Comparative Analysis of Adjustment in the Euro Area

This FT article provides an overview, based on two new studies

– Allianz study here

– Berenberg Bank / Lisbon Council study here

35 replies on “Comparative Analysis of Adjustment in the Euro Area”

The second study is of the most interest.

Overall Assessment [Ireland][Page 87]

Small, open and highly competitive economy that continues its
rebalancing from credit-fuelled domestic consumption back to
export-driven growth. Combining a solid fundamental outlook with
a serious short-term adjustment effort, Ireland has already regained
partial market access. It gets mostly extreme scores, either very good
or very bad.

Ditto [France][Page 83]

Below average on all major indicators of fundamental health and
still little action to improve the situation, France continues to fall
behind Germany but also behind many of the fast-reforming crisis
countries. Losing the AAA credit rating this year may not have hurt
France on the financial markets but reflects the lack of action to
reverse the economic and financial deterioration.

Readers might be interested in the political background of the Lisbon Council, which is, surprise surprise, a neoliberal think tank of the most doctrinaire kind. Its financial backers include Accenture, Berenberg Bank, Google, HP, IBM, Kapp Nederland, Navarra EU Office, Oracle, Philips, and Telefonica.

Reflections of an “ultra-liberal” on Europe’s next social model – Paul Hofheinz, President of the Lisbon Council.

Europe’s success rests not on a further expansion of its social-benefit system, but on the urgent need to strengthen our social-market economy, a unique invention which propelled Europe to unprecedented prosperity in the post-war period. But that model has two pillars: social and economic. Efforts to defy the market to the exclusive benefit of the social have inevitably ended in failure, with the Soviet Union, North Korea and Cuba being the most obvious examples.

I guarantee a teeth grinding experience if you open the Lisbon Council’s report yourself.

Lets just say that youth unemployment is apparently the result of employment market rigidities and not the lack of demand, that the words “crisis” and “financial” are not allowed to occur close to each other, let alone beside one another, and on page 66 they not only absolve the ECB of any responsibility for the European component of the global financial crisis but also simultaneously sing the praises of its “independence” and the way it is controlled by creditor countries. Jaw dropping stuff.

Some interesting comparisons on page 27 of the Lisbon report. Ireland behind Greece on fiscal resilience?. Wonder why?

Europe adjusting well….pity about the unemployed…..

“Eurostat found 18.7 million people were out of work across the euro zone, an increase of 173,000 on the previous month.
The wider 27-nation EU, that includes non-euro countries such as Britain and Poland, had an unemployment rate of 10.7% and a total of 25.9 million out of work.”..RTE.
That’s a lot of dole money.

Irish 2011 transport omnibus was published.

The highlight of course continues to be the massive collapse of road freight (biggest fall in Europe by a wide margin)
Y2007 Tonnes carried (thousand) : 299 ,307
Y2011 Tonnes carried (thousand) : 110 ,260

A older transport omnibus gives road freight as 314,826 in 2007 ?

In that 2007 publication 159,865 was road and building site work
In 2011 30,981

However all activities are down hugely ( delivery of goods to retail , wholesale , factories , households ,other work , import /export……..everything.
Including even farms (livestock , farm produce ,fertilizer )

The older 2007 publication

LUAS Dublin tram seems to be the only bright spot recovering past 2007 passenger levels (although it is a much bigger rail network now )
With a 5.1% increase over Y2010 passengers ,now standing at 16.5 million & 12.5 million for the red & green lines.
Whats really a great worry is the decline of Dublin and other areas bus fleets , this after a 20 % ~ drop in countrywide passengers since 2007
In 2007 Dublin bus fleet was 1,145 vehicles
In 2011 Dublin bus fleet was 940 vehicles
In 2007 Cork city bus fleet was 87 vehicles
In 2011 Cork city bus fleet was 78 vehicles.

Mainline domestic (Inter city rail ?) passenger numbers seem to have recovered back to their 2007 levels as they now poach the retired domestic air routes but they face stiff competition from a more liberalized (low wage) inter city Bus service that now uses the almost empty new motorway network.
Y2007 (thousand pas.) :10,537
Y2011 :10,656

However Dublin suburb & DART passenger numbers have collapsed
Y2007 Suburb :13,180
Y2011 :9,911

Y2007 :20,224
Y2011 : 15,924

However as can be seen across the border these rail declines are almost entirely caused by monetary malice as resource inputs are minimal when trains are full.

(NIR continue to report record passenger numbers)

Air passenger numbers were more or less static over this time although almost all regional airports continue to decline.

@ Dork

Rail numbers might get a boost from increased train speeds in 2013 too, 20 minutes off some journey times is not to be sneezed at, particularly when Combined with a budget that’s bound to hit motorists again. There’s no doubt that those mobile and young enough are heading for the cities/towns, either here or abroad. A car centric lifestyle is not something young people desire ( or can afford) these days.

Well train speeds are good.
But really we could be heading back into a 19th century like world of transport use.

If I could name one project that needs to be considered above all else its you guessed it now………

The success of the Brest tram proves my very long running point.

PS – that RTE rail show was very poor.
No imagination.

@ Dork

You could be right. Then again we could be saved by technology. If one could buy an electric car for 10 grand, with a 300 mile range, costing €6 in electricity to fully charge, those motorways wouldn’t be long filling up.

@ Dork

Failte romhat aris. I thought you went native up there in Coolea. Mind you, Mr Draghhi has done his best to kick the can down the road since we last heard from you. It’s all very quiet.


Coolea had the highest pub in Ireland (or one of them at least) – although I think its burned down now………….

I tend to agree with Bruce Krasting – what he has done will explode the system.
As each country cannot adjust its own internal energy systems / internal commerce via printing.
Again Steve from Hicksville will be proven correct (CBs don’t print)

That savage leaked ? commission report proves they want to do a 18th century scots highlands / 17th century Irish number on all of us Pigs.

Force us to export to the point of absurdity , destroying pretty much all internal systems & productivity when they could adjust fairly easily under a sov system of control.

Here are some excerpts from Berenberg Bank annual report 2011 signed by BDO March 22 2012.

” Nonetheless, in December 2011, Europe’s politicians laid the basis for containing the euro crisis during the course of 2012 by taking courageous decisions regarding a new fiscal straitjacket and a more active role for the European Central Bank. The subsequent rise in German leading economic indicators and calmer conditions on the markets suggest that the eurozone will emerge from recession this summer and that a Germany that exercises its responsibility in Europe will soon be able to return to the economic successes of previous years. ”

Not much prescience in evidence there!

A bit conflicted too;
“In the United States, all fears of a double-dip recession have so far proved groundless. Instead, the extremely loose monetary policy applied by the Fed has stabilised the labour and real estate markets, encouraging people to spend more on private consumption and housing construction. At a rate of just under 2% overall, growth maintained a level that could readily be considered appropriate given the high level of sovereign and private debt.”

So which is it to be. An extremely loose monetary policy that works or a fiscal straightjacket that clearly doesn’t work, except for Germany perhaps.

Just a thought on capital ratios. It really makes one wonder about the value of Basel this or Basel that or capital ratio.
Berenberg has 26billion of ‘assets’ under management but the bank itself has assets of approx €4 billion.
Yet its total capital is just 216.9 million, but it meets all requirements etc, and can boast ratios given below.

One wonders is this the new banking model, “assets under management”, providing very lucrative levels of commission income to the asset manager, but all managed through a capital base structure that is miniscule in comparison to the asset base under management.

“The Bank’s liable equity rose to €216.9 million during the financial year (€213.3 million). The total equity consists of core capital of €166.9 million (€163.3 million) and supplementary capital of €50.0 million (€50.0 million). The supplementary capital essentially consists of subordinated liabilities of €45.0 million (€45.0 million). The capital ratio compliant with the German Solvency Regulation amounted to 15.0% at year-end and the core capital ratio was 11.2%. The Berenberg Group (group of consolidated companies for regulatory purposes) had a capital ratio of 17.2% and a core capital ratio of 14.1% at the reporting date. This capital base means that we continue to meet all the statutory requirements regarding equity capital and today already comfortably meet the tighter equity capital requirements of Basel iii to be applied in the future.”

This is one of the worst reports I have read in the normally balanced FT in a long time. I had to check who wrote it, fully expecting the surname of the author to be Rehn or Schauble.

Despite the anecdote, the purpose of which is unclear, Labour Mobility is only useful in a transfer union where excess income in the states that benefit from immigration is recycled to more deprived areas. As German politicians have been at pains to point out to their electorate, the EZ is not a transfer union and nor is likely to become one anytime soon.

So, lets just appreciate the story of adjustment for what it really is: human misery caused by depression and emigration from the periphery. And this human misery is caused by the reluctance of the ECB and the EU to recognise that the EZ is in a recession and parts of it are in a depression.

The rest of the EU had to endure unacceptably low rates and high levels of inflation in the first 8 years of the EZ because Germany was the sick man of Europe. Now the boot is on the other foot, but the periphery must endure depression while Germany barely ticks over, despite the article’s baseless statements to the contrary.

Of the 4 main currency areas, the EZ has the highest interest rates, despite having the worst economic conditions. Why is that?

This begs the question of where in God’s name is Patrick Honohan? Buba is all over Draghi over the non-existant threat of hyper-inflation, but where is Honohan when it comes to Ireland’s interests? Oh, that’s right, I suppose he is busy ensuring the replayment of unguaranteed bank bondholders on top of twice voting for interest rate rises last year in full knowledge of the destruction that would be caused to the Irish economy (nevermind the lunacy of such rises from a EZ point of view). I guess he thinks its entirely proper for him to confine himself to writing the Irish economy’s epitaph.

Good economist, terrible statesman. The man should resign.

The blood flow continues up North (although its barely alive )

The flow has stopped for 5 years now down south as the country must destroy any rational real world anti – entropy measures so as to obtain revenue as if it were a real world physical good.
(I guess tax it is a real symbolic token , in the Eurozone)

Bus passenger numbers are falling slightly but nowhere near like the Euro -Irish carnage.
NIR – once almost a dead transport system and with a much smaller & shorter rail network then down south is breaking the records.

Rail passenger journeys & receipts up 10% relative to the same period last year.
Rail miles up 8%

It proves that the Rail Renaissance thingy on the big Island has got nothing to do with their Privatisation adventure.

The control – NIR (vertical integration ) is proving the point.
Its the different monetary environment dummies.

Data for the next quarter is likely to decline as they are relaying the Derry line.

More Leeches I guess ?

Its not so much about trains (although I like them very much)
Its about capturing a new flow in real physical world systems that interact , create critical mass etc etc.
People sometimes forget how so much of their physical world is now suburban houses , roads and cars.
Before 1914 the world was a very different place.

Sure I like France , but it is no longer a nation state system like all euro market states but it does have some of legacy systems that can be brought back from the dead.
However like Ireland now, its market towns once the backbone of both countries are dead or dying.
It will take a lot of leech burning.
The last non tourist 1 meter line servicing real non tourist people has been brought back to life (although only half the line)

A train for the school run !!

Its seems expensive because of high labour inputs as can be seen from this video – but we have a unemployment crisis don’t we ?
Or is it really a monetary crisis ?

Its not so much about trains (although I like them very much)
Its about capturing a new flow in real physical world systems that interact , create critical mass etc etc.
People sometimes forget how so much of their physical world is now suburban houses , roads and cars.
Before 1914 the world was a very different place.

Sure I like France , but it is no longer a nation state system like all euro market states but it does have some of legacy systems that can be brought back from the dead.
However like Ireland now, its market towns once the backbone of both countries are dead or dying.
It will take a lot of leech burning.
The last non tourist 1 meter line servicing real non tourist people has been brought back to life (although only half the line)

A train for the school run !!

Its seems expensive because of high labour inputs as can be seen from this video – but we have a unemployment crisis don’t we ?
Or is it really a monetary crisis ?

As usual, there are lots of perceived clever people about making judgments but wisdom remains rare.

Recently Wolfgang Schäuble of Germany was chosen by The Financial Times as Europe’s top finance minister in 2012 from 19 of the EU fiscal chiefs. Michael Noonan of

Ireland got a 5th ranking.

Jacques Delpla, adjunct professor, Toulouse School of Economics, one of the seven judges commented: “The best performing ministers in 2012 were Greece’s Yannis

Stournaras, Portugal’s Vítor Gaspar, Ireland’s Michael Noonan and Italy’s Vittorio Grilli. They pushed for far-reaching and comprehensive reforms of a kind that have

never been seen before.”

I would give Delpa “nul points” for the fiction that Michael Noonan has pushed through comprehensive reforms.

Looking at the ECB’s Harmonised Competitiveness Indicators unit labour cost total economy, the Eurozone is down 12.6% from a 1999 base of 100: Germany at -20%;

Ireland -5.1%; Greece -4.7%; France +0.9%; Spain +0.8%; Italy +2.2%; Finland +1.9%.

In Q4 2007 the results were Eurozone -1.1%; Germany -16.4%; Ireland +21.6%; Greece +9.3%; France +4.5%; Spain +14%; Italy +8.9% and Finland -2.6%.

So there has been quite a change for Ireland and in recent years, rising ‘output’ from multinatioanls has boosted the index.

However, the indicators for consumer prices are not as impressive.

The Eurozone is at -9.2% compared with 1999; Germany at -12.5%; Ireland +3.1%; Greece +4.1%; Spain +6.7%; France -7.2%; Italy -2.4% and Finland -8.9%.

The Eurozone rate was 3.2% in Dec 2007 when Ireland’s rate was 19.2%.

So while the Irish level has improved, it is still 12% above the EU average.

Spain’s exports have held up well in recent years but there is a big reliance on European markets.

Prof Luis Garicano of the LSE speaks in a video linked to here on the small change in GDP that has had a huge impact on employment.

Garicano says in respect of the current Spanish government: “The first thing they did on taking office in January was to increase pensions by 1%, and to re-introduce the mortgage deduction, which the socialist government had (correctly) eliminated at a big political cost. They haven’t decreased the salary costs of civil servants; they haven’t increased the revenues of the state. The Spanish state only collects 35.1% of GDP, and has the lowest revenue to GDP figures of the whole of the EU.”

This leaves Spain with structural problems – large amounts of people have dropped out of school to seek jobs in the construction industry, there has been a large amount of unproductive investment in real estate, and there is a huge amount of debt that needs to be repaid. This “macro” view is comforting for Southern European politicians, who say that “it is not our fault, the Germans should not have lent us all this money, the ECB should not have had these lax policies“ and (they love this bit) “as Paul Krugman has said, we should not view this as a morality play.”

This view is correct, but incomplete. What it is missing is the “microeconomic“ issues, the institutions and incentives which determine the reactions by politicians to this inflow of money and to its sudden stop. It’s not a coincidence that the countries that have these problems are countries like Greece, Italy, Spain and Portugal. Greece, Spain and Portugal have democracies that are only about 40 years old. Specifically, in Spain there was a Bermuda Triangle that all this inflow of Northern Europe money fell into, formed by the regional governments, the savings banks (the now famous cajas) who doubled their share of the market since the advent of democracy and financial liberalization, and the real estate developers. From the perspective of the regional governors, the cajas were essentially regional development banks with private money, though they were officially semi-private institutions like the Landesbank in Germany.

They would appoint politicians to the boards, and often, as research by LSE´s Vicente Cuñat and myself has shown, they had had CEOs with no banking experience and no education in economics or finance. As we found, precisely those cajas run by clueless CEOs had the largest amounts of real estate loans and of non-performing loans. So what you had was a system, which was confronted with a big inflow of money in the early 2000s, but did not put this money to productive uses.

You are falling for the German U boat trap.

Its not about exports – who cares about exports ?

I consume imports and domestic production unless I go to France for my holidays.

But we are under a credit /oil embargo as credit and oil are pretty much the same thing.
Yet we are under instructions not to do anything that smells of Dirigisme.
As it would interfere with the “market”
What “market”
We are at war yet we have external managers who state we cannot burn peat in a steam engine (metaphorically speaking)
But we can burn diesel in our new German BMWs no problem causing a collapse of Industry and public transport as this is closer to free market principles.
There is no free markets under war time conditions , indeed I don’t think there ever was.


“That’s a lot of dole money.”

…making it a bigger and easier target to hit….. UK and others already making noises about that and I await our budget with interest.

What’s going on? I thought there was an agreement that no one was going to pay the ransom or contact the Gardai!

If you read a few pages of the very important Blueprint for a deep and genuine economic and monetary union document from the European Commission or the Lisbon Council’s “Agenda for More of the Same” something quickly becomes apparent.

Both documents seem oddly self satisfied – with the current structure of EMU, with the behaviour of the EC and ECB, and particularly with the myriad of unsuccessful (the various Greek debt compromises) or actually counter productive measures implemented so far at a European level (collective austerity) to deal with the European consequences of the global financial crisis. The EU has coped the least well of any developed bloc with these consequences but reading these documents you get the feeling that this is not considered a problem at all. All negative comparison is inter-EU, none is international.

So instead of any regret or self analysis about how poorly the EU has dealt with the economic crisis and the human consequences of it you get the feeling that the European component of the global financial crisis is seen as a set of disconnected stories (Irish Greed, Greek sloth, Spanish misfortune) explaining why we should stay the course, with strong determination, on the path that took us to this bleak and decaying location.


What’s going on?

The kidnappers released their captive, are now avowed advocates MMT and have renounced their former life of crime to take up train spotting.

It is known as Melbourne Syndrome.

@Shay B

The “money line” is at 3:30

“Indians vow to endeavor to persevere”, but the whole clip should be required viewing for economists who are more familiar with maths than history.

Shay at 12.01 pm

Entirely agree.

Lisbon Council ‘think tank’ guff – is this neo-liberal drivel really regarded by Irish economists as even vaguely relevant? I note that unemployment appears to be of zero concern.


‘Despite a series of harsh austerity programmes, Spain’s fiscal position has deteriorated.’

Seriously? Is this drivel still considered worth posting up here? Try subsituting ‘Because of’ for ‘Despite’….

As for the self congratulatory EC’s blueprint…. if this is what passes for some consideration of the last four years’ absolute mess of failed policies & crises, within the context of the first decade of the EMU, then we really are getting nowhere.

Have none of Ireland’s economists given more than a brain fart’s attention to Norquist’s ‘herd mentality’, ‘groupthink’ etc, in the last four years?

@ the Dork

Fáilte ar ais

I was reading this and thinking that Dorkheit mighht catch on

” Globalism came into being because of special circumstances at a unique time in history—about a half century of relative peace among the great powers and many decades of relatively cheap energy.

The 12,000-mile supply line from Chinese factories to the American chain stores is a special condition, not a permanent arrangement. I think the developed nations are going to retreat back into their respective corners of the world, and life is going to become a lot more local again.

There’s a great fear that we can’t undo the economic relations we’ve built up over the last 30 years, and it’s understandable. There’s a phenomenon called the “psychology of previous investment,” which means it’s difficult for us to consider the possibility that something we’ve invested heavily in won’t work. But eventually it becomes obvious that we’re desperately trying to sustain the unsustainable.

What about alternative energy sources?

There’s a lot of wishful thinking that somehow we’ll replace fossil fuels with alternative energy sources, but they remain far from reality. We’re not going to run Wal-Mart, Disney World, and the interstate highway system on any combination of alternative or renewable energy—solar, wind, algae oils, ethanol, used french-fry grease, you name it.

You can pay lip service to conservation in the suburbs, but the suburbs are what they are. They are designed to work on oil and gas. The Jolly Green Giant isn’t going to move shoddily built, energy-inefficient houses closer together. Our choice is either to fight the failure of these places or to get serious about reinhabiting the older parts of existing towns and cities.”

Read more:

@Mike Hall

Have none of Ireland’s economists given more than a brain fart’s attention to Norquist’s ‘herd mentality’, ‘groupthink’ etc, in the last four years?

I had a small brain embolism there but I presume you mean the Nyberg report and not something American tax pledge fiend Grover Norquist said.

Spot on though – Nyberg was trying to make a point about the dangers of elite consensus generally but for Irish policy makers and their advisors “group think” is so much a part of the decision forming process that when they read the following paragraph the only bit they acknowledged was about the banking sector- the “authorities” bit slipped them by completely.

Widespread lack of critical discussion within many banks and authorities indicates a tendency to “groupthink”; serious consideration of alternatives appears to be modest or absent.”

You could happily replace “many banks” with “government departments”, “university economics departments” or “newspaper editorial rooms”.

It reflects of course a much wider problem. Deference, alignment with the powerful and submission (often mistakenly called “consensus”) are such an essential part of the social structures that allow career advancement in Ireland that it is simply unimaginable that an Irish economist, civil servant or politician could reach a senior position without subscribing to group think.

That is one of the reasons we need a major purge of both the senior levels of the permanent government and the motley array of silver hairs that run the country.

Its not just the US ………
I find UK trade figures fascinating

Goods Imports Y2011
Japan : £ 8,868
China : £ 31,501
Germany : £ 50,457
Norway : £ 25,189

Trade deficit
Japan : £- 4,140
China : £ -22,203
Germany : £ -17,893
Norway : £ -21,791

What ever about the sustainability of North sea trade with the Rhine / Rhur region and the oil and gas imports from Norway.
Is the Indian ocean / med sea / up the coast of Spain , France route sustainable ?

I think much of the UK moves recently is got to do with the possible reversal of future trade patterns – with them using the resources hidden within the Gulf of St Lawrence

Ireland remains in trade deficit to the UK (oil & gas I would think)

Uk trade surplus with Ireland 2011
£4,818 million

The French are now in perfect trade balance with the UK.

Given the ties with Canada and the US ,the weakness of Gaullist forces in France – I would not rule out some very unexpected deals.–Chevalier_Treaty

OK – China has cheap coal / labour which the banks just love.
But oil and trade distances is becoming more important again.

Of course the UK has global pull in its various colonies and outposts.

This can be used to keep its tiny rump industrial base alive (just)

London (or Edinburgh) calling Hong Kong , come in Hong Kong ?

Of course that other British outpost of …………. ehh Dublin was a major customer for Alexander Dennis vehicles back in the day.

At least up to 2011 the Stock of Dublin Buses was declining
But someone is ordering buses in Ireland ….most likely privateers who use wage arbitrage to appear more competitive but duplicating resources in a race to be the best neo -liberal on the planet.

Irish bus reg
Jan – Oct 2011 : 78
jan – Oct 2012 : 236

In October alone 40 were reg.

Who is buying this stuff lads.

Comments are closed.