Whitaker Lecture: Design Flaws of the Euro

Harold James delivered the Central Bank’s Whitaker Lecture last night – text is here.

On the 70th birthday of the Central Bank, Patrick Honohan opened the event – text is here.

52 replies on “Whitaker Lecture: Design Flaws of the Euro”

A beautifully crafted speech but mixing up cause and effect at many points.

To take the views expressed with regard to the reasons advanced for the creation of the euro in the first place.

“In the first view – the virtuous German story – the currency union was a high-minded European political project that ignored economic realities. It was needed to stop the recurrence of war between France and Germany. Both proponents of the Euro project such as the veteran German Foreign Minister Hans-Dietrich Genscher but also by opponents such as the economist Martin Feldstein have touted this theory. But it is implausible. Americans are perfectly aware that they haven’t had a war with Canada or Mexico recently (although in the long past there were indeed such conflicts), and that they don’t need a currency union to improve relations with neighbors. On the other hand, Americans are aware that civil wars can occur in malfunctioning currency unions (in the mid-nineteenth century, at exactly the time Napoleon III was dreaming of world monetary union): and Ireland too also has its own terrible twentieth century experience of the damage done by civil war.

Then there is the vicious view of the origins of the Euro, a conspiracy theory about a deep-seated German masterplan. Some of its earliest proponents were British (like the former U.K. Chancellor of the Exchequer Denis Healey), but now it is circulating widely in southern Europe.11 Since Germany had lower rates of wage inflation than France and much lower rates than the Mediterranean countries, a locked currency would guarantee increased export surpluses, at the price of misery elsewhere. A German grasp for European economic primacy would succeed at the end of the twentieth century and in the new millennium where a similar German military plan had failed one century earlier.

This view seems as absurd as the first myth about peace and money. If this is what the Germans were aiming at, wouldn’t other countries be able to get some whiff of the nefarious plot? And more importantly, if this were really a strategy it is a pretty short-sighted one (not really that much better than the disastrous Schlieffen Plan of 1914 to defeat both France and Russia at the same time). Plunging one’s neighbors into national bankruptcy is not a good way of building any kind of stable prosperity.”

Whatever view Martin Feldstein may have been touting, those of one of the senior politicians in at the creation of the single currency hardly deserve to be considered in the same sentence. And they are far from implausible. They are correct and it is their continuation in the German and wider European body politic that is holding the euro together.

It is, indeed, true that “plunging one’s neighbors into national bankruptcy is not a good way of building any kind of stable prosperity” but what if the same result occurs because of major policy errors defending entrenched national vested interests?

Why, for example, should German consumers – and ultimately Germany’s competitors – carry the cost of maintaining the “competitivess” of German industry in the service of a possibly not very wise radical change of direction with regard to policy on nuclear energy?


The debate, especially among central bankers, needs to descend into the market place.

Is the relentless pursuit of increased competitiveness always a good thing? It’s somehow based on the survival of the fittest idea. But what happens to the less fit? And who decides the attributes that determine fitness? Lloyd Blankfein? Angela Merkel?
In the natural world there is no such thing as waste – everything has a use. Waste is an artificial arbitrary concept. So is the pursuit of competitiveness with the abolition of waste really a sustainable or valid policy?

@ Eureka

I am tempted to ask what brand of car you buy! The issue is not true competition i.e. a level playing field (and the market’s “invisible hand” deciding who buys what) but that of distorted competition i.e. the factors of production biased by administrative action in favour of one sector or another.

As to banks as a vested interest, this is certainly true in the case of Germany as it has only one bank of an international scale (Deutsche Bank) which is in some difficulty and which Berlin is doing everything possible to protect, including the production of its own national legislation on the division between routine and risk banking which would prevent the break-up of the bank.

I should add that I am not taking a position in favour of one country or another. Each may act as it wishes as far as I am concerned within the confines of the international agreements to which it has signed up, including Ireland. Pacta sunt servanda, to quote Olli Rehn.

The EU has an environmental policy not mainly because of concern for the future of the planet but to ensure that countries competing with one another face the same environmmental restrictions. That one is willing to pass the buck to another is a fact of life, a recent example being the controversy on the source of horse meat in burgers.

In June 1985, the Commission, under its then President, Jacques Delors, published a white paper seeking to abolish within seven years all physical, technical and tax-related barriers to free movement within the EEC. The overriding aim was to stimulate industrial and commercial expansion within a large, unified economic area on a scale with the market of the United States.

The euro was the next step and German reunification, in particular France’s fear of a more economically powerful neighbour, was a key factor in pushing forward the project.

@ MH

On your second point, there are differing views, even between the parties directly involved, as to the links between German reunification and the creation of the euro.


The only thing that is certain is that it is all about “peace and money”.

As to the single market, as long as mainstream economists suffer from the delusion that a fully functioning single market exists, the level of analysis of what is required to provide a solid basis for the euro will remain both limited and superficial. Why this should be so, I do not know. (By way of example, can one imagine a sticker on a new American product stating “US – excluding California and New York – patent pending”. That will be the situation with regard to the EU patent, 30 years in the making, as neither Italy nor Spain will participate because of the language regime of English, German and French).

In the extensive weekend coverage of the PN issue – and the somewhat OTT atmosphere that has been created – it is curious to note that there is little comment on one rather obvious point i.e. that the ECB and the main EA capitals have been passing the buck to one another which hardly makes the negotiation of a successful outcome any easier.

@ MH

Not to mention external events!

The leader of the Spanish opposition is now calling for Rajoy’s resignation although not, at least for the momemnt, of the government.


Rajoy is to meet Merkel in Berlin tomorrow in the context of the preparations of the European Council. Having blown hot in a press conference with Monti last week, Merkel is now blowing cold.


P.S. Seasoned observers of the European scene will certainly recall that it was a party funding scandal that brought down Kohl and which Merkel used very effectively to become leader of the CDU.

@ grumpy

We will, barring a disaster, ‘go back to the markets’, but the markets ain’t wot they used to be. Isn’t there a saying that history is a tragedy which repeats itself as a farce ?

‘In somewhat of a replay of the nineties, our Credit system has again experienced an historic transformation. The nineties version was about unfettered market-based Credit. Today, it’s unfettered government-based finance. Both are about risk obfuscations, misperceptions and mispricing. Few appreciated how this finance distorted asset markets and the structure of the real economy from the mid-nineties through 2008. Few appreciate the nature of today’s Credit Bubble. Seemingly no one recognizes how profoundly the government finance Bubble is inflating system incomes….
There is another important facet to this “government finance Bubble” thesis beyond inflating government expenditures and system income growth. Bubbles are about the self-reinforcing over-issuance of mis-priced finance. Recall the notion of “crowding out”? If the government borrowed too much, this would supposedly reduce the availability (increase the cost!) of Credit for private-sector borrowers. Well, in an era of unlimited finance “crowding out” no longer applies’



Munchau is right to be pessimistic.

“He forgets, however, that politics is the art of the possible..”
That may be so, but to paraphrase Frank Barry’s, Freudian inspired, question at the recent conference, what ‘possibility’ does Germany want?

Munchau says:
“The renationalisation of banking means that the monetary union is as unsustainable today as it was in July last year”. He is absolutely correct in this.
Not only that, but according to Colm McCarthy, the latest proposals (Asumssen) for a banking union, will allow for systemically important banks to be backstopped by an EZ fund, and ‘the rest’ to be left exposed , supported only by the limited resources of their native lands, resources already depleted by capital and deposit flight to the ‘systemically important’ banks.
Imagine the possibilities of the ‘rest’ securing either deposits or funding from the EZ public.
The sheer audacity of the overt discrimination of the Asmussen is breathtaking.

The next, and only, logical step to the renationalization of ‘banking’, is the introduction of capital controls to prevent deposit flight. But as Germany and France are beneficiaries of current deposit flight, then disallowing capital controls is in their interest. Be that as it may, it is the next step in where EZ banking is going.

But where on earth is Munchau going with the following statement, qualified on by the words ‘immediate aftermath’.

“In the wake of the immediate crisis, the priority should have been the recapitalisation of the banks with public money, the closure and merger of weak banks”
It looks like, in the FT rule book, public money is still at the disposal of the banking sector!

He is also a little harsh on Draghi, who did what he had to do to prevent euro collapse; Not only OMT but prostrating himself before the Bundestag to explain his actions!
It is quite possible that Draghi will draw the rather obvious conclusion from the obstructiveness of Germany towards any proposals, other than the rather vague and distant ‘competitiveness’, to making the EZ work. The question is what will do at that point.

This European budget kuffuffle decreases a chance of a deal on PNs being done. It distracts and it confronts Merkel with the challenge of selling a budget and a bailout.
You’re also a little blind to the fact that this is a sovereign bond bubble but the bubble will explode not because of economics but because of politics. It will be messy

There’s quite a bit of interesting ‘suggestive’ info at the moment in some off the beaten path data I’ve followed for quite a while. To be brief, there is a lot of what might be termed ‘confidence’ about (this is generally, but not always, something that should not give you confidence ,other than short term), but it splits in an unusual way on this occasion.

Professional investors are now extraordinarily confident, further away from the coal-face pundits and private individuals merely quite confident. You either ignore this type of stuff or you don’t. If you don’t, it looks like there might be scope for a bit of catch-up by the rest and still higher markets – for a while, before people start re-considering. It might be more out of phase that usual.

That might mean the NTMA gets its 10Y away and a fairly duff PN deal doesn’t cause too many ripples. It could get interesting, and actually assist the Irish negotiators though if there is an about turn before then .

All of that is ‘speculation’ which some frown on, but it is consistent with the general disinterest currently in Euro-doom – people have stopped listening.

An uninterrupted stretch of uber-bullishness all the way to Angela’s election could happen, but given the way this data has interacted with markets previously, wouldn’t seem that likely.

Classically, you are supposed to watch for capitulation by the bears to pick a top. I note doomster posting here has dried up a bit, Munchau is still at it though.

@ Grumpy
Don’t forget those backstops make sovereign bonds a “sure thing”.
I’m amazed at how doomsayers are those who forecast a collapse of bond markets or a currency and not those who talk about a steady unrelenting creation of a pre WW1 social class system. That, to me, is the recipe for doom.

Anyhew this is not good at all

“We will not pay it …

Donal Donovan on the March PN – morning ireland.

n.b mu jury is still out on this guy.


Mornin all! Welcome to the Donie Mac (aka DOCM, Janie Mac) Blog.

There are small, medium and large problems with Harold James’ paper.

The design of the Euro was crafted by a mix of European federalists, central bankers and “sound money” fundamentalists, in the 1988-1990 timeframe. A specific set of political problems at that time resulted in this flawed design unfortunately becoming reality.

The French were looking for a solution to their constant exchange rate crises and speculative currency attacks on the Franc, and the de facto control of monetary policy held by the Bundesbank. A single currency and an EU central bank, under control of ECOFIN, which was to give direction to this new CB, was their solution.

Germany were looking for quick reunification, and didn’t want to abandon the DM (or rather wanted to abandon the DM only after some impossible-to-meet preconditions were met, which is the same thing)

The ugly and flawed compromise was that Germany agreed to the Euro provided that the ECB be a mirror image of the Bundesbank, and that a rigid set of rules (3% deficit, 60% debt) be imposed to discipline the less virtuous. The ECB was not to be “directed” by ECOFIN, or anyone else.

It was a victory for the European federalists, central bankers and “sound money” fundamentalists. It was a defeat for democratic control and accountability, and the concept of the CB being an arm of the state that should cooperate closely with fiscal authorities (e.g. along the lines of the Fed/Treasury split).

The inherent problems and conflicts that were there in 1989 are still there today, as this this article on the initial Delors Report shows.

Mitterand’s huge miscalculation that the new structure would result a more controllable Germany, and a CB more focused on growth and less on inflation is discussed here .

A complete mess – except if you a committed European federalist, in the Padoa-Schioppa, LBS, Draghi mould, since any “fixes” will be aligned with further EU integration. Which is what they understood all along, and was their strategic goal. They didn’t really care that the design was half-baked, only that the process be irreversible.

@ Bryan G

Thanks for the very useful links. Your comments are to the point but the international financial crisis cannot be laid entirely at the euro’s or Germany’s door. The fact is that the parties have more interest in maintaining the euro than abandoning it. The process may not be pretty but it is the result that matters.

@ Eureka

The fact that the budget discussions may distract the spotlight from the Shootout at the PN Corral may actually be helpful. (It will also come as a relief to all to be informed that the future of the Irish government is a matter for the government and the Irish people).


“What was wrong with “EMU””

It generally made the guests feel uncomfortable and eventually attacked most of them.

After a while Rod Hull just couldn’t get anyone cool to go on the show. It got pulled eventually.



The problems in the EZ are worse than elsewhere, as the range of workable solutions is diminishingly small given the institutional setup, the history of which helps to understand its limitations.

For example – all of James’ “solutions” are completely unworkable or useless.

1) Parallel currency
The French ran with this idea for quite a while as a less rigid alternative to the single currency, so no doubt there’s a lot of technical analysis on procedures and mechanisms waiting to be rediscovered. However the idea that the Irish government could credibly propose and execute a parallel currency on their own in the face of opposition by the European federalists is laughable.

2) Differentiated monetary policy for different countries
He is a taking a symbolic gesture by the Bundesbank (on not accepting bank bonds from Ireland, Portugal and Greece as collateral) and extrapolating an entirely new policy direction. This is wrong, as the policy direction from the ECB is to reduce and eliminate national-level collateral requirements (e.g. as used with ELA) and replace it with common EU-wide standards.

3) EU-wide social welfare system
The idea that an EU-wide Joan Burton type would solve the public opposition to North-South transfers is also unrealistic. It might take some of the extreme nationalistic edge off the problem but the basic opposition would still remain. You’ve only got to look at the USA for an example of that – the view of the Federal social benefits system in a “makers vs takers” framework has spawned highly partisan extreme groups (e.g. the Tea party). Beneath the surface race is still a huge issue, with the assumption that the “takers” are mainly blacks and hispanics. In Europe the “takers” would still be the lazy Southerners or Anglo-Saxon-system apologists that want to have it both ways, as viewed by the “makers”. This proposal would also require tax-rate harmonization.

So we’ve got a 22-page paper on the Euro’s design flaws, without a single workable solution being proposed. Hardly inspiring.

@ All

An almost amusing piece in Die Welt about the “crisis summit” between Merkel and Rajoy as the (limited) journalists present did not fail to recall the parallels between the Spanish slush fund affair and that in Germany which brought Merkel to power or, at least, to head the CDU.


On the Emerald Island, Spain’s best per capita tourist customer, not a whisper in the media, including the national broadcaster!

“When ignorance is bliss, t’is folly to be wise”.

@ Bryan G

I was being kind with regard to the speech! You will note, however, that I did refer to the need to enter the market place, a euphemism for the real world.

My post above was written before I had read yours. It serves to confirm a view which I think you probably share that Ireland simply never had, and still does not possess, the national political maturity to participate in an exercise as risky as the euro.

@ Bryan G

You may be interested in this link.


The manner in which Ireland stands out in NOT conforming to the pattern of the Club Med is the nub of the matter. This is why we are “special” in the eyes of the moneybags.

There is evidently little or no capacity in the body politic in Ireland to deal with this situation. The only real asset has been the administrative – not the political – capacity of the country to implement the actions sought by the troika which will ultimately prove that the status we have been granted – most recently referred to by the visiting SPD candidate Steinbrueck – is justified.

What’s going on today…Paris off 3% and Germany 2.5%. That’s a fairly sizable correction.

I wonder about us humans sometimes.
The markets are like a car hurtling down a road and we have to guess if they’ll hit a wall and crash. Rather than looking down the road to see the wall we look at the car and say its driving way too fast to crash or the driver looks way too confident to crash. We are truly truly daft.
The market is antisocial personality disorder personified – it has reckless disregard for norms, fails to learn from mistakes, fails to plan ahead, is impulsive, will justify and rationalise all its misdemeanours, is destructive and deceitful, is exploitative and is so consistently and reliably. The markets are where our antisocial elites go when they can’t send poor people to their deaths in war.
So the markets are driving that car again and they will crash. And we had all better think of jumping pretty quick after that happens. Some day we’ll learn – but there definitely is a wall


“It serves to confirm a view which I think you probably share that Ireland simply never had, and still does not possess, the national political maturity to participate in an exercise as risky as the euro.

I would agree with that. There appears to have been a high degree of naivety, combined with a high degree of arrogance, such that the inexperience/naivety was never recognized or was dismissed as unimportant.

In 1992 the public debate on Maastricht revolved around abortion and the size of the next grant of EU structural funds.

In 2013 the public debate on EU matters revolves around abortion and the size of the next loan restructuring from EU/ECB funds.

It appears there was nobody in a position of power in 1988-1992 who said –

“Wait. Let’s assume for the sake of argument that Ireland will never be as productive and competitive as Germany. After all, we’ve devalued twice recently in 1986 and 1983. We’re signing up to an irreversible agreement that prevents us from

– adjusting the exchange rate
– adjusting the interest rate
– adjusting the inflation rate target
– imposing controls on capital flows
– imposing controls on trade

So the choice is either internal devaluation, credit-fuelled bubble, or becoming as productive as Germany. Where’s the evidence that Ireland will ever be as productive as Germany? It’s a recipe for disaster and it’s never going to work !!!”.


You may be interested in this link.

The article shows that the number of State-specific collateralization rules is greater than I had realized. However it fails to draw the distinction between liquidity and solvency risk, and who is taking on the solvency risk. I think that much of that junk collateral is accepted at NCB-level only, with the relevant State taking on all the risk (e.g. letters of comfort etc.).

@ Bryan G

‘So the choice is either internal devaluation, credit-fuelled bubble, or becoming as productive as Germany. Where’s the evidence that Ireland will ever be as productive as Germany? It’s a recipe for disaster and it’s never going to work !!!”.’

It depends what one is trying to achieve. Lets say, Ireland is to Germany as chalk is to cheese. If the aim of the Euro exercise is to liquidate and extract resources up front, while leaving a crippled, indebted state behind, then the strategy has been extraordinarily successful. That point has been made many times by the Dork.

There is little enough reason to believe that the big players in our private and public sectors had, or have, any other agenda other than private gain. In other words, we have the typical governnace problems of the periphery, and we will pay the same price as the rest.

@ Bryan G

You could have said the same when we were in a currency union with the UK. The point with regard to the euro is that we are not locked into a fixed exchange rate with a single dominant trading partner. And the productivity of Germany is a myth. Overall growth rates are mediocre.

We can manage perfectly well within a currency union if we adopt the necessary economic discipline; and join with other countries in ensuring that Germany ceases to have as almost sole policy objective a dominant position in terms of exports brought about by by clearly mercantilist policy actions.

Merkel has an ideal opportunity to demonstrate the direction in which she intends to take Germany at the negotiations on the long-term budget. The additional budgetary effort required is peanuts in terms of Germany’s overall budgetary arithmetic. The CDU leader she ousted – Kohl – would never have allowed the situation in Europe to deteriorate to such an extent.

The point about the tragedy of the commons analysis is that it makes clear just how far the ECB has gone; “to the margins of its mandate”, as Merkel put it in Davos. But there is a world of difference between noting this and ostentatiously stating that it has already breached its mandate and in inviting it to go further as many argue in Ireland.

On the point with regard to the relevant states taking all the risk, this is of course true. The ECB simply has to insist on this figleaf. But there is an implicit acceptance of risk by it, it seems to me, in the process.

As to whether the euro willl survive or not, who knows?


“The point about the tragedy of the commons analysis is that it makes clear just how far the ECB has gone; “to the margins of its mandate”, as Merkel put it in Davos. But there is a world of difference between noting this and ostentatiously stating that it has already breached its mandate and in inviting it to go further as many argue in Ireland.”

An unemotive view is that the ECB did indeed breach its mandate in accepting the PNs as collateral, and should now go backwards rather than further in the same direction. Any deal that replaces the PNs wtih marketable securities would be a step in the right direction for the ECB, and I imagine the governing council themselves are atune to this consideration.

DOCM: We did not have a currency union with the UK in 1979. We had a common currency up to 1928, a currency board arrangement until the late 1960s or early 1970s, then a fixed no-margins parity.

Proof: Ireland and the UK had two distinct currencies when the EMS was established and were thus free to choose different exchange rate policies in 1979. Ireland did not have to establish a new currency to join the EMS, it already had one. In 1999 we abolished a currency which had existed since 1928.

There is the world of difference between having a currency (even with a fixed no-margins parity) and not having a currency at all.

All of these points were well understood as the various decisions were taken. The decision to abolish the currency was opposed, on the record, by most of the Irish economists who had anything to say about it.

@paul quigley

There is little enough reason to believe that the big players in our private and public sectors had, or have, any other agenda other than private gain. In other words, we have the typical governnace problems of the periphery, and we will pay the same price as the rest.

Fair enough – never ascribe to incompetence what can be adequately explained by greed! Along with CMcC’s point that the issues were well understood in Ireland, the “sleepwalked into EMU” explanation looks weak when up against the “was steered by vested interests into EMU, ignoring objections” one.

Otmar Issing, the first ECB chief economist, had with other ‘wise men’ economists, in early 1990 warned publicly against an early currency union on reunification of Germany but Helmut Kohl, the chancellor, blew a fuse. Issing says in a CNBC interview (linked to below) that he also wasn’t ‘euphoric’ about the euro project.

Kohl put the politics before the economics.


Unlike Neville Chamberlain waving a capitulāre on returning from Munich in 1938, Albert Reynolds could return to Dublin in 1993 in triumph with IR£8bn in structural fund commitments thanks to Germany and Jacques Delors, Commission president, who had criticised ‘greedy member states’ who were eager to reduce such spending. ‘There is an anti-European spirit today in the Community,’ he said.


join with other countries in ensuring that Germany ceases to have as almost sole policy objective a dominant position in terms of exports brought about by clearly mercantilist policy actions.

How can that change without closer integration?

Germany like every other country has problems e.g the new Berlin airport fiasco — but for example its double digit rise in car sales to the US in 2012 is primarily because it makes products that people want to buy whether in China or the US.

As for ‘mercantilist policy actions,’ the camel doesn’t always see his own hump and Ireland’s facilitation of massive corporate tax avoidance together with the Netherlands, including in the struggling economies, while gaining little itself, is going to lead to reactions in individual countries without EU involvement.

Solidarity should be a two-way street.

“A horse, a horse, my kingdom for a horse”. [Richard III Reloaded]

Try an Irish beefburger!

What a find!

Meanwhile, ‘our winter of discontent’ continues … supinely.


We can manage perfectly well within a currency union if we adopt the necessary economic discipline;

This appears to be the “just stick to the (6-pack/2-pack/fiscal compact/euro-plus-pact) rules and everything will work out fine argument”. It’s totally wrong (assuming the “we” includes the unemployed).

The disparities between the different regions in Europe are too great to start with, and the forces of globalization and modern technology both push very strongly towards centralization and “winner-take-all” or oligopoly outcomes, which left unchecked will increase the disparities, not reduce them.

Returning to the topic of the thread, the noble professor wears his learning heavily. And pulls off the familiar trick, practised by other pop historians like Niall Ferguson, of stirring things up by simply disagreeing with everything hat has ever been written or said about a particular historical episode.

The learned Professor rubbishes the idea that the euro was created in part to stop Germany invading France every 50 years or so. Helmet Kohl, for one, asserted that the euro was ‘a matter of war and peace in the 21st century’. So the learned professor asserts that the creators of the euro didn’t understand why they were creating the euro. He also asserts that nobody else, apart from the learned professor, knows why the euro was created.

Can anyone be surprised by arguments that the existential crisis hadn’t gone away you know?

@ CMc

No doubt you are right on the detail but you are meeting points that I have not made. I am aware that we had our own currency when we joined the euro and, indeed, of a failed attempt to defend it and a subsequent devaluation prior to joining. I also agree with the view that the risks associated with membership of the euro were not understood and, if they were, were ignored. But that is now water under the bridge. I was rather making the point that we will have to go back to some form of currency union with the UK if we leave the euro (just about the moment when Iceland will join it!).

@ MH

The problem with dealing with the question that you pose is that a definition of “further integration” is required. It can best be illustrated by taking energy – a major component in any consideration of relative competitiveness – into consideration. In the supposedly new chapter on the subject in the Treaty of Lisbon it is stated that any measures adopted “shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choices between different energy sources and the general structure of its energy supply”. And the countries that signed up to this also expect to be able to run a single currency!

The treaty does not stop the countries of the EA from agreeing a common energy policy. They simply do not want to do it. It is left to the affected consumers to appeal to the Commission to try and get them to recognise the abuses of the competition rules that may result.

On corporation tax, you are just plain wrong, as is the SPD contender for Chancellor of Germany. There is nothing in the treaties that requires countries to harmonise direct taxes and one cannot use a non-existent obligation as a form of negotiating blunt instrument. Incidentally, the SPD are already at it in the case of Cyprus, among the conditions for their agreement to a bailout being alteration in corporation taxes and participation in the FTT. Before there are sighs of relief that he is unlikely to be elected, it should be recalled that he was Merkel’s finance minister at the start of the crisis and a renewal of the then grand coalition is a possible outcome, despite the denials of the SPD. (Another fact which serves to underline the mercantilist and corporatist structure of the German economy as is the – evidently unconscious – irony of Merkel inviting Spanish workers to come to Germany).

@ Bryan G

Without wishing to appear facetious, is this view not a bit like “stop the world, I want to get off!”

I would agree, however, to the extent that the fundamental deal underpinning the EU is (i) open market access in return for (ii) economic and social cohesion based on (iii) a level competitive playing field.

If the major players go in the direction of failing on all three fronts, we wll nationally have to reconsider our European options with regard to the euro. But I do not think that they will.


It might be more useful to think about the context than the news, which didn’t amount to more than the fact the EZ crisis still exists.

The fact a significant “air pocket” occurred on little new information suggests that the more active money , which is close to already fully invested, wasn’t filling the gap by buying more on the dip, and the slower moving and retail have not yet been convinced that they must invest everything in risk assets. If the upward momentum doesn’t reassertion itself, people start questioning just why prices went up so much anyway. That’s all you need for a top. You don’t need any actual news necessarily.

@paul q

Where would could one go for a through explication of the “EMU as resource farming ” hypothesis. It certainly sounds interesting and personally I could never quite follow the thread Of the dorks argument


On corporation tax, you are just plain wrong,….

I don’t think so.

I have made no claim regarding treaties. however, what I would suggest is that the architects of the internal market model, did not envisage that a UK bookeseller (Amazon) would book all its UK revenues in Luxembourg and avail of a lower tax on its profits there with just an administration centre.

Basically a country has a right to veto tax measures but hoover up profits from around the union.

Now it’s likely that countries such as the UK, France and Germany will set restrictions on US multinationals.

George Osborne, the UK chancellor, has teamed up with the German finance minister, Wolfgang Schäuble, to announce an international crackdown on tax avoidance by multinational companies.

It would be foolish to think that they are impotent — their countries provide huge retail markets for US MNCs.

@ colm mccarthy


It’s likely that after a halcyon decade for FDI that policy makers were beguiled by American lobbyists regarding the euro.

After all wasn’t there all that potential Landesbanken business for the IFSC?

@ MH

I am not disputing the points that you make above which relate, in the main, to the issue of transfer pricing and various forms of tax planning with regard to direct taxes. It is up to each country to take the necessary measures nationally, or in coordination with other countries.

What countries in the EU should not be allowed to do is to trade actions in an area in which they have treaty obligations (e.g. in assisting a country in difficulty in the context of the euro) against actions in areas where there are no obligations between the parties.

The best advice ever given to this country was that summed up in the latin phrase “pacta sunt servanda” by Ollie Rehn. Not that anyone took it!

As a public service I have compiled a list of the top 25 posters on the Irish Economy over the last 30 articles. Think of it as blogometrics.

The first number is the number of posts, the second is the quantity of text (excluding HTML mark-up and quotes of other posters) and the third is the name of the author. Numbers may not be exact.

91 70619 DOCM
86 38402 David O’Donnell
45 43582 John Corcoran
42 58608 Michael Hennigan – Finfacts
41 31018 grumpy
40 23263 seafoid
29 11146 Eureka
25 8589 Fiatluxjnr
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12 18808 Brian Woods
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10 12372 veronica
9 13367 Gavin Kostick
8 4031 tullmcadoo
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8 8690 Bryan G
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I would note that for those with a lot of free time to post but little expertise or interest in economics that the following domains are free if they want to start their own blog.


@ Ciaran
My speciality is far from economics, but like any other curious citizen, I have developed an interest. Dork is his own man, as the saying goes, and many of his utterances are oracular in style. Some attribute that to the Beamish, but I am inclined to think it is an occupational hazard of looking too deep into the bowels of history.

The resource analysis would have to include all of the processes whereby profit is garnered upfront through irresponsible extension of credit, right up to the capture of the state’s tax take by private finance. In simple terms, if it hadn’t been for the euro there would be no gross mis-investment of capital in unproductive development, no bust Anglo and no promissory note debt for us to pay. It was a trap for Ireland.

In my simplistic worldview, we can divide economic activities into energy sector, real goods and services, and finance. I can’t point you to a succinct discussion on the resource extraction aspect of the euro project, but there are a few useful building blocks.

Firstly, there is the Dork’s partner in crime, Steve from Virginia, at the Economic Undertow blog. His analysis of the relationship between energy and credit makes sense to me. Then we have Amar Bhide’s Call Judgement, which brilliantly illustrates the house of cards which is global finance. David Graeber’s Debt: The First 5000 years shows the centrality of debt, and debt slavery in human relations. So it was, and so it remains. Orthodox economics is full of abstractions and euphemisms.

Next there is Giovanni Arrighi’s Long Twentieth Century, which nicely traces out the various phases of capitalist development over the centuries, and shows the historical roots of the MNCs. He also puts the current wave of financialisation into long term historical context.

That leads on to considerations of power, which comes in a variety of guises. Philip Bobbit’s Shield of Achilles describes the historical relationship between military and political power, and defines the modern concept of the market state. That is one in which the interests of finance, and financial vested interests dominate the political system. As Bobbit puts it: ‘For the nation state, a national currency is a medium of exchange: for the market state it is only one more commodity’

Karl Polanyi’s Classic Great Transformation (1947) shows the consequences which arise when land, labour or money are treated a commodities. In this case we are talking about money, but you don’t have to look far to see what is happening to labour and land. The tragedy of the commons is all too plain to see.

The introduction of the euro has to be seen as a part of the process of re-privatising credit/money creation, which process began in the 80s in the US and is essentially corrosive of national sovereignties. While the ECB is independent of national, democratically independent governments, it is not so independent of banks or financiers. As the Dork has often pointed, the strategy is the preservation of credit (debt) to the exclusion of productive investment, particularly in the energy sector, and employment. The euro was a trap for Europe too.

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