With thanks to Eurointelligence, here are a couple of useful antidotes to the complacency that will kill the euro unless it is abandoned: here and here.
(If Ashok is right then, contra Manasse, the Eurozone crisis will become a bit more symmetric, but he is right to query whether this will be good news for the project.)
And here is an account of a Slovenian constitutional court decision. If the account of the legal reasoning is accurate then this is quite appalling.
107 replies on “Eurozone links”
Thanks for the links.
The Gaurdian article should have mentioned Ireland’s Bank Gaurantee, a shinning beacon of democratic failure, the gambling of a country on its banking system, that took a few men a few hours to achieve. It must be a record of sorts?
Some of the graphs in the Manassa blog post seem a bit problematic as useful guides to analysis. For example Figure 7 shows that the dispersion of per capital GDP across EU member states is essentially flat, but by rescaling the Y-axis drastically Manassa displays a relatively tiny increase and makes it look large.
In Ireland the interface between private property and the public sector is where much political corruption occurs.Two examples are the planning process and state/sovereign commercial leases. The findings of the Mahon Tribunal were “Corruption in Irish political life was both systemic and endemic”. In the Moriarty Tribunal the findings were ” What was attempted on the part of Mr Dunne and Mr Lowry was profoundly corrupt to a degree that was nothing short of breathtaking”
Former Taoiseach Mr Haughey required a minimum of a million pounds per year, to finance his lavish lifestyle. Many of Mr Haughey’s bagmen are sovereign landlords-this was the pay back. Many Irish politicians families,friends and bagmen are sovereign landlords. This is institutionalised political corruption. The sovereign should be a price maker not a price taker,because of it’s unbeatable covenant. These sovereign leases are sovereign bonds with the notorious ratchet upward-only rent review attached. Sovereign landlords have bled the state dry using this feudal lease law and have wasted billions of Irish citizens money. We are alone in the eurozone with this feudal commercial lease law.
In all other jurdisdictions commercial property is valued on the quality of the property,in Ireland it is valued on the quality of the tenant. Reckless Irish banks lent tens of billions against these ruinous leases,not against the properties,and created the greatest commercial property bubble in the history of mankind. When this bubble burst it bankrupted the Irish banks and the sovereign. The only reason our country has these feudal leases is because the sovereign signed them.
The greatest bank and property crash in the history of mankind started with one house–Leinster house.
Basically if Germany, rather than ranting on about Moral Hazard had got the ECB to print some euros and dump them in Ireland and Greece, some of which would have flowed back to Germanys bankrupt banks, via bailing out the Anglo Robbers bank.
1. Germany would not now be recession.
2. The sucide and homeless rate in Greece would be a lot less.
3. Irelands property market would have firmly started to recover.
Of course they could have given the printed euros with some caveats that we would all have appreciated like we want your hospital consultants, judges and bureaucrats to be paid the same as they are in Germany. In that case they could have helped the deficit as the growth caused by the printed money would have led to increased tax revenue, combined with reduced dole cost and public sector wage cost.
Instead we got a government that laid off vast amounts of public sector workers without just doing a significant pay cut of 30% or so (that the Germans could also insisted on!) and we now have the highest paid consultants and judges etc. in Europe and all the laid off public sector workers are on the dole expanding the defict. We now have a health service that we cannot afford and growing interest payments on the national debt that was used to pay off the gambling debts of the entitled class.
Green shoots me a***
“Of course they could have given the printed euros with some caveats that we would all have appreciated like we want your hospital consultants, judges and bureaucrats to be paid the same as they are in Germany.”
An analysis of “we” might be instructive there.
Germany, given its history, was never going to take the initiative, it was up to Ireland to take the initiative and slap it on the table in broad daylight, insisting on reciprocation . But see “we” above.
How do you expect EZ politicians (thats ‘politicians’ in italics) to make domestically unpopular decisions to address a vicious sovereign/bank loop when stock markets are near all time highs, measures of volatility are at levels so low they haven’t been seen since Warren Buffet was selling Vix futures in 2006 & ’07, there is a bull market in periphery sovereign debt, and Ireland is back in the markets without even the announcement of a pro note deal?
I’ve noted before, the Germans would probably agree to stuff they currently wouldn’t even discuss, if you could show them a chart of the Dax approaching down to 4000…as it is, what makes you think they think they are doing mishandling things?
“In western Europe we are effectively witnessing a growing inability of the ruling elite – they know less and less how to rule. ” – from the Guardian.
Thats predicated on the idea that the ruling elite aims for the prosperity of its respective nations.
The idea that a ruling elite should aim to maximise the prosperity of a nation was jettisoned, not without conincidence, with the idea that there should even be a nation state.
The ruling elites are doing there job quite well. The assumption that they should be doing it for the benefit of the wider populace is where the Guardian goes wrong.
German industry is hardly going to pieces after output fell about 1% in 2012 following rises of 12% in 2010 and by nearly 9% in 2011. Rising demand in China and the US will fix that.
This morning Stephen Collins in the Irish Times reported that Enda Kenny had asked ministers to deliver memos with ideas on job creation.
So expect a number of more schemes, initiatives, actions etc but perish the thought that attention would be given to failed policies or addressing emerging challenges.
The hand wringing about Europe is on the same level. A massive stimulus program would temporarily mask the problems.
In the FT yesterday, Adam Posen who isn’t a right-wing ideologue, made some interesting points about the latest planned stimulus plan in Japan.
Europe is in the same boat and the solutions are not simple.
Jonathan Guthrie recommends a solution for Irish job creation;
Aren’t you forgetting about the accruing dividend from government programmes already announced?
I trust MH won’t try to think of some way to put a negative spin on that.
@ Michael H
@Jules, and what would be on the asset side of the ECB’s balance sheet to match those euros it printed and dumped in Ireland and Greece?
Perhaps that Slovenian constitutional court has a point!
Taking my life in my hands here but is Europe really in the same boat as Japan? Japan has a range of problems – extreme public debt , deflation & demography decline – that are far worse than the comparible issues in Europe
I don’t know why you have to care about whether or not Europe is “in the same boat as Japan”‘s when much of Europe is already in a situation more than twice as bad as Japan’s, and Europe has managed to achieve that with much less public debt and no deflation (yet) and better demography. The worst unemployment rate that country experienced after that huge bubble bursting in the 1990s was 6.0%.
Also, the countries who could turn Japanese (by which I mostly mean deflation) are the ones in the “core”. The fate that awaits the ones in the “periphery” is quite different on the current path. Something far worse.
“The idea of the “bad bank” was, of a place, to transfer all bad credit from main banks, which would then be salvaged by state money (ie at taxpayers’ expense), so preventing any serious inquiry into who was responsible for this bad credit in the first place.”
Certainly, there was no problem in that regard in Ireland, the population being put on the hook for Blanket Guarantees to banks, NAMA, ANGLO/IBRC’s debts, MOU’s in order to finance the banks and fund Croke Park Welfare as well as ordinary welfare.
However, the notion of “too big to fail, or of systemic importance” in Ireland, had anything to do with such lofty notions that society would fail. Rather, it had everything to do with the ruling class deciding that they were too important and systemic to fail and this is ongoing as they try to fudge their way out of the crisis the personal insolvency legislation being another prime example with banks being put in charge and no prospect of any software being available to track what will be a failed approach until June or July.
Lorenzo Bini Smaghi has a useful factoid in the FT today for use in zapping pub-stool economists, who see salvation in currency devaluations:
As for Europe, rather than wait for politicians to wave magic wands, when it comes to big companies and jobs, Airbus has been a spectacular success in innovating from developments in several countries. This week it has been reported that it is considering buying a majority stake in a Spanish supplier that has been hit by credit problems. However, the aircraft firm plans to increase its dollar procurement to 40% as most of its revenues are in dollars.
Most other big European companies are old and their products are old technology but improved over time eg cars.
China will match US R&D spend in a decade and while there will be bumps on the road, its target is to have an educated workforce on a par with Europe and the US. It is focusing on alternative energy, energy efficiency, environmental protection, biotechnology, advanced information technologies, high-end equipment manufacturing and so-called new energy vehicles, like hybrid and all-electric cars.
There will be increasing competition for multinationals in their home OECD markets.
As for Ireland and jobs strategy, Forfás which would already operate in a mode: “what does the minister think?” will soon be absorbed into the Enterprise Dept’s spin machine.
The ESRI and the Central Bank produces some research in this area while it seems that little comes from the universities.
Stephen Collins in the IT reports today: “The Government has signed off on a range of measures designed to boost job creation that will be included in the 2013 Action Plan for Jobs to be published next month…The spokesman added that the Government was determined to create the conditions in which employment could grow and the measures agreed yesterday would contribute to that process.”
If George Orwell’s character Syme in his celebrated novel, ‘Nineteen Eighty-Four,’ was updating his Newspeak dictionary, he would surely include ‘process.’
…and maybe ‘innovation’?
“Most companies say they’re innovative in the hope they can somehow con investors into thinking there is growth when there isn’t,” Clayton Christensen, a professor at Harvard Business School and the author of the celebrated 1997 book, ‘The Innovator’s Dilemma,’ told The Wall Street Journal last year.
The Journal said that a search of annual and quarterly reports filed with the Securities and Exchange Commission showed companies mentioned some form of the word ‘innovation’ 33,528 times in 2011, which was a 64% increase from five years before that.
More than 250 books with ‘innovation’ in the title had been published in Q1 2012, most of them dealing with business, according to a search of Amazon.com
@ MH: Who will China ‘sell’ its export products and services to? If its us ‘western’ economies, then why will we need either production or service sectors – except these are only supplying the indigenous sector which an external supplier cannot? China is a big, emerging problem. Japan ditto. Europe ditto. US of A ditto. When this monetary symphony ends – there will be no chairs for anyone! One-legged stools maybe!
Erasmus Peshine Smith [Manual of Political Economy – 1858] had some insightful commentary of the lop-sided nature of indigenous and export trading sectors: took a few lumps out of Ricardo. The losers lose more than the winners win. That free lunch ensures that some critter goes without their supper!
@ All: No government can ‘create’ employments (other than in the public service). Employment creation is the privilege of the private sector. And they will only do this if their incomes warrant. Of course there is always the option of re-looting the taxpayer and passing out their moolah. The resulting economic gain is less than the economic loss, but who cares? Its votes that count!
As for the ‘three easy pieces’. Ho hum stuff. The cognoscenti on this site know the score. This financial disaster was predicted as far back as 1999. Only the time and place of the trigger events were not known. A vessel holed below its water line will founder, but total submergence may be avoided if you can run it onto a sandy shoreline. However if it remains on that shoreline for an extended period it is a tad difficult to re-float. The crew are going Full Steam Ahead frantically searching for a suitable beach. But the pesky thing keeps receding over the horizon!
ps: Mirable dictu! We have the Spell Checker restored!
“what would be on the asset side of the ECB’s balance sheet to match those euros it printed and dumped in Ireland and Greece?
Perhaps that Slovenian constitutional court has a point!”
The asset side of any balance sheet is only as good as the ability of its ‘customers’ to pay their loans. That ability in turn depends on a vibrant economy where people are gainfully occupied to such an extent that they can make savings and fund borrowings.
Do you think the asset side of the ECB balance sheet has improved or disimproved over the past few years?
The Slovenian constitutional court seem to think democracy is not to be trusted in dealing with the matter of bad banks. In my view, it is crystal why they make this argument. The losses of a minority of rich or better off people who keep their assets in banks, are being socialised on a majority who have very little assets.
Democracy would be unlikely to work for the rich in such circumstances, so it is best to avoid it.
@Rebel Economist and Joseph Ryan — Central Bank balance sheets are a mostly-fictional artifact in any fiat-money economy (that is, in almost all western economies). To quote Gertrude Stein, there is no there there.
@ Brian Woods
Africa used to be a dumping ground for French s/h cars. Now people there can buy new Chinese cars and phone handsets — some of which are good knock-offs.
However, don’t knock that!
Most Americans at least would say that Thomas Edison invented the light bulb.
However, Joseph Swan patented a carbon filament lamp in England in 1878, and Thomas Edison patented basically the same thing a year later in the US. At that time, there were no patent laws in the Netherlands, so in 1891 Royal Philips Electronics, as Philips, the electronics giant, was known at the time, could simply take the invention and claim it as its own. By 1900, Philips was the third largest supplier of light bulbs in Europe.
Ericsson of Sweden did something similar in 1876: it reverse-engineered Alexander Graham Bell’s telephone, which hadn’t been patented in Sweden.
This week’ Economist says Pascal Lamy, head of the World Trade Organisation, has suggested that Africa could be China’s biggest trade partner within three to five years. The EU is currently the no 1.
China is Brazil’s biggest trading partner and it represents nearly 20% of Brazilian exports, primarily in commodities such as iron ore, oil and soy.
“To quote Gertrude Stein, there is no there there.”
I take your point. Still central banks always seem to concern themselves with the quality of collateral, the value of which presumably falls pretty much in line with falls in GDP, as a nations ability to pay must be a function of its GDP/GNP?
@ MH: Thanks for that useful update Michael. Appreciate it.
Africa??? Most of these folk are dirt poor and barely get by on less than 2l of liquid fuel per day! If they start up that liquid fossil-fuel hill in earnest (which I genuinely doubt will happen) some western folk are going to be mighty unhappy. There simply isn’t enough of that liquid moolah to go around any more – despite all the delusional PR hype to the contrary.
Global production of liquid fuels has effectively stalled. New productions are less than the declines in historic productions. The energy cost of new resources is rising. Domestic use in major producers is increasing – fast! Available Nett Exports are declining exponentially!!! China is also a fossil fuel addict (US, EU, ditto). That’s a Boom and Bust Michael. Interesting times.
Apart from SA, the general state of Sub-Saharan Africa indigenous industry has a long history of underdevelopment. Governments are almost uniformly corrupt. Infrastructure is hopelessly maintained. Rule of the Kalashnikov is Standard Operating Procedure. The populous Mediterranean states are individually and collectively, political, religious, societal and economic messes. Christian and Islamic cultures are first cousins of each other (despite the best intentions of fundamentalists). Chinese is what? I hope they know how to handle occidental political ‘sweaty gelly’.
Mind you, this scenario is possible. Heroic oriental Buffalo Bills (in helicopter gunships) sweep the central African plains clean of herbivores to permit access to those arable lands. 😎
Q: Who will, build and maintain all that tarmac for the food trucks? Or will it be the Iron Zebra? The mind boggles!
Brazil is a better bet, but again you run smack into that liquid fossil-fuel cliff face. Thailand is a good example of what may happen if you clear-fell your protective forests.
Do you really think a 2% increase in income distribution disparity between those countries benefiting from the current EMU regime and those suffering from it is not significant? Particularly when compared against the changes in US per state income distribution over the same period, which now look like they are returning to the levels before the GFC? Surely that has policy implications?
From what I can see from the OECD figures for previous years the numbers are significant even when not compared against the US, for instance the coefficient of variation over the OECD 25 was unchanged in the ten years from 1996 to 2006.
The rest of Paolo Manasse’s post also seems pretty tightly argued and it has the benefit, unlike the “Expansionary austerity will bring forth the confidence fairy” fable popular on the right, of being based on observed reality rather than dogma.
On an only slightly related note:
The Irish Economy seems to have become an surreal echo chamber for contra-factual right wing tropes. The is substantially thanks to the amount of free time two posters in particular seem to have free to contribute criticisms of other people’s lack of industry.
This dialogue is a mirror of the European component of the European component of the global financial crisis. The Alice In Dreadland response of the dominant strain of European establishment thinking to a staggeringly large market failure was to demand that rules be put in place to subject governments to more “market discipline”.
How is it possible that these people are still taken seriously?
You are mis-reading his table (admittedly, the way he has set up the table that is very easy). The CF has gone up by 2% as a percentage of its level (by rescaling the CF to equal 1 in the first year) not by 2% in absolute units. In a typical year it increases or decreases by 2.261%; in 1999 for example it decreased by 6.34% and the very next year it increased by 5.95% for the OECD (25) sample (Table 15.8). So the 2% movement in the level of the SD is very negligible — less than the movement in a typical year-to-year change.
Oops … I meant CV (coefficient of variation) not CF. But Manassa plots the CV scaled to equal one in the first year, not the actual CV.
The following, according texts “leaked” to to the FT, are the essential questions that Cameron intended to pose regarding Europe.
“There are always voices saying ‘don’t ask the difficult questions’. But it’s essential for Europe – and for Britain – that we do because there are three major challenges confronting us today.
“First, the problems in the Eurozone are driving fundamental change in Europe.
“Second, there is a crisis of European competitiveness, as other nations across the world soar ahead.
“And third, there is a gap between the EU and its citizens, which has grown dramatically in recent years and which represents a lack of democratic accountability and consent that is – yes – felt particularly acutely in Britain.
“If we don’t address these challenges, the danger is that Europe will fail and the British people will drift towards the exit.”
As to economic data comparisons between the US and the EU, one cannot help but wonder of what relevance they actually are given the profound differences of history and political organisation between the two continents.
FYI also the view of a presumably rather well-informed former Italian member of the executive board of the ECB on the problems confronting Italy.
Other Links: Nikki Sarkozy’s gift of tons of resources to those dodgy characters in the Magreb and the Sahel … or Nikki’s Gift to Hollande …
Dozens of hostages have reportedly been killed after Algerian forces attempted a rescue operation at a natural gas complex overtaken by Islamist gunmen. The incident demonstrates the brutality and determination with which militant Islamists in North Africa operate, just a short plane ride south of European soil.
The security situation in Libya has visibly worsened since the beginning of the uprising against dictator Moammar Gadhafi nearly two years ago. The military has been essentially dissolved and weapons from Gadhafi’s armed forces have flooded the markets in the region, ending up in the hands of various militias, including the extremists in northern Mali. Fifteen months after Gadhafi’s death, a stable and sustainable government has yet to take hold. Real control over the country rests with competing warlords, and Islamist groups in the region have profitted.
… er … CARTOON OF THE DAY
War in Mali:
The Europeans aren’t fit for purpose
16 January 2013 Süddeutsche Zeitung Munich
France’s war in Mali is a fight for all of Europe that France is fighting alone, writes the Brussels correspondent of the SZ. Brushing Paris off with a few aircraft isn’t just shirking on the part of its European Union partners, it’s a fatal blow to a common European defence.
Clever note from Socgen put up by FT, these type of charts are doing the rounds quite a bit these days. Suggests underlying Irl ULC declines almost zero. You could tinker with the modelling a bit…
“Overall, although necessarily arbitrary in their assumptions, these results confirm the casual analysis provided by the [first three charts] which suggest that the majority of progress made in reducing unit labour costs has been achieved primarily by cutting employment. This in turn implies that there has been relatively little structural improvement in competitiveness. In the absence of other policies to boost growth, this suggests that the countries that lost competitiveness are going to struggle to return to growth and increase unemployment.”
currency, central bank, defence, song contest…
What’s new? Immediate pain for some, i.e. those losing their jobs, and slow decline for those retaining them (most in sectors protected in one way or another) due to the failure to reform.
A compare and contrast between the three questions posed by Cameron and the analysis of LBS is particularly interesting.
The only real consensus is on the second question i.e. the loss of competitiveness not only in Europe but in the rest of the pampered developed West.
On the second, Cameron’s muddled advisers are right with regard to the euro driving change but they seem incapable of saying what it is. It is, in fact, change in the direction identified in the third question (i) anger, not to say fury, on the part of those taking the pain immediately (ii) an accelerating disenchantment on the part of those trying to hang on to a standard of living which is no longer tenable in terms of overall productivity and (iii) a major unanswered question as to how the whole situation will turn out not just for th euro but for Europe.
The key political question relates to the extent to which the problems are to be solved at a national or EU level. To my mind, the onus must remain at the national level because this is the way that Europe is currently politically organised. There is no real choice in the matter.
The old “Italian solution” i.e. devaluation has not worked for the UK. It remains to be seen whether Italy can pull through without it.
“The old “Italian solution” i.e. devaluation has not worked for the UK.”
Over the last 6 months trade weighted GBP averaged a smidge less than 10% below its average over the last 23 years. That’s hardly trying the Italian solution given the big swings in currency markets. For that, a country will have to break decisively from the pack and maintain it.
‘two posters in particular seem to have free to contribute criticisms of other people’s lack of industry.
I did not know that DOCM has an Identical Twin!
Greek Debt not Viable without more EU Help [IMF].
Suppose a very smart economist had told Enda Kenny,Eamon Gilmore,Michael Noonan and Brendan Howlin in 1999 that there was a massive property bubble in Ireland ,you had better do something quick or the country will go bankrupt. What would these four distinguished TDs have done?
I should have been more precise and have written “The UK has been unable to take advantage of a substantial de facto devaluation vis-a-vis the euro”.
The ECB provides, as you are probably aware, a useful interactive graph series for all the major currencies.
If it walks like a duck and quacks like a duck etc.
Incidentally, the Irish Examiner’s veteran Brussels correspondnet Ann Cahill has as succinct an overview of the position as one could hope for with regard to the banking debt issue.
@Joseph Ryan, the point being that “printed” money is not free. Such a gift to Ireland and Greece would cost someone, somewhere. Even if the collateral against which it was created is worthless, there is still an opportunity cost to the rest of the eurozone.
And it is not the rich who keep a significant proportion of their wealth in nominal claims; of the savers, it is the poorest, like financially unsophisticated elderly people, and youngsters saving for a deposit on a house. By contrast, the relatively rich hold more of their wealth in real assets like company stocks and property, and who therefore did well out of the boom, and, as the Bank of England reported, well out of QE, would escape inflation and, since few countries have wealth taxes, seem to make out like bandits. Tax them.
In Faint Praise of Competitiveness:
” .. the loss of competitiveness not only in Europe but in the rest of the … … developed West.”
Its productivity dear readers – productivity! We have not ‘lost’ competitiveness, but have simply free-gifted our productive and technological advantages (for temporary pecuniary gain) to our economic rivals!
The term competitiveness (as tossed about like confetti) is much misunderstood, misused, abused and hence mis-applied. Only the economically challenged and intellectually lazy use this term when they seek to engage in a negative critique of the illusory advantage of differences in wage and salary rates for similar activities in two distant locations. The underlying (unstated, and unchallenged) implication is that lower wage rates are ‘better’, higher wage rates ‘bad’. When in aggregate economic terms the exact opposite is actually the case. But to understand this apparent anomaly one has to engage in slow, hard thinking. Few folk do this. And you are unlikely to encounter it in media outputs.
By way of illustration. Its takes the same individual physical effort, and time (plus-or-minus the error in measuring time), to assemble an iPhone in a factory in Ballycroy as it would in a Foxconn labour laager in China. I am assuming both locations have a suitable building and the necessary assssembly-line equipment available. Irrespective of her location the employee needs to be fit and trained for the work. This mandates that she be paid a wage which would enable her to provide herself with the necessary quantity of food, clothing, shelter (and its embedded costs) and perhaps some amount toward the cost of commuting – PLUS an additional amount for various personal needs . [If a person (trained in one type of employment) should suffer un-employment and needs to undertake re-training – or even re-locate, then how will these costs be borne?] An employee cannot work productively if they are undernourished, in poor health or are burdened with significant financial worries. Employers need to pay their employees a ‘Living Wage’ if they expect them to be alert and fit for work – and they also need to provide a safe, low-risk work environment.
Light assembly work takes a fearsome toll on joints and muscles. What is the disguised economic cost to the employer of replacing an unfit employee with a trained and fit employee? Its hardly insignificant. What is the disguised (long-term) economic cost to an employee who suffers repetitive strain injury – and this disability affects their opportunity to fully engage in waged-labour activities and to care for themselves (or a family member) for the rest of their life? This common circumstance, may on careful analysis, turn out to be a highly significant external economic cost. But who’s counting?
So, one (but not the sole) issue that needs to be clearly known and understood, in an overall economic context, is the actual pecuniary differences of the many fixed, variable and external economic costs which distinguishes two distant employment locations. Clearly, the cost of transporting a finished product from Ballycroy to Dublin is considerably less than the cost of transporting the same item from China to Dublin. So who bears this additional cost? The employee, the employer or the final consumer? Someone does.
We can certainly be ‘competitive’ if indigenous employees will agree to accept lower wages (like quite low), lower taxes and other charges on their incomes (hence, less state provided services, welfare payments and pensions) and accept lower standards of health and safety in their workplaces. There are other factors which I will leave to the reader to consider. Additionally, the employer needs to be un-burdended of the many ‘environmental’ and bureaurcratic costs they experience. The implication of these reduced economic costs is that all general living expenses and costs are also reduced proportionately and in parallel. This is most unlikely. So, the intellectually challenged advocates of ‘competitiveness’ have got to engage in some additional explaining. This also is unlikely.
Only a gobshite commentator will compare (without a careful explanation of the context) the differences in Labour Unit Costs as a reliable measure of economic ‘competitiveness’. When what they should be comparing is the ratio of the amount of the local Living Wage (not the Subsistence Wage) relative to the local living costs – and that ratio must be greater than unity! If employees (and employers) do not have a sufficient money surplus (after all costs have been deducted from their incomes) then it is axiomatic that you will not achieve a positive, advancing level of aggregate economic wellbeing.
Its just too easy to target the most salient and readily available cost – the Unit Labour Cost.
“If you encounter any Competitiveness (or Free Market) Buddahs on your road – slay them!”
ps: @ JC: Dey wouda tolt him to “kommit suaside.” 😎
@ John Corcoran
The Jonathan Guthrie article in 2004 dealt with all the key issues. In Ireland, the Constitution is aways the excuse.
Contrary to the Hollywood version, in the US more than a century ago, in the Wild West, there were restrictions on gun use and ownership despite the Second Amendment.
@ grumpy/ DOCM
The UK Eurosceptics are similar to the Tea Party folk in the US. Emotion trumps exonomics.
In the FT earlier this week, Gideon Rachman termed the Israeli PM a tactical genius and a strategic idiot.
David Cameron seems to be a tactical fool and a strategic idiot.
Even his allies in Sweden are not impressed.
Bloody constitution eh Michael and it’s auld guff on rights. Sure we should just ditch it fit a nice oligarchic friendly junta instead I guess?
“Suppose a very smart economist had told Enda Kenny,Eamon Gilmore,Michael Noonan and Brendan Howlin in 1999 that there was a massive property bubble in Ireland ,you had better do something quick or the country will go bankrupt. What would these four distinguished TDs have done?
…and suppose he was way too early, and then suppose he was instrumental in persuading the government to guarantee all bank liabilities a decade later…
I don’t think you can sensibly say the UK did not benefit from sterling’s depreciation from late 2008 because you don’t know what would have happened to the UK economy without it. Given the Anglo-Saxon property speculation, high levels of consumer debt etc I think it is difficult to argue the UK would not have had a worse economic performance without it.
You may recall that Sterling was touted as the new Deutschmark by the Conservative government after 1990, when it had appreciated significantly on a trade weighted basis to around 97.
The ERM exit took that back to a far more sensible average of 84 (not really going much below 80 at any point). This was a level many of us thought sustainable, and some others had declared would cause 8% plus inflation rates and a new inflationary spiral. (sound familiar?)
In 1998 & 99, sterling appreciated again, back through 90 and ended up basically going sideways around 100 for a decade. In ’08, it dropped from having been right at the top of its range to, briefly, right at the bottom in the mid 70 odds. Over the last year it has averaged around 82 and a bit.
These moves over such a long timescale are actually comparatively dull and modest for FX.
It is likely that the 1999 appreciation and the property boom that allowed sterling to maintain those high levels for a decade was unhelpful to exporting industry and skewed the economy in a way that would take as long to un-skew.
Sterling is not now at “devalued levels” as if it had sneakily done an Italy or Argentina, it is simply out of its long overvalued boom territory and at a sensible level.
It could go significantly lower. If so, expect the French to get very vocal, as they are a direct price competitor in the defence business – and without that France’s trade balance…
So here again we have a Twitter style message from an individual who is a beneficiary of special priviliges in society: a State guaranteed job, premium pay and a special pension scheme — brazenly invoking rights for himself/herself that other citizens haven’t got.
Self-interest of course blinded the individual to my point that despite people like him/her in a lobbying group called the NRA in Washington DC, even more than a century ago, the Second Amendment right in the US Constitution in regard to the bearing arms, was not an absolute right.
So this individual today is in effect arguing from a selfish vantage point, that the former CEO of a bank bailed out by the taxpayer is still entitled to a huge pension because of a property right in the Constitution; the artificial creation of a scarcity of land for development can never be changed — in effect imposing a tax on purchasers of houses – – without a referendum.
“Legitimate expectation” is a great concept for those who can claim it; for the rest it’s: ‘Qu’ils mangent de la brioche’ or go to hell.
Greed is good!
Just as an afterthought, it is worth noting that house prices have hardly fallen at all in the UK, and that has had a significant effect in avoiding the debt deflation Ireland is experiencing.
Instead, the currency fell around 20% from the peak, broadly reversing its boom-sustained appreciation (which itself took the edge of nominal property price rises).
Ireland of course, closed its collective eues and ears, and chose to go a different route – joining the big boys.
In a shopping centre today. Very busy. Nice to see but how much of the money spent came directly or indirectly from public servants or pensioners.
Ireland is enjoying an economic stimulus package in the form of ps wages, welfare and pensions. That’s all that’s keeping us going but that’s going to run out.
What happens when it comes to December 2013? I hope it all goes ok but the fundamentals regarding the Irish economy are still not good
@ MH: You raise some interesting points re Constitution and property.
Do folk who use invoke our Constitution on the protection of property actually bother to read it – like all of Article 43 – especially 43.2.2? Do they actually even understand what 42.2.2 is meant to prevent? And for what its worth, have they any knowledge and basic understanding of the ‘proscriptions’ implied in some of the sub-sections of Art 45 ?
We have only one inalienable right – to our life. And if preserving that life should require the use of lethal force – so be it! All other so-called rights are actually human endowed entitlements and privileges to be excercised – (and this part is always omitted), provided we do no harm to others!
ps: that post uploaded itself before I had an opportunity to correct my mis-spellings and grammer!
Ok – bond yields are respectable because the ECB will buy them if there’s a problem. So weirdly if Ireland reebtees the market it will be selling bonds ultimately to the ECB. That will also be true of the other peripheral countries. Now, the only way the plan gets unhinged is if something bad happens. That something is most likely going to be Greece. Greece is Europes sovereign Lehmans. It cannot be contained
He got the 95% mark question right.
Article 45.3.2 and 43.2.2
Follow the money –it always leads to Leinster house.
@all …. never ending Greek crisis … and EX ineptitude
Greece needs more European money to help with debts, says IMF
Greece will need additional help from its European partners as soon as next year to bring its huge debt under control, a senior IMF official has said.
Good to see link to Anne Cahill – I scan her stuff on a daily basis …
And yet Michael h the constitution gives rights. The property right that gives a legitimate expectation or protects a vast legally entitled pension is at one with the same that protects a home or good against arbitrary seizure. We can’t easily parse.
If we want to change these rights we can. But I suspect we wouldn’t when we see what they would entail.
Maybe if you played th reall more not the man and got off the exiles lament hobbyhorse of doomed Ireland, and you know, offered some constructive advice, you’d be taken more seriously. I guess this will attract a screed of abuse again but you make some genuinely good points lost in a set of semi connected negative rants.
“If we want to change these rights we can. But I suspect we wouldn’t when we see what they would entail.”
You did (not you personally, of course) – you voted top exempt from the protection of the constitution, any act or law necessitated by adherence to the terms of the Fiscal Compact Treaty.
Thing is though, a lot of people voted for it without any debate of this point – it was all about access to the next short term bailout. Still, you voted for it.
You lost me several bends back! The point I am trying to make is simply that the constraints of the euro are seen by many as the source of all difficulties. If this were true, the UK would be in the same situation as Sweden, by way of example, whose currency has strengthened considerably but whose industry is till managing to survive and, indeed, prosper, because the country has grasped the nettle of fundamental structural reform.
This is what Ireland is failing to do. By way of example, MOS Brian Hayes was asked the hypothetical question on the Claire Byrne show today whether TDs would take a 20% salary cut in the event of the public service having to do so. He replied by referring to the fact that the salaries of politicians were linked to the grade of Principal Officer and he could envisage an eventuality where there would be also some reductions for politicians.
I have repeatedly drawn attention to this fundamental example of national moral hazard and which, in large part, explains the mess the country is in. A case of “you scratch my back and I’ll scratch yours”! How can there be a genuine negotiation when the parties to share such a common interest?
The reaction to the very idea that compulsory redundancies might apply was one of shock horror; in a country where nearly half a million citizens have no job! Why?
Others above have referred indirectly to the refrain “wrap the Constitution round me boys, in case I might etc. etc.”
The actions of some ministers are, at least, beginning to draw attention to the more crying contradictions e.g. in relation to the pleasant pay, conditions and working time the judiciary seem to think the Constitution entitles them.
We collectively simply ignored, like the rest of the periphery, the disciplines required in the context of membership of the euro. Either we learn them now or the prognostications of TMD and others, including the author of this thread, may well come true. I do not have any disagreement with them on this point. Where I disagree is where the onus lies with regard to salvation. It lies with the individual nation states because that is the way the world turns, at least in the EU.
FYI an informative slide presentation by a member of the Executive Board of the ECB on what is actually going in the EA engine room and wider afield.
This euro undertaking is not going to implode anytime soon.
@ John Corcoran
“Suppose a very smart economist had told Enda Kenny,Eamon Gilmore,Michael Noonan and Brendan Howlin in 1999 that there was a massive property bubble in Ireland ,you had better do something quick or the country will go bankrupt. What would these four distinguished TDs have done?”
You repeat this line, well, an awful lot. What does McWillams claim in this interview? That the property bust could happen within the next 18mths? It didn’t happen for another 8 years. Would someone taking his advice in 1999 (not 2005/6) be all that much better off given rent vs mortgage (include tax breaks) etc? Probably not. McWilliams got the big picture right, but the micro stuff terribly terribly wrong. If you call for a bust (or a rebound) often enough, you’ll eventually be right.
“The problem is a very difficult one. A centralised ‘ex-post’ transfer scheme is necessary, but does not seem to be politically feasible. The adopted Macroeconomic Imbalances procedure, a mere ‘ex-ante’ monitoring device – akin to a score board – for detecting ‘asymmetries’ is probably counter-productive. Instead of transferring resources to countries suffering shocks, it punishes them.” [Manasse]
The German Ideology of Merkel, & ECBundesbanke, and its underlying calvinistic streak, has increaed assymetry …. making matters worse
If the Irish government had a splink of sense they would ally themselves with France and the PIIGS to push FANG to the margins
This the French business newspaper Les Echos version the French Fiance Minister meeting with Noonan et al.
Moscovici welcomes the progress of Ireland confident on debt deal
18/01 | 3:13 p.m.
The French Finance Minister Pierre Moscovici in Dublin on Friday hailed the progress made by Ireland, which will, according to him, the first country to exit a program with the EU- IMF and showed his confidence in an agreement on the bank debt of the country “this year.”
“Ireland has been so successful in implementing its program. markets took note of this success and I am confident in the fact that Ireland will again be able to to finance itself in the markets without support in the time, “said the French minister.
“And I will go even further, I am confident that Ireland will be the first country to leave at the end This year the program implemented by the EU and the IMF during the crisis years, “he said at a press conference with his Irish counterpart Michael Noonan and Minister for Public Expenditure and Reform Brendan Howlin.
The French minister also displayed his confidence on a “solution this year” on the issue of the Irish banking sector debt, without giving further details.
Ireland has made an agreement with the European Union on its bank debt a priority of its six-month presidency of the EU.
At the beginning of the banking crisis, Dublin has spent 64 billion euros to rescue and restructure its banking sector. Part of this sum was obtained from the European Central Bank ( ECB ) and now must be repaid each year for the next eight years.
The country must unblock the end of March and just over 3 billion euros. He negotiated an extension of the repayment period and lower rates.
Leaded by the rescue of its banks, Ireland had to seek assistance in late 2010 to its European partners and the International Monetary Fund (IMF) in the amount of 85 billion euros over three years.
The country has implemented draconian austerity cures wants to come out this year as planned after the program started last year to make a comeback on the markets.
Ministers also discussed union banking and financial regulation before a meeting of finance ministers of the EU next week and stressed that growth must be at the heart of European priorities.
“The point I am trying to make is simply that the constraints of the euro are seen by many as the source of all difficulties. If this were true, the UK would be in the same situation as Sweden, by way of example, whose currency has strengthened considerably but whose industry is till managing to survive and, indeed, prosper, because the country has grasped the nettle of fundamental structural reform”
Why would Britain be in the same situation as Sweden, since the Swedes were careful not to join in the borrowing splurge that the Brits were quite keen on? The distortions that occurred in the UK did not in Sweden.
The interesting point imho is that Sweden illustrates just what a vast PR sales task is there for the opponents of austerity – EVEN the Swedes think they have no choice but to tighten their belts.
Outside the periphery, in the public’s’ mind, the Keynesians have simply lost the argument (at least for a while). Politically, that is very interesting.
“Why would Britain be in the same situation as Sweden, since the Swedes were careful not to join in the borrowing splurge that the Brits were quite keen on? The distortions that occurred in the UK did not in Sweden.”
We appear to be going around somewhat in circles. This is exactly my point. The process of reform in Sweden prevented such a development, no doubt much prompted by Sweden’s banking bust in the ’90s.
They learned the lesson not only in terms of a successful banking rescue but in a series of deep reforms e.g. in relation to pensions.
The approach was built around the idea of equality of treatment of ALL citizens.
We have an opportunity to do the same. As we have an entirely different social and political structure, I doubt very much, on present evidence, that we will avail of it.
Picked up coincidentally from the Web!
You will note that there was also a major devaluation (over 30%) in the Swedish success story to which the American author seems to attach little importance. Wolfgang Munchau thinks that this is the explanation.The continued appreciation of the crown (recovering from a wobble some time ago when the markets thought Swedish banks were, once again, in trouble because of careless lending in the Baltic states) will put his view to the test. I would be of the view that the devaluation played a major but temporary role but it is the reforms which made the economic improvement permanent.
Thanks for ECB link, most interesting.
The beauty and simplicity of slide number 20, titled “The Single Supervisory Mechanism”
Establishment of a Banking Union.
That alone would have saved us from ourselves.
A harmonised, centrally administered, EZ wide deposit insurance scheme with premiums paid by individual banks based on their risk profiles and default history.
Bring it on, the sooner the better.
This is wrong.
Sweden has indeed done much better than the Eurozone countries in coping with the European component of the global financial crisis but it is either chronically misinformed or actively dishonest to think that this is due to Swedish belt tightening, lack of structural reform in the UK (did you miss Thatcherism?) or Irish profligacy.
Take a look at http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do?dvsc=9,
and graph “Total General Government expenditure” as “Percentage of GDP”
In 2007 Sweden’s government spending was 1.4 times higher than Ireland’s as a percentage of GDP. In 2011, four years into the European component of the global financial crisis Swedish “belt tightening” had resulted in Government spending/GDP ration remaining the same (51%) as before the GFC. Even in 2011 with the multi-billion cost of the financial sector rescue and reduced revenues thanks to unemployment Irish government spending as a percentage of GDP was lower than Sweden’s, as was the UK’s.
This crisis is not about excessive government spending, except as it pertains to bailing out the financial sector.
As for structural reforms Sweden has a higher proportion of the workforce employed by the government, 25% more paid holidays and so on and so forth (minimum wage levels are at or above Irish rates). If Ireland or the UK were to “structurally reform” themselves to be more like Sweden it would require a terrific lurch to the left.
Sweden has done well because of well managed natural resources and sound social democratic policies (even under its current conservative government) but it has also enjoyed the advantages of being outside the Euro and has not engaged in badly thought out fiscal tightening in the midst of a global recession, the UK is outside the Euro but lost its advantage due to being in the grip of Austerian toffs and Ireland has the worst of both worlds.
It is not so difficult to understand, is it?
“At the beginning of the banking crisis, Dublin has spent 64 billion euros to rescue and restructure its banking sector. Part of this sum was obtained from the European Central Bank ( ECB ) and now must be repaid each year for the next eight years.
The country must unblock the end of March and just over 3 billion euros. He [NOONAN] negotiated an extension of the repayment period and lower rates.”
“An extension of the repayment period and lower rates”, all signals strongly suggest, to be the “re-engineered DEAL”.
The ECB_undesbanke logic – calvinistic: man_labor bad; god of capital good – prevails. And the Irish Citizenry picks up the entire bill for the Financial Syatem f*ck ups. What a dredful deal for three generations of Irish citizens. Democracy is dead in the EZ – German Ideolology rules OK.
Are you and docm really as far apart as you think?
“As for structural reforms Sweden has a higher proportion of the workforce employed by the government, 25% more paid holidays and so on and so forth (minimum wage levels are at or above Irish rates). If Ireland or the UK were to “structurally reform” themselves to be more like Sweden it would require a terrific lurch to the left.”
Putting aside mortgage and consumer debt for a moment. Just with regard to the principle, if it were possible for someone to accomplish it, would a significant increase in numbers (productively and efficiently) employed in the PS, combined with reductions in PS pay / pensions per employee (to Nordic rates, or even below for a time) be:
a) a shift to the left
b) a shift to the right
c) politically neutral
I suspect that to established PS employees, especially senior ones, it would be a shift to the right, to the unemployed or economic emigrees who might obtain a useful carrer it would be a shift to the left. What would it be in the round?
Would it, in addition, be more sensible?
It might be time to ban the word “reforms” since it seems to mean entirely different things to different people. It is a buzzword.
Well its not really an argument really, is it? It is a fight.
The facts remain stubbornly Keynesian: A rampant and poorly regulated financial sector allowed an asset bubble to inflate, the bubble burst and led to a crisis of capitalism, fiscal tightening followed to protect the precious precious currency, ensuing demand problems lead to unemployment, repeat until war breaks out. This time the war was fought through control of economic policy making and the periphery lost.
After a slow start clever German maneuvering (with the aid of the ECB) ensured that the losses from the financial crisis were contained in the periphery, German capital was preserved and that the flight to safety then left German Government government funding and banking balance sheets in top notch order. It was a case of “Krise? Welche Krise?”.
Now the periphery still requires fiscal expansion and debt monetization to recover from the European component of the global financial crisis but Germany has no intention of giving up its advantage. Bullying has worked so far, as the sniveling Irish response has showed (I would have loved to get video of Ireland’s silver hairs bowing down before Jorg Asmussen at the IIEA.)
I believe that the issue of public sector pay is a bit of a distraction from our main problems right now (and I have always worked in the private sector). However grossly overpaid the head of Coillte is the man did not contribute in a serious way to our current problems, cutting his pay drastically, though it would make me happy, will not help Ireland’s economic situation much – one sixty five billion euro bank bailout equals two hundred and sixty thousand years of Coillte chief executive salary or one hundred and forty years of pay for all two and a half thousand of Ireland’s overpaid hospital consultants (who help keep people alive).
Society would probably be a better place if areas like education, scientific research, public safety and health enjoyed a premium in pay but work done in the public and private sectors should generally be paid the same, whether that requires public sector pay cuts or private sector collective bargaining.
Absolutely, “reform” is a weasel word and as every school child used to know it has been synonymous with anti-democratic policies since Roman times.
Reform may indeed be a buzzword. My understanding of it is that it consists of matching consumption to – and at the same time promoting – productivity and in the most equitable manner possible for society as a whole. The experience of the Scandinavian countries – and not just Sweden – provides the best model on the evidence to date. It does include a high level of re-distribution with government expenditures and taxation to match.
FYI Marc Coleman in today’s Sindo.
One of the advantages that the Scandinavian countries enjoyed was strong union representation in the productive sectors of the economy. Sadly, the opposite is the case in Ireland with the bulk of the trade union representation being in the public sector (also, providing a service, of course, but ultimately only to the level that the overall economy can carry). As our public representatives now clearly view themselves – by a strange process of deformation brought about by “bench-marking” – it is difficult to foresee what direction developments in Ireland will take.
The words “as public servants,” are missing after “bench-marking”
@Bond. Eoin Bond
In a democracy power comes from the ballot box. The book stops at Leinster house. In 1999-2000-2001-2002-2003-2004-2005-2006-2007 David McWilliams told Enda Kenny-Eamon Gilmore-Michael Noonan and Brendan Howlan that there was a massive property bubble and when it bursts the Irish economy will be wiped out. Guess what did these four distinguished TDs did ?
These four gents now run the country. Incentives work-failure should never be rewarded
Bank bond-holders: they must never be touched or the whole banking edifice will run rife with contagion.
On the other hand, burn them, burn them with fire: they made dreadful investment decisions. Why should tax-payers pay for their mistakes?
‘EU approach to solving state solvency problems is baffling and inconsistent’
“Cyprus has had an even bigger banking bust than Ireland. Its banks, swollen with, it is alleged, hot money deposits from Russia and elsewhere, had become big holders of Greek government bonds and suffered huge losses in the Greek default last year. They are now bust, as is the Cypriot government. The bailout will have to be, relative to the island’s GDP, even bigger than the bailouts for Greece, Ireland and Portugal. The IMF, conscious of the failure to deal properly with Greece in May 2010 when debt restructuring was long-fingered, believe that there is no point leaving Cyprus with an impossible debt burden and are insisting on haircuts all round, including for bank bondholders and even depositors. In this they are being supported by some German politicians, reluctant to be seen bailing out Russian oligarchs who are believed to be major creditors of Cypriot banks.
“The negotiations on Cyprus are being conducted by the familiar troika of the European Union, the ECB and the International Monetary Fund. If the IMF gets its way this time, the Cypriot bank creditors will see haircuts upfront, possibly sizeable ones. That would shine the spotlight again on the bank-sovereign doom-loop and would undermine the latest position taken by the European Commission.
“There are two drawbacks. The first is that European policymakers are under no obligation to be consistent and could require haircuts for bank creditors in Cyprus having resisted them, against the advice of the IMF, in Ireland. Crack squads of top-notch spin doctors could be engaged to explain that there is no inconsistency.”
This is a interesting article:
Technically they bailed out the Irish operations of their own banks.
Is this a shot across the bows of the Irish EU presidency?
If it is I kind of agree with them – we are so broke we can’t really broker any proper deals. Even French support for the promissory notes will come at a price (possibly on corporation tax base – tax in country of sale stuff rather than change rate)
We really are in a sorry state. We have no power. Accepting that is the first step to regaining some.
The British have been (marginally) fairer than the EU. Rather than cosy up to the Eurotwats why not step back and use the British situation to our advantage – as in if they go we might have to go too (unless EU start making decent concessions!)
In countries such as Sweden and Finland, it would be a huge scandal if a job had to be created for a senior politician’s partner on the same terms as an abolished position, irrespective of the responsibilities of the new make work position. She or he would have to apply for new position in an transparent system.
Is that fair and apart from self-interest, what is the rationale for retaining a British Empire system dating from the 1850s?
Lifetime employment no longer exists for most public sector employees in Sweden and Finland.
In Sweden, public workers are now governed by rules that are practically identical to those that govern the private sector. Pay is connected to individual employment rather than the post.
Job security is guaranteed only by an employee’s competence. In the civil service, no priority is given to government employees in the assignment of vacant posts, candidates from the private sector receiving equal consideration. According to a report, contrary to what one might think, the individualised remuneration system quickly received the support of government employees and their unions.
Moreover, OECD researchers conclude that the system has so far achieved one of its main original goals, namely improving the recruitment and retention of the most qualified employees.
Transparency International says New Zealand, Denmark, Finland and Sweden have been consistently ranked at the top of the Corruption Perceptions Index and are perceived to be the least corrupt of all the countries surveyed.
They all perform well in terms of government openness and effectiveness.
TI says well performing countries typically have a long tradition of government openness, civic activism and social trust, with strong transparency and accountability mechanism in place allowing citizens to monitor their politicians and hold them accountable for their actions and decisions.
Swedish public administration has a long tradition of openness and accountability. The Swedish principle of public access to official documents – offentlighetsprincipen – is believed to be the oldest established system in the world. It dates back to the Freedom of the Press Act of 1766.
Despite the sense of grievance about the former colonial power, the inherited systems from the UK remain largely intact.
The De Valera Government which was generally happy with the UK Children Act of 1908, introduced the Children Bill in 1940 to provide for additional restrictions. Both Deputy James Dillon and Deputy Alfie Byrne, a former Lord Mayor, sought to have a provision for a medical and psychological examination of children before their committal to the industrial and reformatory school system. When positive examples of the way children were provided for in Glasgow and a number of American cities were referred to, Thomas Derrig, minister of education, found the comparisons objectionable:
“It is really painful to hear the case made here that there is some psychological disease or other in the City of Dublin, just because clinics have been established in Chicago or Detroit, or some other city. Where is the comparison between conditions in the Catholic City of Dublin and in the City of Chicago? There is no comparison.”
Court case on PN notes coming up:
‘Failure to do deal on legacy bank debt will cost every citizen €13,553 each’
“Based on the shocking new figures, the Irish people are paying more than six times more per person for the cost of bailing out our banks than the European average.
“The figures come as a legal challenge to the promissory notes deal – the Irish taxpayer pays €3.1bn a year for 10 years to the European Central Bank – which will be heard in the High Court next week, could force the Government to bring through emergency laws to legitimise the payments.
“Senior legal sources have told the Sunday Independent that the Coalition will be faced with this politically appalling vista if they lose a court challenge being taken by businessman and mortgage arrears advocate David Hall.
“He is challenging the constitutionality of the previous administration’s decision to pay the promissory notes without first having a Dail debate or a specific vote on the issue.”
A solution to the eurozone crisis that relies on Germany has always been politically uncertain. It may soon become economically untenable” [A. Moody]
+1 The German Ideology is flawed.
Yet Hollande has to pick up the pieces following Sarkozy’s arming of the ‘dodgy’ characters in the Magreb and Sahel (via free arms dumps in Libya) in Mali – rather than taking on Dr. Merkel’s flawed approach to the EZ Financial Crisis, changing the remit of the ECB, and bringing some pragmatic Keynesianism back into the EZ equation.
Read more at http://www.project-syndicate.org/commentary/the-eurozone-s-struggling-core-economies-by-ashoka-mody#7PYkLt8Q4Z4ezw8l.99
Our man in Dubrovnik says:
EU approach to solving state solvency problems is baffling and inconsistent
The Cypriot bailout will be bigger than Greece, Portugal and Ireland’s – yet it may be about to get sizable haircuts, writes Colm McCarthy
@ Gavin Kostick/Eureka
I believe that in the US there are signs in china shops which read “You break it, you own it”. That is the guiding principle with regard to bank bailouts in the EU. Ireland had the biggest relative banking bust – until Cyprus that is – and now has the biggest relative bill in GNP terms. The article in the Telegraph is complete bunkum and the author is probably well aware of this. The risks banks take cannot be divided up by where the latter happen to be located. The same holds true for Irish banks with operations in the UK.
For countries within a banking union, however, the situation is evidently quite different and should have been planned for from the beginning. Painful retro-fitting is now taking place. It seems clear that Ireland will recover something from the collectivity under this heading. How and how much remains unclear.
@ Michael Hennigan
As what you outline is what I have been banging on about since I joined this blog, I cannot but agree wholeheartedly. I have no expectation that we will “do a Scandinavia”. The only realistic goal is to move the debate onto the plane where it belongs i.e. a dispassionate consideration of the financial, economic and political facts that either hold the country together or will drive it apart. In the area of public service reform, this has not happened. Indeed, there appears to exist a self-willed obscurantism which I can only attribute to an unspoken alliance of various interests to retain the status quo (and their existing privileges). However, the continuation of the present approach is self-destructive and will remove all sense of worth and motivation from public employees if it is persisted with.
@ Gavin Kostick
With regard to Cyprus, this Alphaville link is informative and gives a more rounded picture and IMHO a better indication of what is likely to happen than the article by CMcC.
Now, if we could only find a gas well off Dalkey!
Correction: for “latter” read “former”.
However, the continuation of the present approach is self-destructive and will remove all sense of worth and motivation from public employees if it is persisted with.
I do have to confess admiration for free-market, anti-state ideologues who can with a straight face claim that destroying the conditions of employment of workers will ‘liberate’ them (in the Libertarian sense as understood by acne-plagued college students, white middle-aged self-employed cranks and wingnut welfare recipients, I guess).
The revolving door of private-public senior staff caused infamous levels of corruption in the centuries before the modern civil service regime was introduced. The fraying at the edges of this system – serving only one master, the State your employer – can be seen in the increasing scandalous nepotism and dubious awarding of contracts seen in the UK and here.
Is that fair and apart from self-interest, what is the rationale for retaining a British Empire system dating from the 1850s?
Incidentally, bonus marks for trying to wrap a nationalist Tricolour around your desired evisceration of worker’s’ rights.
The court case should be interesting but what about this:
“The State shall, in particular, by its laws protect as best it may from unjust attack and, in the case of injustice done, vindicate the life, person, good name, and property rights of every citizen.”
Someone else will have to help here but when we cede our money to the government in taxes it is just because it is for the common good. When we give our money to pay off the debts of Seanie Fitz it is unjust because those debts were incurred by a combination of incompetence and imprudence on all sides.
A long shot….
@ Eureka: “A long shot….”
Maybe, but a clever lawyer could make a plausible argument by stringing
together Art(s) 40, 42 and 45. A careful reading of each of these is needed, but the ‘exigencies of the common good’ pops up quite a bit.
It may come down to personal interpretations of ‘the common good’. And whether the ‘good of the state’ trumps that of its citizens. Of course, without citizens, there is no state! Chicken and Egg or Bacon and Egg??
They could sell tickets for this one.
Mr Hennigan displays symptoms of chronic schizo-conservatism but the most amazing thing is how perfectly sensible people let themselves get distracted by the storm of anecdotes.
The thread was about how the EU is badly served by the current flavour of EMU and how collective austerity is failing (the Mody piece). Despite this people still entertain the Irish Tories/bank schill faction and the thread becomes a conversation about how we need to cut public sector pay and continue bleeding the state to pay for the banks in order to satisfy the conditions of EMU and implement collective austerity.
Doctor: Your idiotic diet is killing you.
Patient: You do not understand doctor, this diet is paramount to my future well being. How can I change human physiology to survive on the diet?
Doctor: You can not – this has been well known since 1958.
Patient: Your American medicine goes against common sense, I am going to consult my Austrian Homeopath.
It might be a help if you considered in more detail what those with whose opinions you disagree actually write.
“The experience of the Scandinavian countries – and not just Sweden – provides the best model on the evidence to date. It does include a high level of re-distribution with government expenditures and taxation to match.”
i.e. a larger state involvement but with common employment standards – not a reduction in them – between public and private sector employees and a free interchange between them. (The facility to move easily between the sectors is one which most, if not all, technically qualified public servants IMHO would give their eye-teeth for).
Any approving comparisons drawn were with Scandinavia not the UK, the last country on which we should seek to model the radical changes now needed.
The risk to corruption to which you refer is obviated by a clear definition of (i) what constitutes the senior policy-making civil service proper (ii) the water-tight distinction between them and political appointees and (iii) the establishment of clear legal and organisational mandates for the various tailored agencies established to implement democratically agreed policy.
Tired left-right sloganeering provides no real answers.
Are you sure you are the man to lead the assault on cliche?
From standard neoliberal sloganeering…
The only real consensus is on the second question i.e. the loss of competitiveness not only in Europe but in the rest of the pampered developed West.
to essentially meaningless buzz words…
as Sweden, by way of example…. because the country has grasped the nettle of fundamental structural reform.
to actively dishonest sloganeering about Irish responsibility for the European component of the global financial crisis…
I believe that in the US there are signs in china shops which read “You break it, you own it”.
This is just on this thread.
It is like reading “There is no alternative” over and over again expressed in increasingly roundabout ways, and always with the subtext that the international financial sector (blameless widows and pensioners, international partners) needed to be protected from those greedy and irresponsible little people who borrowed money for personal self aggrandizement.
“According to a report, contrary to what one might think, the individualised remuneration system quickly received the support of government employees and their unions.
Moreover, OECD researchers conclude that the system has so far achieved one of its main original goals, namely improving the recruitment and retention of the most qualified employees.”
Do you have the references?
The camels have difficulty seeing their own humps.
So the tack is to demonise inconvenient views by tarring them with the label of an extremist ideology that is the opposite their own but similar in some ways . The wealthy do it in the US in the red states by getting relatively poor people to vote against their economic interests by appealing to their racial, anti-gay and anti-women rights prejudices.
So Sweden where the mixed economy/social democracy model developed, they’re anti worker rights by providing the same advanced rights to all workers. What a crime!
However, they are not fools to believe that job guarantees for everyone would work.
How many socialist nirvanas are now left where everyone has a job for life?
Deng Xiaoping (1904-1997) who began the modernisation of China once said: “Whether a cat is black or white makes no difference. As long as it catches mice, it is a good cat.”
That of course was anathema to the useful idiots in the West – – some of whom were not surprisingly living well in the capitalist system.
It’s laughable that the corruption argument would be used today to justify systems that were put in place more than a century ago, when most workers were effectively serfs.
This briefing has references to various reports:
So corruption hasn’t existed in Ireland because civil servants have jobs for life? There is no need for accountability because everyone means the best!
The Swedish Ombudsman institution dates back to the 18th and 19th century, when the Chancellor of Justice (abbreviated JK and first established 1713) and the Parliamentary Ombudsmen (JO, established in 1809) were created to act as the representatives – or ombud in Swedish – and attorneys of the King and Parliament respectively. They are thereby the oldest Ombudsman institutions in the world. JK and JO are the only two institutions that are allowed to press charges against ministers and justices for crimes committed while in their official capacity. Of the two, the Parliamentary Ombudsman is perhaps the institution that has received most international attention.
This OECD report compares the systems in several countries. Ireland did not supply some information but it’s not an state secret.
@Shay from your 1958 link above
The final point is policy: Are we sure that expansionary fiscal policy is the right thing to be doing and that austerity is a terrible, terrible mistake? No. We are absolutely sure of nothing. But the consequences, if that is the truth, and I think the evidence tilts that way, is that what we are doing right now is absolutely disastrous. And that is where we are right now. [Krugman]
I gave Blind Biddy my ticket for Thomond Park today ….. she made all the difference in motivating The Red Army to 5 tries! Commiserations to Leinster – C’mon Leicester.
Thanks for the links!
From the Swedish contribution;
“Employment legislation in Sweden is very similar for the public and private sectors, with additional provisions regarding the misuse of public power, and similar issues, applying to the public sector. Less than one percent of public employment is on a statutory basis. Fixed-term contracts can be from a few months to several years and conditions do not vary from those of open-term contracts. In addition, there is little use of ranking and grading, with almost no formal career groups in the civil service.”
In short, an output oriented structure rather than an input oriented one. It is probably Utopian to imagine any such approach in Ireland. The cost of failing to adopt it is enormous both in terms of wasted resources and stultifying career paths.
Shame on the Indo
This paper has a lot to answer for
I think it is a bit of a distraction too, but only a bit. On the other side of the equation is what I said earlier about the monumental PR task for the Keynesian side. In the public (outside the periphery) perception, they are hardly making any impression, less in core EZ than in the US for example.
Their sales job is made all the more difficult by the fact that too many espousing Keynesian solutions have decided to drag that particular dead horse up the hill while doing so. To sound-bite receptive ordinary voters (every politician’s lunch ticket), the insistence on not addressing obvious absurdities simply cuts the ground from beneath the Keynesian argument.
Many intellectuals do think the public are rather stupid, but when too many of the public are forced to conclude of them ” either he’s stupid., or he must think I am”, then they just stop listening, or never even start.
It may be distasteful, but Keynesians have to engage in the PR competition. They will not succeed without looking like they have some common sense to go with their highbrow ideas. It might not be true, but if the man in the street who reads Bild or the Sun perceives proponents of Keynesian policies as protecting what he sees as amazingly cushy numbers for those proponents or their pals, then thats ALL he will see – game over.
FYI the views of Stiglitz on the American way of dealing with the crisis.
DOCM DOCM citing Stiglitz – akin to Hayek citing Marx
… ta for the link BTW have you noted the dispersion on inequality in Sweden recently?
Yes – the PR from the pragmatic keynesian/marxian/social democratic is very poor in the EZ as politico after politico [including supposed social dems] spout the phrases of ordoLiberalism as if it were revealed gospel; as the Thread above notes: the prob remains DEBT, especially financial system debt loaded on sovereigns …. and the most important tool of any CB is prohibited in the remit of the EC_Bundesbanke ..
The FANG led by Germany are doing what they believe is in their best interest. We must now do what is in our best interest. The FANG make up 24% of the EZ which leaves us in the 76% camp.
Time to recognise that the 76% led by France, Italy and Spain would be the natural inheritors of the Euro. Which would allow the FANG to embrace the Neu Deutschmark and the 76% to eat their lunch.
This has to be the credible threat before Merkel
and the German electorate budge off their “Weimar inflation phobia” hobby horse.
This is one (Cumul) of three issues that Hollande is going to deal with in his five year mandate. The three are Social reform, homosexual marriage and the end of cumul. (cumul= politicians holding more than one official position such as councillor, mayor and so on. I do not have a handle on how prevalent these practices are in Ireland.
“Cumul des Mandats” in Contemporary French Politics. An Empirical Study of the XIIe législature of the Assemblée Nationale
Julien Dewoghélaëre, CERVL – IEP Bordeaux
Raul Magni Berton, CERVL – IEP Bordeaux
Julien Navarro, CERVL – IEP Bordeaux
It has often been noted that French politicians frequently hold local and national offices concurrently. Traditionally, this phenomenon is explained by the political culture (a patriarchal conception of authority), the territorial centralization and the weakness of party organizations that characterize France. In order to test the latter two hypotheses, we propose analysing the practise of the cumul des mandats at the level of individual parliamentarians. In this way we circumvent the classic n=1 problem without engaging in a comparison with other countries. Based on a logit analysis with the dependent variable equal to the number of local offices held by the members of the National Assembly under the present term (XIIe législature), the study partially confirms our hypotheses. Other variables, such as age and gender, are also considered.
Keywords: Cumul des mandats; Elective mandates; France; Parliament.
An oft noted specificity of French politics is the accumulation of mandates and offices held concurrently by most politicians (Knapp, 2004) . This practice, known in French as “cumul des mandats”, is an enduring phenomenon – it has indeed even gained momentum – though laws were passed with a view to limiting it. The general public also tends to reject it, as illustrated by opinion polls which suggest that more than 60% of the electorate would approve of laws prohibiting any form of cumul .
Cumul des mandats has thus become a much debated issue in political and academic milieus. Most observers point out that this phenomenon is quite specific to France. In other countries, holding several mandates simultaneously is either restricted by law as in Germany, Greece or Italy, or alien to the political culture of the country, as in the US and the UK (Mabileau, 1991: 17). A comparative approach to cumul des mandats across Europe based on the number of local offices held by Members of the European Parliament (MEPs) shows that French MEPs are by far the most numerous group to hold both a local office and a European mandate. As opposed to France (43.7%) and Luxembourg (33.3%), a mere 16.8% of all the MEPs hold local offices, and the gap between France and Luxembourg is significantly more than 10 points (see appendix I).
There are in fact several types of cumul in which French politicians engage when they combine mandates and offices. Since there is no limitation to the number of mandates that a politician may hold in his or her lifetime, political careers are frequently very long as incumbents are often re-elected several times until they retire at an advanced age. However, the concept of cumul des mandats usually refers to the multiple mandates held simultaneously by political actors who have responsibilities outside the world of politics proper – in trade unions or professional organizations, for instance –, work in the public or private sector, or hold national or local non-elected executive positions (CREAM, 1998). But the most controversial dimension of cumul is the simultaneous accumulation of local elected offices held by national representatives, i.e. members of the National Assembly (MPs). Indeed it is not uncommon, that the mayors of the principle municipalities of a circonscription (constituency) successively occupy the same seat in parliament. This is especially the case in the 16th circonscription of Bouches-du-Rhône where three mayors were elected in the last three legislatures: the mayor of Tarascon (the gaullist Thérèse Aillaud 1993-1997), of Arles (the socialist Michel Vauzelle 1997-2002) and of Saintes-Maries-de-la-Mer (the UMP Roland Chassain since 2002). In the present study, we will focus on why MPs from the XIIe législature (starting in 2002) engage in a cumul des mandats at the local and regional levels (municipalities, départements and regions), a political practice that has become widespread in the Fifth Republic.
In the last two decades, several attempts were made to limit the scope of cumul des mandats. Two laws were voted in 1985 with a view to preventing representatives from holding concurrently more than one of the following mandates – Member of the European Parliament, regional councillor (conseiller régional), county councillor (conseiller général), mayor of a town of more than 20,000 inhabitants, député-maire (MP and mayor) of a town of more than 100,000 inhabitants . The unexpected consequence of such regulations was an increase in single cumul – i.e. a national office plus a single local function. As Y. Mény puts it, “while the cumul was limited in terms of the number of mandates, it nevertheless became more widespread” (Mény, 1992: 82; see also Mabileau, 1991). The relative failure of the first set of regulations led to the adoption of more constraining rules. Indeed new laws were passed in 2000 and amended in 2003 .
In concrete terms, it is impossible today in France for an elected representative to be both a member of the Assemblée Nationale and of the Sénat. MPs and Senators may not be MEPs either. They may not hold more than one of the following mandates – regional councillor, county councillor, councillor in the Corsican Assembly, councillor of a town of more than 3,500 inhabitants, or councillor in Paris. But an MP can still have local executive functions and be a regional or county assembly president, the president of the Corsican Assembly, or a mayor. In theory he or she may also combine mandates as MP, county council president and mayor of a town of less than 3,500 inhabitants, although, in reality, this configuration does not exist today. Nevertheless certain individuals such as Augustin Bonrepaux are presidents of a conseil général (Ariège as it happens) and adjoint au maire (deputy mayor) (Ax-les-Thermes), others, like Françoise de Panafieu or Jean Tiberi are mayors (17th and 5th arrondissements of Paris respectively) and members of the conseil général.
In the literature, three opposite but non-exclusive interpretations of cumul des mandats prevail. According to Y. Mény, this phenomenon is the expression of a patriarchal conception of power in a country still dominated by the traditional image of the monarch: despite the French Revolution, “the traditional conception of authority tends to concentrate power in the hands of one alone” (Mény, 1992: 62; see also Mény, 1997). But this explanation seems to be partly contradicted by opinion polls (Olivier, 1998). Other specialists contend that the accumulation of mandates and offices is linked to the territorial organization of France, characterized by a strong central state (Knapp, 1991), and reflecting the dominant cursus honorum of politicians (Sadran, 2000). According to this theory, local mandates are often less an end in themselves than the point of departure necessary to a political career. Because of centralization, they offer only a limited perimeter of action and prestige. On the other hand, as they do not demand a particularly large investment for politicians elected to parliament, the latter have an interest in preserving the economic advantages, the insurance in the case that they are not re-elected at the national level and the proximity to their electorate. This, however, does not suffice to explain this French specificity: other centralized states exist in Europe where there is not this widespread cumul. According to the third explanation, it is the weakness of parties that is at the origin of the widespread existence of cumul des mandats: this is due to the fact that in France it is those who are elected several times who make the party and not the inverse (Knapp, 2004; Mény, 1992).
In this article, we propose to analyze cumul des mandats with respect to the last two explanations. It must be noted that these hypotheses – a highly centralized state and weak party organization – have never really been tested. This is due to the difficulty of comparing the French situation to those of other countries while addressing all the other contextual variables. In order to get around this difficulty (the classic n=1 problem), we have changed the unit of analysis to individual parliamentarians, thus gaining some variance while controlling for the cultural context.
To sum up, the aim of this paper is twofold. We will first describe the scope and nature of cumul des mandats as practiced by the members of the National Assembly following the 2000 and 2003 laws. We will then try and explain what factors may be instrumental in the persistence of such a practice.
An empirical study
The present study focuses on cumul des mandats as practiced by the 577 members of XIIe législature of the National Assembly in office at the time of writing (March 2006), that is MPs elected during the 2002 general election plus a few MPs elected more recently during by-elections. Our sample does not include the members of the higher chamber of Parliament, the Sénat. Indeed the raison d’être of the Sénat is partially to represent subnational territorial entities: senators are elected by grands électeurs (local elected representatives) and almost all senators hold another local mandate.
The Right won the 2002 general legislative elections. The Assembly is thus composed of a majority of representatives who belong to the conservative UMP (a newly formed alliance between RPR and some UDF members) with 368 MPs (63.78% of the Assembly) and the centre-right UDF (30 MPs, 5.2%). The left wing representatives from the Socialist (PS) and Communist (PC) groups are respectively 149 (25.82%) and 21 (3.64%). The other 11 MPs, who do not belong to any parliamentary group (NI: non-inscrits), are members of the environmentalist party (Les Verts) (3 MPs), the centre-left PRG (2 MPs), the nationalist MPF (1 MP) and the right-wing liberal party (Démocratie Libérale) (1 MP). Out of the remaining 4 non-inscrits MPs, two co-operate with the majority UMP – they are thus considered as UMP members in our study – and the other two MPs who come from the overseas territory of La Martinique are truly non-inscrits representatives.
It is interesting to notice that, as is the case in most parliaments in Europe, the Assembly remains rather gerontocratic. In 2006, MPs are 57 years old on average (the youngest MP is 30 and the oldest one, 84). There are no significant differences between the various parties, except for the Communist MPs who are 11 years older (63) than the younger UDF representatives (52). Women MPs are slightly younger (56) than their male counterparts.
To go deeper into gender considerations, the legislature remains strongly male-dominated: there are only 75 women who sit in Parliament. The Left is somewhat more feminized: 25 Socialist MPs out of 149 (16%), 4 Communists out of 21 (19%) and 1 Green representative out 3 (33%) are women. As for the Right, 43 MPs are women: 42 UMP (11.4%) and 1 UDF (3.33%).
These disparities have no significant impact upon cumul statistics. 89.25% of all MPs hold one or more additional elective offices . Only 62 members of the National Assembly (10.75%) do not have any other mandate. There are strong similarities between women and men in matters of cumul (87% and 90% respectively), or between the UMP and the Socialist Party (90% against 89%). Overall, the local position most favoured by MPs is that of mayor (49%), followed by county councillor (13.7%) and regional councillor (9%). Finally, 14.9% of the MPs hold two local elective mandates simultaneously. Figure 1 shows the percentage of MPs who hold local offices according to the type of office held and to the left-right divide (absolute figures are in brackets).
As illustrated in Figure 1, there is no significant difference between left-wing and right-wing parties in matters of cumul. We should nevertheless point out the fact that left-wing MPs tend to hold fewer local elective offices than their right-wing counterparts – on average, 1.01 against 1.05.
It is also noteworthy that, out of a total of 577 MPs, 531 are directly elected representatives and 46 (7.97%) are suppléants (deputy MPs). According to the French Constitution, deputy MPs (not to be confused with MPs elected on the occasion of by-elections) are elected on the same ticket as the main candidates, whom they replace if the latter are called to other, higher positions (to become Cabinet members, in most cases). Deputy MPs are slightly younger (55 years of age on average). Among the 46 deputy MPs in the National Assembly, 34 (73.9%) are men. 42 deputy MPs (92.8%) hold one or more additional elective offices and 11 (24%) accumulate more than one supplementary mandate. These indicators show that the profile of deputy MPs is rather similar to that of “ordinary” MPs. Although these figures are only relevant to those deputy MPs who have successfully replaced incumbents and although UMP is over-represented in the sample (42 deputy MPs, 92.8% of the sample), it should be noted that deputy MPs cannot be regarded as mere “artefacts” used by parties to improve their brand image or promote minor or junior members.
Theory and Hypotheses
As noted before, some specialists contend that weak political parties and a highly centralized state are the two main factors that may explain why elective offices are so often combined in France (Knapp, 1991). From an institutional point of view, France is indeed one of the most centralized countries in the EU (Colomer, 2002). Political parties, with their lack of resources and organizational autonomy, tend to be weak in the sense that they have a limited influence on the choices of individual politicians (Knapp, 2004). The combination of the two factors thus offers politicians opportunities to multiply electoral mandates at a sustainable political cost.
Before developing the two hypotheses – a highly centralized state and weak party organizations – it is necessary to briefly present the reasons that may explain why MPs engage in a cumul des mandats. According to A. François, cumul may reduce risks stemming from the precariousness of political careers (François, 2002); it can increase politicians’ income and power, and provide the necessary financial resources for future electoral campaigns (François, 2006). It may also help incumbents be re-elected (Nevers, 1991; Foucault, 2006). But there are at least two major constraints. First, responsibilities are higher and the work load significantly heavier. Cumul des mandats is time consuming. It is certainly not an easy task to hold several elective offices at the same time. Secondly, political parties are theoretically opposed to cumul des mandats, for two reasons. Multiple office-holders have less time to devote to parliamentary activities (questions to the government, amendments) and they ask more from Parliament (state subsidies for the towns or regions they represent, special attention to local issues) (Mény, 1992). Moreover the general public does not approve of cumul des mandats (Olivier 1998). In all logic, there is a definite risk that parties could thus lose votes if they endorsed “cumul candidates”. We therefore make the assumption that, ceteris paribus, even if a politician decides to run for several elections concurrently, he will meet strong resistance and opposition from his or her own party.
However, the constraints and political cost attached to holding several elective offices simultaneously are weaker in France than in any other country. Highly centralized institutions imply less work and responsibilities at the local level. As local authorities largely depend on decisions made by central institutions, a representative will have more room for manoeuvre in his daily political activities in a département or municipality if he or she seats in Parliament and thus has access to the higher decision-making body. Besides, the generally weak internal organization of parties means that individual parliamentarians can more easily influence the choice of their party’s candidate in a given constituency. French parties can be qualified as weak insofar as they do not possess true organisational autonomy, which is however, one of the fundamental characteristics of any political party (Seiler, 2000). To be precise, the internal division of power between the elected officials and the rest of the party apparatus (party members and administration) is particularly favourable to the former. The material and financial resources belonging to the party are limited: there are very few party members, there is a cap on donations from individuals and those from private enterprises are prohibited by the law and party organizations are not backed by powerful structures on the periphery (unions or foundations) as is often the case elsewhere in Europe . Faced with this lack of resources in party organizations, elected officials enjoy a margin of manoeuvre to the extent that the public financing of parties is linked to the results of legislative elections and locally elected representatives have resources associated with the exercise of a local mandate (i.e. financial compensation, and in the case of a mayor his staff, municipal offices and communication services). Neither the local party authorities (consisting of a few members or clients), nor the national authorities (lacking resources and the ability to sanction) are then able to dissuade a local elected official from running for office in a legislative election: there are so little inclined to do so that they themselves belong to the club of elected representatives.
For lack of a comparison with other European countries, our demonstration concentrates on the variability of the individual situations of French parliamentarians. Indeed the overall picture drawn up does not prevent the distribution of power and modes of organization unique to each party. To a certain extent, one can argue that not all territorial collectivities have the same degree of dependence on the center. In other words, our hypotheses can be tested if we relate the political cost of holding multiple mandates to three factors which vary at the individual level – party strength, various types of local offices and the different responsibilities attached to the positions held. We can formulate four hypotheses relating to the relationship between party and individual politicians and two hypotheses relative to the material cost of cumul.
First, the likelihood that an MP may hold several mandates depends on his or her party organization. Though French political parties are weak as a rule, some are weaker than others. We will hypothesize that the politicians of the weakest parties (that is to say those that have a minimal organizational autonomy) enjoy a larger margin of individual manoeuvre and thus tend to have more mandates.
Secondly, a politician is more likely to hold several offices if he or she is firmly established in a region. This relates to the issue of local power. In his or her dealings with the party, a well-established politician, who is known to the militants and has a good grasp of the local environment, can more easily be a multiple office candidate. Strictly speaking, we should distinguish here between different types of political trajectory or cursus honorum (Sellier, 1984). According to this idea, the practice of cumul does not have the same logic depending on whether it is practised in an ascending or a descending manner: an MP who previously held a local mandate has neither the same difficulties to be elected nor the same political goals as an MP who obtained a local mandate after his national one. The most striking difference is the influence of the party on the career of the politicians. The party will a priori have a greater influence in the first case. Nevertheless, the large majority of MPs have an ascending cumul: 83% of them have one or more local mandates before being elected as an MP. Following the careers of actual MPs, we establish that 86% of cumulating MPs (“cumulards”) have an ascending cursus honorum and that individuals who were mayors before becoming MPs, like the highly visible mayor-MP of Bègles, Noël Mamère, are three times more numerous than those who were first parliamentarians.
Thirdly, members of party executive committees tend to hold more offices. As for any party member, there is a conflict of interest between the official positions defended by the party and the defense of their personal interests. But contrary to the rank and file members, party leaders are in a stronger position to defend their own positions: they possess the resources, information and the notoriety associated with their position in the party. They are therefore less likely to meet internal opposition when they choose to be candidates more than one time.
Fourthly, a single member type of election favours cumul more than a list system. The choice of a candidate is, by definition, very important in matters of cumul, because it is the moment when the party decides whether or not it will support a candidate who already holds an elected mandate. Once again, the issue hinges on the balance between the party as an institution and the politician as an individual, which partly depends on the electoral system. Arguably, in a list system, voting is much more about ideological or partisan considerations than about the candidates’ supposed personal qualities: individual candidates are diluted in a list system. The role of the party is much more significant in the case of a list system than in a single member election. If the party proves to be too authoritarian, there is a definite risk that a well-established incumbent might run as an independent candidate and win against the party’s official nominee. Conversely, the bargaining power of an individual candidate is much weaker in the case of a list system, because he or she may find it difficult to put up a competing list.
These four hypotheses illustrate the relationship between parties and individual politicians, which obviously influences the choice of the candidates.
We should also address the problem of the costs attached to the responsibilities and tasks assumed. We therefore propose two other hypotheses.
First, parliamentarians from more independent regions tend not to hold local offices. As explained before, it is generally easier to hold several elected offices in France than anywhere else because institutional centralization decreases the responsibilities of local office-holders. But some MPs come from more independent and distant constituencies and regions. We contend that, in these regions, local mandates demand more direct involvement from the persons in charge. In such regions politicians tend to relinquish their local mandates when they are elected to Parliament.
Secondly, politicians tend to hold more mandates in less populated constituencies. The work load and responsibilities implied in the political management of a densely populated urban area are more significant than in low density rural areas. Parliamentarians are thus more likely to keep their local mandates in rural areas.
We have thus tentatively shown that party weakness and territorial centralization may account for the prevalence of cumul des mandats in France. In the next part, we propose to test these explanations according to the six specific hypotheses mentioned above. We also take into account two demographic variables: age and sex.
Data and variables
To test our hypotheses, we have used two sets of indicators – indicators related to our dependent variable (the different possibilities of cumul offered to MPs) and indicators that make up our independent variables (socio-political indicators about parliamentarians, party organization and the characteristic features of the constituencies).
Dependent Variable: types of cumul
There are many elective functions that French parliamentarians can hold. We shall analyse here the three most important ones not only in quantitative terms but also their significance: municipal mandates (maires and conseillers municipaux), county council members (conseiller général) and regional council members (conseiller regional).
Using official information available on the National Assembly website, our database consists of information regarding whether or not the MPs have a local mandate, and the number of mandates held simultaneously (two or three). There are in fact two dependent variables. The first (cumul) is a dummy variable that equals 1 if an MP holds a local elective office and 0 if he or she does not. The second (cumul type) is a nominal variable scored 0 if an MP has no local office, 1 in the case of a municipal office, 2 if he or she is a general councillor, 3 if he or she is a regional councillor and 4 if he or she holds at least two local elective offices.
Independent variables and associated indicators
The first independent variable (Party organization) establishes a classification of parties in terms of their degree of organizational autonomy: it aims to test the hypothesis according to which the weaker a party is in terms of its organizational resources the more its MPs have a tendency to cumulate. The extent to which central committee membership is controlled by the members of the “party in office” as opposed to the party rank and file members is particularly relevant to the question of party organization. The dichotomy originally established by Duverger (1951) between “mass party” and “cadre party” has lost some of its accuracy following the deep changes that have affected political life in Western Europe. Katz and Mair (1995) suggest that the cartel party has become the dominant model in contemporary politics, which is a relevant description of most French political parties, especially the UMP and PS, (Seiler, 2003). However, there are some differences in terms of party strength, membership and numbers of elected politicians.
Using several indicators relative to party organization (see appendix II) as well as data from specialized studies, we propose a typology of party organization based on the degree of control exerted by the “party in office” over party leadership. In the case of the centre-right parties, Haegel (2002) points out that the respective role of in-office politicians and militants was a very sensitive issue when a new political alliance was concluded between right-wing parties in 2002: the centre-right UDF members who joined the alliance strongly opposed giving militants a dominant position whereas the conservative RPR leaders adopted a more open attitude towards the rank and file members. This resulted in a compromise in the drafting of the new UMP alliance party statutes. Conversely, two other parties, namely the part of the UDF party which remained an independent parliamentary group, and the centre-left PRG party – traditionally considered as “cadre parties” – have kept a structure which is much more favourably oriented towards in-office leaders. The parliamentary group leaders are given an ex-officio status (in the National Assembly, Senate and European Parliament) in their respective central committees and there are very few non-elected members in their executive committees .
The French Communist Party (PCF), considered as an ideal-type mass party during the 1950s, has typically retained some of its original characteristics: there are very few elected politicians among the party leaders and the party machinery has kept a significant role. The Green party sticks to its internal rule of not allowing any member to hold several mandates simultaneously: the leading committee of the party is only made up of non-office-holding politicians.
The typology of party organization appears as an ordinal indicator, which differentiates between three types of political parties, according to the institutional constraints imposed on their elected members. The weakest parties in terms of internal organization are in the first group (UDF, PRG, MPF, DL and the non-inscrits representatives), then comes the group comprising UMP and PS, and finally the third group is made up of parties in which grass-root members and militants are the most influential (French Communist Party, Greens) . We propose to assess the influence of these data on the propensity of politicians to accumulate elective mandates.
The second independent variable pertains to the local ties that may exist between a well-established MP and his or her constituency. The hypothesis is the following one: a long-standing parliamentarian is bound to be well-known to the electorate and thus highly likely to be re-elected, independently of his or her party’s support. Likewise, the more local mandates he or she may have held, the more legitimate he or she is to run for new elections. Political experience and reputation, acquired through consecutive terms of office, lessen risks of local political competition. Cumul across time facilitates vertical cumul. In order to assess how well-established MPs may be, we have computed the number of elective mandates (data from the National Assembly website), held in the same local areas as their constituencies before they were elected for the first time in Parliament.
To assess the impact of party leadership positions upon cumul, a dichotomous variable differentiates between MPs who are party leaders (as stated on the official website of each party) from those who have no specific position in their party. In the UMP party, the central committee is made up of the president, deputy-presidents, the treasurer, the president’s own political advisers, spokespersons, executive councillors, national secretaries for political affairs and administrative national secretaries. The leading body of the Socialist Party is composed of the National Secretariat and of the Project Committee. Leadership in the UDF party is entrusted to the president and vice-presidents, the spokesperson, the treasurer and the executive committee. The Greens have an executive committee of 13 members who were elected on the occasion of the 2005 Congress. The PRG central committee gathers together the president, the general delegate, the secretary general, the treasurer, the spokesperson and deputy-presidents. The PCF president collaborates with the National Council and the Executive College.
As this stage, it should already be noted that 97 members of the National Assembly (17%) have a leading position in their party. There are significant differences between the parties: the proportion is 63% for the UDF, 14% for the UMP, and 18% for the PS. Of all the MPs who hold directional responsibilities in their parties, 94% (91 out of 97) also hold a local elected office and 9% (9 out of 97) hold two elected offices.
To test our hypothesis relative to the degree of autonomy of the various constituencies, we have constructed a dummy variable, which differentiates between metropolitan regions and the few “territories” that are endowed with a specific status. Despite the high degree of centralization of the French state, special rights have been granted to some regional entities – overseas regions in their vast majority – (Corsica, French Polynesia, Guadeloupe, Martinique, French Guyana, New Caledonia and La Réunion island). Corsica was a “region” but became an autonomous “territorial community” in 1991 (the law on 13 May 1991). The autonomous status was extended after a new law was voted on 22 January 2002. Following the revision of the Constitution on 28 March 2003, each over-seas community was granted a specific status. While being more autonomous than the standard metropolitan regions, they can adapt legislative provisions and merge regional and county councils into a single assembly. The overseas territories thus offer an interesting opportunity to test whether local MPs tend to practice cumul des mandats on the model of metropolitan MPs. It should be noted, however, that the devolution indicator is strongly correlated to the geographical distance of the constituencies from the capital, which could be another intervening variable .
We have also constructed a variable indicating the characteristics of the local environment, namely the population density in each département as measured by the French National Institute of Statistics (INSEE). The totality of the French territory has been taken into account, i.e. 100 départements, plus several overseas local authorities. Our objective is to assess the political cost attached to multiple office-holding according to the density of the local population concerned .
Gender and age
We have introduced the two most important control variables: gender and age. This is a dummy variable labelled 1 for men and 0 for women. The age variable corresponds to the age of each parliamentarian in early 2006.
In this section, we propose to analyse empirically to what extent the degree of centralization and the organisational weakness of the parties in France may be the main factors that account for cumul des mandats. Our hypotheses are tested through a Logit analysis with robust standard errors.
In Table 1, the dependent variable is a dummy indicator of the accumulation of local elective offices (cumul). Only 62 members of the National Assembly (11%) do not hold additional local offices. The impact of the seven independent variables on the choice to engage in cumul is evaluated independently of the type of local office held. The first three independent variables relate to the negotiation between politicians and parties (party organization, local strongholds, and party leadership). The next two variables refer to the political cost of cumul (devolution and density), and the two last ones are gender and age.
Starting with the indicators relative to the assumption about the conflict of interest between parties and individual politicians, the first result is that the stronger an individual politician is locally (several local offices held in a row) the more he or she practices cumul – the coefficient is significant. The coefficient for the “party organization” variable, though less significant, confirms our findings: the stronger party organization is, the less likely a politician is to hold local offices. Finally, the impact of the “party leadership” variable is not statistically significant, but is in keeping with the initial hypothesis: party leaders are more often multiple office-holders than other MPs.
In terms of political cost, only the second variable gives a statistically significant result: in the constituencies with high population density, parliamentarians tend to hold fewer offices. MPs elected in more “autonomous” territories practice cumul slightly less than in the other metropolitan regions, but the coefficient is not significant at all. This result suggests that the degree of centralization is not a cause of cumul des mandats.
Finally, gender has no significant impact, contrary to the age variable. The older politicians tend to hold fewer offices than the others: the average age of office-holders is 56.3 years compared to 59.6 for non-office-holders. Actually, the rate of non-cumul for MPs aged 70 and over is much higher (43%) than in the rest of the sample (11%). We may thus propose a simple explanation: some older politicians are probably on their way to retirement, which explains why they decide to relinquish one local office.
In general terms, the first results suggest that, although the indicators relative to party organization and to the positions held within the party are hardly significant from a statistical perspective, the stronger a politician is as an individual and the weaker his or her party is as an organized group, the more cumul there is. These findings also corroborate the fact that the political cost of cumul is globally an important factor in a politician’s decision to hold several electoral offices: parliamentarians elected in constituencies where the cost of cumul is higher (that is, where the population is more concentrated) are less likely to hold two or three mandates simultaneously. On the other hand, there is no evidence indicating a link between centralization and cumul des mandats.
After analysing the various factors, we should now differentiate between four types of cumul – the combination of a parliamentary mandate with only one municipal, county, or regional mandate. The fourth category includes parliamentarians who hold at least two of the previously-mentioned local offices. These mandates depend on the specificities of local elections. In municipal elections the mayor and his councillors are directly elected in each town and commune. It is a two-round list system vote with a strong advantage given to the majority in terms of seats. The election of county councillors is based on the same system, but each councillor is elected in a single-member district. Regional councillors are elected according to a proportional list system. Through the different electoral systems we can thus indirectly test our fourth hypothesis according to which a single-member electoral system tends to favour cumul, whereas the list system does not. Moreover, this analysis aims at determining the respective influence of each of our six independent variables according to the type of local mandate held.
If we turn to the question of the impact of the electoral rule, our hypothesis is confirmed by the under-representation of regional councillors among MPs. 11% of parliamentarians are regional councillors, compared with 25% who are county councillors and 66% who are mayors or municipal councillors. The last figure can be explained by the fact that municipal offices are the most numerous in France. However the fact that MPs should hold offices at the county level more than at the regional level cannot be attributed to the greater number of county councillors compared to regional councillors (4038 and 1878 respectively). Only 3.5% of the regional councillors are MPs compared to 3.6% of the county councillors who are also MPs. Such a figure means that there is no real preference for county mandates. This result is all the more interesting since only 8% of MPs who are also county councillors are women, compared to 29% of MPs in regional councils. In Table 2, the gender variable is significant only in the case of MPs who are concurrently regional councillors, and it is favourable to women. Considering the fact that laws on gender parity were passed in France, the greater number of women in regional councils confirms our hypothesis that political parties play a more important role in the choice of candidates at the regional level.
This last hypothesis is all the more reinforced if one establishes a distinction between a “descending cumul” and an “ascending cumul”. The MPs who practice a descending cumul, and who have even more need of support from their party in order to accumulate, are most common in the regional councils (21% compared to 9% in the county councils and 15% in municipal councils). These figures suggest that, in the regional councils where there is a list system, the parties tend to place their own MPs, who usually have a descending trajectory and are often either women or national leaders . On the contrary in the county councils where the ballot is uninominal, the trajectories are ascending and very masculine. The model that we have proposed, based on the conflict between party and candidate, functions much better in the case of ascending cumul, as is shown in Table 2.
After analysing the direct impact of the electoral system on cumul des mandats, we propose, in Table 2, to assess the impact of our seven independent variables on different types of cumul, through a multinomial logistic regression.
Among the first three variables, it is interesting to differentiate between the variables that reveal a conflict of interest between parties and politicians (party organization and local strongholds) and those that show cooperation (party leadership). The first two variables assess the respective strength of parties and politicians. Together, they show the balance of power at work in the choice of candidates. The “cooperative variable” points to the cases in which parties and politicians are represented by the very same persons.
Table 1 highlights the fact that the “conflict variables” are more predictive of cumul than the “cooperative variables”. Table 2 shows that the conflict variables influence county councillors’ election, especially in the case of two local elective offices, whereas the cooperative variable only influences the election of regional councillors.
Since county elections are the only elections based on single-member districts, the decision of an individual politician to stand in the election is arguably easier, without or against his or her party’s support. There can only be one candidate for each party, and it is more difficult to find some form of compromise. In this configuration, the balance of power is a more decisive factor. When candidates run for two local elections, we suppose that parties are more opposed to nominating their representatives for local offices.
In the list system (at the regional level and, to a lesser extent, at the municipal level), the selection of candidates is more the result of a compromise between local politicians and parties. It is indeed possible to find some form of consensus on who should be on the list. For that reason, it is not surprising that the co-operative variable should be more significant. The findings are less clear in the case of municipal elections.
The findings for the two “cost-of-cumul” variables only partially confirm the impact of political cost in matters of cumul: they point to the expected direction for all types of local offices, but they are significant only with regard to population density. They also reveal a cleavage between MPs who hold one local office and those who hold two. As far as the demographic situation of the départements is concerned, the results are statistically significant for MPs who hold one local office. This confirms that the choice to hold several functions depends on the density of the local population because local offices are difficult to hold on to in the more densely populated areas. MPs who hold two local offices do not seem to be influenced by this factor; we do not have any explanation for such a difference.
If we turn to the socio-demographic variables, the age factor is an incentive to run for several offices and gender is only significant in the case of regional elections – it is favourable to women, as we explained above. In the other cases, there is a bias for men, but it is not a significant one.
In short, our findings confirm the relationship that exists between the weakness of political parties and the cumul des mandats. The various types of party organization and the candidates’ reputation and firm establishment at the local level have a clear impact on cumul. This impact is stronger than the influence of the positions held within the parties. These variables are more significant when the electoral system is based on a list system. Finally, as expected, population density have a negative impact on cumul. On the other hand, surprisingly, the degree of centralization does not seem to influence the decisions of politicians.
The practice of cumul des mandats in France is massive though laws were passed with a view to limiting it. Nearly 90% of the members of the National Assembly hold local offices. As in our hypotheses, there are some obvious incentives for politicians to hold several electoral functions, but there are also some differentiated costs and opportunities. Generally speaking, the benefits outweigh the costs.
If we consider the political costs, our analysis reveals that the age factor is a significant constraint for ageing parliamentarians who tend to hold fewer functions. More importantly, the hypotheses relative to the territorial structure of the country are not fully confirmed. The demographic factor plays a significant role: the political cost is lower in sparsely populated areas; politicians thus have more opportunities to hold several offices. But, contrary to our expectations, the lack of local autonomy does not lessen the cost of holding a local office for a parliamentarian. The absence of a statistic link between the territorial organization and cumul seems to contradict the existing literature. It must be recognized, however, that as the degree of centralization only slightly varies in France, our study – based on an analysis at the individual level – only allows for an imperfect test of this hypothesis.
Our general hypothesis based on a supposed conflict of interest between individual politicians who want to hold several offices, and political parties which prefer to limit the practice of cumul by their members is strongly confirmed. As the parties’ own resources are weak, politicians tend to have more power. We should also highlight the fact that this factor is more important at the local level, in the case of a single member voting system than in a list system. In the first case, each politician with a strong local position has much more power than his or her party. In actual fact, cumul is just as commonly practiced in a list system, but we should rather speak of some form of “abnormal” cumul because the multiple office-holders are surprisingly not those politicians who are well-established in a region, but understandably the party leaders or women candidates. In a list system, parties use their clout in the balance of power to promote gender candidates and favour their leaders.
Ultimately, our study brings not only an empirical demonstration to the traditional thesis according to which the weakness of parties favour cumul des mandats in France. It also demonstrates that there are two distinct types of cumul according to which the direction is ascending or descending: the weakness of parties offers further explanation for the first case. It would be particularly interesting to apply this analytic model to other countries: this would pinpoint the effect weak parties have on cumul des mandats. It would also be an opportunity to verify if the absence of the impact of territorial centralization can be explained by the insufficiencies of our indicator or if this hypothesis ought to be definitively avoided.
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Fig 1. Percentage and number of MPs who are multiple office-holders according to their political affiliation
Source: own calculus from data provided by the official website of the Assemblée nationale (accessed on 26 February 2006)
Table 1 Factors of cumul des mandats in general (whatever the local office)
Logit estimates with robust standard errors
| Coef. Std. Err. z
Party organization | -.769* (.457) -1.68
Local strongholds | .260*** (.070) 3.70
Party leadership | .636 (.461) 1.35
Devolution | -.489 (.620) -0.72
Density | -.055** (.026) -2.11
Age | -.052*** (.018) -2.91
Gender | .235 (.393) 0.60
Constant | 5.031*** (1.14) 4.40
***p<.01, **p<.05, *p chi2 = 0.0000
Pseudo R2 = 0.0927
Correctly classified = 89%
Table 2 Which local elective office is preferred
Multinomial logistic regression
| Municipal County Regional Two local
councillors councillors councillors offices
Party organization | -.355 -1.426** -.796 -1.361**
(.476) (.584) (.667) (.575)
Local strongholds | .230*** .363*** .074 .371***
(.073) (.085) (.100) (.084)
Party leadership | .661 .538 1.562*** -.088
(.491) (.577) (.567) (.575)
Devolution | -.517 -.473 -.043 -1.088
(.702) (.839) (.883) (.978)
Density | -.099*** -.126* -.307** .047
(.033) (.065) (.146) (.030)
Gender | .278 .695 -1.026** .831
(.415) (.577) (.491) (.559)
Age | -.049*** -.061** -.055* -.056**
(.018) (.023) (.025) (.022)
Constant | 4.016*** 3.563** 4.324*** 3.026***
(1.187) (1.468) (1.564) (1.448)
***p<.01, **p<.05, *p chi2 = 0.0000
Pseudo R2 = 0.0816
Appendix I. Local offices held by Members of the European Parliament in 2003
Country No local office One or more local office N
France 49 (56.3%) 38 (43.7%) 87
Luxembourg 4 (66.7%) 2 (33.3%) 6
Belgium 20 (80%) 5 (20%) 25
Ireland 12 (80%) 3 (20%) 15
Italy 70 (80.5%) 17 (19.5%) 87
Austria 17 (80.9%) 4 (19.1%) 21
Finland 13 (81.3%) 3 (18.7%) 16
Sweden 18 (81.8%) 4 (18.2%) 22
Germany 85 (85.9%) 14 (14.1%) 99
Portugal 22 (88%) 3 (12%) 25
Greece 23 (92%) 2 (8%) 25
Netherlands 29 (93.5%) 2 (6.5%) 31
Spain 60 (93.8%) 4 (6.2%) 64
United Kingdom 83 (95.4%) 4 (4.6%) 87
Denmark 16 (100%) 0 (0%) 16
All 521 (83.2%) 105 (16.8%) 626
Source: own calculus based on data provided by the European Parliament (Vade Mecum of the European Parliament, Luxembourg, European Parliament, 2003)
Appendix II. Indicators and data used to establish the typology of French parties according to their organization
Parliamentarians (MPs, senators, MEPs) in party leadership % of unelected politicians in party leadership Office holders have a specific representation in the party leadership Candidate selection for legislative elections according to party status Membership/score at 1999 European election
UDF 81% (N = 48) 4% Yes By party leadership 4,838
UMP 73% (N = 86) 6% Yes By party leadership 11,718
PS 65% (N = 54) 13% No By party members 5,454
PCF 9% (N = 55) 55% No By party committee 22,058
Verts 0% (N = 13) 100% No By party committee 360
Source : official websites of the political parties (accessed on 21 February 2006), Hermet et al. (1998) for membership data and Ministère de l’Intérieur website for the 1999 European election results.
Sweden is not a distraction to the theme here.
A century ago, it was a poor country; from the mid-19th century to 1930, about 1.5m Swedes emigrated, out of a population of 3.5m.
Other countries cannot directly emulate its subsequent success as there are cultural and historic differences. However, apart from the long history of transparency, people should be open to changing Victorian mindsets in Ireland.
It was the success of the private sector that sustained the social democratic model.
The Wallenberg banking family opened a bank in Stockholm in 1856 that through a merger more than a century later, became known as Skandinaviska Enskilda Banken (SEB).
In 1916, the Wallenbergs spun off their investments in industrial companies into a separate company that is today called Investor AB.
They were active investors in almost all of the internationally known Swedish industrial companies.
Marcus Wallenberg (1899 – 1982) had his son and heir Peter (b. 1926) manage overseas sales companies in the group I later worked in.
It was an example of banking wealth being used to build the country’s industrial base and wealth.
As to culture, a Scandinavian economist is said to have once remarked to Milton Friedman: “In Scandinavia we have no poverty.” Milton Friedman replied, “That’s interesting, because in America among Scandinavians, we have no poverty either.”
Thanks for Stiglitz link. Very interesting article.
“Instead of pouring money into the banks, we could have tried rebuilding the economy from the bottom up.”
Amen to that!
@ DOCM : Thanks also for that Stiglitz link.
I would be somewhat hesitant in saying the piece is anything but – “But, but we already recognize the poor state of our economies – but our politicians have neither interest nor incentive to undertake corrective actions.” Whether these politicians are ignorant, self-serving twits or mendacious, amoral knaves I leave to each to decide for them self. I opine to the former.
The problem is with the Permagrowth paradigm which appears to be the default economic Model-in-Use by most economists. I’m quite a sceptic – being a scientist, but I am a true believer in the Laws of Thermodynamics – the second is the one that all economists and ‘growth promoters’ need to know and understand. It prohibits (absolutely) all nature of ‘Free Lunches’, and by extension invalidates all theories and mathematical axioms associated with modern economics. This is the ‘appalling vista’: aggregate economic activity (no matter where situated on this planet) must reach an optimum, and then decline, and decline, and decline. This does not mean that some countries will (for pure political reasons) not attempt to temporarily ‘goose’ their economic activity (using home-made, self-administered performance enhancing substances). It ends badly.
Stiglitz mentions ‘economic growth’ several times, and it is clear to me that he lacks a clear understanding of the eventual economic decline that must occur. Hence, his proposals whilst seemingly sensible, rational and politically positive will not only not be acted upon (for domestic political reasons) but are merely a set of holding exercises. And he appears to confirm my opinion with this statement; “… the bottom 80% [of the US population] consuming about 110% of their incomes.” I am presuming the rest of the statement (which is unstated) might read as follows; ” … else the US economy (which is reliant on this type of unsustainable, over-consumption) will not continue to grow”. That’s a worrying statistic. What might be the corresponding consumption statistic for Ireland?
A lot of folk have a lot of hard, unpleasant political economic thinking ahead of them. Something that they appear to possess neither the skill nor the expertise to undertake. Our economic situation is so fraught that we urgently need to enact ‘protective’ measures to safeguard (in an overall sense) our domestic economy. The marginal economic loss to our economy of each unemployed person probably significantly exceeds the pecuniary loss to the taxpayer of any welfare payments to that unemployed person to prevent them falling into destitution. Internal money moves around – to some effect. Whereas, money paid to external sources ceases to have any indigenous effect.
The intellectually challenged Free Market ideologues have cast a deathly spell over our political leaders. They advocate international trade as the saviour of mankind (we can all enjoy that free lunch). What they conspicuously and constantly neglect to mention is that international trade cannot ever be ‘free’: its inherently biased. Some folk will indeed enjoy that free lunch, but a lot more folks will enjoy no suppers!
@ MH: That MF quip. Typical unempathetic response of a sociopathic personality.
In medieval France, a feudal lord benefited from droit de seigneur, the right to get jiggy with newlywed brides before their hapless swains. The benefits for peasants were doubtful, but it must have been jolly for naughty noblemen. One can imagine their impassioned defence of this proprietorial perk when it faced extinction.
I was strongly reminded of droit de seigneur when I read the rallying call John Ritblat, chairman of British Land, made last week for upward-only rent reviews on commercial leases. Property types campaigning to preserve this bugbear of business – an inevitable feature of most long leases – are rarely quite so unguarded. But Mr Ritblat said: “The government should leave it alone. The property investment world has been built up over 1,000 years, dating from the feudal system, and it works extremely well.”
The comment was unconsciously apt. There is something richly feudal about the rental ratchet. It benefits the landlord at the expense of the tenant, making humiliatingly clear who has the whip hand. When rents are rising all around a property, the landlord gets more money too. If they are falling, the tenant finds himself shelling out above the market rate.
The Office of the Deputy Prime Minister, obedient to twitches on its strings from Gordon Brown, the government’s pro-productivity puppeteer, is moving towards banning upward-only rent reviews. A trio of business organisations – I cannot help imagining them waving hoes and pitchforks – is cheering on the reform, which took a step forward last week when a consultation period ended.
The leading abolitionist is the British Retail Consortium, members of which let off steam to me. First, Anthony Brown, who operates two restaurants in London: “Upward-only reviews are ludicrous when the local economy where I operate is not doing well.”
Cary Gordon, proprietor of Kitchen Kapers, a chain of kitchen shops, weighed in next: “Landlords claim they need a safety net, but no one else gets one in modern business.” And finally, Martin Meech, who oversees 1,100 properties for Dixons, the electrical retailer, said the rental ratchet showed that “the property businesses see investors, not tenants, as their real customers”.
The rearguard action from the property lobby has included one powerful sally. It is that governments muck up markets when they dictate too narrowly the terms on which business should be conducted. Banning the ratchet would reduce choice. David Hunter, managing director of Arlington Property Investors, which advises on properties worth £5.4bn, says: “No serious property owner would be unwilling to forgo upward-only reviews in return for higher rent. But occupiers do not want that.”
Ian Fletcher, director of the British Property Federation, believes that a guarantee of flat or rising rents “is key to regeneration projects – you could not have built the [new] BullRing or Canary Wharf on leases with flexible rent review terms”. Good, but no Cohiba. Where there is opportunity, there will generally be capital.
Moreover, Mr Fletcher’s argument shades in to that of the National Association of Pension Funds, which I have filed under “Meddle, and Fluffy the Kitten May Die!” Last week, the NAPF warned that “removing this security [of the ratchet] would undermine the asset class [of property] and be yet another attack on pension funds”. This wrongly suggests that business tenants have a moral obligation to prop up NAPF members’ finances. Digging itself in deeper, the body added that “any change would have unforeseeable and detrimental consequences”. Congratulations to the NAPF on its logic-defying capacity to know that unknowable outcomes will be negative.
I strongly doubt that banning the rent ratchet from commercial leases will cause any catastrophes. As the Forum of Private Business notes, property bodies predicted a few years ago that chaos would follow the abolition of “privity of contract”, under which landlords held previous tenants liable for the debts of incumbents. No meltdown in property values ensued. Even Mr Hunter’s more persuasive free-market argument does not trouble David Storey, professor of small business at Warwick University. He reminds us that a market functions imperfectly, forcing the government to intervene, “when information is imperfectly distributed or one party has a strong advantage over another”. Those conditions exist in property, especially in the poor access of small businesses to information. They contract new leases only every few years, but big landlords may do so every day.
Moreover, any property enjoys a mini-monopoly on the benefits of its location, a phenomenon especially marked in retailing. As Mr Meech puts it: “The junction of Bond Street and Oxford Street, which is an excellent site, only has two corners.” The damage to trading faced by a business unhappy with its tenancy is another factor that gives a landlord far more power than a conventional supplier. Wicked rentier that I myself am – though more Rigsby than Ritblat – I know the sitting tenants in my small London house would struggle to squeeze a rent cut from me in a falling market, because moving would be costly and bothersome.
Finally, it is hard to object to banning upward-only rent reviews following Mr Ritblat’s over-candid justification of it by feudal precedent. In my mind, the great property baron has become inextricably identified with Bad Sir Brian Botany, the comic invention of AA Milne, who “had a battleaxe with great big knobs on”, and who “went among the villagers and blipped them on the head”.
You may recall that one day, to the delight of the villagers, Sir Brian lost his battleaxe. As a result: “Sir Brian went on a journey, and he found a lot of duckweed. They pulled him out and dried him, and they blipped him on the head.” Chastened, Sir Brian “is quite a different person now he hasn’t got his spurs on”. Commercial landlords, I feel, need similar re-education.
A number of years ago when in Minneapolis I noticed that the Lutheran Church had a huge presence in the city. I found out that the membership was largely composed of Swedes who a century earlier had escaped famine. They formed churches, hospitals, schools, banks, cooperatives, social clubs in much the same way as the Irish did in similar circumstances. The difference is that the Irish melted into the US pot to the extent that many of them now vote Republican. How quickly we forget. Daniel O’Connel commented on this during his visit to the US prior to his death in 1847.
The Financial System has the “droit de seigneur” on the Irish Citizenry – who are being roightly screwed right, left and centre – past, present and future!
@Our Man in Dubrovnik [aka Colm McCarthy – CYPRUS
Troika Travails: Split Emerges Over Cyprus Bailout Package
By Christoph Pauly, Christian Reiermann and Christoph Schult
Cyprus is in urgent need of money from the euro rescue fund, but the troika responsible for the bailouts is split over how it should be structured. The IMF is worried that the country’s debt load is not sustainable.
…’The IMF is demanding that the ESM step in to save Cypriot banks. Such a scenario would mean that Cyprus would no longer be solely responsible for paying back the €10.8 billion that has been earmarked for the country’s banks. Instead, the European bailout fund would have to share the risk. This would make it possible to put a more positive spin on Cyprus’ debt sustainability figures.’
Cyprus is an interesting case. The British needed it to protect the northern approaches to the Suez Canal in the same way that the Americans used to need Puerto Rico to protect the approaches to the Panama Canal. Russia is keenly interested in Cyprus and has already made substantial loans to Cyprus. This will not have gone unnoticed by NATO.
Cyprus will be rescued by ECB/IMF, failing that Russia will become a major influence on Cyprus. My bet would be on ECB/IMF becoming quite generous provide Cyprus plays a strong hand.
‘Enough Sauerkraut and Beer’: France and Germany Celebrate 50 Years of Friendship
In a SPIEGEL interview, French politician Jacques Delors and former German Foreign Minister Joschka Fischer discuss tight, but sometimes complicated, relations between their countries on the 50th anniversary of the Franco-German friendship treaty.
On Tuesday, the 50th anniversary of the Elysée Treaty that normalized relations between Germany and France after World War II, will be celebrated with great pomp and circumstance in Berlin. The treaty was signed on Jan. 22, 1963, by then-German Chancellor Konrad Adenauer and General Charles de Gaulle. The German-French friendship treaty laid the cornerstone for rapprochement after the war as well as the foundations for European unification.
not forgettng N.Cyprus and Turkey (becoming a key regional player)…
it’s the talk of the Premiership – Save the Whales; Save the Oligarchs!