The good news: confidence is just around the corner

You might have thought that the disastrous but wholly unsurprising eurozone GDP numbers indicate that the bloc is in a bad way, and will continue to be so until the current macroeconomic policy mix is jettisoned.

Happily, Olli “Don’t mention the multiplier” Rehn has good news for us:

The current situation can be summarised like this: we have disappointing hard data from the end of last year, some more encouraging soft data in the recent past and growing investor confidence in the future.

Thank goodness for that.

89 replies on “The good news: confidence is just around the corner”

He also said….
“Rehn urged nations to keep cutting budgets and overhauling their economies in the face of slowing growth. In a statement, he said any shift away from fiscal consolidation would prolong the downturn.
“The decisive policy action undertaken recently is paving the way for a return to recovery,” Rehn said. “We must stay the course of reform and avoid any loss of momentum, which could undermine the turnaround in confidence that is underway, delaying the needed upswing in growth and job creation.”

Keep cuttin lads. Wonder what the revision next year will be like….recovery in 2015?????

Olli’s message is very similar to Signor Draghi’s pronouncement last week – so he must be right!

This is probably how things were run in the Soviet Union. I guess this just proves that 10,000 PR men are just as effective as 10 tank divisions.

Jeremy Warner sums the situation up neatly…

“Conventional economic analysis is that Western economies are over the worst, as indeed it has been ever since the near-death experience of the banking implosion. Sadly, that still doesn’t look the way to bet.”

it’s alright ‘cos the historical pattern has shown
how the economical cycle tends to revolve
in a round of decades three stages stand out in a loop
a slump and war then peel back to square one and back for more

bigger slump and bigger wars and a smaller recovery
huger slump and greater wars and a shallower recovery

you see the recovery always comes ’round again
there’s nothing to worry for things will look after themselves
it’s alright recovery always comes ’round again
there’s nothing to worry if things can only get better

there’s only millions that lose their jobs and homes and sometimes accents
there’s only millions that die in their bloody wars, it’s alright

In the linked paper I argue that the main determinant of the amount of money in the economy is the banks’ confidence. There is little correlation between the money supply and central bank reserves, the banks’ liquidity coverage or their capital base.

That being the case, Rehn’s prediction of investor confidence returning could lead to more more in the economy. However, every euro is created with an even higher debt, and destroyed again as the debt is settled, and you can’t resolve the debt crisis under this system per se.

Of course there’s no reason economically speaking or otherwise why bank loans should be the only significant source of money for the economy. There’s also no reason why the existing money supply should constantly be eroded through loan repayments.

The paper can be viewed at:

“…and growing investor confidence in the future.”

Investor confidence has by a plurality of measures, already got close to being as high as it ever goes. It hasn’t quite got to the point where it is so high it must reverse somewhat , but thats the way the percentages point.

Bet Ollie doesn’t even know you can measure it.

“…and growing investor confidence in the future.”

We haven’t even got to the end of q1 yet. If that great rotation doesn’t turn up soon I would be concerned.


The irrationality of [your EZ economic policy] is not an argument against its existance; rather it is a conditon of it.

[Nietzsche reloaded in the context of this blog’s ‘eternal recurring’]

Martin Wolf Misses the Real Reason the Eurozone’s Unhappy Marriage Has Not Broken Up Yet – 02/20/2013 – Yves Smith

Wolf … proceeds to tell us that the Eurozone continues to be a resolute practitioner of austerity policies. Readers may recall that there was a huge kerfluffle in the economics-related media when the IMF admitted it was all wrong, that the fiscal multipliers in the Eurozone had turned out to be larger than one. In econ-speak that means you can’t starve your way back to health. Cutting fiscal deficits results in an even greater economic contraction, resulting in even worse debt to GDP ratios. But the rest of the European officialdom seems to be in shoot-the-messenger mode.

DO

Friday, February 22, 2013
Yanis Varoufakis: Europe Needs a Hegemonic Germany

By Yanis Varoufakis, professor of economics at the University of Athens. Cross posted from his blog

For six decades Germany was being pampered by a hegemonic America that oversaw the write-off of its wartime debts, the reversal of Allied designs to de-industrialise it and, above all else, the constant generation of the global demand which allowed German manufacturers to concentrate on efficiently producing quality, desirable wares.

Having taken all this for granted for too long, Germany’s elites are now finding it conceptually difficult to come to terms with the new ‘normal’:

• A world in which sufficient aggregate demand is no longer maintainable by the United States, or any other single bloc, and in which Germany can no longer take for granted the demand for its goods.

* A world in which there is no room for a Eurozone that operates like an augmented Germany.

Germany’s disciplinarian imposition of the greatest austerity upon the weakest of Europeans, lacking any plan for countering the resulting asymmetrical recession, is a sorry and dangerous leftover of a long-gone world order built by America. It is the result of a mental atrophy caused by a United States acting for too long as the over-protective parent. It will backfire with mathematical precision, causing higher debt-to-income ratios and lower economic dynamism throughout Europe. The time is, therefore, ripe for a Gestalt Shift from an authoritarian to a hegemonic Germany. Europe needs a Germany ready and willing to make this shift and, indeed, so does Germany.

But what would a hegemonic Germany do? It will be worried about something beyond fiscal rectitude and market reforms. It will know that a supply of high quality products does not automatically create its own demand. It will enthusiastically strive to engineer, as America did in the 1950s, a Pan-European Recovery Program that restores demand for the goods that Europe needs


“until the current macroeconomic policy mix is jettisoned.”

I wholeheartedly agree. However, a bigger question is how is Eurozone macroeconomic policy actually set?

Olli clearly has some influence but as an EU commissioner his responsibility is EU wide, and not just the Euro. In any case, to whom is he accountable? Barroso? Member states? (Don’t make me laugh).

Mario, Jorg and their mates in Frankfurt do not have a mandate for macroeconomic policy beyond inflation targeting and appear to have used up all their political capital in getting the OMT approved.

That leaves most power with an Addams Family of politicans in creditor nations, with no accountability or democratic mandate from across the EZ. Merkel and Schauble are only accountable to the German electorate and their supporters in the German establishment and seems to formulate policy based on Germanic cultural dogma rather than on the economic facts on the ground across the EZ.

Are we really surprised at the state of macro policy?

Lampooning somebody simply by quoting them is particularly funny, although the humour has blackish tinge.

“growing investor confidence in the future” – What a masterfully crafted phrase! Confidence is so low now it must at some stage get higher. However, when this will occur is uncertain save that we know it will be in the future.

I suspect that Olli was already gagging for the Friday post-presser scoops as he laboured through that.

@ All

One way of looking at the situation might be to consider the vulgar politics of it. The letter by Rehn was not the wisest but why did he send it? One could speculate that the explanation lies in the tension between the IMF qua organisation and the Commission/ECB. But this would be to assume that both are monolithic international bureaucracies when they are anything but.

Whatever the academic merits of the argument about multipliers, now was not the moment to indulge in doubts about the course being followed. The internal politics of the IMF come into the picture at this point. The IMF is dominated since WWII by the US – which has an effective veto on decisions – and the major economies in Europe. (Germany came late to the table, for obvious reasons, and is, incidentally, represented by the Bundesbank, Schaeuble being technically the alternate). The balance between the two is shown by the occupants of the major posts in the IMF, usually European and usually French.

Insofar as a definite German position can be established, the course is full steam ahead with the current policy of austerity and the devil take the hindmost, at least until after the federal elections. This is not a policy which recommends itself to Paris.

The problem is also that the devil may also take the electoral chances of the CDU if the German economy does not succeed in rising above the fray and show some growth in Q1 of 2013.

And there remains the unresolved problem of Cyprus.

Regling has a clear view of what is required and it does not coincide with the electoral requirements of the CDU.

@ All

The last response of Regling is particularly relevant.

“La France peut-elle un jour être cliente du MES?

Non! Pas plus que l’Allemagne. Ces deux pays sont les piliers du MES. Ce ne sont pas des clients po­tentiels. Sans ces deux pays, le MES ne peut exister, ni lever de l’argent, ni prêter aux pays en crise. Donc leur stabilité financière et leur solidité économique nous sont indispensables.”

The following comment by Seamus Coffey on the other thread seems also worthy of attention.

“The public balance for the eurozone is forecast to fall from -3.5% of GDP last year to –2.8% of GDP this year. No eurozone country is expected to run a surplus and at –7.3% of GDP Ireland will have the largest public deficit in the eurozone (the UK at –7.4% of GDP is expected to have the largest deficit in the EU27).”

Deconstructing DOCM

‘Whatever the academic merits of the argument about multipliers, now was not the moment to indulge in doubts about the course being followed.’

Even an adult could figure this deconstruction out.

FACTS really are such a nuisance ….

“Insofar as a definite German position can be established, the course is full steam ahead with the current policy of austerity and the devil take the hindmost, at least until after the federal elections. This is not a policy which recommends itself to Paris.”

Begger thy neighbours?

@ David O’Donnell

Re. Deconstrucing DOCM

Facts are a nuisance for both sides of this debate, methinks. Yanis Varoufakis on nakedcapitalism argues that austerity is self-defeating on its own terms, but that is manifestly not the case as public deficits are falling throughout the EA and particularly in the periphery. Current course and speed, public deficits will indeed return close to balance given time.

However the advocates of austerity have also been proven wrong, as GDP and employment has fallen more than predicted and hoped-for investment has not yet materialized. If the goal of current policy is to optimize for deficit reduction then it is on track to succeed, but at greater cost to GDP and employment than advertized.


Facts are a nuisance for both sides of this debate, methinks. Yanis Varoufakis on nakedcapitalism argues that austerity is self-defeating on its own terms, but that is manifestly not the case as public deficits are falling throughout the EA and particularly in the periphery. Current course and speed, public deficits will indeed return close to balance given time.

Firstly a quick look at the figures shows that budget deficits are the only economic measure that is improving since the outbreak of German provoked Eurozone austerity. Notably unemployment and public debt in the countries having most austerity inflicted on them worsened considerably between 2009 and 2012 and this now appears to be spreading to the rest of non German Europe. Austerity is a disaster and it is all there in the numbers – manifestly as it were.

Given these facts the topic of the post is uncontroversial – austerity in the Eurozone is not working using the commonly accepted measures of success for an economic policy (unemployment, output growth, public debt, health outcomes, social stability and so on) and this was predictable.

The response of your typical Austerity evangelist is that the really important measure is the marginally falling budget deficits because, well, a swarm of confidence fairies will be attracted at some undefined point in the future and undo all the necessary economic damage from austerity. Plus we keep the Euro strong and thrusting, like a virile disciplined country’s currency should be. It is a currency that will conquer all of Europe and then the world!

Advocates of austerity have always believed that reduced public spending is its own reward, and since this is essentially a reactionary political position and not a rational policy framework it is not possible to engage them in meaningful debate about the economic outcomes – pain is the aim.

Whats the upshot?

The fiscal fanatics (or is it fascists?), in Ireland and in Europe, are political extremists and the longer we imagine we are in a debate with them rather than being involved in a political struggle against them the worse things will get.

Not austerity – it’s financialism.
Where is the austerity in bankers bonuses?

The model is simple:
1: Keep money supply tight and divert ever increasing amounts of that money away from the real economy and into financial institutions

Figures for:
1: total bonuses paid out by top 10 global financial houses and
2: total profits of same

The phase under way now is a round of competitive currency devaluations. Bernanke is pumping in US $40 billion a month that’s a half a trillion a year. Interest rates are still at historic lows in the developed countries after five years of historic lows. If all this amounts to pushing on a strand of spaghetti across a plate then we get to the next move.

The next move should be massive coordinated public works in the EU, USA and a few other developed countries.

France’s crunch in 2014 will change the austere face of the EZ to stimulus in one form or another.

German workers are not in the least bit happy about going into the second decade of wage stagnation. This could get worse as they face further competition from countries with very high unemployment.

The debate on austerity seldom gets beyond the “isn’t it terrible” stage and for almost all of those involved in the public debate, it is an abstraction in their own lives and for some, a reason to focus on protecting their own status quo.

The Construction Industry Federation did make an interesting point yesterday that only 3 out of the 333 laundry list of new job actions that do not make a credible strategy, are aimed specifically at the construction sector which accounts for 25% of the Live Register.

I don’t aspire to be what Shay Begorrah above terms a “typical Austerity evangelist.” I am among the minority who has had a steep cut in income.

What can be observed is that the victims of austerity get little attention — almost 200,000 unemployed in Ireland continuously for more than a year – – compared with those who are fighting for retention of existing privileges with the benefit of collective power and access to the mainstream media.

Pre-2008 public spending levels in what are termed advanced countries, were built on an out-of-control credit boom and the debate is most stark in the US on how to adjust to a reality where equity release from rising housing values is no longer available to protect people from penury in their old age.

The Republicans want to shield the rich from high taxes and the military-industrial complex from cuts while all the adjustment is targeted on entitlements and programs for the poor.

In Europe, the direction of reform is more important than adhering to rigid targets e.g. France missing the 3% of GDP budget target this year is not a big deal but faced with rising ageing costs, public spending at 56% of GDP and budget deficits every year since 1975, should it wait until the situation gets real dire?

There is also a reality about the politics of adjustment — the will to cull sacred cows only exists in bad times and even at that, it’s not a sufficient motivator in Ireland to fix broken systems.

Countries like France and Ireland where foreign investors own the majority of their sovereign debt, are more vulnerable during periods of panic.

“Self-defeating austerity” is a compelling term and some of course can be. However, it’s also foolish to argue that addressing endemic problems, should magic up almost instant positive results.

It’s akin to arguing that a floundering company shouldn’t restructure because the cost of restructuring will make losses bigger.

In time to come, Europeans may well consider it bizarre that the current period was viewed as an age of austerity.

Intra-Asian trade is on the rise; Latin America is as dependent on commodities as it was 40 years ago but Chinese demand has brought prosperity to the region; Africa is on the rise and the US economy is set to benefit from a period of cheap energy.

In real terms, UK public spending was £695bn in 2011/2012 and £640bn in 2007/2008. Last year government consumption grew faster than private consumption. Jobs numbers have hit a record but many new ones are part-time.

In Ireland, taxation receipts in 2012 were just above 2004 levels; the gross public spending in 2012 was at an estimated €56bn – – 37% above the level it was in 2004. Seamus Coffey has put the estimated deficit ex-bank support and interest in the period 2008-2013 at €60bn.

Sony Kapoor of the Re-Define think-tank says: “What we need at this point is a grand political bargain, and that is one that only Mrs Merkel can offer. We will require a period of five to ten years of adjustment in the European economies that needs to happen both in deficit countries and in surplus ones that are not suffering from the immediate crisis. During the course of this adjustment, financial support needs to be made available at reasonable cost to the economies, in order to provide political and economic space for structural reforms and medium-term fiscal adjustment.”

Trade between Germany and the EA16 was almost in balance in 2012. As for the grand bargain, how many governments could tie in successors to such a deal?

Meanwhile, company cash balances are at a record high:


It is a good description of German policy under Merkel but I think that it is less a product of a deliberate thought-out policy than of conflicting vested interests in Germany and poor leadership.

Not everyone in Germany is in agreement as Merkel’s electoral experience, despite her personal popularity, demonstrates.

To quote Regling above;

“Can France ever be a client of the ESM?

No! No more than Germany. These two countries are the pillars of the ESM. These are not potential customers. Without these two countries, the ESM can not exist, or raise money, or lend to countries in crisis. So their financial stability and economic strength are indispensable.”

Unless the relationship between the two principals is put on a more stable basis, it is hard to see where all this going to end. A close ally of Merkel’s has just described France as the problem child of Europe which simply serves to confirm the long history of thes two countries misunderstanding one another.

But the global economic and financial crisis cannot all be laid at the door of the euro as the experience of the UK in being downgraded by Moody’s confirms.

@ Mickey Hickey

I would agree!



I read blog entries like the OP with a mixture of irritation and disgust. The victims of what they call ‘austerity’ are a simple abstraction to such chaps – the ball in a ping-pong match between different academic camps. But of course if given the choice they would always open the front door to their academic rivals rather than an unemployed builder.

Every time I see a Guardian headline like ‘Fears about a triple-dip recession for the UK economy’ I know that in the heart of the journalist it is really ‘Hopes for a triple-dip recession…’ ie more grist for their sad little mill.

@ MH

Getting the “grand political bargain” is the problem. The carry-on in relation to Cyprus by the main political parties in Germany is not a very good omen. The position in France is hardly better, given the lack of a clear economic strategy (other than getting more time to adjust the budget deficit).

Germany is in a good position to ride out the crisis without making any major concessions for the reasons explained by Deutsche Bank in its recent report on the “pain threshold” with regard to the level of the euro; 1.24 for France and 1.37 for Germany. And this calculated against a benevolent backgroud of international economic recovery!

@Michael Hennigan

“What can be observed is that the victims of austerity get little attention”
Not only that but the paradox yesterday of the umpteenth utterly sterile ‘jobs creation program’ being announced, while at the same time government negotiators are attempting to get people who are working to work even more hours, seems intellectually imbecilic.
The government should instead be trying to get people to give up hours, so that more people could be employed. This should be a priority policy both in the public and private sector.

@Joseph Ryan

“The government should instead be trying to get people to give up hours”


PS unions and workers are often very happy with agreements that ask them to work extra hours because (i) pay is preserved and (ii) no one actually works extra hours. All that happens is someone sends an email round saying “please confirm you are working an extra hour”. Guess how many people reply ‘no’?


“Insofar as a definite German position can be established, the course is full steam ahead with the current policy of austerity and the devil take the hindmost, at least until after the federal elections. ”

That is as good as summary of the current European problem as any. But why would Germany change its stance after the elections. It seems unlikely to me.

Frank Barry, at the recent economics conference, posed the question of where are we now in this crisis by comparison to the 1930s. He answered by saying, ‘we are exactly where Herbert Hoover was in 1932’. It is a theme he should expand on.

In relation to austerity, faux or otherwise, it is not, imho, the biggest cause of the crisis. Deleveraging is a far bigger drag on demand that all the government austerity packages put together. It is a pity that we have not seem more analysis and discussion on that point.

@ Michael Hennigan and others
Why have you never once criticised the excessive salaries of those working in the financial sector.

Two beautiful links to sum up financialism – read them in sequence


Now don’t tell me this is austerity when 1.5 bn get paid in bonuses for failure.

You probably can’t answer this

@OMF – “I guess this just proves that 10,000 PR men are just as effective as 10 tank divisions.”

I think you need to delete the 0000. I haven’t gone away you know…. just in a different place. I’m out there…. waiting and watching……

@DOCM – “One way of looking at the situation might be to consider the vulgar politics of it.”

That about hits the nail on the head.

@Johnny Foreigner +1 people don’t ‘work’ the extra hour, they just ‘attend their place of employment’ for an extra hour (I know a few teachers…).

Getting back to the main thrust of the thread – if people like Olli can’t see the trends and the direction it’s all going in (i.e. coming apart at the seams) then there isn’t much to look forward to if we continue to let the EU/ECB/Irish politicians/etc. ‘lead’ us. But of course, they do actually see where it’s going so they basically lie instead….. and get away with it too (iro the eyes of the general public).
But can you find a journalist who’s really prepared to (and able to) challenge these people and demonstrate what utter rubbish they talk? No – and certainly not in Ireland where politicians are still given such an easy ride when being interviewed it beggars belief.

Anyway, I’ve seen enough data crunching in the new job and spoken to enough really smart people to know that Europe ain’t going to come bouncing back this year – rather, might even have a disaster or two on their hands in the periphery before the end of it. A real disaster.

I came back to Dublin this weekend for the match… and then realised it’s in Edinburgh. Forgive me – I’ve been working rather hard just lately. I suppose I can always go to the pub and watch it if Mrs PR Guy will grant permission.

@ Eureka

@ Michael Hennigan and others

Why have you never once criticised the excessive salaries of those working in the financial sector.

This is from Friday:

Financial crisis “little more than a blip for the pay of bankers”

Michel Barnier, the EU financial services commissioner, has been working for a long time on getting agreement on limits on bankers’ bonuses.

Last week there was agreement on Ireland’s proposal for a capping of bankers’ bonuses to no more than the equivalent of their fixed salary, a so-called 1:1 ratio, although the bonus could be doubled if backed by a simple majority of shareholders at a meeting where two thirds of shares are represented.

Many banks have changed their own rules.

Progress has been very slow.

Everyone talks on the market for ‘talent’!

Just consider how difficult it is for Ireland to row back on the facilitation of massive corporate tax avoidance, even though there is little direct gain from it.

When Bruton announces another 50 or 100 ‘high quality’ jobs provided by a US firm, it highlights how much we’re dependent on them and the local unit of the US Chamber, represents one of the world’s most powerful lobbying organisations.

Bruton’s brother is the local lobbyist for US financial services firms in Ireland.

@ Joseph Ryan

I agree with your point regarding deleveraging. Getting out from under the burden of private debt must be a key consideration.

As to Germany, I do not think that Merkel really has the luxury to delay much longer a change of direction not because of any pressures from abroad but because of domestic political considerations e.g. in relation to the form of wage suppression that has been taking place since the Schroeder reforms cf.

The month of March seems to me to be the crucial one for decision on the main European issues – notably in relation to Cyprus, Portugal and Ireland – as leaving it any later rules out any form of structured electoral campaign.

It is difficult to avoid the impression that there is a certain link as far as Ireland is concerned i.e. (i) how was the figure of 1 billion additional CPA savings arrived at and (ii) why the haste to conclude a deal?

@ Michael Hennigan
Hardly scathing is it…..considering all the vitriol you have for teachers Gardai and doctors!
I still think you are a biased financialist

@ PR guy
At this stage there should be massive deposit flight to Switzerland if they thought the Euro was going to go. The Euro will stay but Greece won’t be in it. Its in our interests at the moment to stick with it. Sterling is going to be turbulent

@ David O Donnell
Great link. That’s what this is – financialism. When elite bankers take salary cuts i’ll believe its something other than a robbery of the masses by the privileged elite

It’s a familiar refrain for Olli Rehn. Back during Finland’s depression in the early 1990s Rehn and the government uttered the same words about turning the corner soon and pointed at market confidence to justify both austerity and their refusal to devalue the Finnish markka. Well, Mr Market did lose confidence and a devaluation was forced by currency speculators. This supposed catastrophe was exactly what the Finnish economy needed. Then in 2009 I gagged when I heard Rehn peddling the same destructive false hope in support of Fianna Fáil policies.

@ Eureka

Oh… you want outrage…I did ask during the bubble “Where is the outrage..” and it of course came too late.

Many of the outraged today were among the same people who were deaf to reason when devotees of their new Moses and today they still hanker for a simple world where outsiders are held responsible for their woes. Keep it up and end up in a sand pit for the second time.

There will always be a new Elmer Gantry to sell dreams to your type in search of fantasy.

Unable to challenge on substance, there is the old whataboutery crutch and claimed demonisation of particular groups, while hiding your own identity. The equivalent anthem of the modern Know-Nothings (once the name of a US political party) in the US is ‘class warfare.’

Meanwhile, I guess I should direct my ‘vitriol’ at those typical SME workers who have no fear of unemployment; who earn premium pay and have guaranteed pensions, whether funded or not – – and who have almost daily access to the national media.

Apart from the 60% markup on the factory gate price of the State’s drugs bill; legal and accounting cartels and so on, banks also get attention. This from 2012:

One of the biggest Irish indigenous companies today is the defunct former Anglo Irish Bank.

This shuttered rump of a bank is not open for business but has 1,000 staff, 7 executives earning annual salary packages of €500,000+ and 36 other employees being paid more than €200,000. The prime minister of the Netherlands earns €144,000!

Earlier this year Minister Noonan asked Alan Dukes, chairman of the renamed Irish Bank Resolution Corporation, to cut pay by 15%. He was told where to get off.

Dukes, a former finance minister, has a State pension worth €100,645 this year, in addition to the €150,000 in fees for his part-time directorship — handy earners in a bankrupt country.

To compound the unreality, Tánaiste Eamon Gilmore described the pay levels at the bank as”unacceptable” and said the Government has appointed consultants to advise on how wage levels at IBRC can be reduced.

Gilmore said consulting firm Mercer was probing what action could be taken. Inspiring, surely??

Ballymagash may have faded from public memory but alas, it is an enduring brand. 

Michael. .. at least Anglo is no more. I guess the posteer may, like me, wonder what your solution is. Your very trenchant on the problem but I can’t honestly recall you giving a solution. What would you do bearing in mind we are not Finnish ir asian or Germany. ..?

@ Autonomous Soul

Contrary to your narrative, Finland took the initiative to leave the
Exchange Rate Mechanism (ERM) before the crisis hit its zenith in 1992.

Olli Rehn was a bit player during the Finnish crisis of the early 1990’s having been first elected to parliament in 1991. He was a special adviser to the PM as he was the head of the youth wing of the Centre Party.

Finland, Sweden, Norway and Denmark had joined the ERM to help to cut interest rates but the Bundesbank began raising its discount rate to a high of 9.75% in the summer of 1992, negating the benefit. In the same summer, Denmark rejected the Maastricht treaty.

The Finnish markka was withdrawn from the ERM on Sept 8 1992 and George Soros famously helped to force the UK to abandon the ERM on Sept 16 1992. On what became known as Black Wednesday, Sweden’s Riksbank raised its overnight rate to 500% to defend the krona.

The Swedish government and the Social Democrats, the opposition party, agreed to back up jointly two austerity packages in September to avoid a devaluation of the krona. In November 1992, the Swedes floated the krona. Denmark stayed with the ERM and had an effective devaluation in 1993. So did Ireland in early 1993.

Spain had 4 devaluations in 1992-95. Its unemployment rate rose from 22% in 1993 to 24% in 1994 and it was 21% in 1997.

Italy’s unemployment rate was 11.2% in Dec 1996 and also in Dec 2012.

All these devaluations including that of sterling and the lira coincided with rising global growth.

The WSJ last year reported on an interview with Anders Borg, Sweden’s finance minister:

He waves away the notion that the so-called Swedish miracle is thanks to the country’s rejection of the euro. While it has been an “advantage” to let the krona float through Sweden’s ups and downs, “it’s not short-term exchange-rate movements that decide growth. It’s much more to do with fundamental structural issues.” He points to Finland, Estonia and Germany as examples of fixed-exchange-rate countries that have come through recent crises in “good shape. . . . Part of that is that they started to deal with their own structural problems much earlier” with reforms that looked “very much the same” as Sweden’s.

And Michael as these actions arent availabke to us now again I ask: what’s the solution you advocate? Wen aren’t in the ERm; its not 1993; we remain stubbornly non scandanavian. ….

Sans serif, italic….
Don’t bother answering?
We all have our limitations. You will probably never accept that when bankers enrich themselves on the backs of the poor it’s not austerity it’s simple robbery

@ MH et al

The point made by the Swedish finance minister is, in fact, the crux of the matter. Pointing it out, however, is often confused with public sector bashing when the very opposite is the intent.

There is probably general agreement that the Irish public sector has been greatly influenced by the UK experience and, as both countries – one in the euro and the other not – share the distinction of having the worst budgetary situation in the EU, there may be some common denominators which demonstrate that whatever is the root cause, it is not the euro.

The think-tank PolicyExchange produced this paper contrasting the situation in the UK and Sweden with regard to fixing pay in the public sector, recommending that consideration be given to following the Swedish example.

I do not think that such a solution can be applied in Ireland or the UK without the background of (i) a new all-embracing and self-funding pension regime for all workers and (ii) common basic conditions of service, irrespective of whether the worker is in the public or the private sector.

Utopian? Certainly if one was to take the diet of “same same old” behaviour served up by the Sunday papers this weekend. But the constrained circumstances of the state – AKA the troika -are pushing towards previously
unimaginable solutions.

The manner in which the debate – other than in relation to the helpless victim syndrome – in Ireland has again become delinked from what is actually happening on the ground in Europe can also be noted (not unconnected with the return from the grave of FF).

@ Johnny Foreigner

“PS unions and workers are often very happy with agreements that ask them to work extra hours because (i) pay is preserved and (ii) no one actually works extra hours. All that happens is someone sends an email round saying “please confirm you are working an extra hour”. Guess how many people reply ‘no’?”

I don’t know what you’re smoking, but it must be good stuff. And of course, just like in the private sector, while workers are time clocked the bosses… are not.


“I do not think that such a solution can be applied in Ireland or the UK without the background of (i) a new all-embracing and self-funding pension regime for all workers and (ii) common basic conditions of service, irrespective of whether the worker is in the public or the private sector.”

You and I agree on this, but I think with vastly different expectations of pension provision (a jackpot for bankers to gamble with) and of the direction in which employment conditions should go.

@ Michael Hennigan

Unable to challenge on substance, there is the old whataboutery crutch and claimed demonisation of particular groups, while hiding your own identity. The equivalent anthem of the modern Know-Nothings (once the name of a US political party) in the US is ‘class warfare.’

I find it rather offensive that you’ve attempted to link clerical workers, firemen, cleaners etc. in with a middle-class, well-to-do anti-Irishhate group who otherwise wouldn’t be out of place as members of IBEC.


“…but I think with vastly different expectations of pension provision (a jackpot for bankers to gamble with)”

Can you expand on this idea a bit, not sure I get what you mean.

Sweden has much better conditions for its PS than we have here.
If you guys were over there you’d be cribbing about it too.

You guys are financialists. You’re not capable of seeing the picture in its entirety.

I think we are seeing the end of growth in all Western Economies. All the economic responses by the Governments either forced in the case of Greece, or self imposed flaggelation as in U.K. are all wrong. You cannot grow an Economy by focusing on growth alone, it is like trying to promote economic growth by cutting back on education and using the cash saved to give tax cuts to corporations and higher earners. The tax cuts end up being saved, spent on holidays in the Maldives or end up boosting the number of digital digits in a bank account in tax haven. You might get a short boost in the Economy because of the tax cuts but it is like burning your furniture to keep your house warm. Ten years down the road the workers are all only qualified for Mac jobs. Then you talk about fostering an “entrprennuerial” culture, increased flexibility in workforce (shorthand for laying of workers at minimum cost and slashing wages) and make a few TV programs about a high tech company in Cambridge making vacuum cleaners which is trying its best to outsource all its production to China. The cash is then hovered up into the tax havens were it adds binary numbers to a bank account in bank which does not loan to your productive or consumer base. This cash does not add one iota to the productive side or service side of the Economy and the workers are worse off and have less money to spend on high tech vacuum cleaners and the Economy goes into a downward spiral where the Government is no longer able to finance basic services like health as its tax base has been seriously eroded. It gets into a downward debt cycle as it no longer able to boost the economy either printing money which leads to inflation or get debt at O.K interest rates. In the U.K. median wages are now lower than they were a decade ago and the standard of roads, rail and basic infrastructure other than mobile phone masks is in long term decline. The NHS, once the envy of the world can no longer provide a basic standard of health. We are seeing the end of the west as an Economic powerhouse as the locus of the world economy shifts east to the Chinese with their ten year plans and who have copped that cash is a store of value, which needs to be spent or it just ends up as digits on a computer or boosting a retirement fund that will never pay out because of inflation and the gradual erosion of the productive side of all western Economies.

It all started with Thacther and Reagan, role back the state and tax cuts. This gave a short term economic boost as consumers started spending their tax rebates and convinced a few Economists that this was the way to go. Now two decades later we have Economic stagnation, Infrastructural chaos and bankrupt governments trying to squeeze more out of their consumer base by cutting back on welfare, increasing VAT and inventing new taxes. However the consumers while getting gradually poorer still vote for these “hard” governments and growth, apart from multinational profits, has disappeared. The Governments will never be able to pay back the debt burden.

The Good News: Confidence is Just Around the Corner” :

cognitive dissonance??

“Now which corner would that be then?” Yeah! Thanks!

Current expectations (the ones I am holding now) are based on historical events and may be quite out of line with what will actually occur – in the future. Reality and fact are not the same. I construct reality. Fact is.

The expectation of a ‘reasonable’ pension was valid (the Permagrowth paradigm) until the 1980s. After that things started to go awry – and have progressively worsened. This is a most unpleasant fact – and clashes with our cognitive reality (pensions will be OK). Pensions will NOT be OK – except for those very few who have actual control over the income stream which IS their pension. The only way the majority will ‘enjoy’ a pension is via monetary inflation. And that is not a funny prospect.

Undoing 3 decades of political chichanery in which wage/salary/pension expectations were fantasized – for short-term electoral gain is – actually, proving to be very unpleasant. No one – like very few folk, will actually believe the truth, its too awful. So the fantasy will prevail. But, the rules of math shall prevail – not fantasy.

Future historians are the only ones who know what happened. And they are a tad tight-lipped at the moment.

“Economists do actually agree on a few things, and one of them is that policy needs to take account of the cyclical position. If economies are performing poorly, it is important that this trend is not reinforced by government action. Unfortunately, the eurozone does not have a single body charged with the conduct of macroeconomic policy. There is no community-wide budgetary stance and hence no collective response to the acute weakness in aggregate demand.

Moreover, there is no obligation on the sole central economic institution, the European Central Bank, to pursue any objectives to do with output or employment. Its remit is to keep the inflation rate around two per cent, unqualified by any parallel concerns about the pace of economic activity.

Most central banks elsewhere in the world also try to keep inflation low, but they have explicit obligations to pay attention to the level of activity and are expected to respond when the economy is weak. The new Japanese government, for example, has directed the central bank to ease monetary policy and the exchange rate of the yen has weakened. The authorities in the United Kingdom are tacitly encouraging a similar outcome and the US central bank, the Federal Reserve, has engaged in extensive stimulatory monetary actions.
(Colm McCarthy

ECB needs a ‘proper’ remit. Time to invade Germany -metaphorically speaking

“There are three critical indicators of the stance of macro-economic policy. The first is the budgetary position, the second is monetary policy and the third is the level of the exchange rate. All three settings in the eurozone are now inappropriate, given that the zone has slipped back into recession. For the zone as a whole, the budget deficit will fall in 2013 despite the projected fall in output, according to the European Commission.

The ECB has kept official interest rates low but lacks the tools, or perhaps the desire, to make sure that this feeds through into an easing of credit conditions throughout the zone. Finally, the euro’s exchange rate has been rising and there appears to be no great concern at policymaker level.
Colm McCarthy

Simple: The EZ does not have a proper central bank.Outlook is dire.


It’s not only a failure to modernise particular areas. There is a common lack of interest in change.

In March 2011, most of the new ministers came to office without any fresh thinking or ideas.

The Government promotes the R&D tax credit as an indicator of increasing business interest in innovation (which it isn’t) but Seán Sherlock, the minister for innovation, had no interest in seeking uptodate data. It took his department over 2 months to provide it after several contacts.


Are you serious?

I made a statement which I believe to be true: “What can be observed is that the victims of austerity get little attention – almost 200,000 unemployed in Ireland continuously for more than a year – – compared with those who are fighting for retention of existing privileges with the benefit of collective power and access to the mainstream media.”

The lot of the typical SME worker could also be included.

An anonymous troll refers to “the vitriol you have for teachers Gardai and doctors!” and you add “clerical workers, firemen, cleaners etc.” for good measure.

Until President Obama faced down Republican cries of ‘class warfare’ – – part of a focus-group tested lexicon devised by message-makers such as Frank Luntz- – when issues of inequality were raised, they succeeded in drowning out the issue.

It’s a similar tack at work in Ireland: ignore the facts and demonise people who are making unpalatable arguments.

I did say modern> Know-Nothings and I wasn’t referring to cleaners or even medical consultants.

Blind Biddy to make a comeback as loose head prop vs France!

Congrats to the Irish ladies on their Triple Crown.

“So basically they have seized on the ECB’s success at stabilizing debt markets — which from the De Grauwe point of view, which I share, is a demonstration that extreme austerity was unnecessary and unwise — as a vindication of austerity; and they have taken the slow progress of grinding deflation as a sign that all will be well.” (Krugman on EZ delulsions & illusions

@anewdawn, ewi, eureka

There have been a few comments in reaction to admiration among other commenter’s for the way things are done in Scandinavian countries.

The standard apparent rejection of this as an in any way valid view seems to be to make the point that Ireland is not Sweden – or similar.

There is no political move to move Irish politics and approaches significantly toward those of Scandinavia, but if there were, and there was a realistic possibility of such a move actually happening, would it be a good thing or a bad thing in your view(s)?

Couldn’t hurt. But then it won’t happen as we’re not actually swedish. Or Finnish. We’re irish. We may as well wish for a goldmine in every garden as to wishwe were swedish.

@ All

For those that may have taken the time to read the PolicyExchange paper linked to above, it will be clear that the breakthrough that the Swedes appear to have achieved is to link remuneration (whether in the form of a salary or a pension) to productivity on the basis of EQUALITY of treatment for all citizens.

This requires a degree of analytical rigour which is sadly lacking in most countries other than in their Scandinavian neighbours. The latter have found other solutions e.g. “flexicurity” in the case of Denmark where persons losing their jobs are guaranteed training and back-up to find another.

Not only is the analysis lacking in Ireland, the need for it is not even recognised.

I agree (and not for the first time) with Brian Woods Sn. above with regard to the state of denial in which the population finds itself. The solution previously has been one of a slow process of destructive adaptation, the principal element of which has been forced emigration. As I have pointed out in earlier posts, there is a sanctioned and self-perpetuating nomenklatura in the country which has to be dismantled if history is not to repeat itself. The hole the country has dug for itself on this occasion is so deep, I think it may actually happen.

@ anewdawn

I had not read your comment before posting the above. You may be right that the Irish lack the historical experience and background to suddenly turn into Scandinavians. But that is not the point. The issue is one of establishing the correct goals and making best efforts to achieve them.

It is a question of rational thought not nationality. The country cannot afford -i.e. it does not have the productivity – to fund the current level of public services (the cost of which is mainly made up of salaries) and unfunded public service pensions. Full stop!

The electorate knows it. And the unions – mainly public service – know it too.

@ All

A topical link!

If the level of salaries for politicians was, and remains, too high the level of cuts compared to those taken by others is not particularly relevant. In any case, public representatives, through the Dáil, are responsible for raising the necessary revenue to fund public services which are implemented by public servants. Such is the impact of clientelism and constituency clinics, politicians are no longer, evidently, capable of telling the difference, especially as their salaries have been linked, through fixing the salary of TDs to those of the rank of Principal Officer in the PS.

Another way of identifying the fantasy world in which we may be living is to ask what other country would have a committee with the title “Top Level Appointments Committee” or a medical union whose members are defined by what they are not i.e. consultants.

@Eureka, docm

What is the accepted view now on banking sector employment in Ireland for AIB, PTSB, BOI etc?

Are staff and executives to be viewed as ‘private sector’, ‘public sector’, ‘civil servants’?

Is there any attempt being made to bring them within’grades, increments or CP 2.0?

@ Grumpy
If the state owns more than 50% of a given institution then the employees in that institution are public sector employees

@ DO@D: I am assuming these quotes are CMcC’s, not yours.

“Economists do actually agree on a few things, and one of them is that policy needs to take account of the cyclical position. If economies are performing poorly, it is important that this trend is not reinforced by government action.”

This ‘cyclical’ thingy is another one of those economic cult beliefs. Below the cognitive horizon is the unstated belief about the Permagrowth paradigm. Its never mentioned, so I am assuming that economists have no idea that this paradigm is Alice-in-Wonderland stuff. Rarely in the economics literature do you encounter any reference to the fact that human economic activity is a physical process, embedded within a biosphere with finite resources and that there are absolute limits that will never be breached.

“it is important that this trend is not reinforced by government action.”

Governments will ALWAYS act – they have to secure, maintain and enhance their voter support base.

Geometric trends (in physical systems) are temporary phenomena and WILL inflect (or collapse) when limits are approached. If this factuality (sic) was understood and accepted, then the idea that any physical process can continue on an upward geometric trend (without encountering speed-bumps) would be jettisoned. Once that geometric trend-line inflects over toward its max – that’s it: QED!

“Its remit [ECB] is to keep the inflation rate around two per cent, …”

That’s proof positive that these dozey folk are using a geometric-trend, Permagrowth economic paradigm.

@ grumpy: “… would it be a good thing or a bad thing in your view(s)?”

Good and bad are values. Very prone to argumentative argument.

The first quest is to identify any problems/concerns with our current PS, and next to get an agreement (in principle) that some change/reform is required. Once your over this second hurdle you can make your proposals. And these proposals must relate directly back to your already agreed-upon problems/concerns – not to some ‘external’ entity.

This process requires hard, disciplined thinking: not a lot of which is available. Prognosis for Irish PS change/reform: low to negligible. Ditto for the privates. cf: DOCM above for pertinent comments.

@ grumpy

The nomenklatura to which I referred extends well beyond the public service and certainly includes the banks. The exception with regard to their treatment is, of course, IBRC (formerly Anglo-Irish).

@ Eureka

The curiosity of the Swedish situation is that much of the reform drive came from an almighty banking bust in the 90s. The key analytical breakthrough is, however, as I pointed out, the link established between productivity and remuneration against an agreed basic social template.

This can lead to rather unexpected outcomes. There is, for an example, a ruthless approach to issues of industrial efficiency. If companies cannot survive in the market, they are not subvented to enable them to do so. As to financial services, the present Swedish (conservative) government is generally very supportive of the UK having itself a very successful financial services industry.

@ Eureka

I should add that, as will be clear from reading the PolicyExchange document, the process that allowed the Swedes to get to their present balanced – and sustainable – situation was entirely consensual i.e. as between government, management and trade unions. A win-win situation, in other words.

That’s very selective.
1: Sweden survived its banking crisis because it was on a smaller scale, occurred during global economic growth and they had control over their CB. They would not survive the same crisis if it were to happen today

2: Swedish household debt is amongst the highest in the world. So at a household level they are living beyond their means

3: Sweden’s main export partners are Getmany and Norway which are booming for different reasons

We should seek to emulate its welfare programmes and PS structure – not everything

We are Irish undoubtedly. We have proven we can be anything we want to be in our millions over centuries. We thrive in countries that are governed responsibly. We went through a period from 1973 to the late nineties where with EU nudging we made enormous progress. We then flogged that horse to death fueled by a deluge of property development funds to politicians. Or as we put it “donations to the cause”. A senior Public Service that was servile or incompetent or both. Bank management that was high on anti depressive medication or worse. Hopefully lessons were learnt.

Sweden is no longer the well managed socialist paradise that it was post WW2 from which it emerged unscathed with its industries intact. Today Sweden is on course to being either like Britain or the USA. Prosperity leads to selfishness and greed resulting in the destruction of the conditions that led to prosperity. It did not take us 60 years we did it in 30 years.

Germany which is now thriving on low interest rates will also ramp up the export machine until it self destructs. You have all noticed the little or nothing down and 0% to 1% financing for cars, trucks, motorcycles, ranges, washing machines and many other products. VW alone is destroying the other European car manufacturers.

Time takes care of everything, we just have to live long enough.

@ Eureka/Mickey Hickey

I have been selective only to the extent that I picked two aspects of the Swedish experience that seem to me relevant to getting Ireland out of its present pickle. For the rest, I would gladly swop our problems for theirs cf. Commission’s report under the new imbalances procedure (which includes a warning on levels of household debt and the housing market).

Ireland’s award winning crime novelist at this empirical best ….

Getting us to take one for their team

The elite are delighted the ordinary people of Ireland are suffering on their behalf, writes Gene Kerrigan

Michael [Noonan] explained how the Irish Government took on massive private banking debts “at the direction of the European Central Bank, to prevent contagion spreading to the European banking system”.

Then, the magic words: “Ireland took one for the team.”

And that’s when – all over Europe – bankers, bondholders and people of immense wealth raised their crystal glassware and silently thanked us for keeping them in the luxury to which they are accustomed. Well done, people of Ireland.
Every Irish citizen has been saddled with €8,956 of debt. Forty-seven times what citizens of other countries pay. A whole 42 per cent of the cost of saving the European banking system. That’s what taking one for the team means.

CRIME, that’s what it must be, a CRIME.

@Brian Woods Snr.

No need to assume. Note the initial parenthesis and the CmC signature at the end.

Is it blogometrics time again? Yes it is.

Here are the top fifteen posters by volume of text from the last thirty articles on The Irish Economy blog.

Total characters: 541897, total posts 764, mean number of characters per post 709
[ 82 ] [ 55782 ] [ 680 ] 'DOCM'
[ 81 ] [ 46102 ] [ 569 ] 'David O'Donnell'
[ 23 ] [ 40291 ] [ 1751 ] 'Michael Hennigan - Finfacts'
[ 39 ] [ 27821 ] [ 713 ] 'grumpy'
[ 48 ] [ 27728 ] [ 577 ] 'John Gallaher'
[ 20 ] [ 22163 ] [ 1108 ] 'Mickey Hickey'
[ 22 ] [ 18394 ] [ 836 ] 'Paul W'
[ 17 ] [ 17060 ] [ 1003 ] 'Bryan G'
[ 12 ] [ 14870 ] [ 1239 ] 'Shay Begorrah'
[ 16 ] [ 14772 ] [ 923 ] 'Gavin Kostick'
[ 20 ] [ 14637 ] [ 731 ] 'Joseph Ryan'
[ 18 ] [ 14252 ] [ 791 ] 'OMF'
[ 20 ] [ 13697 ] [ 759 ] 'seafoid'
[ 10 ] [ 13373 ] [ 1337 ] 'Brian Woods Snr'
[ 12 ] [ 11394 ] [ 949 ] 'Paul Ferguson'

Figures are approximate.

David O’Donnell is doing sterling work fighting the power but it is the man fighting for the power (and channeling DG ECFIN) who has the top spot for the fourth week running (at least).

It is worth noting that the neoliberal right of the spectrum posting here has assiduously avoided dealing with the topic at hand (the demonstrably failed but embedded policy preferences in the institutions of the EU) and either attempted to turn the conversation to any other topic or attempted to restrict the definition of economic success to “cutting the deficit”. Pathetic.

Also, can moderators not step in when people bring up public sector pay on unrelated threads? Bringing up public sector pay is a favoured tactic with the financial fascists, get the private sector worked up about people suffering less than them rather than who is inflicting the pain. Divide and conquer and encourage the race to the bottom.

The whole “Right Wing Noise Machine, European Commission edition”, is really damaging the blog’s usefulness.

We all know that it’s the guards teachers and firemen wot ruined this place. They hold us back from being somewhere else. I’d say shoot the lot and let the market take care of it but MH and DOCM have beatn me to it

@ DO’D: Thanks and obliged.

@ shay: Nifty update. Thanks for the time and effort. Yeah, I notice the ‘topic drift’ the greater the number of posts. Funny that. Maybe its the light.

As for the Neo-liberal Right: are you crediting these folk with more intellectual acumen than they display? Any N-Rs I have encountered display significant levels of ‘thickness’ – they are mono-rail thinkers and appear to have read little (apart from sporting magazines).

The PS issue is salient. Otherwise it would hardly be mentioned. As for the EU problemo. You do realise that Democratic Deficit is the odds-on favourite in the Hobbit Handicap at Leopardstown! 😎

Thanks again.

@ Brian Woods Snr

These labels get a bit confusing when Communist China is the most unregulated big capitalist economy on earth.

The biggest deregulation since 1945 was far more significant than anything that was proposed by Reagan and Thatcher. It was the cuts in tariffs that ushered in globalisation, which for the first time ever, enabled poor countries without natural resources, to become rich.

I guess that people in their private lives are not too religious about their particular ideologies as they would have to import modern contraptions like mobile phones from North Korea. However, that wouldn’t solve it as the carrier would be working for the devil.

@ All

In 1941, a minister of education refused to have a medical and psychological service before entry of the average of 6,000 children that each year were committed to the industrial school prison system as he regarded a comparison with such services in Chicago and Glasgow as an insult to the ‘Catholic City of Dublin.’

Plus ça change and we’re not Finland, Sweden, Denmark, Germany and so on after two home made economic disasters in a generation!

Despite the unemployment situation, the number of young people in the apprenticeship system at 10 per 1,000 workers is half the level in England and France where it is a priority to emulate what is seen to work well in Germany, Denmark, Switzerland and Austria.

The system in other countries extends beyond traditional craft sectors to services including ICT. It also includes study that ends in certification.

Wolfgang Münchau in the FT today downplays the importance of reform when discussing austerity but it’s foolish to ignore a reality that insiders can target the powerless to share the biggest burden.

Mickey Hickey should know that Sweden ended being a ‘socialist paradise’ in 1992. It changed with the times like Finland.

The truth is that Sweden, Denmark and Finland would not wish to be Ireland. Instead of blather about a knowledge economy that ended up serving vested interests, these 3 countries have for years headed international rankings for their competitiveness and IT competence.

We have nothing to learn from them! Let the deluded still run the asylum.

Why the Euro Crisis Isn’t Over The economist who dared to predict Europe’s mess, and was fired for it, says there is much more pain to come. .

Seventeen years ago, Bernard Connolly foretold the misery that awaited the European Union. Given that he was an instrumental figure in the EU bureaucracy and publicly expressed his doubts in a book called “The Rotten Heart of Europe,” he was promptly fired. Mr. Connolly takes no pleasure now in having seen his prediction come true. And he takes no comfort in the view, prevalent in many quarters, that the EU has passed through the worst of its crisis and is on the cusp of revival.

As far as Mr. Connolly is concerned, Europe’s heart is still rotting away.

Worth reading … [h/t nakedcapitalism

The official view is that the bailouts of Greece, Ireland and Portugal—and maybe soon Spain—are aberrations, and that once those countries get their budgets on track, their economies will follow and the bad patch will be a memory. Mr. Connolly calls this “propaganda.”

And here we get to the heart of Mr. Connolly’s rotten-heart argument against the single currency: The cause of the crisis, according to the “propaganda,” he says, was “fiscal indiscipline in countries like Greece and financial-sector indiscipline in countries like Ireland.” As a consequence, “the response is focused on budgetary rules, budgetary bailouts and rules for the financial sector, with the prospect, perhaps, of financial bailouts through the banking union, although that remains unclear.”

But even if the Greeks were undisciplined, he says, “both the sovereign-debt crisis and the banking crisis are symptoms, not causes. And the underlying problem has been that there was a massive bubble generated in the world as a whole by monetary policy—but particularly in the euro zone” by European Central Bank policy.

How much bigger? “If you scale housing starts by population, then the housing boom in Spain and Ireland was something like three or four times as intense as the peak of the boom in the U.S. That’s mind boggling.”

for his proposed ‘solutions’ read on:

Thread winner alert:

Gavin Kostick has a very nice post on Seamus Coffey’s (sorry for previous misspellings Seamus) post on the “European Commission Winter 2013 Economic Forecast”. Incidentally you can find previous EC forecasts in the “Sadomasochistic Romantic Fiction” section in the bookshop.

It gels nicely with the Krugman post Euro Delusions on Olli Rehn (or the team of puppeteers who make him seem almost lifelike) and his prejudice for the wrong action. (Grumpy mentioned it in another thread).

It is difficult with the current set of EC economic policy makers to determine whether the failures are more to do with them being knaves or fools but I am coming down on the side of “First one, then t’other.”

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