Just because we’re used to it doesn’t mean it’s acceptable

Simon Wren-Lewis is puzzled here.

115 replies on “Just because we’re used to it doesn’t mean it’s acceptable”

It is a reasonable post from an eminently reasonable man (and the comments are good too) but you have to ask when mainstream economists will stop asking why the wider Eurozone economy is being beaten and accept that the consensus represented by the ECB/Germany and parts of the European Commission is that beating the economy serves their longer term national and class interests.

In fact given the ECB’s behaviour up to now anyone who stills sees their policy decisions as technocratic incompetence rather than neoliberal malice needs an intervention from a friend with bucket of icy cold water. I think some of this confusion arises from Draghi’s occasional interventions to stop the situation spiraling out of control being mistaken for the ECB not being perfectly satisfied with things being as bad as they are now.

The permanently angry J W Mason’s Pain Is the Agenda: The Method in the ECB’s Madness remains the best expression of this position.

In the face of EZ17 un rate at 12%, haven risen sharply over the last year, and another month of no move on the refinancing rate, I asked myself what does it take the ECB to act?

A few possible reasons???

(1) EZ17 inflation has only recently fallen below 2%, and maybe the ECB put too much weight on fears of cost-push inflation from oil or indirect taxes?

(2) A cut from 0.75% to 0.5% or 0.25% might be largely ineffective, as it wouldn’t be passed on to retail and SME rates, due to problems in the banking system.

(3) A cut would cause too low rates in Germany/Austria/NL?? Asymmetry.

Perhaps Draghi is aware that lowering the base rate is somewhat more complicated than: (0.75% – X%) base rate = increased inflation + increased employment.

Maybe, for example, he is concerned about the corrosive effects of negative real interest rates (see for background http://www.belfinclub.be/assets/854b3f35-f659-4e39-85ba-a2e30ec0b7c2/104.pdf) or perhaps he just recognises that a 25 bps cut to the base rate will have no effect on youth unemployment in Greece or anywhere else because real businesses take on credit because they see opportunities to invest profitably, not because their cost of funds are 25 bps less.

Kevin & all,

Is the European recovery in further greater trouble now as a result of Japan’s announcement that it is doubling the money suppy?

Won’t a Lexus be cheaper and damage sales of Mercs? How much of an impact will it all have on Europe?

But – silver lining – it may put more pressure on Germany/ECB to change policies for growth?


‘ “Yesterday’s BoJ QE amounts to a ‘shock and awe’ policy,” ING analysts wrote in a note, pointing out that relative to the size of the economy, the BoJ’s bond buying plan is three times larger than the Fed’s latest quantitative easing programme. ‘

Well rather than just blithely citing a blog, it’d be nice to provide some background on where the blogger is coming from and what his expertise is. Actually some of Simon Wren-Lewis’ papers are quite relevant to the ongoing fiscal shenanigans in the euro area.
e.g. this one on “fiscal feedback” http://www.economics.ox.ac.uk/index.php/top-journal/2012-11-02-16-03-25
Or “Fiscal policy, indulgence and ideology” http://ner.sagepub.com/content/217/1/R31.abstract
Or here http://ideas.repec.org/a/ecj/econjl/v119y2009i541pf482-f496.html

Unfortunately the above articles are behind pay walls .. tut tut… state-funded research behind private paywalls.. yet another example of structural rigidity ..

But yet the authors want to have a political impact by communicating to the press. So I can read from the press statement re the 2012 EJ paper: “As fiscal feedback increases, optimal monetary policy becomes less active because fiscal feedback tends to deflate inflationary shocks” e,g, “When the ratio of government debt to GDP has increased significantly and needs to be reduced, society as a whole will be best off if public spending is cut by about £5 per year for every £100 of excess debt” according to a statement to the press.

In this 2010 paper, “Discretionary Policy in a Monetary Union with Sovereign Debt” we read “If the central bank can commit, it adjusts its policies only slightly in response to higher debt, allowing national fiscal policy to undertake most of the adjustment”. http://economics.ouls.ox.ac.uk/15008/1/media_169443_en.pdf

(Textbook background on commitment and how it impacts policy from e.g. this Fed economist here. https://www2.bc.edu/~iacoviel/teach/0809/EC751_files/discretion.pdf )

= > So I don’t quite get the connection between this blog on the ECB and the personal research interest.

More generally I find that economists specialised in the area of monetary economics and central banking are quite nuanced in how they think the ECB can stoke the economy, even supposing the ECB wanted to. And we see even in Japan today that the jury is out on the eventual impact of the money expansion. In the case of the ECB, the practicalities (for those in or close to central banking) are far from obvious, even with a Kuroda-type mindset.

One matter is sure however … even if the ECB had cut the refi yesterday, the impact on 2013 growth forecasts would have been a big fat ZERO .. (and that is not a forecast or opinion .. I take it as a fact). It is that fear that has made the ECB quite hesitant, and of course why it continues to insist on governments getting their fiscal houses in order and engaging in deep reforms.

As ever, an economic historian’s view on how effective helicoptering cash is in creating wealth and prosperity for all would be very welcome. Also I’d like to hear if the hypothesis of a non-Ricardian economy over a period of “several hundred years” – like Prof Wren-Lewis assumes in one paper – is justifiable from the point of view of the economic historian. And an actual argument written-up, with historical context, not just a fleeting blog reference!

QE and interest rate cuts from such low levels just show the ineffectiveness of monetary policy at this juncture. Companies are sitting on record profit margins and they won’t invest.

Bernanke says of the US that the Fed can’t solve what are essentially political problems.

Markets in the US are addicted to cheap money, even more than certain of their staff are fond of Sinaloa powder.

There is also a huge economics problem- we don’t have a credible economic model to get us out of the mess. The focus appears to be on plutocracy for the moment and that is going nowhere.

There is very little co-ordination of policy between North and South in Europe. The US is only ever at most 2 quarters away from a crisis in DC.

And deleveraging still has a long way to go.

Fascinating comments on that blog.

Can anybody explain to me why the ECB hits the zero level bound at above zero? I have heard this before but I do not understand it.

If reducing the ECB base rate will not reduce the financing costs for Irish banks then will a rate reduction adversely affect our banks insofar as their losses on trackers will increase?


“Can anybody explain to me why the ECB hits the zero level bound at above zero? I have heard this before but I do not understand it.”

Me neither. I always thought zero was zero, until I heard of the ZLB, That’s the latest jargon, as I understand it.


“In fact given the ECB’s behaviour up to now anyone who stills sees their policy decisions as technocratic incompetence rather than neoliberal malice needs an intervention from a friend with bucket of icy cold water.”

I am inclining more and more to that view. Cui bono was never more relevant than in the present ‘Euro’ crisis.

Ciarán O’Hagan,
you’re a bit unfair. For the rest of us it was good to get the link, and nobody can do everything all of the time…people are busy with day-jobs etc.

I agree with Ciarán O’Hagan that a quarter point drop in the benchmark rate is unlikely to have a big impact.

After all, 3 month EURIBOR today is at 0.210%.

What is important is what Mario Draghi refers to as the ‘monetary transmission mechanism’ which in effect means what interest rates companies and households pay.

Watching his press conference yesterday, Draghi seemed a bit uncertain on why there was a big divergence and he said the ECB was looking into unspecified “instruments” that could be deployed to deal with the financial fragmentation.

“We are considering both standard and non-standard measures, and we are thinking 360 degrees on the non-standard measures,” he said. “We will see which of these tools are either feasible or effective in our specific institutional context.” He added that national central banks had a role to play.

What this is in the vernacular is illustrated by Goldman Sachs’ interest rate divergence indicator, which measure cross-border variations in interest rates charged by Eurozone banks on a variety of business loans.

GS reports that the indicator has risen in recent months and reached a record of 3.7 percentage points in January, indicating companies in southern Europe were paying significantly higher interest rates than northern rivals – – a far cry from 0.210%, 0.5% or the current benchmark rate of 0.75%.

“Market segmentation remains, divergence in bank lending rates persists and, as a result, immediate growth prospects in the periphery are bleak,” said Huw Pill, European economist at Goldman Sachs – – a former ECB staff member.

Dan o’Brien writes today in the IT that the Cyprus bailout handling was “scarcely believable in its ineptitude”
Perhaps this is the core of the present problem. The ECB appears to be unwilling to try anything and constantly relies on the monetary transmission failure excuse as Draghi did again yesterday.
Further evidence of this ineptitude is the attempt by Draghi to rewrite the history of the Cypriot debacle. It seems some commentators don’t buy his line…http://www.cyprus-mail.com/cyprus/draghi-cyprus-blame-turmoil/20130405

Yeah Ciaran, no need to be a pompous ass..I’m sure with minimal time and effort spent on Google you could piece together KOR’s positions on those questions

What more can the ECB do?

The ECB can only create central bank money but this isn’t in circulation. An abundance of central bank money and low interest rates can encourage the commercial banks to create money for borrowers but any euros created this way will be created with a corresponding debt. This presents an obvious problem in a world already awash with debt.

If no-one is willing or able to take on more debt then the ECB does indeed have a problem because the money supply is constantly being canceled out of existence through loan repayments.

As Draghi noted on 27th Feb 2013;

“It is a fallacy to make a mechanical connection between the creation of central bank liquidity and a rise in the money supply. The liquidity we provide to banks is used in the markets where banks lend to each other. It does not automatically increase credit or money in the economy – and so does not automatically lead to price pressure in the economy.”

The ECB could create some money without a corresponding debt directly for each Government distributing it using the same criteria that it does for redistributing the the seigniorage which each central bank records from the printing of new cash.

Ciaran o h expecting everything an academic wrote over 4 years to gel is a bit rich considering the number of panics and waves of exuberance that have been such a feature of his beloved efficient market over the same time period. It is not as if many in the bond market have a notion either.

The Fiscal Compact debate (such as there was allowed to be in the Irish economics context shone a light on two articles of faith among many high profilr economic pundits in the country – the “True Believers” perhaps.

The first was that Eurobonds were a matter of near inevitability as long as the periphery played ball with the FC. I wonder if they still subscribe to this?

The second was that Germany would ‘see the light’ and step into the shoes of all those AWOL consumers, saving the periphery from years of gringing deflation, by upping wages and consumer spending to boost periphery economies which would export into this selfless – splurge for the good of the European project – policy.

One of the commenters on Simon’s blog links to this:


The first part of this quote is only slightly softened by the second:

“Should Germany do more to help weak euro-area countries? For instance, by increasing wages and exporting less – as called for by some politicians and experts generally to the left?

This approach will not resolve the problems and in the end will help no one. The Bundesbank has carried out model calculations on this. The result of our calculations was that, if Germany reduces its competitiveness vis-à-vis other euro-area countries – for instance, by allowing wages to rise faster than productivity – then there is a danger that, while output and employment fall in Germany, no positive effect will be registered in the crisis-hit countries. Europe is not an island. The euro area needs to become more competitive as a whole within the global marketplace.

Nonetheless, in Germany, too, there are increasing calls for significant wage increases …

German employers and trade unions have acted very responsibly in recent years. That has definitely helped to keep our unemployment low. I assume that this course will continue to be pursued. However, with strong employment figures and a favourable macroeconomic picture, in the near future wages in Germany will most likely rise to a greater extent than in most other euro-area countries.”

@Kevin OR

Can you offer a historical perspective on the Japanese shift? For what it is worth, my reading over from the ’30s to the modern Zirp context is uninspiring to say the least.

As matters stand, and have stood since September 2007, there is no monetary transmission mechanism worthy of the name in the Eurozone, which renders the ECB rate close to meaningless. Close, but not quite, as increases thereof would pull the rug from under the illusion of solvency that persist in the Eurozone banking system.

One can’t be too hard on the ECB. Their mandate, ab initio and ongoing, was/is based on twin pillars, and neither has been altered. One was inflation, the second was its presumed first cousin (and causative, apparently) money supply growth, as measured by M3. The ECB has NO mandate beyond control of both measures, that I know of.

At the risk of stretching a metaphor or simile – I’ve never seen a stable structure rest on twin pillars.

But the idea of an ECB rate reduction solving any existing problems is beyond my ken. A cut of 25bp might benefit whom? Irish tracker borrowers, for example (at the expense of the Irish tracker lenders, and in turn the entities on the hook for same)?. It certainly won’t trigger too much by way of animal spirits on the unsecured interbank lending front.

I’ve a feeling that a rate cut is like OMT – better promised than delivered.

The credit boom, also known as “the Goldilocks period” created massive amounts of debt. Derivatives massively exceed that. The idea of netting off is only valid if all parties survive with assets….. Unlikely! Claims amount to 200 Trillion? Unit of currency immaterial, as there is no way World GDP can repay…..

All this debt and betting, created capital inflated asset values and returns to investors and governments. As the debt must be repaid or destroyed, by bankruptcy etc, then it is surely obvious that we have only just started this process, even to economists? Not only does this paralyse future growth, it means loss of businesses, the entire FIRE sector for a start. Keeping 10% may be possible…… Capital losses means loss of returns and then we have the discovery of how inflated those returns during the Goldilocks period actually were…..

Comments on this blog are feeble, even if often well meant? How can I, a mere cousin of an economist, know all of this, yet the owners of this blog not alert their readers of it? Are you afraid or ignorant?

ECB response is in the category of a surgeon who does not care about theory: he must keep the patient alive. He confuses the economy with the population and banks with the economy. He will keep destroying capital and returns until the natural level of the economy is reached and then he will continue cutting. Over shoot will be a real bitch, ladies and gentlemen!

The debt is represented in the only way possible: digital and written information. Fault will be found with this to stave off chaos. The blind butcher, the vaunted ECB, will eventually be itself gutted as policy realities, assassinated officials, suicidal attacks and utter misery become evident.

Nonetheless, these debts will replace assets. Liabilities replace assets? Do I not know double entry? Well we have a machine that does that: banking and investment! The multiplier is negative now and has been for some time. It will remain that way until all real assets in the system, Insurance companies included, are destroyed in the same way as the depositors of lesser banks are. Capital flight will accelerate this. People will realize that an economist has less validity than an astrologer!

I said this would cost Ireland 200,000,000,000 to the nearest 100,000,000,000. Those posts were wiped out. This is coming true, slowly. Hopefully, the Japanese may have taken irrevocable steps to destroy the entire fake edifice that passes as a civilizational achievement?

Cash, (including gold etc) ammunition and determination will all vie for supremacy. Ireland will be swapping stories and lyrics about this …. Did I forget the Solar Minimum Period? Years without a summer? Food will buyquite a bit! Pumping money into commodities is impoverishing everyone, but will continue as banks can make profit and streeeetch out this process of destruction! Exquisite, this economics you preach!

@ grumpy

It is no surprise that Weidmann should come with this line as it is part of the standard policy narrative of the German establishment. It is, of course, a complete misrepresentation of what is being called for by other countries. German is not being asked to export less but to (i) cease administrative actions which skew the economy in the direction of exports and (ii) to deregulate her economy in a manner which would allow for a greater level of imports.

It is not the level of exports that is causing the problem for the operation of the euro but the imbalance between exports and imports. As the Economist pointed out some years ago, Germany appears to have forgotten that the main purpose of exports is to pay for imports.

The argument also often advanced that provision has to be made for an aging population is equally spurious. The main provision that is being made is by the sectors of the economy that are benefiting most e.g. through tax havens abroad.


These facts are as overlooked as they are obvious. The most effective reaction, however, is coming from within Germany. Examples are the recent strike by workers at Amazon which is taking full advantage of the labour “reforms” introduced by Schroeder. Also the striking down by a German court of the subsidy, funded by ordinary householders and other sectors of the economy, to ensure a “competitive” advantage for German heavy industry. (If the Commission finds against the German government in a parallel case lodged by consumer representatives, hefty fines could be payable.)

Generally speaking, the performance of the Commission under Barroso in this general area has been lamentable, especially when compared to leading role that it played under Delors.

Contrary to what Weidmann maintains, correcting exploitative labour conditions in Germany would help other countries by creating a more even playing field. As I linked on another thread, the Belgian government has also lodged a complaint with the Commission with regard to what it considers to be “social dumping” by German meat processors using immigrant labour.

It remains to be seen whether Merkel will try and head off some of these developments before the elections.

Something has got to give! The situation is now so serious that a major gesture of some kind to reverse sentiment is called for.

Ciarán O’Hagan is correct when he points out that a rate cut by the ECB is immaterial in the current context. It is up to the governments concerned to confront the real problems and to actually implement the Single Market, as they were invited to by Draghi at the most recent European Council. And for macro economists to delve into the actual functioning of EA economies rather than expect them to conform with whatever theory or model is most in vogue.


A rate cut would have weakened the Euro a bit, encouraged a bit more ‘risk on’, higher asset and commodity prices. Marginal, not nothing.

There is still excess capacity, no obvious mechanism for wage inflation which is the real aim (no pun intended). The wrong type of inflation is more likely it would seem.

As an aside regarding restrictive practices, in the early eighties Japanese law dictated that the embossing of “lucas” or anything else on a cars rear light lens moulding was illegal. Jaguar dealers in Japan used to have to cut, grind and polish them off each light cpver before they could sell an imported car. The surface of the lens had to be “uninterrupted”.

@ grumpy

No doubt, borrowers on tracker mortgages would be happier.

On your last point, this is a game played by all countries but they (especially the weaker players) are collectively the losers. The interests of actors in particular areas of economic activity do not coincide with the broader interests of the countries to which they belong.

@ Carolus
Interesting view..however, I don’t really see what his problem is with Krugman’s article. Hoover clearly intervened to avoid armeggedon…which possibly would have been the result if he followed Mellon’s advice…
“According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. … It will purge the rottenness out of the system.” Don’t try to hasten recovery, warned the famous economist Joseph Schumpeter, because “artificial stimulus leaves part of the work of depressions undone.”
Isn’t Dr. Merkel a Mellonite.

Here is another view on who is getting things really wrong. The damage done, deliberately it seems, to Cyprus will be appalling.

“Bank of Cyprus clients with deposits over 100,000 euros will also suffer heavy losses. In fact, the decision provides that uninsured deposits in the country’s largest bank will remain frozen until the precise size of the haircut is decided in order for the bank to achieve a capital ratio of 9 percent. Hence, hundreds of domestic companies have had their cash reserves depleted and their current accounts obliterated. Some – if not most – of them will go bankrupt in the coming days and weeks. ”

Well, I suppose it is a step up from carpet bombing.


I dont see at all the Amazon Germany case as a new development.

I remember to be surprised, that Walmart seemed to be surprised , that German police does enforce Union Rights , as codified in labor laws, in 2006 ( I did not find a link quickly, but I am pretty sure about it.

Hedge Fund Fortress (ticker FIG) alias Gagfah, also needed a 100 % equity (1 b Euro) lawsuit, to understand, that renter rights are effectively enforced here around.

@ Carolus
on a previous item:
I got the Röpke 1944 Civitas Humana, Zürich. Pretty remarkable stuff for that time. He also called the active expansionary policy “dynamite” : – )

The EZ is weakening in parallel with the UK . But there is plenty of money . There is so much going on.

@ fungus
A keeper . There are very few places where the system itself is discussed .


My point was not to refute Krugman — I am clueless as regards the nuts and bolts of the Great Depression — but merely to show that his views in this are are highly controversial. Judging by their past performance, economic historians won’t reach consensus on ‘whose fault it was’ until kingdom come.

He started it. NO SHE DID. No, it wasn’t her it was the kid next door. No it wasn’t. IT WAS!!! ….

Habe ich vielleicht noch eine Seele gerettet?

Yes, the word ‘dynamite’ struck me as being tailor-made for that historic juncture.

P.S. Good luck with Wagner. The book to read is Bryan Magee’s ‘Wagner and Philosophy’ (with the Liebestod as background music).

@seafoid, fungus etc.

‘there is so much going on.’

The slightly lop-sided emeritus Wizard McCarthy swiped off the knotted handkerchief that had replaced his familiar wizarding trilby, wiped his reddened face with it and wondered when he could have a Guinness in peace. He then replaced the hanky as token protection from the over-reddened sun.

Not any time soon seemed to be the answer.

It was world wizarding sand-castle day and from horizon to horizon wizards in flip-flops, rolled-up trousers, beach-shirts, and an alarming variety of faded head-gear that was probably best left at home were attempting to put on the best sand-castle show for their entire country.

The event had been instituted in good times as something of the equivalent of a garden show for the wizards of the world – with each set of wizards responsible for a complete recreation of their country in sand – but over the years somehow the collegiality of the day had soured into a bitter and strained competition. Particularly over the issue of whose sand was whose and where did it come from anyway.

McCarthy squinted South and West. ‘Fer, Feck’s fecking sake’, he swore to himself as he saw not one, not two but three completely different sets of judges making their way about the Euro-sand area, all with tremendous rules books, which they pointed at, gabbled and then simply ignored if it suited them. As he watched, he saw a wizard simply roll over the over-engineered Cypriot sandcastle in his wheelchair, which collapsed completely, and throwing a beach towel with ‘nicht berühren’, over the rest.

‘Russian sand – Verboten’, cried the wizard.

‘He’s not even a judge and that’s not even a rule’, muttered McCarthy. What next?

The trouble was that the sand could only be created by the wizards under an obligation to return the sand elsewhere in the future and there was endless argument as to how this was to be done.

Worse really. McCarthy grimly watched the jovial figure of Irish Grand Wizard Humbledore, in rolled up tweeds and with a green plastic spade, happily shoveling sand into what was meant to be sand-generating bank-mills, only for the sand to get stuck there and refuse to multiply.

The Japanese meanwhile, had simply gone sand crazy and had built a giant bullet train that actually moved, but the sheer quantity of sand so piled up had made their sand very common and left a much deeper pit.

To the West the wizard deKrugman was totting up the fact that although the American sand was piled up very unevenly, it was at least good, wholesome American sand, and therefore could be smoothed out later without too much trouble. McCarthy admired deKrugman from a distance but could never warm to him as he fancied him something of an oversimplifier and a loudmouth.

But still, MrCarthy had to admire the fact that every time a little castle fell over in the States, it was quickly tidied up.

Looking South to the Iberian wizards, this was not at all the case. The castles – being built on sand of course – and having very bad foundations were always on the verge of falling over. But in their case the judges either turned a blind eye or indeed, seemed to offer an entirely different set of rules to the bigger countries than to the unfortunate Cypriots. Indeed, a public argument had now broken out as to whether kicking over the castles and starting again was the new system for all or whether a big castle built with sand from all over Euro-sand-land should be given a free moat as a bonus feature.

And that was not all. A rather disreputable set of wizards – disreputable to those who had name tags and were officially accredited anyway – had got out pencils and were busy calculating the way in which sand was being created and destroyed. They made the observation that every time a large amount of sand was moved the stiff summer breeze whipped some of it away and thus more sand had to be created – with a corresponding sandpit – to replace this loss, which in turn, strangely destroyed the total potential amount of sand available.

A noisy Australian wizard kept repeatedly claiming that a properly organized sandland could never run out of sand and the wizards, if they wanted to, could create sand without creating a sandpit.

McCarthy’s ears ached, he longed for an ice-cream and to punch every wizard he could see in the face: in no particular order.

McCarthy also suspected that the constant inability to make nice solid castles, was due to the fact that every time large amounts of sand moved, a chunk of it secretly went to some little island somewhere that wasn’t even in the competition and smooth-chopped private wizards would make these very large amounts of sand look as small as they possibly could in the hope no one would see.

But certainly, when you looked at it, the main problem was that the sandcastles all round the world were getting bigger and bigger, while the labourers who were labouring away to actually make everything, were working harder and harder for very little sand of their own. Now the children were crying and being told to look for something else to do because there wasn’t enough work for them.

What was supposed to be a jolly sort of day out had become a nasty, competitive, sneaky and anxiety inducing endless round of piling up and collapsing and McCarthy was well and truly fed up.

If the judges could only agree on one set of rules for Eurosandland it would be a start.

“M. McCArthy. The foundations of your Irish castles look weak”, said the delightful Witch Lagarde, “you should make them take more sand from the petites personnes who are refusing to give it back, after their petites, petites maisons, how you say, collapsed.”

“Shurrup”, said McCarthy. Though he knew she was probably right.

Next year he was holidaying in Iceland. They had dropped out of the competition and he was beginning to think they had a point. What did they drink instead of Guinness?


@ Fiatluxjnr

It’s quite clear that Krugman is either: (a) wrong; or (b) deliberately misleading his readers in that article. The article leaves the unmistakeable impression that Hoover stood back and allowed the system to be ‘purged’ as punishment for ‘past sins’ and his implication is that the worst part of the recession (1929-1933) were due to Hoover’s lack of action and refusal to spend, while the growth phase (1933-1937) was due to FDR and New Deal spending. [It’s worth noting from Stockman’s book that the recovery began months before FDR’s inauguration and also that the recovery was due to exports, not domestic demand – but it’s clear that Krugman hasn’t actually read the book, he just slagged it].

I know that Krugman wouldn’t be where he is today if he let the facts get in the way of a good narrative, but as Carolus’ link points out, this article clearly creates a false impression. So which is it – is he wrong or is he a cheat?

And by the way, the article is vintage Krugman – Step 1: State a controversial position as incontrovertible truth (Schumpeter is wrong and the 2013 bastardised Keynesianism is right). Step 2: Make you feel like an idiot of you listen to opposing points of view (note use of ‘alleged experts’ and ‘ranting about evils’ on shock horror – CNBC). Step 3: Claim credit where none is due (ranters wrong on everything while ‘Keynesians have been mostly right’ – really??? I seem to remember a bunch of charts showing the number of jobs and speed of recovery that Obama’s stimulus was going to create…). Step 4: Call for even more stimulus (because no matter how fast the printing presses spin, Krugman can always argue that we just didn’t print enough)

Many thanks for all excellent comments including the redoubtable Gavin 🙂

Surely Wren Lewis’s core point is about the employment implications of falling demand. CB support for banks and financial assets is not transmitting to credit or confidence in the real economy. While it may be staving off a banking collapse, it is deepening social imbalances and eroding the middle class.

Fiscal responsibility and increased labour market ‘discpline’ is seen as the ‘responsible’ solution. The ECB has no remit for any any of those matters, or for unemployment. All Draghi can do is keep a crippled financial edifice afloat, in the hope that the economic developmental problems can be solved by other European institutions.

DOCM 11.50

‘Contrary to what Weidmann maintains, correcting exploitative labour conditions in Germany would help other countries by creating a more even playing field…
‘It is up to the governments concerned to confront the real problems and to actually implement the Single Market, as they were invited to by Draghi at the most recent European Council”’

The labour conditions are integral to built the current German wirkschaftswonder. The workforce has been disciplined by removal of social welfare benefits, a reserve army of immigrant labour and a constant threat of global outsourcing. It’s variant on a very old theme, and owners/investors have no incentive to change it.

If we are not prepared to name and shame the vested interests which continue to corrupt so many European political parties and the higher levels of the public service, there can only be one outcome, barring chaos. Extending the ‘fiscal and labour market discipline’ model throughout Europe will most likely lead to a South American scenario, a state of affairs which is not remotely compatible with the espoused ideals of the the EC.

@ paul quigley,

I recently wondered about the thinking of a canadian econ prof, and we went over the social benefits for long term unemployed in Canada and Germany.

It turned out that the Canadian level is at just 43% of Germany.

@ Carolus

the same prof, not really liking Germany and hating the Euro, was also bringing up the name of “Leon Degrelle” as something he is reading. Oooops.

I ordered some of the books and went to the local library, the order was not in the usual place, and a door opened and somebody gave me a long hard look, apparently they were stored in a special section of the magazine : – )

Makes you wonder too, how this came into an engineering university under communist rule .

@ Edward v2.0

+ 1

@ Paul Quigley

There is an aspect to this crisis which is so obvious that it seems to be constantly overlooked i.e. it is a “dual liquidity” crisis. That is to say, some sovereigns and most banks, irrespective of where they are located, face difficulties with regard to maintaining the confidence of the markets. The shorthand for the result is that the monetary “transmission system” is broken and despite the “360 degree” consideration of how to repair it promised by Draghi it is beyond the capacity of the ECB to do so.

To my mind, there is only one possible action that will do the trick i.e. some concession by Germany in relation to debt mutualisation. Merkel has backed herself into a corner which makes this impossible before the federal elections.

The Observer has a very interesting item this morning on the general European political situation and, in particular, in relation to the monumental miscalculation by Cameron as to German intentions.


As to your description of current German labour policy, I could not possibly subscribe to your description. Long-standing legal – indeed, it is argued, constitutional – requirements stipulate that the fixing of conditions of employment is almost exclusively a matter for decision in negotiation between employers and unions. This is, in practice, the case. The problem is with the sectors that are not adequately organised. (Germany has the good fortune to have the predominantly industrial and productive sector unions in charge rather than those representing those whose job it is to expend taxpayers money).

But that is not really the point in the context of the EU. The real issue is the fact that Germany is within her rights to organise her employment policies as she sees fit. The countries involved have agree only to coordinate their economic and social policies. There is no absolute requirement for harmonisation. The crisis is forcing de facto changes on the first. There is no real progress on the second.

The de facto changes that have been forced upon EU countries (e.g. “Six-Pack” and “Two-pack”) demonstrate that what is lacking is not an adequate legal basis in the treaties but the domestic political capacity to effect changes.

It is notable, however, that the German spokesman left open the door for some changes. One major initiative could be undertaken without any treaty change i.e. a move to reduce the Commission to a manageable size in a manner which would help restore its essential role as initiator and driver of the necessary policy changes. (Barroso is not ruling out, it seems, an unprecedented third term!).

@ Paul Quigley

What the spokesman is quoted directly as saying.

“A spokesman for the German government made clear that, while Berlin would back treaty changes if deemed necessary, it felt it would be better to avoid such an inevitably lengthy process. “We want to achieve a functioning, efficient and prosperous eurozone,” he said. “For that we’ve started a process with our partners to agree on the necessary steps to achieve this goal. If these steps cannot be realised without a treaty change, we’ll go for it. If these steps are achievable within the existing treaty framework, so much the better. It will save us much time.”

@Edward v2.0

…Call for even more stimulus (because no matter how fast the printing presses spin, Krugman can always argue that we just didn’t print enough)

Nice. Krugman is certainly a past master in the refined art of making unfalsifiable predictions.


Possibly the best rant against macroeconomics ever written:
Macroeconomics ‘Experts’ Apply Astrology, Not Science
by Frank J. Tipler, Professor of Mathematical Physics at Tulane University.


The moral of the story is simple. Macroeconomists should realize that the inability of their theories to make accurate predictions means that they do not know what they are talking about. We non-economists should realize this also, and realize that our leaders, who are being advised by macroeconomists, haven’t got a clue where they are leading us. Their actions may lead us out of the current recession, or they may lead us into a depression as bad as the Great Depression.

Full article here:


“I know that Krugman wouldn’t be where he is today if he let the facts get in the way of a good narrative”

Clearly those who advocate or support current EZ policies have no intention of letting the facts get in the way of a very bad narrative.

@ Carolus

Tipler , Frank J Tipler is also a particular nut case of his own “The physics of Immortality”, I got this book as a gift, some 10 years ago

@ Joseph Ryan

Which policies and which facts? I’m not aware of anyone who is fully supportive of EZ policies – from what I can tell nobody is really getting what they want (which is basic politics).

From a Greek perspective Germany is getting what they want from EZ policy (austerity in the periphery and the ECB is not doing enough). From a German perspective Greece is getting what they want from EZ policy (cheap funding, written-down loans and an ECB that will finance governments and do ‘whatever it takes’). The reality of course is neither country is getting what they want and it might help from time to time if observers took more than one dogmatic point of view.

Thanks — I’ve just checked a few pages on Tipler in Michael Shermer’s How We Believe, who discusses (and dissects) Tipler along with Stephen Hawkins and Paul Davies in a section on ‘The New Cosmology’. None of the three appear to be the full shilling in the God department but Tipler is certainly the weirdest of all three.

Still, the fact that Tipler has nutty-professor cosmological beliefs doesn’t as such prove that his critique of macroeconomics is erroneous.
But it doesn’t exactly enhance his credibility either. Frankly, if I’d remembered having read about him in Shermer’s HWB I would have posted a different rant.

@ Carolus,

his rant is actually mostly on the money, and that he wrote a lunatic book, when he was young and just needed the money, should not be held against him forever : – )

One good former foreign minister Joshka (“I am not convinced”) made a living of stealing books, while not being busy beating up the police, and a former terrorist lawyer became an excellent police minister : – )

I will actually contact the guy,

he looked at “Ptolemaic vs Copernican” at the time of Galileo

and there was this claim by Paul Feyerabend “Against Method: outline of an anarchistic theory of knowledge”, Mankiw was repeating,

that science at that time also just progressed “one funeral at a time” (Max Planck)

The guy seems to have looked at it in some detail, one of the things missing in my collection


An utterly intellectually dishonest document from Allianz HQ.

“The root of the crisis can be traced back to a correction in Greece’s budget figures in 2009”
What a nonsense, but it gets worse.

All the fall off in exports to EZ is attributed to the crisis, while only a small portion of the increase in non-EZ exports is attributed to the currency effect, because ‘exports were on a growing trend anyway’.

There is no mention of the low comparative bank funding costs or business funding costs that the German economy has benefitted from.
Household loss is taken as the value of the interest that would have been earned in the absence of a ‘crisis’, but no allowance is made for the borrowing benefits that households have received.

Coming from the ‘Research’ department of a major financial company, this document is an intellectually dishonest attempt to play to the domestic national gallery in Germany.

Not even Sinn would have put his name to such drivel.

I see Gavin Davies as just some more irrelevant short term noise drivel.

To the French data:

I expect the French Markit PMI will hit 40, about 6 month ahead, before things turn around.

Just some Sunday afternoon gut feeling, no hard model.

Some folks seem to expect some cunning Schröder like Agenda 2010. Would I bet on it? No.

To the Allianz:

I would not go as far as Joseph Ryan calling it “drivel”, it is some boring, expected data. It is just what such folks write.
It is not “false”, it is certainly not vicious like Krugman.

The challenge is to continue reading the stuff, diligently, despite the boredom.

Private Eye this week
“The Foreign Office warned Britons travelling to Cyprus that a highly sophisticated gang of pickpockets calling itself the EU is operating on the.island. “We recommend that travellers exercise extreme caution and avoid

places where the gang is likely to operate such as ATM machines…..”

@Joseph Ryan at 6:36 pm

Just had time to have a brief look thru the Allianz document. Sorry, but to call it mere ‘drivel’ says more about the commenter than it does about the report itself.

Here’s an excerpt:

The impact of the debt crisis on the German economy paints a very mixed picture. A blanket assessment leads nowhere. Although the German government is saving a hefty EUR 10bn in interest expenditure every year – indeed an estimated whopping EUR 67bn on a cumulative basis over the years – it is also assuming considerable risks. Although private households can also borrow at very favorable rates, savers are missing out on interest income of well in excess of EUR 10bn a year, a figure that does not even include losses affecting other types of income from investment. Although German exports will be hit hard by the drop in demand from the European crisis-countries, they will be stimulated considerably by the marked drop in the external value of the euro. Once the adjustment processes have run their course, both effects could more or less cancel each other out. The debt crisis will probably have a limited negative effect on private consumption and investment activity in Germany. All in all, the cumulated losses in economic growth are currently likely to total a good one percentage point.

A report which points out that thanks to low interest rates Germany is saving a ‘whopping EUR 67bn’ over the years can hardly be called an attempt to play to the domestic national gallery in Germany.

intellectually dishonest = whoever disagrees with me is a liar
drivel = stuff people I disagree with say

This blog, like many others, is now so much about Germany, here, germany there, Germany should do this, break some treaties there. Ireland, Canada, Greeeece.

I actually think, we have a few things, while not perfect, but might be worth to take a look at:

– Apprenticeship model (youth unemployment), not artificially inflating university degrees for no real world use

– Long term unemployment social benefits (limited hardship during structural changes)

– 50 % of the board seats for the Unions (I somewhat doubt that this would work somewhere else, I still wonder that it seems to work here : – )

– Strict enforcement of Union and renter rights, and those reasonable

– Keeping the government out of tariff disputes (no minimum wages, unless certain sectors fail to organize for at least a quarter century)

– Telling people the truth, that their pension will be paid by some fraction of labor incomes available at that time, with some yearly printout

But I don’t see anything of that discussed.

Adding to CG,

if you take a look at

these alleged interest payments savings are so gross nonsense.


I stand over my comments based on the reasons outlined above.

“I returned from Athens this afternoon. It was springtime for me and my acquainances at the (absolutely futile) Commission Task Force. It is winter all the year round for most Greeks though.”

I was somewhat surprised to read that that an ‘acquaintance’ of the Commission Task Force, would not have more confidence in the task in hand.

@ Joseph Ryan

I clearly should have typed “facts” as it seems that the source rather than the content is the deciding characteristic for you (and you are not alone!).

Apropos Sinn, this extract from the Allianz paper reminded me of a book entitled the Bazaar Economy which he wrote some time ago.

“Since exports inGermany now account for around 50% of GDP, export losses of 5% would slice 2½% off GDP in the first instance. Exported
goods, however, contain a significant proportion of intermediate goods imported from abroad. Exports are now estimated to contain 50% imported goods. Consequently, a 5% drop in exports would mean that foreign trade wouldmake a negative growth contribution corresponding to around half of the pure export effect. ”

cf. the CesIfo offering on the subject.


The much maligned Professor Sinn is arguing for an approach to the management of German economic policy which would result in a more stable situation. I, for one, see considerable merit in his argument.

@Joseph Ryan at 7:44 pm

I was somewhat surprised to read that that an ‘acquaintance’ of the Commission Task Force, would not have more confidence in the task in hand.

I’m not sure what you’re driving at here. My impression from a (private) discussion with one of the Task Force’s taxation experts is that they ‘advise’ their Greek counterparts, the counterparts listen politely, then continue to do what they have been doing for the past 150 years (or thereabouts) with gay abandon.

Why on earth should anybody have confidence anyhow? Everybody with any direct, hands-on experience of Greece will assure you that the country’s done for and that things can only get worse…

Oops good program on crime starting now on German TV. Must rush ….

and what I nearly forgot:

– we reformed personal bankruptcy laws, now turning about 100 000 cases a year. Some say, it is too soft, but it brings closure, cleans the books, and enables people to a fresh start

– something probably not so relevant to Ireland: fostering (micro) entrepreneurship at any level, until close to absurd

and I am wondering what crime thing Carolus is looking at German TV. ARD ?

So desperate?


‘As to your description of current German labour policy, I could not possibly subscribe to your description. Long-standing legal – indeed, it is argued, constitutional – requirements stipulate that the fixing of conditions of employment is almost exclusively a matter for decision in negotiation between employers and unions. This is, in practice, the case. The problem is with the sectors that are not adequately organised. (Germany has the good fortune to have the predominantly industrial and productive sector unions in charge rather than those representing those whose job it is to expend taxpayers money) 11.13am
German industrial corporations are very impressive, but the record shows that they first developed under state protectionism. I won’t say much for fear of invoking Godwin’s Law, but large scale private enterprise is usually in symbiosis with state power. Arrighi’s ‘Long Twentieth Century’ is essential reading on that point.
Thatcher was in many respects a mouthpiece for the financiers, and was profoundly wrong about society. Our economy includes all kinds of necessary work, of which much is unpaid. Public servants are not all well paid, or lucky enough to work weekdays nine to five. While we have rotten PS management, and rotten PS unions, we have many public servants who deliver, and would deliver more if the management/union environment was less Victorian or corrupt.
Germany is a global industrial power, and has been so for over a century. Ireland is a periphery of Britain/Europe, which ought properly to be compared either with other small peripheral European nations, or particular regions within the major European nation states. The politics of both nations reflects their respective histories.
There are German regions where all is not rosy, but then the onus is on workers to demonstrate the necessary commitment by upping sticks, family and all, when the local job market goes sour. Conditions of employment are, as you say, decided between employers and unions, but the environment in which those negotiations take place is not the same. Notwithstanding the ‘legal situation,’ the employment goalposts have been massively moved. It’s all part of Wiedervereinigung.
The withdrawal of unemployment supports is a mechanism for achieving ‘labour market flexibility’. The deliberate introduction of new, unorganized, workers is a traditional means of breaking labour organization. It’s a win for former’ peasants’, a win for ‘citizen consumers’, and a huge win for employers, but it is generally a loss for existing workers. The incorporation of globally sourced and imported components of exports is the last nail in the coffin of labour.
Is this Schumpeterian ‘creative destruction’ or, as Krugman says, ‘the destruction of the middle class’ ?
Is the exit of our youth a sign of our ‘labour market discipline’, or the latest manifestation of power imbalances ?

@ Carolus

Krugman has his faults, and he is not always in touch with the specifics of countries. What he does see is that neoliberal economics, efficient markets hypothesis, and general equilibrium theory are all based on a totally unreal foundations. The micro-economic BS that he critiques is a lot deeper and more dangerous than the occasional BS that he himself speaks.

@ francis

Very interesting facts, and most useful to our debate. FDI firms don’t make much here any more…it’s mostly virtual stuff and profit shifting…without industry, what do we teach our apprentices … 🙁

News from Greece.
Apparently the Troika have blocked the merger of Eurobank and National and they are to be recapitalized separately. Also, both banks have admitted they cannot raise the 10% needed to remain privately owned.
Only last week the management of the banks said the merger was nearly complete and they announced shareholder meetings to ratify same.
Two more State owned banks in Eurozone.
Wilbur must have passed on that one.

Some of the Allianz paper is interesting, but the big flaw is the discussion (or rather the lack of it) on the impact of the bailout mechanisms on Germany’s budget deficit.

The blue box section, which discusses the potential cost to Germany, looks as if it is straight out of a HW Sinn paper, with the largest numbers possible being thrown around with absolutely no context. It also looks unrelated to the rest of the paper, as if it was added in at the end just to keep onside of the prevailing political narrative.

Also the author of that blue box section doesn’t understand the meaning of “joint and several”, which is pretty shocking given the nature of the company producing the paper. Didn’t anyone post it internally in Allianz and say “Fellow Allianzers – here’s the draft of our paper – any comments?” and someone in the organization (after all, they own PIMCO) might have said “Don’t you know that the EFSF and ESM have the *opposite* of joint and several guarantees – that would be Eurobonds you’re thinking of”

Overlooking that egregious error – it is a standard “let’s scare everyone with big numbers” section. There is

– no differentiation between upper limit of the guarantee and the amount actually guaranteed to date
– no acknowledgement that the amount of guarantees allocated to Germany is the same, per capita, as everyone else
– no mention that there is zero impact on the budget deficit as a result of EFSF and ESM disbursements, since there is no government borrowing
– no mention that there is/was zero impact on the budget deficit as a result of the Greek loan program (in fact for a while governments were making a profit)

(previous post was sent before it was finished)

– no linkage between the Greek loans/EFSF/ESM and the GG debt and GG deficit, and how they impact annual budget calculations (i.e. while there is an impact on GG debt for Greek loans, EFSF loans and ESM capital (but not loans), but there’s no impact on GG deficits, and pretty much all SGP/EDP constraints are caused by the deficit not the debt level (and will for a few more years)

– no discussion of the probability that 100% of the funds will be disbursed, and 100% of the funds will not be paid back, and 100% of the Target2 liabilities will be realized. Yes it is greater than zero, but so is the probability of the earth being destroyed by an asteroid in the next year or two.

– no discussion of the fact that the IMF has never lost any money, and that before any losses are taken at official EU level there are a whole lot of financial/political instruments that could be used, from simple rollover to asset and collateral grabs, taxation paid directly into ESM accounts etc.

The “big lie” is that money that would otherwise be used to fix up schools, hospitals and roads in Germany is being handed over to Greece, Ireland, Cyprus etc.

What is really needed is a half-decent paper on “Impact of the euro crisis on German public finances”. There’s plenty of expertise on this in the Irish economist community. Any takers?

ECB data for Feb released last Friday shows that for business loans up to €1m, German small companies paid on average 2.92% interest for these loans. The Irish loan rate was 4.25%; Italian companies paid 4.35%; Spain 5.17%. Greek loans were at 6.66%; Portuguese companies paid 6.6% Cypriot companies paid 7.03%.

From a bank point of view, the more enfeebled the economy, the greater the risk.

Every country could be criticised for some aspect of pay and labour conditions.

People tend to like simple explanations but youth unemployment in Spain and Portugal for example not only coincides with dual labour markets but very high school dropout rates. In both countries they have been over 30% in recent times and at 19% in Italy compared with 2.8% in Germany.

Just 28% of the Portuguese population between 25 and 64 has completed high school. The figure is 85% in Germany, 91% in the Czech Republic and 89% in the US.

It’s foolish to think that cross-border labour rates of €7 in Poland, €11 in the Czech Republic and €9 in Slovakia would not have an impact on rates for some jobs in Germany. That is not to argue that there should be lower rates for migrants within Germany.

In the creative industries which has more than 1m employed – – more than the car industry – – many of the firms are micro ones. There is high self employment and freelancers.

Berlin has become known in recent years as a tech startup hub with its ‘Silicon Allee’ rivalling London’s ‘Silicon Roundabout’ as Europe’s tech hub. However, self-employment is high beyond high tech in a European capital city with a lower cost of living than in Dublin.

According to the German Institute for Economic Research (DIW), after only three years, throughout Germany 38% earn more in self-employment than they did when they were employees.

At least in Germany, there is a credible occupational pension scheme compared with the Irish situation, and France and the UK are working on adopting the successful apprenticeship systems in Germany, Denmark, Switzerland and Austria to address training of youth. Ireland’s scheme is a shambles.


The German hourly labour cost of €31 is comparable with Austria’s and the Netherlands’.

Governments can always do more but it cannot stop firms moving abroad.

Germany’s trade in the single currency area is almost in balance and two-thirds of its surplus is ex-EU27.

Volkswagen AG sold 450,000 more of its VW-branded passenger cars in China in 2012 than in all of Europe, vindicating the car maker’s continued heavy investment in foreign markets.

@ MH

The points you make are, of course, all valid. No one is disputing them. Indeed, there are many aspects of the management of the German economy which are worthy of emulation. And there can be no question about the need for peripheral economies to reform. But the need for reform is not confined to them.

Nor can it be denied that Germany’s enormous current account surplus is destabilising for the European economy and that it is becoming increasingly evident that it is incompatible with the survival of the euro.

Wolfgang Munchau confirms the dual liquidity (sovereign and banks) nature of the crisis and puts it up to Draghi and the ECB!


Neither a conventional rate cut nor unconventional measures to restore the “monetary transmission mechanism” can work IMHO. They treat the symptoms, not the disease i.e. the unwillingness in Germany to accept that “enfeebled economies” cannot be left holding the entire baby for the state of their finances and their banks.

It seems to be a case of the immovable object (Merkel’s unwillingness to move prior to the elections) and the irresistible force (continuing economic decline and social reaction in the periphery).

@DOCM at 8:49 pm

Nor can it be denied that Germany’s enormous current account surplus is destabilising for the European economy and that it is becoming increasingly evident that it is incompatible with the survival of the euro.

One might equally as well assert:

Nor can it be denied that the peripheral countries’ enormous current account deficit is destabilising for the European economy and that it is becoming increasingly evident that it is incompatible with the survival of the euro.

A question of perspective.

@Carolus Galviensis on the moral equivalence between one party attacking too much and the other party not defending themselves enough

A question of perspective.

Rather like the contemptibly crackpot (but sadly revealing) arguments about Hoover’s approach to the great depression being better than the New Deal this is simply wrong, there is no real argument outside of the Deutsche-bloc about whether Germany’s twin policies of internal wage repression and mercantilism can coexist within the type of monetary union we have now.

Here is the Guardian:


There is a certain futility to discussing macroeconomics with an ordoliberal, I imagine it is akin to trying to convince a creationist of the evidence for natural selection (“God faked the evidence of Keynesian demand management to test our faith in fiscal rectitude and market discipline”).

It seems to me that the European component of the global financial crisis is best described as an opportunistic attack made by an alliance of financialisrs and neoliberals against social democracy and the peripheral states in which the institutions of the EU have sided with the Entente Fininciale in order to bolster their own influence.

@ Carolus

Achtung Deutschland.

Here is, IMHO, a definitive exposition of who needs to do what. Michael Pettis’s website is also a must read.


@paul quigley at 1:01 pm

The book you recommend (The Great Rebalancing) has received such marvellous reviews that I have no alternative but to order a copy for myself.

One point that fascinates me. On page 14 Pettis writes:

But if Europe rebalances in a suboptimal way—that is, without a policy reversal in Germany—its rebalancing will ultimately become far more costly for Germany than a reversal of policies today, as I will explain in this book.

[Emphasis mine – CG]

I am looking forward to reading this explanation once the book arrives because it does seem to be incorporate quite a bit of second-guessing. If one replaces ‘Germany’ by ‘the German taxpayers’ one has to account for the fact that the German Association of Taxpayers (Bund der Steuerzahler Deutschland) views the matter from a completely different angle. They are not second-guessers — they are first-guessers, and so what they say deserves serious consideration.

Here is a random (but typical) BdS press statement [translation mine – CG]:

The Taxpayers Association calls on the German parliament to reject any further lending to Greece. Since the outbreak of the financial crisis Greece has already received loans amounting to over 50 billion euros. […] It is the taxpayers who shoulder the liability for these massive sums.

Will German taxpayers who read Pettis’s book accept his explanation that they will be better off in the long run if they pay more in the short run? I doubt it — and I suppose Pettis himself would argue that you might as well ‘be talking to the wall’ when you promise jam tomorrow in exchange for the valley of tears today.

apprenticeships are not the real topic here,

but I think it is actually useful to spend a few more words on it, useful for the subsequent discussion.

a) the schooling difference between Portugal and Germany is probably much less than the data MH showed suggest.

The CIA world factbook for SCHOOL LIFE EXPECTANCY says 17 years for Finland (the guys with the high PISA scores), 16 for France, Germany, Portugal, but 18 for Ireland. Just for fun: does that mean your guys need 2 years longer to learn the same stuff : – )
b) what is counted in those data, is peculiar and dependent on who is counting what. The Unesco data, used for the HDI were from 1991 for Germany
c) if 85% of Germans come across the finishing line, then this means finishing 9 years of Hauptschule , or some later, somehow something counting like this
d) it looks to be that with the same number of school years the portugese dropout is somewhat differently assessed.

What I also remember that some folks in the EU tried to force some 12 year + university model on “nursing”, in the name of uniformity, and we said we want to stick with our 9 + 3 year apprenticeship version. I dont want to force our way on you, and vice versa.

We need more nurses in the future, to turn the elderly around in the nursing homes, maybe me in 30 years down the road, and gently.
If their longer formal education would be good, I would go for it.
We dont need so many bankers and lawyers working in financial centers, turning green paper around.

Just adding something, which might also explain unemployment / employed fraction together.

In former times it was 6 years to start school, 13 years school (Gymnasium), 1 year military, 6+ years for a diplom, 4 years PhD, and one was 30 before the first “real job” yielded significant tax contribution.

With the Bologna process, 12 years school, no military, 3 years, and the 10 – 20% start paying taxes at 21 or 22, 2 more years for a master, 3 for the PhD, you get the gist.

Retirement really at 67, and people work 7 or more years longer than before. Keeping the fraction of retires / working somewhat more reasonable. Ireland is special, as always ( makes it interesting to look at you : – ) but the age structure of the rest of europe looks pretty much like us.


Compromise is needed across the Union and it’s an advance that Luxembourg will no longer assert its right to benefit from the tax evasion of citizens of other members. Ireland and the Netherlands will likely have no choice on the facilitation on of massive corporate tax avoidance as the big countries are likely to bring in restrictions in coming years.

Luxembourg would consider greater transparency of its banking sector to help curb tax evasion, the finance minister has told a German newspaper.

In an interview published on Sunday, Luc Frieden said he wanted to “strengthen co-operation with foreign tax authorities”.

Luxembourg is known for its highly secretive banking sector.

Germany is among the countries which say it is being used by foreign customers as a tax haven.

Speaking to Germany’s Frankfurter Allgemeine Sonntagszeitung newspaper, Frieden acknowledged that other countries were increasingly demanding more information on what their citizens were doing with their money in foreign banks.

“The international trend is going toward an automatic exchange of bank deposit information. We no longer strictly oppose that,” he said.

In Germany, if you fall behind on your mortgage, the bank can and will go after anything valuable you have. Expensive stuff, pension plans (with some limits), could be in the end a yard sale of the plasma TV screen. The scence ends with personal bankruptcy, and the government can hold relatives to some account, if they believe stuff was shifted (I dont think that happens over small stuff, but the Schlecker case was interesting).

Now, a few days ago, there was this “strategic arrears” topic here.

What are the chances, that in the land of “Boycott” German rules would be implemented ?

Would the Irish politician suggesting them, especially with the argument “we have to copy the Germans”, make it even alive to the next elections?

And Schroeder lost the next election too, despite having to do much less drastic things.


soo, what is the alternative?

Declaring war on Bavaria and storm the social benefits office in Munich?

Or throwing a hissy fit, and declaring “Ich bin mit der Gesamtsituation unzufrieden”


After Agenda 2010, the communists marched through my streets, week after week after week, until they got tired, their shoes thin, or died or went to the nursing home, whatever came first, I assume.

Putin dressing down an incompetent german journalist/slanderer:


Judging by other posts here, I assume the german links are somewhat good enough here?


“It seems to me that the European component of the global financial crisis is best described as an opportunistic attack made by an alliance of financialisrs and neoliberals against social democracy and the peripheral states in which the institutions of the EU have sided with the Entente Fininciale in order to bolster their own influence.”

Sounds good!

Shades of Shock Doctrine?

@Sarah Carey

Shades of Shock Doctrine?


There is a US blogger called Ezra Klein who wrote an article eighteen months ago on the European component of the global financial crisis that helped harden my suspicion of German policy into hostility towards the exercise of German political power in the EU. Klein was on a visit to Germany talking to various politicians and civil servants and all of them, regardless of political outlook, were confident that they could use the global financial crisis as a way to force the non-Germanic Eurozone to enact neoliberal reforms.


It is a nice little article and the key paragraph for me was:

That’s really the key to understanding the German psychology on the euro. In America, we keep asking why they don’t join with the European Central Bank to end the run on the European periphery. The answer is simple: they don’t want to end the run on the European periphery. To them, the run on Italy and Greece and Portugal and Spain is a feature, not a bug. It’s leverage, and they want to use it.

Understand that Ezra Klein is himself a neoliberal in the US tradition so this is not the writing of a leftist radical at all, just an observation on the nakedness and danger of Germany’s ambition to export its radical economic outlook abroad.

I think once you see the human suffering and waste inflicted on the European periphery (and Ireland has gotten off lightly so far) as a mere policy lever to achieve an EU more agreeable to German interests the whole EU political arrangement looks very much like a reactionary plot.

What is the alternative.
The ECB are now the only major central bank without the tools to effect a recovery. Give them a better mandate or better still explicit instructions to boost the Eurozone economies.
Look at the reality…Greece is destroyed as is Cyprus. Portugal and Ireland are piling on debt…in our case 200,000,000,000 worth. Does anyone really believe we can pay this back. The Constitutional court in Portugal has halted inequitable austerity measures. Maybe it is time our Supreme Court weighed in. Rajoy called for stimulus measures today and we all know that Spain is too big to bail out.
The present trajectory will end in failure… But then Angela may get herself reelected first.


“But then Angela may get herself reelected first.”

I thought that was the agenda? It’s all about what’s in the best interests of Germany…. and Angela? The only game in town?

@Sarah Carey

It’s an interesting book that Shock Doctrine. Every exec or politician with teeth I’ve ever met adopts this approach.

Meanwhile, back at the sharp end of austerity, the problems in Spain are being exported (can someone please remind me what percentage of GDP Ireland gives in overseas aid):



The opinion piece entitled Why making Europe German won’t fix the crisis which you refer to makes interesting reading. The authors contend that successive Bulgarian governments have adopted macroeconomic policies on German lines but to no avail: Bulgarians have remained as impoverished as before.
The implication is that Bulgaria would be better off had the governments adopted alternative policies. I’m not so sure. AFAIK the only alternative to German macroeconomic policy is the policy practiced by the other peripheral countries — countries that, as a result, are now tanking.

Presumably in part thanks to adopting German-style policies, Bulgaria’s national debt declined from 77.6% of GDP in 1998 to 16.3% (sixteen point three percent) in 2011:

And as every schoolchild knows, Greece’s national debt was 170% of GDP for the same year.


The Bulgarian people may have many woes, but at least servicing the national debt is not one of them. And what is better: a decade of the good life a la grecque, followed by destitution, or a lifetime of frugality and living within one’s means?

If there are other options, I would be happy to learn about them.

I think the point was that one size does not fit all. Fat lot of good having a very low GDP/debt ratio if the Bulgarian people are impoverished. Not everyone can build Volkswagens or Mercs. So the model for Germany is unique. As DOCM says above..if the imbalances persist then the euro is toast. Let Germany leave and return to their beloved Deutschmark and the rest of us should be able to muddle through, perhaps with mutualization of debt.

I would have thought your recipe is naive in the extreme. If the core goes back to the hard euro the rest experience a currency depreciation and a default on their obligations to the core. Debt mutualisation is unlikely in such an event. These of us ex the EZ would probably have to implement more austerity to balance the books.

Interesting that the Portuguese SC seem to have found a reason for those ex the public payroll to take o e for the team.

@Carolus Galviensis

You are not the first person to cast the unnecessary suffering of the poor as necessary and salutary frugality but it is still galling to read.

All this to implement an economic policy that was out of date ten years after the Austro-Hungarian Empire collapsed.

The economic consequences of Mr. Churchill

Perhaps…but we are heading for the demise of the euro if the imbalances continue and then we are all back to our old currencies. What then?

As regards Portugal:

The court’s reasoning was that the measures singled out public workers and pensioners and hence were contrary to equality guarantees written into Portugal’s constitution. Private sector workers aren’t subject to the measures.

Does this mean that any public sector pay increases that may have occurred in the past that did not involve a corresponding pay increase (e.g. by means of a tax credit) for private sector workers would be equally unconstitutional?

Or do these constitutional protections only work one way?


Perhaps…but we are heading for the demise of the euro if the imbalances continue and then we are all back to our old currencies. What then?

Back to what the rest of the world does? A spectrum ranging from rigid pegs to pure float and everything in between, decided upon by the country in question based on the realities of the day.

Note to Euro federalists: “A foolish consistency is the hobgoblin of little minds”.

Brian G,
Getting from here to there could be a bit tricky. Trying to figure who owes what to who would be interesting. Best to assume that the periphs opt not to pay P plus I to the core.

@Tull Mcadoo

Parallel Euro and national currencies were considered at length by the Delors Commission but eventually rejected by a majority. Perhaps the reintroduction of national currencies alongside the Euro could provide a smoother path. There’s plenty of prior art (both good and bad) in handling large external debts, with Germany as the debtor. However no matter what way you look at it it’s a total mess.

@ fiatlux 6:48 pm

The ECB has no mandate to buy government bonds, and this is for very good reasons. Many of our southern neighbors have a long history to run up debt and then let it go up in inflation.

If a country needs emergency credits, there is the ESM, but that comes with strings attached, to ensure repayment. The IMF 120% limit is there for a good reason, because for some folks the temptation to not repay would become to strong, with higher credit limit.

With the aging population in the industrialized world, there is a stronger tendency to save, and that means that a good quality debtor pays next to nothing in real interest.

The Irish 5 year rate is at 2.8%, after inflation 0.8%.

The UK has paid down a 250% GDP debt after the Napoleon Wars and after WWII, the US 120% after WWII, this is not impossible.

But if people talk all the time about not repaying their credit, people are in no mood to give fresh credit, or demand at least higher risk premia.

@ PR Guy 7:02 pm
In your link, I also found
The spanish pensions are still at 81.2%, whereas the Germans are somewhat around 60 or lower.
Italy can not reform their labor laws to a level more standard in the western world.
Irish banks are in bad shape because people do not fear to get evicted, like here.

Everybody knows what he can not do, why he has to preserve his social extras, and that this must somehow be financed by the tax payers in other countries, who, like Finland and Sweden went through painful transformations in the mid-90ties, and we around 2003.
This will not happen. There will be no banking, transfer or other union. The moral hazard coming with it would be so much larger.

If I have spare money, I delay cutting my pensioners further.

Western Germany spend about 100 % GDP on getting Eastern Germany functioning. Every Nation has to pay for itself.

If some periphery countries decide to opt out of the Euro, and do a bankruptcy, that does not mean, that the majority will do the same.

@ Shay


“Roosevelt’s Lost Alliances is a diplomatic history that does not attempt to deal with the physical and moral effects that political decisions had on the lives of nations. Costigliola has read Timothy Snyder’s recent Bloodlands, which, more than any earlier monograph, shatteringly describes the hell that was Eastern Europe at war,2 yet the reader of Costigliola’s otherwise valuable monograph is given almost no inkling of the manifold tragedies that unfolded in those years. He gives no adequate sense of the operations of the Soviet NKVD and the other secret police forces allied with it in arresting, interrogating, torturing, and murdering thousands of opponents of Soviet control in Eastern Europe. Nor is there sufficient indication of how the often casual agreement of the Three Greats on the “inevitable and necessary” redrawing of political boundaries and the multiple ethnic cleansings added to the civil wars, the destruction, the flights, the hunger, and the deaths in the region.

But you won’t ever learn that in any school.


The UK has paid down a 250% GDP debt after the Napoleon Wars and after WWII, the US 120% after WWII, this is not impossible.

Since you have brought up past wars – why so selective in interpretation? You do understand that Germany paids its debts following WWII thanks to a combination of grants, loans, loans extensions, public and private debt writedowns, and inward investment and reconstruction (Marshall Plan, London Agreement etc.)? In fact Greece and Spain were creditors that engaged in this exercise.

Or would that interfere with the prudent North/Core versus irresponsible South story?

Should the USA & UK have said – “you broke it – you pay for it” and simply demanded more and more austerity every quarter in Germany until such time as all the debts were paid off?

@Bryan G

“and simply demanded more and more austerity every quarter in Germany until such time as all the debts were paid off”

Er, isn’t that basically what started the second world war?

@PR Guy,


Following the Great Depression (in 1932) German debt was reduced by 90% (having already been reduced previously in the 1920s). However this was irrelevant since Germany had already stopped paying anything. It only ever paid a small amount (about 15%) of the original reparations. Even this was paid for mostly by American loans that were never paid back, thus many of the losses were borne by American investors. I believe these losses were bundled back into the post WWII debt that was then written down and paid pack over 50+ years.

Blaming WWII on unyielding Anglo-Saxon demands for debt repayment is just completely wrong. And Germany had previously imposed large reparations on France in 1871 (which France paid in full) so apparently had no problem with the concept when on the other side.


and we could go on to what Napoleon extracted of Prussia in 1807, and what fraction of GDP the various levies were, and so on and so on. I am not going there. Everybody has plenty of courts to go, if he thinks, somebody else owes him something.

The European Community in 1947, the London Debt Agreement in 1953, full NATO membership of Germany in 1956, drew a FIRM line under all this endless tit-for-tat.

That SOME folks from countries like Spain (Guintos) and Ireland, which did not even participate in WWII, now try to turn up again the national hate mongering, is seen as pretty galling by many people in Germany.

With every Adolf moustache painted on Angela Merkel, her stellar (compare to e.g. Hollande) approval ratings are rising, and the ruling CDU/FDP now looks at a clear majority in this summer 2013 election.

After what has tried in 2012 with the “banking union” and Eurobonds,

and the recent

The Eurosystem Household Finance and Consumption Survey

it is completely clear that there will be no further integration beyond the banking SUPERVISION

of any kind, for the time being.

Don’t even think about it.


You seem to equate economic discussion of a broader time period with “hate-mongering”, which of course it is not. Attempting to limit the debate to a convenient starting point is just a framing mechanism to show Germany in the most virtuous light possible, along with an implicit “there is no alternative”.

What is galling to many outside Germany is the arrogant self-righteous tone and domestic electoral considerations that are now driving EU policy. After the Cyprus debacle Schauble said that any complaints simply amounted to jealously of the best boy in the class by the less gifted students. The Luxembourg foreign minister then accused Germany of “striving for hegemony which is wrong and un-European”. So that’s the level that things are at.

Since the community method of decision making has broken down, I would agree that further integration will be minimal. As Germany has an effective veto over everything, the process will just lurch from one half-baked 3.00am unworkable solution to another until part of the system actually disintegrates.


the treaty situation is clear,

and every nation has plenty of money to pay their own debt.


and every nation has plenty of money to pay their own debt.

Perhaps you can point out where this money is hidden away then.

Was this also true in Germany in 1953 or have the rules of macroeconomics changed since then?


All very interesting (though it would have been a lot more interesting for readers of this blog if Ireland had been included). However it does not address the matter at hand, which is the public debt servicing burden on sovereigns.

For financial assets, there is always an equal and corresponding financial debt, since by definition these instruments are created with entries on both the asset and liability sides of a balance sheet. Saying there are vast assets is the same as saying there are vast debts. And saying there are vast debts is the same as saying there are vast assets. Even the value of real assets (real estate, cars etc) is highly dependent on financial instruments, since these are predominantly debt financed.

The USA has USD 166tn in total assets (financial and real) but does that mean that the Federal debt (which less than 10% of this) and the policy used to service this debt is unimportant? It is the distribution of debt amongst the various actors that is important, and the realizable cashflows that can be used to service the debt.

If all debt was paid off there would be no money (literally). So pointing to the existence of assets to prove that debt can be repaid is false. It proves that for every debt there’s a corresponding asset, and the two are simply two sides of the same coin. It doesn’t prove that the servicing of the debt by a sovereign (or any particular actor) is sustainable, or can be done without severe and undesirable social consequences.


we look at net wealth here.

the total assets of a each nation do easily cover their respective national debt.

To even demand transfers from poor germans to richer other countries is a capital crime and should be dealt with accordingly.


To even demand transfers from poor germans to richer other countries is a capital crime and should be dealt with accordingly.

You do understand the meaning of the word “capital crime” in English – right? So your proposal would be to take, for example, George Soros, and shoot him? What about Jean-Claude Junker – same punishment? Where does it end?


As you most likely know,

Germany does not have the death penalty, since 23 May 1949, §102 basic law.

We dont do extra judicial killings.

We are actually pretty lenient, if folks are not longer deemed a risk to public safety or the constitution, allow me this little excursion here : – )


But that defines pretty much the feelings for the ilk like Soros and Junckers here.

We like treaties and the law in general.


Germany does not have the death penalty, since 23 May 1949, §102 basic law.

I’m glad to be reminded of that, but, even metaphorically, calling for the execution of those who disagree with you is pretty tasteless, especially given the context.

The main problem with your economic model is that you are extrapolating from prudent Swabian housewife household accounts to national accounts, and denying that there is any Euro architecture / system-wide problem.

And you never answered whether you thought the 1953 London Agreement was a mistake, from either the American or German point of view, or whether it actually helped matters.

And what do you think the net cost of the crisis has been to German taxpayers to date?


I was of course not asking to do anything illegal.

That was a word play, where words are seemingly somewhat differently used here, and this would not be regarded tasteless.

I am familiar with the various economic theories, the difference between micro and macro, and that basically for every saving there must be some credit on the other side.

As indicating already, The 1953 was just one part of a much larger parcel. Obviously all parties signing found it agreeable for themselves.
We can then speculate about, the rapidly growing German army, our allies liked, although we would have needed the men in production …. and so on and so on. Speculate about each others intention, etc. Lets not go there.

First, there shouldnt be any net costs to the taxpayers in other countries.

Second, The HRE disaster due to the glorious irish financial oversight did require the German taxpayer to come up with 127 b. The Sachsen LB did require a 17 b credit guarantee. Friends in Italy complain, that they have to pay higher interest on their debt, than the rate is for the credit they have to provide for Ireland. Last time I looked our coupon payments were also at 3.0% of the nominal. Interest on Target 2 accounts not covering inflation, not to speak of the risk. Etc.

In other words, plenty of opportunities to grind into each other, to haggle endlessly about what the “real” rate should be. Who played what role in the HRE thing. I don’t see this as productive either.

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