – )

Finally, for all those, who believed that red/green taking over in Berlin would change anything:
The green Berlin bitches Roth and Künast are gone. Social democrat candidate is Steinbrück, charging with the cavalry on financial centers like this IF.. in Dublin, and green party Lutheran church präses Eckhardt, Realos, supporters of Agenda 2010, like Kretschmann, first elected green PM, in Suebia, who will fire 6000 teachers.

Fiat Lux pointed out, that some folks still have to wag the finger about some “dangerous” 0.2% GDP financial decisions (Praxisgebühr) before they vote UNANIMOUSLY for it. The Betreuungsgeld is a pretty interesting wedge issue. The CSU apparently has learned something from the US : – )

@Shay, we scored another tank sale to Indonesia today, a well paying customer with a good credit rating, unlike Greece : – )

As far as I understand you, you basically agree with Brian Woods Snr and me, that these “multipliers” were a nice metaphor, and might have described something 50 or more years ago, but now are some pretty arbitrary figure of speech only.

Your “Steady, unspectacular growth, avoiding corruption, waste and inefficiency, with a minimum of both incentives and disincentives is the dull way to long-lasting prosperity.”
From time to time adjusting some small screws, like Praxisgebühr, Betreuungsgeld, studiengebühren, try something, most doesnt really work.

That is exactly how I see the german system, and that is much more that just “the government”

On “those projects ….” I would like you to be a little bit more specific, what you have in mind. There is a smell of “Social charta” in the air : – )


re: Suicide of Spanish woman being evicted by bank;
Suicide is always distressing particularly when the immediate cause is a bank throwing somebody out onto the street.

To relate to Irish history, when the British ruling forces decided to start burning houses during the war of independence, Tom Barry, the local Cork IRA commander came up with a novel and very successful policy.

For every small cabin worth peanuts, but a home nonetheless, that was burnt down, he decided to burn down two very valuable houses of those he perceived to be on the other side.

The message was soon understood and the cabin burning stopped.
There are lessons there for all struggling home owners worldwide.


please, analyse statements BEFORE just distributing them.

What state expenses in Germany are “cut”, specifically? Like “None” ?

They distribute some additional little 2 b/anno for betreuungsgeld, but only from august 2013 on, and 2 b are shifted in the health insurance from “bad weather” to “missing income”, with some 4 or 5 b surplus, until the doctors get their hands into that dough again, and some gargantum 0.75 b ADDED for infrastructure, one year only.

Gosh, the horror, this unlimited indulgence, our debt/gdp will go down only 3%
The rest for less deficit comes from higher than expected taxes coming in.

Your FT link is about the same things as FiatLux Spiegel/international link.

Am I the only who can read both and understand them to be the same?

@ genauer: “Cobb-Douglas is wrong, if you take a careful look.”

Yes, but the mathematics is wonderful! – the better to keep undergrads busy with all that dy/dxing stuff. Great for exams!

“Solow Growth theory has a fatal real data flaw.”

But, but, but … he got THAT Prize for being WRONG!. ????

Yeah, Ayres and Warr [‘The Economic Growth Engine: How Energy and Work Drive Material Prosperity’] sorted Solow out – but they have been ignored. If Solow had been an experimental scientist he would have worried that anomaly to death until he cracked it. Shocking arrogance.

Georgescu-Roegen [‘The Entropy Law and the Economic Process’: Ch IX: Section 13: Internal Flows and Analysis, 258-9] also criticized Solow and Samuelson over their sloppy algebra. But who knows about G-R?

The energy question and its symbotic relationship to modern economic processes seems to have been well described – but not so well understood. Economic and accounting folk still cannot get their heads around the fact that energy cannot be treated like a factor of production (a commodity). I guess they will learn a very unpleasant lesson some day soon. But then again, they appear to be a tad challenged on the learning front. We’ll see. Thanks for reminding me.

I have not visited Argentina in the past two years but based on previous visits during troubled times in Argentina I found a black market for currency in respectable circles. Conditions similar to Poland and Russia prior to 1989 where currency black markets thrived on the streets. In Argentina it is conducted by respectable business people who have condos in Miami and bank accounts in Switzerland. For visitors life can be very good in Argentina as the mark up on US$, Euros and Swiss francs is high. Check the maximum amount of currency you can import and be careful about the amount of currency you take out of the country. Food markets in Argentina are large and composed of many individual traders dealing in cash, the produce is fresh or heavily marked down. Carrefour and similar chains with cash registers have a small fresh food section of poor quality and stale produce.
While on the surface Argentina appears similar to Europe and North America on the ground there are signifcant differences.

@John McHale and All

On the Sov Default Paper [worth a thread on its own ….. ]

The Economics and Law of Sovereign Debt and Default by Panizza and colleagues

A few points:

There is life after a Sovereign Default.

Back in deals with the capital market within a few years …

Argentina is most interesting … and ongoing (other than hedgie piracy on high seas (etc) and the most heterodox central banker in the known world …

Iceland [not covered in this paper] is in recovery … and without that Mountain of Dodgy Rogue Financial System Debt …..

Greece should really have been allowed a proper sovereign default within the EZ.

A Hibernian Sovereign Default in the interests of the Irish Citizenry, due to odious financial system forced by local idiocy and ordo neoliberal stupidity, might be MANAGEABLE!

@Fiatluxjnr from 10.21 link

Arvind Virmani insisted that Greece’s debt problem could not be solved without a restructuring. “It has been my view since early 2010 that Greek debt cannot be made sustainable without a drastic debt write-off,” he said.

“The greater the delay, the more the cost to remaining creditors… and the Greek public.”

Virmani, who represented India at the IMF for three years until October, added, “The stronger euro countries have refused to acknowledge this fact, even after the IMF started, perhaps a little reluctantly, to recognize it.”

No comment necessary. Greeks are being unnecessarily TORTURED; and in all our names as Europeans.

Podcast from Canadian Broadcasting Corp. (CBC).
Political news program called The House.
The item of interest is at the half way point.
David Dodge ex Governor of the Bank of Canada. He is noted for straight talking and he does not disappoint here.


Apart from the bubble bankers’ heist and the insiders’ cosy arrangements for themselves, the Government recently took delivery of a report which shows that pension fund charges are taking as much as 17.4% of retirement savings in occupational schemes. Individual pension arrangements – such as personal retirement savings accounts (PRSAs) and executive pensions – incur an average “loss” of between 21 and 31%, including from hidden charges.

Colm McCarthy on the pensions racket below:

The country is bust — we cannot keep this gravy train on the tracks



Germany had more than 5m unemployed when it won agreement on restricting eastern migration.

At the time Prof Sinn was warning that Germany had become a bazaar economy because of significant outsourcing. However over the previous decade, Italian firms had become as internationalised.

Sinn must have been surprised by the subsequent big rise in employment.

In the car industry, foreign production overtook domestic production for the first time. However, domestic car parts suppliers continue to supply the foreign factories.

@ Brian Woods Snr

It took the developed world a very long time to evolve the standards and rights that exist today.

China is in transition from a classic nineteenth century capitalist system.

Contrast that with the vast family-run prison to the south, which is the remaining showcase of that failed brutal experiment called communism.

@ MH

On a point of detail but a very significant one; the issue is not the level of unemployment in particular countries but the failure of the then members of the EU to agree a common policy on free movement of labour prior to the big bang enlargement. Instead, they agreed a seven year derogation period which both Germany and Austria – the two countries benefiting most from enlargement – milked to their maximum advantage.

The general point is that countries cannnot be allowed to dine a la carte at the EU menu. The entire mix of advantage and disadvantage has to be accepted. It is the failure of countries, big and small, to recognise this that may well cause the EU to disintegrate.

It seems that the citizens of the UK may alredy be sensing that the point of no return has been reached and are looking to the necessary preparations.

@ MH

An excellent contribution by Colm McC. It would have been desirable, however, that he mention more clearly that the passengers on the pensions, if not the salaries, gravy train include all sectors paid from the public purse.

Be that as it may, the present situation with regard to pensions is untenable.

“On “those projects ….” I would like you to be a little bit more specific, what you have in mind. There is a smell of “Social charta” in the air : – )”
🙂 Without an existing in-place ‘wealthy’ economy, private sector building of road, rail, tram etc. really isn’t feasible. We have seen how the design and build titans of the Irish economy were concrete swimming trunks. Fine until they got out of their depth. The ESB, privatised, might be large enough to build on its own, but the desire to create an artificial market in the natural monopoly that is a small island limits the chances.

I realise it sounds like pork for the boyos, but I don’t see an alternative to what has to be done.

Being able to distinguish between what is desired (for pork-barrel advantage) and what is needed (for national basic wealth improvement) is probably a better outlet for efforts.

@ Mickey Hickey

Thanks for the advice! Raised by a German public officer, I am still a little slow with black market thinking : – ) I ll guess they would even be happier, if I just take their pesos there, and sent the dollars directly to their accounts outside Argentina. Saves on smuggling expenses.

I realized in the meanwhile, that the living cost reference I used above might not be as valid as I believed. Too many “same prices”, and for other countries it is obviously somehow calculated and not taken from the market.

@ Brian Woods Snr
Well, if Nobel Prize Winners are sacrosanct, they have to take Hayek for Gospel too : – )

No, my critique of C-B and Solow does not include any of the more general and philosophical challenges of Ayres, etc. I discovered it, while I believed them, and tried to implement my own economic model, plugged in a few numbers, and then started to wonder, and more, and more. What exactly are we putting into Labor and Capital, how is the piece, which goes to the government divvied up, …… And then I took a closer look at the original papers. I can simply show elementary mechanical flaws of their data analysis. That Solow gets a R^2 of 0.9978 simply means, that he is in fact fitting an accounting identity, which should be self evident for any sophisticated reader.
And if you try to fix this, your capital exponent vanishes, you see that the factories were simply sitting idle for years, making the immediate adjustment of the fractions of capital and labor a complete joke (there goes your dy/dxing)

Basically, when Solow found out , that C-D is just not working, he put the fudge parameter productivity in. When people tried that international and it failed, the put the next fudge parameters in, and so on, and so on, right up to the Goldman Sachs BRIC paper.

And apparently Barro and Krugman understood nothing of that in 1992 too, given their comments for a bullshit paper along those lines, why Singapore will crumble from their inefficiency real soon.

The Ayres book I will not buy. What I have seen reading in it, is a little too far away from the real world.
Georgescu-Roegen, ……, I find it somewhat remarkable, that it is most the times non-physicists, who want to bring physics stuff into the economic discussion. I rarely find it useful.

I am talking simple mechanical errors in the papers, which are fatal non-the less. I then tried to do my own fix, and wondering, where you get the real world data, and the longer you think about those seemingly innocent and small data gathering problems, you practically always have in economics, the more you understand, that this in fact kills the whole setup of these growth models.

There is nothing left beyond the accounting definition Productivity : = output / labor hours.


you are simply trying to construct a mythical rigorous ideal of immediacy and totality, which never existed. Other countries had transition periods for other things like free capital movement too. But apparently you need something you can blame Germany against, in order to justify then all kinds of other transgressions of others.

And I am not aware, that a single EU country allows for real free movement of other EU folks, if that would mean they de facto immigrate into your social security system.


re Sindo taking up the pension issue-:Colm McCarthy/Eoghan Harris and others.

If my small comment contributed in any way, then my time is not fully wasted.

One has to wonder about the legality of situations whereby defined benefit schemes were rifled to pay off executives and others retiring early, leaving completely underfunded schemes behind them.
As always, the decisions to rifle the schemes, were usually made by those who knew they would be well looked-after retirees before ‘somebody’ discovered the kitty was empty for those remaining.

The same of course applies to retiring senior PS and politicians and bankers. The have refiled the public purse and contributed substantially to the demise of the State.
Why, even if the State could, should the State stand by pension arrangements these people designed to their own advantage. I see no good reason why these contracts should not be struck out.

@ genauer: Thanks for that very useful reply. Lots to re-read – and think about, more carefullythis time! If statistically reliable data and logical argument will not triumph over ideological sentiment (and it never has) then these economic ‘austerity’ experiments being conducted on continental scales will make ethnic cleansing seem a positive good. That chap Hayek you mentioned. Is he a cook or a chef? 😎

@DOCM: “China is in transition from a classic nineteenth century capitalist system …” Toward what? NK is a 3 Standard Deviator – and tolerated by China, else it would have imploded long ago. Though Eastern cultures has their own quirks – so maybe it will simply trundle along in the ruts of the Chinese carts.

@ Joseph Ryan: “The have refiled the public purse …”

Well, not exactly. They have press-ganged the Irish taxpayer into paying out of their future incomes – irrespective of whether those incomes rise, plateau or fall. That’s not democracy – that’s dictatorial behaviour. They did rifle the national pension fund though!

On the bankers’ pensions multipliers ….

Kevin Myers in praise of Mary Lou …. and I once complimented DOCM on this thread …

I need to lie down again for a while …

Oh – DONEGAL SAYS NO …. again … Aoife and Anto are pleased with the overall result but p1ssed off with the 2/3 of “bleed1n” adults (Anto) who did not bother to vote on The Children’s Referendum ….

Blind Biddy has declared WAR on the ordo neoLiberals …. again.

7_of_Nine, wisely, remains off the planet. I miss her …. I wish to invest in an Ash Plantation on a suitable planet ….

There is a troll on the thread …

Oil discovered on a NAMA site in Dalkey … we are all saved!

Facts are for little people.

We plutocrats have a long and proud history of controlling human societies, and the belief systems that we create about how the world works enable us to do that. “Earth is the center of the solar system” was a useful one for us in the past. “Lowering taxes on the rich produces growth” is one of our current favorites. You show me an orthodox belief, and I’ll show you plutocrats who benefit from it.

We understand human nature well enough to know that people believe and accept ideas for all sorts of reasons, but rarely because of facts or evidence. Mostly, people believe what suits them, what makes them feel good. And what makes us feel good is a set of beliefs that reinforce our status, privileges and power.

Read on to experience the mindset of the PlutoCrats …. lite realism …

http://www.businessinsider.com/a-message-from-us-rich-plutocrats-to-all-you-little-people-2012-11 [h/t nakedcapitalism.com

@ Joseph Ryan

The contrast between the indulgence shown by insiders with their own group and the lot of tens of thousands of victims, many consigned to never work again, is absolutely disgusting.

Arguments of legitimate expectation and vacuous excuses for inaction, have been crowned by John Bruton, former taoiseach, who according to The Sunday Independent, in a recent speech railed against “jealousy” and “backbiting” in the Irish media as well as an absence of forgiveness.

“We were inexperienced in a way. Leading bankers and economists were inexperienced and our citizens were inexperienced and the availability of all this cheap money took our breath — and our sense — away.

“I would argue it was just foolishness,” he added.

The typical rationalisation that could cover a multitude: the poor eejits meant the the best! Patriots to their fingertips!

Bruton in receipt of 3 pensions and currently a financial lobbyist, cannot appreciate what it could be like to fear unemployment or see hope evaporate while being unemployed.

If the country was put first from the outset of the crisis, force majeure would have been declared and many public outlays would have been slashed to deal with an emergency that exists.

It would have given a credible basis of shared sacrifice for not paying bondholders but we want to have our cake and eat it. Be outraged but not about what we can do something that is under our noses.

Week after week, there is a litany of public payments being made at a level as if it was still partytime.

A TD can live next to a Dart station in South Dublin and claim thousands in car expenses and even the cost of repairing a car and on it goes while people who are invisible from this world of privilege are targeted for cuts.



how about you read your own link ?
You will see, that Ireland just ended the restrictions in July 2012.

Germany will end them December 2012. What a difference.

Further when you read

You will see, that similar restrictions were/are in place in

“The restrictions that the remaining 10 Member States (Belgium, Germany, IRELAND, France, Italy, Luxembourg, Netherlands, Austria. UK, Malta) apply vary from one Member State to another but typically require Bulgarian and Romanian citizens to have a work permit.” (emphasis mine)

Similar restriction were in place at earlier accesions, nothing unusual, and absolutely nothing special with Germany and Austria, the Straw man you were trying to build.

@ genauer

I suggest that you get a better pair of glasses. From the link that I quoted;

“From 1 May 2004 to 1 May 2006 (first two years)

The original member states were allowed to decide whether or not to impose restrictions on the right of free movement from the new member states. Ireland, the UK and Sweden allowed full free movement and the other countries applied some restrictions.”

The most recent lifting of restrictions by Ireland refers only to Bulgaria and Romania.

The point that I am making is only incidentally related to Germany. The member countries of the EU should not have agreed to enlargement without a common agreement as to how the rules of free movement should be applied. It is as simple as that!

I am not faulting Germany for taking maximum advantage. My puzzlement is with the actions of the other countries involved, most notably the UK, in allowing enlargment to take place under such circumstances.


@David O’Donnell

Facts are for little people.

Lets break it down:

Blog post topic:

European Commissioner for Austerity and Neoliberal Policy mounts spirited, deeply held conviction based, attack against the IMF’s well researched figures for fiscal multipliers – from the political right! The Commission will keep on doing what its doing and the figures be damned (there is a touch of the US Republicans pre the recent presidential election about the Eurocrats now, is there not? The facts have a well know Keynesian bias and all that.)

Blog discussion turns to:

Which strain of neoliberal dogma should be legally enforced in the EU?


For those interested in what the reality based community is up to at the moment they have some posts over at J W Mason’s “The Slack Wire” on how European trade imbalances might be better explained by low German income growth.

Demand and Competitiveness: Germany and the EU

Euro boosters may find it useful, I am not sure I buy it entirely myself.

Those Dalkey hydrocarbons will stay in the ground due to a strange coalition of mansion owners on the Vico road, Glasthule Redisdents Association and Thst socialist tribune of the people Richard Boy Barrett. Strange country.

Multipliers on constitutional amendments…it seem about 19% of eligible voters approved the amendment to the constitution. We need an amendment to our referendum legislation mandating a minimum turnout.

re- DOCM: ‘…. The member countries of the EU should not have agreed to enlargement without a common agreement as to how the rules of free movement should be applied…. My puzzlement is with the actions of the other countries involved, most notably the UK….’

Local political climate vis-a-vis immigration ? Or, esp. in the case of Ireland & the UK (don’t know about Sweden), job-creation rate ?
But looking at here alone, there was the construction boom, and much else was a knock-on effect – the ‘boomtown’ effect, like a western goldrush causing mushrooming small trade & service industries .
Did any of this, by accident, ‘attraction’ or design, – or rather how much of this – have anything to do with the credit availability….and everything associated with it ?
Not something I ever see addressed, presumably because of the danger of the issue being polluted with anti-immigration bile, but just as we can see the destruction that occurs to environments and existing economies when a region is transformed by excessive & unsuitable tourism-development, the same issues apply to the modern economic migration phenomena (as much w/ regard to departing Irish and their destination-communites as the local situation here, need it be added. I don’t think anybody really believes that ‘free-movement’ isn’t mandated by free-market thinking, do they ?)
I queried the issue of the doubling of the number of residential properties during the alleged ‘boom’ (something surely unprecedented anywhere ?), and the fact that the quantity of residentially-zoned land would cater to a trebling of the population – whatever about the economic sustainability programme the FF govt were then following (ie; none or wishful-thinking), has any attention been given to this with relation to the famous credit flows into here ?


Googling “Ireland ESB” does the trick : – )

I don’t know what to tell or even just say. In former times we had monopolies in this area too, de facto state owned, mixtures of local, state, federal, everywhere a little different, based on historic developments, LOL, the usual mess.
In Germany we broke up power production and distribution, the monopolies in each sector, theoretically. Practically that is somewhat different, only a few people change providers, some of them got screwed by some private bankrupters, my City here first sold the power distribution, then bought it back, for reasons I don’t really understand (maybe to have some pork barrel positions at hand, after selling the public housing unit : – ).

But for putting some huge projects in place, like DESERTEC, running some 20 Gigawatts across a whole continent, thousands of kilometer with new HVDC technology, you also need huge players.

The public infrastructure, like roads, rail were also in Germany built and financed by the public. A lot of EU countries, like Ireland, got huge subsidies (http://www.money-go-round.eu/Country.aspx?id=IE&year=2011&method=gdp) over the last 30 years, to the cumulative tune of 100% GDP.

Clicking on Germany, everybody can see, that Germany does NOT get a rebate, in contrast to UK, NL, SE.

Looking at the new countries, you will also see, that they get much less. And nowadays the co-payments area little higher, still about only 15%, I think. Everybody has to show receipts, hand in project outlines. In short , making it a little more difficult to siphon off too much, or building completely useless white elephants. From my understanding this area is working good enough.

On these decisions “pork barrel” vs useful infrastructure, or social free loader vs really needy, I have basically given up to come ever to some consensus definitions / decisions.

re- the referendum turnout – non-use of votes can have a cause ( I heard two plausible suggestions supporting the contentions of either side of the campaign in yesterday’s vote). Or refusal to vote can itself be a type of comment on the particular issue.
Iceland seem to be increasing the scope and potential for direct democracy, and I’d suggest that with a few rather large economic decisions we could have done, and could still do, with following a similar route.

Multipliers ReLoaded:

Gauging the multiplier: Lessons from history
Barry Eichengreen, Kevin H O’Rourke, 23 October 2012

The size of the fiscal policy multiplier – and thus the impact of austerity on GDP – has been a contentious issue since the crisis started. The IMF recently revived the debate by suggesting that the multiplier is much higher than previously thought in the current policy environment. This column discusses independent empirical research that confirms the IMF’s view – the authors’ estimate of the multiplier is in the range of 1.6.


We had a thread on this earlier – but heck the blog is living proof that we are living through the nightmare of Nietschsze’s Eternal ReCurring …..

Unfortunately, the answer is yes. But interestingly Article 47.2.1 provides for a minimum of thirty three and one third of electors in order to veto a proposal by referendum, not being a proposal to amend the constitution.

@ Mark

The issue is not so much whether or not it was a good decision by Ireland but that there should have been no leeway for different courses of action by the member states. It is decisions built on such false compromises – the euro being the most obvious example – that have led the EU to its present impasse.

@ genauer

Again, you are factually incorrect. Germany does not get a rebate on its budget contribution but it does get a rebate in respect of its assessed share of the cost of the UK rebate cf. Article 5.1(b) at page 4 of the relevant Own Resources Decision.


The only worthwhile measure in this context is to relate the net transfers and net contributions to the GNP of the countries involved, bearing in mind that the benefits and costs of EU membership cannot be summed up in a budget representing 2% of government spending across the EU. Germany’s situation, aided by the “rebate on the rebate”, means that it is not the biggest net contributor relative to its wealth although it is the biggest in absolute terms.

A serious attempt may be made at the next European Council to bring an end to this rebate circus. I doubt if it will succeed unless, that is, Merkel can raise her sights from domestic electoral considerations.

@ DO’D: “Multipliers ReLoaded:”

Its truely astonishing. These mathematical variables are deemed to be UNRELIABLE (the IMF). They are inserted into economic mathematical models and the logic must be that that any numerical output CANNOT be less unreliable that the least unreliable variable used. To add insult to injury the basic measurement metric, G*P, is also deemed to be less than useful. It has to be hedged around (as do the Multipliers) with a plethora of ‘ifs’ and ‘ands’.

The outputs of the economic models are being used to guide, select and dictate government fiscal policy decisions which are causing great hardship to millions. That’s a basic definition of a Crime Against Humanity (causing widespread hardship for ideological reasons). Perhaps that’s a bit strong. But has anyone a less emotive description?

We have an on-going controversy (a very bitter one) about Global Warming. One set of ideological supporters using dodgy quantitative data being opposed by an equally ideological posse waving their own dodgy quantitative data. Are our august, self-proclaimed professional, economists any better than either of the aforementioned? No, they are very definitely worse! At least the former are mostly ignored by policy-makers and are not causing widespread human suffering. Our economists are inside the ‘tent’ and their ideological exhortations (supported by dodgy data) are causing mayhem on the outside.

The Performance Characteristics of Quantitative Measurements required to produce reliable quantitative data are stringent and mandate a verifiable level of statistical control over the measurement process. Are our economists even aware of these requirements? I believe not. And if this is so (and they are welcome to refute this assertion) then they are charlatans and their economic predictions are entirely false and should be ignored and dismissed. Any chance? Nope!

The IMF has been cut adrift

A fundamental strategic error at the outset means the eurozone crisis continues to fester

Europe’s crisis continues to fester. In large part this is due to a fundamental strategic error at the outset – the failure to restructure the debt of banks and governments.

Ten years ago the IMF revised its rules for handling crises precisely to prevent such errors. But, under short-sighted political pressure, the rules of the game were changed and the IMF was set adrift in dealing with the crisis in Europe.

The debt burdens of the three countries with official bailouts – Greece, Ireland and Portugal – illustrate the problem. Initially, they ranged from 92% (Ireland) to 125% (Greece) of GDP and will rise to at least 112% (Ireland) to 150% (Greece) of GDP by the end of 2012 (despite Greece’s recent restructuring of privately held debt).


Minor point: Irish Debt to GNP ~=150% is UNSustainable

Susan Schadler, former deputy director of the IMF’s European department, is currently a senior fellow at the Centre for International Governance Innovation and the Atlantic Council.

[…] The Irish Economy » Blog Archive » A comment on the European … For the most vulnerable countries, exposure to financial market pressures means there is no alternative than to pursue consolidation measures. The alternative of rising risk premia and higher borrowing costs would be worse for these countries, and consolidations are needed to restore fiscal positions and put debt projections back on a sustainable path. However, for ….. “We are having an open and constructive exchange of analysis with the IMF,” Mr Rehn said on Wednesday. IrishEconomy  — Thu, 08 Nov 2012 06:07:46 -0800  […]

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