Trust in the EU, again

Kevin

It would be good to see a white paper from economists (hint,hint) to rationally consider the impact of Ireland leaving the Euro (but staying within EU).

The unemployment rate among young people in EU is a crisis – but these people are not the decision makers. Many grey heads in political circles warn of dire consequences of even thinking about it.

One risk that is continually raised is that it would affect inward investment. As someone who works in a MNC where labour costs are by far most significant cost, I am incredulous that a 20-30% drop in these (due to a weaker punt after leaving Euro) would cause our US bosses to jump ship.

We are where we are, not a good place – so an honest assessment of the pros and cons is warranted.

Here is my proposal how to solve this economic mess:

Wurope needs the ability to spend what is necessary to restore full employment, while at the same time make sure individual european governments do not have free hands to spend howevermuch they want.

Disciplining role should be taken away from the markets, period. How much to spend should be decided maybe in ECOFIN meetings or something similar, but after that decision is takes ECB could very well fund as much spending as is needed to carry out that objective.

And if some people are scared that central bank financing of deficits would lead to hyperinflation because of ‘money multiplier’, would it not be much more sensible to set lending limits to the bank directly, trough regulation, that starve whole economic system because of this fear?

So lets say to financial institutions: your assets (i.e. loans) next year can be 105% what they are this year, period. You can control bank lending by regulation if you want to.

What do you guys think about this proposal? Good or bad and why? Who is ready support something like this?

The key phrase is “..the Euro may be doomed in the long run”. This is the only way to do forecasting, at least if you want to be intellectually honest: it is conditional and uncertain over timing. The conditionality needs to be fleshed out a touch: the euro is doomed if growth fails to turn up. When might this happen? We honestly dont know. But that is the proper way to do economic forecasting: if certain conditions obtain, something will happen as a result, with uncertain timing. No growth, no euro. So far, it aint looking good.
The tragedy lies in the economic waste, the human consequences of all that lost economic growth. The puzzle is why so many serious people believe that that this is the best possible outcome and that a better one is simply unattainable. History just repeating itself perhaps.

@ simpleton
“the human consequences of all that lost economic growth. ”

Or alternatively at what point do the costs in terms of lost economic growth outweigh the costs of creditor write downs ?

It’s a big decision in a town called malice .

“It has been evident for quite some time that citizens right across Europe are losing faith in the European Union”
just saying…….
“The large majority of the Irish Population believe that Ireland should remain as part of the EU (85%) , and on balance believe that Ireland has benefited from being a
member of the EU (83%).”
http://www.europeanmovement.ie/wp-content/uploads/2013/01/EM-Ireland-Red-C-Presidency-Poll-Report.pdf

If moving directly to the punt would cause awful transition problems, what about rejoining the sterling area? Could that be a half-way stage that would ease the road back to self-rule? Britain is in trouble, too, of course, but austerity has just about run its course there and should end soon.

I think being subject to London’s gyrations of policy is a far better deal than the Troika, and that sterling may be a way to start escaping from the euro noose.

@ Simpleton

It’s about power, isn’t it? The ones who suffer are not the same as the ones holding the debt. But they can’t hold the chaos at bay. None of the firewalls work. I think a lot of this crisis is artificial. Or at least optional.

It appears to me that Barroso has been way out of his depth for some time.

His latest statement where he suggests that austerity is the right policy but just doesn’t have political support is pathetic. He is practically cornering Dutch, German and Finnish politicians into insisting on continued austerity come hell or high water with that kind of talk.

Given the severity of this crisis, I think that the EU Council should explore appointing a new Commission or at least a new Commission President. If Mr. Barroso cannot be removed he should be prevailed upon to resign.

Beyond that, this crisis is precisely what the EU was made for and it is failing miserably. The bureaucrat’s tactic of incremental changes necessitating further changes has back-fired spectacularly.

The EU/ECB does not have legal responsibility or powers to deal with the issue, i.e. providing funding to keep the financial system afloat, but they are dictating policies to nation states who do have the legal responsibility and power to decide whether individual banks should be wound up. The nation states, have to do what they are told because they do not control their own currency.

The net point seems to be that if the necesary reforms is not achievable then the Euro, and all its promise of a share of the dollar’s ‘exorbitant privilege’, must be abandoned.

The key question therefore is what are the necessary reforms. Are there alternatives? Is there a minimum?

It strikes me that an achievable minimium might include the following
1. Redefining the object of the ECB to include promoting and protecting employment,
2. Implementing a unform bank resolution framework givng the ECB the power to resolve financial institutions,
3. Making the ECB responsible for making good on deposit insurance and allowing the ECB to finance that through helicopter money,
4. Agreeing, on an ad hoc basis, a general economic policy for the EU whereby those who do not have to engage in austerity agree not to do so for the next 5 years.

@Tull
You know very well how to write off the debt: all sovereign debt held by central banks shold be cancelled forthwith. Or, more pragmatically, converted to perpetual war loan status. It is never, ever going to be repaid so just get on and recognise that fact.

Simpleton,
according to Henry Blodgett!!!!! I will wait for the Dunner or Fingers to corroborate.

I take into a/c the credibility of the messenger, Not shooting messengers is a rule created by self interested couriers.

Anyway, what more fiscal stimulus do you require of Ireland with a deficit of 7% of GDP. That seems to be working. In any event, where would we get more money at a competivie rate…the gnomes!!!

@Kevin O’Rourke

“Solving the periphery’s economic problems rather than saving the Euro really has to become the continent’s top priority.”

I couldn’t agree with you more but while the people with the power in the EU are in charge, it is never going to happen. This is the blind spot in current ideology. People like Barroso have an agenda. They are unelected and determined to stay on until they either achieve it or it implodes (and they will be in a comfortable enough situation to move on to whatever they want to next if it implodes, without any suffering on their part).

It would be really useful if someone were able to reveal how much money/wealth Barroso (and others of his ilk) holds outside of the EZ and all the money/wealth they have stashed away out of sight.

These people – who have spent their life in so-called public service and never really done a job outside of ‘politics’ – have amounts beyond the dreams of what you would expect to earn by salary in that domain over the years. How did they get it (you wouldn’t believe how easy it is to make a paper trail that looks like you inherited it)? Follow the money. The truth is out there.

@OMF

“Trust” isn’t in the vocab.

Why are you guys ignoring my proposal?

Is it that everyone opposes taking market discipline off government finances?

@Shay

I had orginally referenced LBS in my post but edited him out for fear my bils could obscure the point.

LBS thought that the crisis would solve the problem – the EU would be given additional fiscal control over member state budgets and something close to federalism would be achieved out of necessity. LBS lack of compassion for the relatively innocent victims of the crisis in the financial system, his viewing european citizens as spineless servile subjects of the ECB and his lack of appreciation of the need of for any policy to enjoy democratic support left him wholly delusional and spouting nonsense. It is a very poor reflection on Harvard that they took him on.

@Hepion

Is your proposal to
– remove democratic control of budgets,
– introduce monetary easing subject only to control by independent technocrats,
– allow such technocrats supremacy over national governments,
– allow such technocrats to implement fiscal transfers without oversight, and
– risk inflation in the interests of full employment?

What is one’s recourse if the system fails? Treason? Tyrannicide?

I don’t see it catching on.

It is striking how little major research on European growth or options for countries to exit the EMU, has been produced.

If Rogoff & Reinhart were the Svengalis for the pro-austerity folk, who have been their research counterparts for the opponents? Of course it’s not easy to produce such credible research.

Employment mandates maybe alluring but Japan produced the world’s best infrastructure over two decades to provide jobs; debt rose and it still remained in the doldrums. Now nobody knows how productive the new money printing program will be.

The issue of structural reform maybe a turnoff for some but a society that has been ageing for 20 years; is anti-immigration; not supportive of married women in the workforce and has a badly paid young workforce without job security, is hardly on the right track.

Meanwhile, apart from the motor industry, its once mighty industrial giants are badly struggling against US and Korean firms.

As to Europe, cross-border capital flows are seen as culprits of the crisis but not all of them were for speculation. The level has plunged since 2007 and it’s simply foolish to think that governments can fill this breach. However, big European companies have over €1tn in cash but they are inclined to invest in emerging markets.

Cross-border capital flows rose from $0.5tn in 1980 to a peak of $12tn in 2007 and down to less than $5tn in 2012. Eurozone banks have cut such cross-border lending and other claims by almost $4tn since 2007, and central banks now account for more than 50% of capital flows within the region.

Like Japan and Korea, dual workforces have developed too in Europe because the young do not have the benefit of collective power and they have been among the main victims of the recession.

It would be also foolish to regard the ‘end of austerity’ as a key victory as for a while at least, it could give the impression that the growth problem was solved. The fact is that austerity has mainly hit minorities in the private sectors. There have not been huge cuts in public spending in most countries.

China and the US are unlikely to embark on a big increase in spending anytime soon while in Europe, Germany is unlikely to lead it.

France has raised more in taxes than spending cuts and its public spending is still 56% of GDP — temps accounted for 13% of jobs in 2007 but more than 60% of job losses since the onset of the crisis. France’s public sector generated 600,000 net new jobs in the 1980s, shed 40,000 jobs between 2000 and 2009.

So it’s no longer able to rely on adding public sector jobs while growth in the private sector is mainly in health. China has 10% of its workforce in the public sector compared with France’s 27%.

As for Ireland and the euro, the issue of defaulting and the recent experience of Cyprus as a small country without friends, merits some consideration.

Labour costs are minor issues for MNCs engaged in profit and revenue shifting; only 7% of SMEs are engaged in exporting — so most private sector jobs are engaged in the domestic economy. FDI production has a high import content.

Nominal export value almost doubled between 2000 and 2012 but full-time jobs in the exporting sectors are still below the 2000 level despite a 25% growth in the workforce (inc the unemployed).

With stagnant real wages for decades, a shrinking trade union movement, cheap energy and innovation leadership, the US has become more competitive than Europe. US IT workers in real terms earn the same today as they did, generally, 14 years ago.

It’s likely that the current campaign against corporate tax evasion will have some negative impacts for Ireland in the longterm.

PR Guy… enjoy your irreverent take on the Euro folly.

I’m no fortune-teller but when Tony Blair managed to secure the Commission Presidency for Barroso in 2004, this is what was published in the New Statesman, under the title ‘A dedicated friend of the rich’,

http://www.newstatesman.com/node/148322

Barroso’s links with kleptocratic and oli-rich Angola bear examination; he was the guest of honour at the lavish wedding for the Head of State’s daughter even while being the EU’s front man in advancing political and economic virtue in all directions.

@ MH-ff: “It is striking how little major research on European growth or options for countries to exit the EMU, has been produced.” “If Rogoff & Reinhart were the Svengalis for the pro-austerity folk, who have been their research counterparts for the opponents? Of course it’s not easy to produce such credible research.”

More research is a waste of time now. The issue is one of simple arithmetic, exponential functions and the finiteness of finite resources. But whose paying attention to this simple stuff? Have any of our economists actually engaged with the ruling economic paradigm of Permagrowth – and what it implies? No. None. QED!

“As to Europe, cross-border capital flows are seen as culprits of the crisis but not all of them were for speculation. The level has plunged since 2007 and it’s simply foolish to think that governments can fill this breach.”

Simple arithmetic says they cannot. What can be ‘grown’ on an exponential basis? Debt can, but not the physical economy which ultimately provides the surplus to pay back the borrowed principle and its debt overhead. Its known as being up Sh*t Creek without a paddle! Much easier to loot taxpayers and small savers.

“However, big European companies have over €1tn in cash but they are inclined to invest in emerging markets.”

Investing? In speculative (commodities and derivatives) markets for sure, but not in production ones – the rate of return in these latter is near zero.

“Like Japan and Korea, dual workforces have developed too in Europe because the young do not have the benefit of collective power and they have been among the main victims of the recession.”

This is what the Neoliberals demanded – and have achieved. Maybe they should not have wished so hard!

“It would be also foolish to regard the ‘end of austerity’ as a key victory as for a while at least, it could give the impression that the growth problem was solved. The fact is that austerity has mainly hit minorities in the private sectors. There have not been huge cuts in public spending in most countries.”

As far as ‘austerity’ goes, I reckon we have only reached the end of the beginning. I would prefer to wait until 2017. I had 2015 penciled in, but the global financial chicanery has continued – on steroids!

“China and the US are unlikely to embark on a big increase in spending anytime soon while in Europe, Germany is unlikely to lead it.”

China may do so; the US is completely insolvent. Sure the US may crank up ‘spending’ – but to what effect? More unpayable debt? China and other US treasury holders should be somewhat concerned?

“With stagnant real wages for decades, a shrinking trade union movement, cheap energy and innovation leadership, the US has become more competitive than Europe. US IT workers in real terms earn the same today as they did, generally, 14 years ago.”

Michael, you must be aware that the ‘growth’ in the US since 2000 is a complete virtuality. Its all accounting fictions. The total number of persons employed has not increased in 12 years – in fact it appears to have fallen back slightly. To make matters worse, it was the better paid jobs that were ‘free-gifted’ to Chindia. As for ‘cheap energy’ – it is nothing of the sort. But that is another story of the triumph of PR spinola over technical and geological reality. US productivity has improved – by shrinking its well-paid workforce and forcing those employed in services (except in the medical sector) to work shorter hours for less pay.

Effectively, the US has ‘stagnated’ for a decade. But you won’t hear this on the Spinola TV channels or in the press.

Our predicament is political. And our political leadership has been corrupted. They are hopeless. But, in time, we will rid of them!

@pr guy
Barroso is just a more upmarket continental version of Dick Roche.

LBS is a chancer. Most of them are. Thinkers don’t tend to go far in most hierarchies. Loyalty and arslikhan are usually enough when the system is stable but this is not one of those times.

I wonder who will be the EZ Morgan Kelly.

What is Barrosso really up to?
Barroso argued strongly in two speeches this week that federalism was the only answer to Europe’s crisis of finances and of confidence. The German chancellor, Angela Merkel, brushing off widespread fears of a new German “hegemony” in Europe and the eurozone, also said that governments had to give up much more power to Brussels.

“We still haven’t found the answer to the question of whether we’re actually now prepared to unite on common economic parameters inside the single currency area,” she said in a Berlin debate with the Polish prime minister, Donald Tusk. “If we want to have a common currency, a common Europe, we have to be ready to give up our hard-won habits … That means we have to be prepared to accept that in the end Europe has the final word in certain things. Otherwise we can’t keep on building this Europe … To an extent, we have to jump over our own shadows. I’m ready for that.”

Isn’t the above by Merkel utter nonsense. Only 17 countries currently comprise the euro zone … so how can those outside the Eurozone be coerced into towing Berlins line. She is right when she said ” we can’t keep on building this Europe “

Some cultures are better at seeing through elite ineptitude than others

http://www.youtube.com/watch?v=T5WdpSPeQUE

http://wikitranslate.org/wiki/Tout_va_tr%C3%A8s_bien,_Madame_la_Marquise/en:_English

p.s Tom

“Barroso’s links with kleptocratic and oli-rich Angola bear examination”

I know. I really know. I certainly know about his stuff going on in Angola.

You should also look at his dealings and bank accounts in Brazil.

Can’t be the one blowing the whistle though or I will be found very easily….. and shot in a dark alley one night… and I have two young children and I want them to grow up with a Dad.

These people have the power of life and death – it’s only more obvious to a greater or lesser degree depending on the country they are in (e.g. it’s more obvious in a place like Iran than it is in Luxembourg but you still have the same kinds of people at the top). That, as I often say on here, is not a joke.

People have no idea what these people ‘at the top’ are capable of doing and the power they actually wield. I meeet a lot of these powerful c**** (and that’s a word I seldom use) every day – politicians and CEO’s etc. – and they are psycopaths …. not very pleasant people at all and I have no doubt that if they thought they could find a way to kill someone and get away with it…. no problem.

But of course, I will be laughed off as some kind of conspiracy theorist by saying stuff like that…… but I know that these people can kill you and get away with it. Especially those in political roles.

@flj

‘Has Gilmore a death wish?’

Maybe, but he is not old, and portfolio careers are where it’s at.

The Labour Ministers are a bit like partners in an old straightlaced Wall St investment house, where each partner carries part of the risk. They decide to sell the business to some bigger financial entity. The partners get the goldmine, but the associates, assistants and would-be partners get the shaft.
The she is this case is a he, but the dilemma is the same.

http://www.youtube.com/watch?v=U-p0zn3PijY

Younger Labour TDs might consider adding to their set of employable skills while there is still time.

@ MH

The issue of taxation is emerging as the next big thing, but not corporation tax. The wheels are coming off the FTT proposal as an internal paper posted by Open Europe reveals. Weidmann has also come out against it. Enter stage right the more popular issue of tax evasion where the larger players do share enough sufficient interests to actually do something about it.

FYI

http://www.economist.com/news/europe/21576723-treaty-change-back-table-thanks-germany-and-britain-amsterdam-nice-lisbon

Things are looking up! Nothing can better fill the time between now and the outcome of the German elections being known than a pointless institutional debate.

@ MH

The issue is also now, of course, front and centre in the German election campaign courtesy of the chairman of Bayern Munich.

http://www.irishtimes.com/news/world/europe/bayern-munich-boss-scores-own-goal-with-back-tax-settlement-1.1368973

The general drop in support for all things European is hardly surprising. The general public have woken up to the fact that it is the current miserable crop of political leaders that is actually running the show. And the German electorate is also clearly waking up to the fact that the idea, carefully nurtured by Merkel, that country is immune to what is happening elsewhere in Europe is a myth.

Barroso has also recently confirmed his incapacity and, indeed, seems not to understand that the basic role of the Commission is to facilitate the finding of agreement among member states, not to join one side or the other in it. But that is what the leaders wanted; a weak Commission with a weak President and that is what they got.

@DOCM

Avoidance v. Evasion
I see today that Apple are to borrow huge amounts of cash to pay dividends and fund share buybacks despite having cash balances of 145b$. Apparently a lot of the cash is abroad and bringing it back means paying tax.

Barroso’s wounded pride…
http://www.spiegel.de/international/europe/controversy-simmers-over-eu-austerity-and-growth-remarks-by-barroso-a-896213.html

@What Goes Up

All very quiet at the end of the doo really….. the Swiss don’t seem to do late nights or poking holes in anything…. whereas I was up to going out to ‘drink until you get arrested’ (which I can when Mrs PR Guy is not in the same country as I am)…..

Apparently, the pork place was ‘too far to go to’ so I went for a nice Thai meal in downtown Geneva with an English friend who knows an awful lot about horse racing (he trains them and you would recognise his name). It seems to me that if the Irish government put all that 30bn cash they supposedly have sloshing around on a horse in the 3.30 at Yarmouth tomorrow…… Irish debt problem solved 🙂

Or as my trainer friend often tells me: “there is no such thing as a sure thing in this game” – I’m sure I see some parallels in economic forecasting….

@ Hepion,

We have a guide to the Eurozone which explains how money is created, transferred in various ways and destroyed. It can be read at:
http://sensiblemoney.ie/data/documents/How-Money-Is-Created-And-Destroyed.pdf

If you have a look at it you’ll spot the conundrum of resolving the debt crisis using your proposal which I’ll explain a little below.

Almost all money is electronic and exists as the accounting liabilities of the ECB or the commercial banks. For the ECB to ‘spend’ any extra money into the economy under the present system of the banks’ accountancy it has to create a liability on itself. But this has to be matched by an increase in assets and invariably the asset is a corresponding debt from the Government or a commercial bank. Hence increased ECXB spending increases the debt of the economy also. It wouldn’t resolve the debt crisis per se.

Even if the ECB printed euros their liabilities increase as ‘Cash outstanding’ increases. This liability must also be created with a matching asset, i.e. a debt to the ECB so even printing euros wouldn’t help.

As well as this the type of electronic money which the ECB creates is central-bank-money and it’s not in circulation.

As Vitor Constancio, Vice president of the ECB noted in 2011:
‘’Central bank reserves are held by banks and are not part of money held by the non-financial sector, hence not, per se, an inflationary type of liquidity. There is no acceptable theory linking in a necessary way the monetary base created by central banks to inflation. Nevertheless, it is argued by some that financial institutions would be free to instantly transform their loans from the central bank into credit to the non-financial sector. This fits into the old theoretical view about the credit multiplier according to which the sequence of money creation goes from the primary liquidity created by central banks to total money supply created by banks via their credit decisions. In reality the sequence works more in the opposite direction with banks taking first their credit decisions and then looking for the necessary funding and reserves of central bank money.”

P.S. I think we could update the banks’ accountancy procedures and record any new money as an asset of the central banks as opposed to a liability. The banks accountancy procedures are a relic from a time when new money was a liability because it meant a promise to pay a commodity, often gold. With such promises gone it makes no sense to have money as the banks’ liabilities.

Philip Stephens in an op-ed in the FT, ‘The New Deal for Europe: more reform, less austerity’ says:

the economy is too important to be left to economists. More importantly, it presents policy makers with a chance to escape a flawed orthodoxy.

Excessive austerity has seen much of Europe mired in depression. In spite of swingeing spending cuts and tax rises, debt is increasing. The crisis of the euro may be over, in the sense that the existential threat to the currency has been lifted. But the crisis within the euro is extinguishing political consent for European integration. The continent badly needs to reset its course.

The answer is not a new fiscal splurge. A heavy price must be paid for the unchecked spending and credit booms that ended in the global financial crash. But timing and pace matter. Governments with a demonstrable determination to raise long-term economic growth with supply-side reforms should be given more time to cut deficits.

http://www.ft.com/intl/cms/s/0/ad5d3136-ac11-11e2-9e7f-00144feabdc0.html

@ Sporthog

Does anybody think it is ironic that Germany is considered financially well run, but Ireland, Greece, Spain, Italy, Portugal etc are considered a shambles?

So who is wrong… the periphery or the core? What is the best way out of this mess.. to mimic the core or mimic the periphery?

Sweden, Finland and Germany responded to financial crises with significant reforms. Ireland carried on with business as usual and the bubble provided a temporary prosperity.

President Jacques Chirac of France lost the appetite for reform after street protests in the early years of his presidency.

Until the 1990s, France was among Europe’s leading economies in per capita GDP. By 2010, however, the country had dropped to 11th out of the EU-15. Low labour force participation of older and young people, as well as high unemployment rates are the main drivers of this per capita GDP gap.

I hope the young Enrico Letta (46) will have a chance to govern Italy well.

The southern countries were particularly hit by globalization and within Europe competition from the former communist states.

Even Brazil had to impose special duties on Chinese shoes as its industry was facing decimation.

Italy has had a poor record in attracting FDI for several reasons. It’s the same with Greece even though it has a much better infrastructure than Romania and Bulgaria.

No country can be assured of maintaining a high standard of living or even reaching one without a sustainable model as Brian Woods Snr often says.

@ DOCM

What is interesting is that the US is leading the attack on personal tax evasion while its own companies are leaders in tax avoidance – – the term evasion is also appropriate as accounting manipulation that would not be acceptable from local companies, is often a part of minimising tax.

The EU Savings Tax Directive of 2005 was riddled with loopholes and subsequent attempts to improve it were vetoed.

The insider revelations of the fraudulent actions of UBS, the biggest Swiss bank, in facilitating American tax dodgers, triggered the FATCA (Foreign Account Tax Compliance Act) which is much broader in scope than just personal deposits. Foreign banks risk losing their licences to operate in the US.

The days of Swiss banking secrecy are numbered.

@ Michael

“The days of Swiss banking secrecy are numbered.”

Last Sunday’s NZZ featured an interview with Patrick Odier, head of the swiss assoc of private bankers. A very senior Brahmin gnome. He was instrumental in the industry response to the US, they said. But it wasn’t enough. They lost. The name of the game is power.

@ Flj

Said rift has been in existence for some time but I agree that this is a very public rebuff. (Barroso is in a second term and has not ruled out a third!).

@ MH et al

On the wider issues raised with regard to the collapse in public support, Merkel is quoted as saying that countries should not be afraid to address institutional issues i.e. “jumping over their shadows”. This is a bit rich coming from the leader who has jumped over her own shadow from the start of the crisis. The legal advice she received in particular seemed to have motivated her; that and the desire not to antagonise the two most respected German institutions; the Bundesbank and the Constitutional Court.

However, if something is not legal within the treaties it cannot be done blithely outside them instead. The ECJ judgement in the Pringle case is highly instructive in this regard. What the countries have undertaken to do on her insistence is in reality consistent with the treaties or, at the very least, is not caught by any prohibition in them.

On tax, some commentators in Ireland seem to think that this has nothing to do with the EU i.e. there is no fat lady. In fact, there are at least four or five depending on the issue under discussion. But that there is a push to equalise corporation tax across the EU is undeniable.

Poster child for austerity, part 45

http://www.irishtimes.com/business/sectors/media-and-marketing/inm-agrees-debt-restructuring-deal-as-losses-mount-1.1373686

“The revenue environment is tough, we’ve forecast for it to remain tough and this banking deal is predicated on a prudent set of assumptions. They’re realistic and take account of the economy we face in this country which doesn’t show any signs of a pick up.”

@BW Snr
“Manufacturing employments have been outmoded by computer controlled manufacturing and advances in robotic technologies. But then, who wants to engage in manual labour, in sh*tty conditions, for sh*tty wages (down on the farm!)? Most folk want to work in an urban setting with a desk and a computer!”

I think that paints an inaccurate picture of manufacturing. Modern manufacturing is not separable from invention, marketing, customised services etc and has little to do with drudgery in satanic mills. Just look at medical device manufacturing in Ireland or some of the fab-less semiconductor businesses operating here.

Germanic Europe is full of mittelstand-type businesses which are an expression of national pride in engineering, ingenuity and excellence in technology. Businesses like these can take root and grow in a stable business environment with a large easily-addressable market and a social acceptance of the idea of making long term investments rather than chasing quick bucks.

Manufacturing is not outmoded by technology and automation and never will be. It is simply the case that some types of activities reward heavy automation while others do not. What has happened, unfortunately, is that Asian outsourcing and low cost international logistics has wiped out old inefficient manufacturing in Ireland and elsewhere. All across the West you hear the sucking sound of intellectual capital, ‘manufacturing employment’, tacit knowledge and financial capital disappearing towards developing countries as the great equilibration of wages between West and East proceeds apace.

On the other hand, rising energy costs and inventory costs associated with global sourcing and shipping, and rising wages in Chindia are rebalancing the relative competitiveness of Western manufacturing and engineering firms. An increasing realisation by governments like the Irish, US and UK that manufacturing is not cleanly separable from design and innovation is belatedly leading to enterprise and tax policy changes. There are fewer reasons with each passing year why mittelstand-style businesses cannot be built and operated from an Irish base, now that the distractions of quick bucks for brokerage activities are gone forever and realists contemplate the impending decline in employment tax flows and professional services earnings from the national business model – hosting tax-sensitive US FDI firms.

@ MH,

“No country can be assured of maintaining a high standard of living or even reaching one without a sustainable model as Brian Woods Snr often says. ”

Agreed,

In addition Ireland requires to shift away from carbon, perhaps a hydrogen based source of fuel. I know there are many negatives about hydrogen… but battery technology cannot match the internal combustion engine. But getting away from carbon has to be the future.

Re property – yes this is dysfunctional in Ireland. I can’t understand it but there is a mini bubble being inflated again in the capital. I need help understanding why we’re so prone to property bubbles

We’re not. Ireland is a oligarchy. There are oligarchs in control of the property sector and they effectively set the price. There are oligarchs in control of the legal establishment and they set the laws. There are oligarchs in charge of the political system and they preside over the whole scandal with aplomb. They are all criminals essentially.

My understanding is that the older generation were taught to blame England for all of Ireland’s woes. But the lesson for my generation is that it was our own who betrayed us from the very beginning, and who continue to do so. The wasted potential of Ireland is a direct result of the criminal nature of the native Irish ruling classes.

If the Euro does break up, Germany will be the loser. I had this vision of Mrs Carter aka Beyoncé leading the Finance Ministers of the peripheral countries in a song for Angela

All the single Piggies
All the single piggies

Now put your hands up
Up in the club, we just broke up
I’m doing my own little thing
You decided to dip but now you wanna trip

‘Cuz another neo keynesian brother noticed me
I’m up on him, he up on me
Don’t pay him any attention
‘Cuz I cried my austerity tears, for three good years
Ya can’t get mad at me

‘Cuz if you liked it then you shoulda put a banking union on it
If you liked it then you shoulda put a bank recap system on it
Don’t be mad once you see that he want it
If you liked it then you shoulda put a true currency union on it

Slightly off topic or maybe not….

Stop the presses…new taxpayer bailout!

A group of 8 banks including state-owned AIB and Bank of Ireland has agreed to write off almost €140m in debt owed by Independent News and Media (INM), publisher of the Irish Independent and Sunday Independent.

Expect a front page editorial in the next issue of the Sindo expressing grateful thanks to the Irish people for the bailout.

@ All

FYI a very good analysis of the crisis in the FT by a noted Italian financial journalist.

http://www.irishtimes.com/business/economy/ireland/trade-between-northern-and-southern-european-states-can-defeat-recession-1.1373159

The standard response from the Northern countries involved would be that nobody is forced to buy their goods. But this an answer which will lead nowhere as it ignores the unquestioning thinking that sees a large export surplus as a good thing in all circumstances (which include all kinds of imaginative restrictive actions to promote it).

Incidentally, as another example of further responsible leadership, the Handelsblatt has published the opinion of the Bundesbank submitted to the Constitutional Court calling into question the legal and technical basis for OMT!

On the general topic of whether or not there is need for further “integration” to enable both the EU and the euro to survive, there is no evident connection as the unlikely alliance between Merkel and Cameron the need for treaty change confirms, one ostensibly wanting more the other clearly less. To quote General de Gaulle, “you cannot make an omelette out of hard-boiled eggs”.

Nevertheless, the respect that still exists for already agreed EU rules is having an impact, notably in Ireland in relation to the ECJ decision on the redundancy conditions for the Waterford workers. While there are few such rules in relation to general social conditions, there are in relation those governing workers. The decision points up the evident failure to recognise in Ireland the need for the uniform protection of workers – as between conditions for those in the public sector (now evidently including the state-owned banks) and the private – which is taken as dogma in the Scandinavian countries.

It is largely immaterial in terms of outcomes whether reform occurs on such a basis or a voluntary one although the latter is clearly preferable.

I think August is going to be another big mess this year, a la 2011. I can’t see the austerians pushing through the nihilism for another winter. It just isn’t working. Very interesting to see the FT changing tack recently too . And I don’t see many on this site flogging TINA lately either.

@ DOCM

FYI a very good analysis of the crisis in the FT by a noted Italian financial journalist.

Almost 75% of Germany’s 2012 surplus was ex-EU27. Is that not a positive situation for Europe?

The German foreign merchandise trade balance showed a surplus of €188.1bn in 2012, which is the second largest surplus since the introduction of foreign trade statistics in 1950, according to Destatis, the federal statistics office. In 2011, the surplus of the foreign trade balance had been €158.7bn. The largest surplus to date of €195.3bn was recorded in 2007. The deficit in services was –€6.7bn. 

€140bn of the trade surplus was ex-EU27 or 74.5%; €41bn of the surplus was with non-Eurozone EU countries e.g. UK, Sweden, Poland etc; the surplus with the other 16 Eurozone members was only €7bn. 

The Volkswagen-owned unit in Portugal and its SEAT subsidiary in Spain are significant exporters in those countries and their shipments to for example China and the Eurozone excluding Germany, are not included in German data.

Irish and Dutch current account balances are distorted by multinational profit shifting.

OECD value added data show that German exports have a higher import content than US exports.

Surpluses such as China are exaggerated as for example the per unit value added of Apple’s iPhone 5 is about $8 but each unit shipped to the US includes materials imported from other Asian countries such as Japan and South Korea.

So the facts on Germany’s surplus have changed and within the Eurozone, German trade is benefitting other member countries.

The ex-27 surplus is a big plus for Europe — wonder how poorer Europe would be without it?

@MH
On those Indo results…contrast the two reports…
Irish Times..
“At the same time, the media group announced a pre-tax loss of €254.9 million for last year compared to €63.6 million for 2011 on the back of falling ad revenues.”

Indo ..
“The company also announced 2012 results with revenues of €539.7m for the year on operating profits of €59.7m.”

Some difference.

http://www.spiegel.de/politik/ausland/litauens-praesidentin-grybauskaite-verteidigt-sparkurs-in-euro-krise-a-896614.html

@ MH

We have had this discussion before. I summed up the situation as most objective commentators IMHO see it; Germany is eating the lunch of European competitors in export markets, whether intra-EU/EA or externally in third countries. Spain and Portugal are responding in kind by shifting the focus of their exports to third countries. France and Italy have nowhere to go.

Don’t take my word for it! Take that of Deutsche Bank!

http://xa.yimg.com/kq/groups/17389986/1473140226/name/Deutsche+Bank+Focus+Europe.pdf

The leaked paper from the French Socialists simply confirms that it is a party made up either of civil servants or millionaires. It is utterly clueless in the face of the challenges confronting France. Nothing much has changed since the time of Mitterand and that is the problem. Then there were references to “Socialists who drive around in Citroen CX’s”. Now they are referred to as “caviar socialists”.

I also instanced on several occasions the type of protective administrative measures Germany utilises, notably the absence of a minimum wage. A more blatant and immediate example is the imposition of a levy on consumers to subsidise the costs of heavy industrial users of energy! (The last mentioned may be fixed before the elections as a German court has already condemned the measure as anti-competitive and the government probably has to act before the Commission rules on a parallel complaint from a representative group of German consumers; and hits the government with a hefty fine!).

correction: “I hate giving away”

Why do we have to import nurses from China, if so many people in Europe are unemployed ?

@francis try here,may be linked-meeting later.
http://m.diepresse.com/home/wirtschaft/eurokrise/1394859/index.do
http://m.spiegel.de/wirtschaft/soziales/a-896719.html#spRedirectedFrom=www&referrrer=

@francis,excellent response to Marios on other tread,friday afternoon a few more links….bar stool awaits:)
may we live in interesting times..and all that
http://www.handelsblatt.com/politik/deutschland/bundesbank-weidmann-rechnet-mit-der-ezb-ab/8125156.html
http://www.ft.com/intl/cms/s/0/116fe5b6-adf1-11e2-a2c7-00144feabdc0.html#axzz2RUd1lihc

@DOCM
Perhaps you are right that Weidmann has made the ultimate miscalculation…but then how does Merkel deal with him. I note he intends to appear before the court in June. The opinion of the Bundesbank has to carry enormous weight before the Constitutional court on an issue of this kind…a lot more than that of the Government of the day.
As far as the Constitutional court is concerned they still believe that the German Constitution takes precedence over EU laws and treaties..as they have demonstrated on various occasions.
It could be a game changer.

In the meantime Paul Krugman has a name for the result of austerity in Ireland…..Stagnation. Looks like he is right…dire retail figures today.

John,

I was still awake last night, when the FT link came out, and then wondered, while there was just one response over full 11 hours.

The Qimonda bankruptcy taught me a lot. About people with good character, like the colleague I mentioned at great length, and others, with room for a lot of improvement.

And I was kind of torn too, in my brain I knew that we were doomed, I knew a lot more and understood more than most others, but I had also nvested a lot of heartblood and work there, and had decided to stay to the very end. I had also seen, how the IBM folks came out of their deep despair, and how trust their was restored. And sometimes, just not that often, miracles do happen. Neighbor AMD a.k.a. GlobalFoundries was rescued by some arab investor, and actually seems to work by now.

People lost their nerves, in the last 3 month I spent about 30% of my time, just plugging holes, others left, because they just couldnt anymore. People with kids and high mortgages having accidents because of lack of concentration, a meeting with 3 people having gloves on, because their skin was acting up. Some guy with a french background actually trying to stir up violence.

And we brought all of it to an orderly end. The creditors, including ourselves are payed by now.

And the world did not end. Dresden is prospering, and we do build new kindergardens and schools.

@ Flj

Merkel, or, rather, the German body politic will deal with the situation created by the two Young Turks in question in the same way as as happened previously. The two – the Young Turks, that is – will huff and puff but come up with a face-saving formula (e.g. the ESM judgement “thus far and no further”) which will be another bark but not actually amount to a bite and those not bitten will react in an appropriate manner.

Such a political game would be out of the question in other European democracies. But that is the system Germany was left with after WWII.

@ Seafóid: re your 09.15: Just picked it up now.

“German wealth per head is consequently lower than that in Greece.”

Er, no. As Prof Soddy intoned – there is wealth, virtual wealth and debt. I believe D-land leads in the first, G-land leads in the latter two. 😎

@ Tony Owens. Thanks for that comment. I was opining in a general way about the number of employments that might be available. If productive manufacturing embraces computer controlled robotics – human employments must decline in this sector. And where will employments be found? I have no idea, but the prognosis for increases in employments (other than ‘down on the farm’ work) is somewhat dim.

Looks like the passengers on the good ship S.S. EU have morphed into a revolting lot. Who’s up on watch, by the way? The officers appear to be otherwise engaged – throwing each other over the side.

@Francis

‘why do we bring nurses from outside Europe’ when European employment is high.’

Well a lot of that is to do with the fact that they are cheaper workers and also it allows the obvious weaknesses of the Irish health system to be papered over.

HSE wants Irish graduate nurses to start on approximately 22K. Very few want to do that so the HSE uses external labour.

Its a shame that the HSE acts like that but thats the HSE for you. Shameful is a by word for it.

@Francis,off the grid,proper response later,did not want intrude on you Mario’s conservation,know Duchess county well!

wow,

sorry, I am bringing too much german stuff here, I just saw it on TV.

2 useful links:

“no wage dumping”
http://www.aerzteblatt.de/nachrichten/52023/Verband-holt-chinesische-Pflegekraefte-nach-Deutschland

and I would be surprised, if the unions (that would be ver.di, I believe) would accept that.

And the ENTRY level pay here is 2.105 * 12.5 = 26 k
with 20 – 30 % typical add on, 33k

http://www.krankenschwesterausbildung.org/krankenschwester-gehalt/

And we have shops here with special “english”, “american” food

We do need nurses and other people providing actual service, and not bankers and lawywers !

@ Flj

P.S. Little to disagree with except, of course, for the “smile” on Merkel’s face which is much more likely to be a grimace.

@DOCM
It would appear as if the Bundesbank are correct in at least some aspects…
“It said Greek debacle had shown that conditions cannot be enforced, and, in any case, is “very questionable” whether it is desirable to drive down the borrowing costs of profligate states.
To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.”

A report on March tax take in Greece looks like the situation is dramatically deteriorating …..
“Tax collection in March fetched no more than 746 million euros, while the fresh arrears of 800 million brought the total amount of debts to the state to 57.2 billion euros. This includes 9 billion in the old debts of bankrupt companies and taxpayers, while another 3.67 billion concerns old debts of state corporations and utilities, municipal enterprises and other corporations in the broader public sector.”
So maybe Weidmann is right after all.

@ All
Just in case there are any doubts!

http://www.telegraph.co.uk/finance/financialcrisis/10021894/Bundesbank-declares-war-on-Mario-Draghi-bond-bail-out-at-Germanys-top-court.html

“Trust” in the money /banking context is the wrong leading concept here. Too much emphasis on that aspect is wrong. Monetarily, people are more practical than that…”utilitarianism” rules when it comes to “survival of the fittest”. I understand that Ireland’s (older) “majority” prefers easier survival in the Euro “cracks” rather than starting again, particularly when so much youth is leaving or has left (reducing ability of the State to pay undermining people’s sense of security /safety net). In Europe, including Ireland, this sticking-to-Euro’s high value is a generational issue in the social context…Older people think that the younger people will have time and health to recover, but are unwilling to take the real pain (again, unless forced). Older Irish people feel “entitled” to be looked after, given their hard work, etc over the years. Ditto elsewhere. When JG above refers to a large number of Irish people prefering to stay in the Euro rather than leave, this is what is reflected in reality. A good example is the Waterford Glass pension item where the State must “protect” pensions…..Who wouldn’t prefer that if you are at or approaching retirement age? In that sense, again, socialist Europe is an easier option than a Euro exit for the (older) majority….while the younger generations have never really had experience of serious deprivation, etc….

The “problem” (if that is the correct word) with this thinking is that it lacks wider “social responsibility and solidarity”…something that was lost over the years since the Thatcher years when the “me fein” aspect took precedence. The balance has yet to swing back…..Not yet as people don’t “trust” each other and the European welfare system(s) have been undermined of course…..but rebalance socially may of course happen more violently as we move forward and continue with this EU debacle.

Not economics therefore….mostly people /politics. “Survive or die” is prevalent…”. How things should be or work in a fair society” be damned when survival is at stake.

I don’t think the Bundesbank or Germany have ever regarded international treaties as superior to national law – there’s always an implicit get-out clause so that the treaties can be abrogated in the national interest. The legal basis for this seems to be “ultra posse nemo obligatur” (no one is obliged to do more than they can do). “Pacta sunt servanda” is only for the little countries.

This was illustrated with the famous “Emminger letter” which was a secret agreement made between the then FRG government and the Bundesbank. The formal EMS rules specified that the Bundesbank was obliged to intervene when a weak currency hit the bottom of its EMS band (using short-term credits). The secret agreement was that the Bundesbank could ignore the rule in certain circumstances (e.g. some unspecified limit had been reached). The Bundesbank wanted it written down, but Helmut Schmidt refused; instead he wrote an “R” for “richtig” (right) on their letter and showed it to the Bundesbank council, as his way of satisfying the Bundesbank’s demands. Here’s what he said at that meeting

“What interests me here is a part of the third point of your letter. I must say to you openly that I have quite severe misgivings about a written specification of this sort, a written specification of the possibility of an at least temporary release from the intervention. Let us first of all assume that it appeared tomorrow in a French or Italian newspaper. What accusations would the newspapers then make in editorials against their own Government who got themselves mixed up with such a dodgy promise with the Germans. A Government which promised them to intervene in the framework of certain rules of the game, but internally put in writing its intention to be able to do otherwise if need be. In the matter itself I agree with you, gentlemen, but I deem it out of the question to write that down. In the matter it is yet the case that there has been a beautiful saying the world for two thousand years: ultra posse nemo obligatur [No one is obligated to do more than they can do.].

So the binding treaties were really “dodgy promises” and the intention was always that the “rules of the game” could safely be ignored if need be.

So was this secret agreement ever used? Yes – and it forced Italy to devalue and leave the EMS in 1992. The Italian government got a call on Friday evening and were told about the secret agreement and that there would be no further support for the Lira the next Monday. This forced a weekend devaluation. To add insult to injury the Bundesbank then leaked to a newspaper that the devaluation was too small, and that a further one was needed. Within a few days Italy was out of the EMS. (Hmm Friday evening meeting; threatened withdrawal of liquidity by the following Monday – I know that reminds me of something…)

So what has changed in 30 years? Absolutely nothing. The same issues are arising and being dealt with in the same way. Only now devaluation or leaving aren’t options. And what will things be like in 30 years time? Exactly the same. The German national obsession with inflation is almost like a glue that is used to hold the country together, such that monetary stability and social stability and democratic stability are seen as one and the same. And this isn’t going to change. An as an anchor for a currency union with 17 or more hugely differing countries it is just totally absurd – the same will crises will just repeat at regular intervals.

@Fiat
“To cap it all, the Bundesbank said the ECB has no mandate to uphold the “current composition of monetary union”. Its task is to uphold price stability and let the chips fall where they may.””

The Bundesbank is promoting a position that, imho, is illegal, amoral, destructive and utterly stupid.
To use an analogy of a train driver, whose job it is to drive the train. If hundreds of people through no fault of their own are pushed onto to the train tracks, is it the job of the train driver to roll over them.
The position of the Bundesbank, appears that the train driver must indeed roll over them.

But maybe it is best not to pursue the train theme back into history.

As Tull points out;
“It is probably long past time for Germany to leave the EU and take its place among the community of states run by nut jobs.”

He is not understating the position. The big, big loser from EZ breakup will be Germany. It seems as if the people in the BUBU either do not realise that, or actually wish to foster chaos both in Germany and Europe.

The Bundesbank is a member of the ESCB. Just one member. The ECB, for all its failings, passed OMT with one dissenting voice.
That dissenting voice clearly does not like the quasi democratic make up of the ECB.
A system whereby the ECB did as the Bundesbank dictated would be more to his liking.

PS Where in the ECB mandate, does it say that bondholders must be protected. I don’t recall Weidmann or the Bundesbank getting worked up about that program.
But, of course, the bondholders being protected were in large part, German bondholders. So it was best to make sure the chips fell in the right side of the table.

I could not have said it anywhere as good as Michael Hennigan.

One point I want to add:

As my example Qimonda showed, Germany does in general not engage in rescues by state, or building “National Champions” . Even if that could be justified , as some argued for Qimonda.

Unlike France with their Peugot and trying to micro manage Arcor Mittal.

And that means that companies focus on the swimming part in “swim or sink” and not on crying for government help.

That prohibits the accumulation of notoriously unprofitable companies.

We are not perfect, Seehofer got his 50 m € book printed, the “Quelle Katalog”. I doubt he will ever do something like this again, but he should be gone by next spring anyways, as predicted on the Nockherberg : – )

@ Tull
The big step in thinking is this:
This is not about nation states – this is about financial institutions trying to make a new class of billionaire financiers at the expense of the masses. They are exploiting national divisions.
This sounds a bit daft and conspiratorial but it’s not. Trace the role of big finance in all of this. You might not like to because its more satisfying to beat up on political parties/public servants or other nations but the facts are the facts. The people doing well in a crisis are usually the ones behind it.
And it’s not all financial institutions either – just the thick but arrogant bast***ds who can only make money rigging sovereign bond markets and lying about subprime mortgages. Investment banking is now exploitative banking.
The problem is finance is global and politics is not.
Across the world the aspirations and the challenges of people are the same. Across the world the challenge of stopping psychopaths wrecking it for everybody is the same.
We will learn…some day…not now….but even though I’m an atheist I support the man who threw the bankers out of the temple. He saw didn’t do a bad job but even that doctrine of peace was hijacked by psychopaths.

The EZ gave us access to low cost funds due to Germany being the keystone and guarantor of the Euro. We abused our access to the lowest interest rates the country has ever seen. Im Deutschland vertrauen wir worked very well for the EZ members. Unfortunately Germany did what Greenspan did and that was to allow access to the punch bowl long after it should have been removed.Did Frau Merkel ever suggest to Bertie that she was contemplating reining in the profligate countries and did he or did he not tell her to commit suicide.

The phrase “unable to pay the debt” comes up often here. A country to become unable to pay its debt has to meet a number of criteria:

1) Have no control over its own currency.
2) Borrow a high proportion from foreigners.
3) Have its debt denominated in foreign currency.

Looking at the EZ as a whole it could never become unable to pay its debt. The US is far more exposed to foreign (Yuan,Yen) currency and more vulnerable than the EZ.

Now where does this leave dear old Ireland. In a very good position if we are to believe what is written in Brussels.

http://ec.europa.eu/economy_finance/eu_borrower/index_en.htm
For example of the Euro 60 billion available for countries Ireland received Euro 22.5 billion.

If we had something resembling competent government our problems would soon be over. The only thing we can blame EU institutions for is being too generous by far. This has allowed our populist pols to continue doling out the goodies from the candy shop on Kildare Street. That is what we vote for and we should not complain unless we are willing to put our votes where we put our mouths.

Lending to SME is low due to lack of demand and the poor quality of collateral. The banks are desperate to make a profit and are not in a position to roll the dice like they did pre 2008.

At this stage massive public works projects may be the only way out.

The mighty and unconquerable Daimler parent of MB cars, trucks and buses is now entering shaky ground as the Japanese Abenomics campaign succeeds in devaluing the Yen. Angela will soon fall in love with a devalued Euro which will be a relief for all of us. Obama will be livid as he is trying to devalue the $US, are we headed for a widening of competitive devaluations. Serious stuff coming up not the least of which is a serious blow to globalisation.

The greatest bank and property crash in the history of mankind started with one house- Leinster House.

@ Tull
Sorry meant pro-life. And if you see the context of my post you will see that that’s what I meant.

@ Eureka: April 27th, 2013 at 10:14 am:

That’s about it – in a few short sentences. Further comment unnecessary.

and: “Isn’t it time we had a decent left of center slightly liberal alternative.”

Yes it is, except that the median Irish voter is firmly parked right of center – so a LoF party would be a genteel, permanent opposition. Political outlook for Irl is not good. Sheeple will support the status quo – if it is populist and RoC only.

@ MH

Thanks for the detailed response. It contains a lot of material which seems to bear out the points that I have been making with regard to the German economic policy approach, and its excessive reliance on exports, rather than the opposite. Deutsche Bank in its study, for example, refers to the “temporary monopoly” that German firms have succeeded in creating in various sectors which makes them impervious to changes in the euro exchange rate.

If Ireland is subsidising energy prices for industry is news to me and if it is, it is equally stupid in doing so. Indeed, the core of my argument is that it is a mugs’ game for countries other than Germany to try and play in this league. But domestic vested interests ensure that they do.

I must repeat that I have absolutely no objection to Germany exporting itself out of existence if it wishes to. The problem is that such a policy is not compatible either with a genuine single market (i.e. free of competitive distortion) or a single currency. Some of the supposedly learned economic commentary seems to me to be void of common sense. It is the imbalances in the real economic performance that are creating the monetary payment imbalances, not the other way around.

The export-led policy does not even make much sense for Germany as the question posed is what the country should do with regard to investing such surpluses. The history of the investment vehicle Rhinebridge is only one example of literally, it seems to me, giving away exports for nothing.

http://www.ft.com/intl/cms/s/0/27a59708-af46-11e2-ac6f-00144feabdc0.html#axzz2Rh5CeWBw

I have no problem with reform of the over privileged and expensive PS.
The state only controls 15% of BOI so they would not win the vote. Let’s see what happens to pay and pensions and levels of employment in the banks- all are going South. Bankers like Richie have their uses, he pays a lot of tax,

@ DOCM,

since you bring this “subsidize heavy industry” a second time.

Please take a look at
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Energy_price_statistics

especially Table / Figure 3

let us actually start with prices in the US (and numbers in Euro cent / kWh ! for simplicity)

production costs there are in many places, due to local cheap coal: 3 -4
low volume end customer : 8 US = 6 € cent

Europe production: 6.6 in this table, I remember that 2 years ago volume was trading at 5, some kind of mid term average (KWK) at 4, and trading just now at unbelievable 1.7 (http://www.eex.com/en/) booooooaaaah

This is just covering the fuel costs, not the plants, and even that only after brent has fallen 30%

What is charged to the little end customers (Table 2, is 5 times higher, Germany is now in many places at 29 cent, and not the 25 from this 2011 table, because of the addon for photovoltaics (PV)

People do not like the high prices, surprise, surprise, so the Greens have to deviate the attention from the escalating green costs to somewhere else. Especially since all those jobs in the bankrupt PV companies are gone.

And with Merkel basically front running all social democrat / green topics, they are desperate for a wedge issue.

The “subsidized heavy users” in Germany, actually medium companies, because most really large ones have their own power plants, who believed assurances, that they will not need to built their own plant with 5 c cost, but are charged just somewhat higher, who pay now 12.4 instead of the 6.6 in own production, or 9.4 in the neighbors NL, CZ, PL should now be squeezed more, to cover for this.

It is a wonderful election topic, because 99% do not know or understand such numbers, and it makes for wonderful international mongering against Germany too.

You kill an existing aluminum factory in Germany, to built a new one 30 km over the border, or more likely in the US, because the disadvantage in Germany becomes too large. This is certainly an effective way to cut down on German exports.

But would you call it fair?

These new factories would not be built or generate Jobs in the GIPSI countries, if you look at the prices, and where the aluminum is needed.
The green politicians, who bring this, understand what they are doing, trading votes for destroyed jobs.

I have voted for this party for quite some years, but if you see too many of these dishonest acts, it becomes just too much at some point.

Last thing:
If you built your factories close to the customers, and have the supplies local, that you become insensitive to exchange rate, and the german companies did this since the 1970ties.

@ DOCM/ francis

In the market arena of mobile capital, it’s big name companies that hold the blue chips. Governments and in the US, states and municipalities, competing against each other, pick up the tabs.

In March 2011, Twitter headquarters in San Francisco was picketed by residents of the Central Market area where the web company was planning to move to after blackmailing the city government into giving it a payroll tax exemption. Twitter had threatened to leave the city.

The protest group organisers said:

“They are a giant tech company that is taking advantage of a City that is desperate for a creative economy and revitalization. They want corporate tax break, but yet they demand they have THEIR OWN muni bus lines and police foot patrol designated specially for them. Those things cost money! Who will pay those cops and bus drivers? The City (well really us since our money goes into the City)!

There are over 7,000 residents in the Central Market and surrounding area that Twitter will be neighbor with. There are no protection to the residents and small businesses that once Twitter moves in the landlords won’t raise the rent on their tenants that will force them to leave their homes.”

Six months later, IDA Ireland announced that Twitter would locate its EMEA hq in Dublin. It was presented as a mighty coup. There were no job targets mentioned but one thing was certain was that the company was given juicy inducements. A year later, hiring began for mainly administrative positions with fluency required in a wide range of European languages.

This was a flavour of the faux-excitement:

You really can make anything happen…Fluent in Spanish? Passionate about Twitter & helping its users?

Why bother with sex when you could be in ecstasy all day in a Twitter cubicle!

For local impressionable policymakers subsidising employment for other Europeans was a lot more sexy than fixing the broken apprenticeship system for their own unemployed youth citizens:

http://www.finfacts.ie/irishfinancenews/article_1025641.shtml

The flaws in the aspiration for Dublin to be recognised as the ‘Internet capital of Europe,’ a ‘world class knowledge economy’ by 2013 or a significant financial centre, eventually become evident when most of the activity provided by the dominant foreign-owned firms in these sectors, is routine donkey-work.

Silicon Valley, Tel Aviv and Los Angeles head a 2012 ranking of the top 20 global high tech startup clusters, with Bangalore, India and Santiago, Chile, at the bottom. London is at rank 7 and Berlin is at 15. Asia isn’t very well represented so far and Dublin is also missing from the rankings.

This week in Beijing, President François Hollande picked up a letter of intent for 60 Airbus aircraft – – good news for several European countries but also the US — 40% of Airbus’ procurement is in the United States.

Finally on electricity subsidies, Constantin Gurdgiev in an analysis of H2 2010 Irish electricity costs, estimated the price premium paid by households over and above industrial users at 65.8%.

DOCM,

OK, that was too lengthy, because I tried to put things into a global perspective. I am learning : – )

Soo, to rephrase it:

Germany already put its heavy users at a substantial competitive disadvantage to all relevant neighbors in Europe, and even much more compared to the US, by charging substantial nonrecoverable levies (Table 3).

To aggrevate this even more, would be deeply unfair.

And counterproductive, because it would force those, who already pay twice the production costs, out of the country,or to build their own power station. Then there is no large fee paid anymore.

Most European countries charge their final small customers much more than needed for the production of this energy (Table 2, some as tax, some invisible in high “network costs”). The comparison to the US is especially brutal.

They do this to raise revenue and to steer people away from high energy usage, charging carbon emission fees, etc.

This is in Germany even more aggrevated by the subsidizing of photovoltaics via feed in tariffs and charging this to the end customers.

But the people here voted for that, enthusiastically, repeatedly, to argue against it was next to impossible. And they are just waking up now.
And that puts the Greens in the hot seat.

Is this now better to understand?

@ DOCM

Denmark from being 99% dependent on imported oil for its energy requirements in 1973 is now self-sufficient in energy.

The simple point about the German surplus in a Single Market that is riddled with loopholes and where other countries are eager to attract jobs from other member countries, is that fiscal policy changes would only have a limited impact unless a German government was prepared to create disincentives for its big employers to move significant operations elsewhere.

Of course a German government wouldn’t do that and this week General Motors announced it would invest an additional €230m in Opel, its struggling European subsidiary, headquartered in Rüsselsheim, Germany.

Even the possible loss of a few hundred jobs had got a lot of political attention.

@Michael Hennigan – Finfacts

What will happen to Germany (and Greater German Dominion aka 4th Reich aka EUrozone) when the Chinese copy the products and replace them with own manufactured goods?

They already have successfully copied (and improved upon) high speed trains leaving the likes of Siemens scratching their heads, hell even the German BMW SUVs have been copied almost identically for local variants

Dont forget that for foreign companies to operate in China they have to relinquish the control of the Chinese company they setup to locals.

@Mickey Hickey
There is next to nothing that the socialist party can do to influence Hollande policy. For one thing the party is splintered between a multitude of factions that cordially hate each other , from the extreme left to the center. Mainly Hollande is elected for five years and can do more or less what he chooses during that term .Technically the socialist majority in the national assembly could censure the government but then Hollande would dissolve the assembly ,as a consequence the socialist party will get clobbered in the elections and most of the deputies lose their jobs ,not likely . The real issue is what Hollande can do out of desperation (he is the most unpopular French president ever -24% approval-) ,nobody knows and probably not himself .

while cooking,

I was just wondering, again,

why is there not one semi decent german economics blog?

Or does any of you know one?

Big market opportunity !

Soo: Why not ?

@overseas commentator
If France was Germany you would be right. The French are noted for re-enacting the storming of the Bastille (July 14, 1789) when provoked. High youth unemployment with no end in sight is certainly a provocation and not just in the banlieues (suburbs, social, low income high rise housing, opposite of US). The last memorable uprising was in 1967. If the Socialist Party weighs in with the mob Hollande would have to come onside or go into exile. In Germany when I say Civilisation is skin deep I hear objections, in France they know it is just skin deep and act accordingly. Farmers blocking roads, highways, railroads as they do in France is quite rare in the rest of Europe.

I am puzzled at what is holding Spain together unless it is the horror of their last civil war. There are now 3 generations of unemployed cooped up all together in apartments living on welfare on the edge of hunger. Spanish families may be stronger than most in Europe but there must be a limit.

Why Paul Krugman is right…again
http://krugman.blogs.nytimes.com/2013/04/28/knaves-fools-and-me-meta/

Following this discussion with increasing wonder,

Reading Mickey Hickeys 1967 (well, I counted above 6 + 10 + 3 also not to the correct 19 : – )

I looked up the following wiki’s:

May_1968_events_in_France

up to 11 mio on strike, but as a result absolute majority for de Gaulle, and the end of this

List_of_trade_unions_in_France

875 + ( 160 ) + ( 300 FO) + 710 + little = 1580 – 2060 k

That does not strike me as representative of the

General_will (“Volonté_générale”)

So far I would not join into calling them “mob” as Mike above : – )

In comparison the

List_of_trade_unions_in_Germany

lists one central organization with 6600 k, but who have never claimed to represent more than the interests of their members.

The idea, that some tiny criminal special interest groups should have any right to rule over the Sovereign, the parliament, representing the, and elected by the democratic majority of a nation, sounds so absurd for people like me.

A European Commission, overstepping its powers hugely, to “protect” such special interest, how should that translate into any practical action?

I am just becoming aware that the word http://nl.wikipedia.org/wiki/Budgetrecht has apparently no corresponding wiki outside the NL and DE !

I thought that other countries would also see this as a central prerogative of the Sovereign, the parliament.

If we have so fundamentally different views, how democratic rule is enacted, …., then I think any further integration is just impossible.

I had read the Draghi long speech, the dream of some much more tighter integration with great integration, I also followed that dream for a very long time. But now I become more and more wary.

Reading my latest post above again, I should add that my “NY Jewish guy” reference is not in any way racist. It is factual. Some of my very best friends are Jewish.

PE guys in general are not “friends”….they are part of the financial clean-up system, that’s all. But (and apologies to the sensitive) tighten your buttock cheeks when you seek them coming is the rule.

@Overseans Commentator @ 12.31pm on 27th
Fair comment.

… hell they even copied Apple stores in China
http://www.bbc.co.uk/news/technology-14503724

To lighten things up a little bit,

I do enjoy looking at :

Bill Clinton Bids Farwell at 2000 White House Correspondents Dinner

http://www.youtube.com/watch?v=H9pDyoOYXDY

you can alway go for some darker things like “The second civil war” with Coburn, after that : – )

German Council of Economic Experts
Annual Report 2012/2013

English parts listed at top, you can Goog the rest.

http://www.sachverstaendigenrat-wirtschaft.de/jahresgutachten-2012-2013.html?&L=1

Here is the mother lode:

https://www.destatis.de/jetspeed/portal/cms/Sites/destatis/Internet/EN/Navigation/Statistics/TimeSeries/EconomicIndicators/ForeignTrade/TableOverview__nk.psml

@ Mickey

good question from you !

But not so historically exact answer : – (

And the answer is: at that times (1998, 2002, 2005) they actually voted for red/green Schröder/Fischer, and not for Kohl/Stoiber/Merkel

2009 was a classical “Stick with the incumbent” Merkel, in times of crisis, at that time with a SPD Steinbrück finance minister, and havent done anything severely wrong.

I am with you with the “Sober second thoughts” and
I actually hope, that more folks now are looking at the costs, and whether their fears were overblown in 2011.

and therefore NOT vote for red/green, who want to raise taxes to 49% at 60k family income, as the Greens decided today. That would certainly put a damper on the willingness to spend, and vacation in the GIPSIs and buy stuff.

Closing for tonight, a “Betthupferl”:

The Addams Family Values dont include “sloppy” either:

http://www.youtube.com/watch?v=kUG7iGqKiZU

At the Guillotine scence I spontaneously thought of Soros, and his lakais : )

and the “sloppy” comes at the end, for those, who have little time

@francis

Rising house prices and values do affect consumption. The seller gets more money and receives a windfall. People who have equity feel wealthier. I am not saying it is a good thing or a bad thing. However, it is a mistake to think that rising house prices reduce consumption.

To assume that there is a bubblle evolving in Berlin is just plain stupid.

Slavic more likely.

With kinda normal real estate in Munich selling at 10 k Euro/m^2, and the family houses of the 1970ties in decent mid size towns more at 0.8 – 1.2k,

I think we see some fracturing of this market in ways not seen for at least 100 years.

Does anybody have any vague data on medieval house prices?

http://www.focus.de/immobilien/kaufen/niedrige-zinsen-baugeld-billig-wie-nie-immobilien-sehr-teuer_aid_968456.html

Of course there’s a property bubble in Germany! Deutsche has an interest in playing it down.

http://www.handelsblatt.com/finanzen/zertifikate/nachrichten/immobilien-investments-flexibel-in-betongold-investieren/7547408.html

@ Michael

Thanks for the link! Pretty interesting.
Good to know, where to look up more up-to-date information about the whole topic for Ireland.

I did some follow-up, looked at

http://www.personal.psu.edu/bwa10/House%20Prices%20and%20Fundamentals%20On-line%20Appendices.pdf

Originally the strong increase from the mid 1990ties would be explained by some change in the tax code, but that is not true, see the interesting comment in
http://www.expatica.com/nl/news/community_focus/The-future-of-the-Dutch-mortgage-interest-deduction-_103121.html

Basically most of the intelligence, work, and potential problems of this index are in the proper construction of the inflation index.

The American realtor organization used to publish a House affordability index (HAI), based on the assumption of 25% of income used, and a 30 year mortgage, but they stopped that about 2 years ago, because this became non-sensical. But I think this is a useful rule of thumb in general, in “normal” times.

I do follow the local market closely, having graphs going back to 1998, when we had a crash here. Last year we had a 21% rise of prices in the 1-bedroom segment, but which makes sense, given the interest rates. Prices are up by 54% since end of 2008. Not unreasonable, so far. But my sense is, once you get the bubble started, which is kind of now, it becomes very hard to stop it, and people go mad, to jump in. More and more people use financial structures, which can blow into their face in 5 – 10 years down the road.

We had here some subsidizing of low income families until 2002, which distorted the market, with the bizarre result, that people just scraping by, bought, and I still rent, because buying didn’t make economic sense for me, something very hard to explain to most folks in other places : – )

And I do not even own a car. I must be really dirt poor. LOL

@ Dorothy

I think, in general Michael is right for Germany as a whole. But there are local bubbles developing, your Hamburg Hafencity, the wider Munich region, Frankfurt.

The various house price indices out there all leave something to desire, nothing comparable to a Case-Shiller.

There are offers for essential zero down financing. When do we ever learn?

@ Mickey

your “Being Germany”

I wondered a lot in the last 2 years about is there anything special with us, and what would that be.

And I think, to a large degree, we were just lucky.

We had to deal with

1980 wages to high

1990 house prices too high

2000 private debt / social payments too high

2010 expectation of neighbor countries too high : – )

If you have to deal with one problem at a time, it is much more manageable. The countries in trouble now, have to basically deal with all 3 at the same time, the perfect storm

@francis

In Ireland we have saying “You can take the boy out of the bog but you cannot take the bog out of the boy.”.

Translated to suit Germany it would be “The boy may flirt with inflation and instability but his one true and enduring love is a sound currency coupled with political and economic stability.”.

When this Samual Huntington came out in 1993 with his “Clash of Civilizations” and the balkan, and especially not Greece being part of the western world, I laughed and said: we will see.

Nowadays, I dont laugh anymore about that.

@ Mickey Hickey

Thanks for the Bog explanation. Well, some Irish emigrating to Boston and New York found the police departments as suitable for employment :- )

Just 2 more national stereotype things:

I read recently (alternet / Counterpunch) that some arch conservative folks, many 150 years ago, Germans from Russia (!), in Bismarck, North Dakota, also have this Sparkasse like community banking, with this typical multi hierachy (Landesbanken) only developed in the 1930ties.

And last year it was the French students in Quebec who went on strike. Some habits seem to be pretty persistent : – )

But when I wiki Privatinsolvenz: 100 k cases a year, and read
https://www.destatis.de/DE/Publikationen/Datenreport/Downloads/Datenreport2011Kap6.pdf

With a median debt in insolvenz of just 12 k , these myths of the saving Germans sounds so weird. Banks have to figure out the credit risk estimation, and then make their offers.

Thanks for mentioning the German_Renaissance. Pretty interesting read. It made me also to wiki Italian_Renaissance and thinking about, whether some 200 year drawn out decay of GDP per capita by a factor of 2 could be possible again, as in this Gordon paper described as well.

What also went through my head is that after the plague decimated the population, wages grew.

Sometimes I think the shrinking working population in most of Europe (with Ireland the usual exception) will also turn the balance of power between labor and capital somewhat towards the former, and that Spain was not so clever to import 15% of their population during the noughties.

For a long time the central location of Germany was a disadvantage, because many of the wars happened here. During times of peaceful commerce, of which we hopefully now have many more, it is an advantage. You even meet a lot more people of all around the world without the travel expenses : -)