Austerity could only ever bring Europe so far

A letter on the above signed by the following;

  • László Andor, Commissioner for Employment, Social Affairs and Inclusion,
  • Pervenche Berès, Chair of the Employment and Social Affairs Committee in the European Parliament,
  • Joan Burton, Irish Minister for Social Protection,
  • Yves Leterme, former Prime Minister of Belgium, and
  • Henri Malossem, President of the European Economic and Social Committee,

is available here.

Comments

comments

58 thoughts on “Austerity could only ever bring Europe so far”

  1. Growth would be a good thing of course and there is little evidence of fresh thinking here.

    Joan Burton has been involved in the push for a ‘youth guarantee’ but she is collectively responsible for a shambolic old-fashioned apprenticeship system in Ireland.

    The banking system certainly should get serious attention but on other issues, recycling points that have been bandied about for years absent details that can be seriously examined, means that this initiative will have no impact.

    Joan Burton like so many of her colleagues in the Irish Cabinet has nothing compelling to say.

    if weaker member states are to regain competitiveness while keeping the euro, they need investment in the real economy. This must be based on sophisticated industrial policy and support for entrepreneurship, so that restructuring produces sustainable business models. If used wisely, EU funds such as the European social fund can be a major source of financial support, together with the European Investment Bank. 

    What is a ‘sophisticated industrial policy’?

    Individual countries should get support where they have credible plans and where roadblocks to business startups etc are removed.

    The Troika has been pushing the Irish Government to implement credible policies for the unemployed and training.

    The record has been patchy to say the least.

    Why have so few people in decision-making roles signed this petition?

  2. But not to worry because Bundesfinanzminister Wolfgang Schäuble and Minister Ursula von der Leyen (both CDU) travel to Paris today for a ‘Town Hall’ type summit with colleagues Moscovici and Sapin. After, they will meet Hollande. That’s ok so, because, they’ve done so well thus far….:( Livestream on the link: http://www.faz.net/aktuell/wirtschaft/europas-schuldenkrise/gipfel-gegen-jugendarbeitslosigkeit-deutschland-und-frankreich-suchen-nach-loesungen-12196788.html

  3. The letter makes several points, numbered first through fifth.

    Looking at the authors I can’t help making the cynical suggestion that there’s an assumed sixth point.

    “Nothing in the adjustment should impact on our salaries, privileges or pensions.”

    Austerity not shared is austerity halved.

  4. This is a pretty impressive contribution notably because of the manner in which it combines a comprehensive analysis with fairly clear policy recommendations most of which, unfortunately, would be rejected by the present German government.

    Two extracts in particular seem worthy of mention (leaving aside the obvious first priority of putting in place an effective banking union);

    “Second, consolidation in weaker member states needs to be balanced by higher consumption in stronger EU countries. The monetary union cannot rely solely on squeezing troubled countries, which depresses overall demand. “Symmetrical rebalancing” requires structural measures in stronger countries, such as allowing wages to catch up with productivity and adequate minimum wages to prevent in-work poverty.”

    The last sentence may be a reference to the by now notorious system of “mini-jobs” introduced by Schroeder (topping up social welfare payments by an obligatory employment that provides non-taxed income).

    The second reference is the following;

    “The ECB has bought Europe time through its bond-buying pledge, turning itself into a conditional lender of last resort.”

    John McHale should take a bow. But the question remains as to whether such a LOLR s a belief rather than a reality. For the moment, at least, markets believe.

  5. @ Michael hennigan

    FYI

    The youth guarantee is to be funded by each member state and Burton included provisions to allow Ireland and other countries with debt issues to implement the scheme more slowly.
    It seems Germany is willing to help out Spanish young people by allowing them take part in German vocational training programmes.

    http://www.lamoncloa.gob.es/IDIOMAS/9/Gobierno/News/2013/20130521_Spain_Germany.htm

    As to why the Germans didn’t invite the Irish?

    Perhaps Joe Stiglitz may be on to something?

    “Why should taxpayers in Germany help bail out citizens in a country whose business model was based on tax avoidance and a race to the bottom – and why should citizens in any country allow their companies to take advantage of these predatory countries?”

  6. No! If we keep squeezing the poor and middle classes, Europe can rise to new heights of aristocratic decadence and inequality. The continent can become a new Latin America! Ireland is in with a chance of becoming the Panama of Europe, finance-wise anyway.

    Latifundisatas, Rent seekers, corruption, supressed scandals, outright larceny of public funds: None of this would be possible without the social, moral, and economic decline that austerity promotes.

    If Ireland is to finally return to Great Famine emigration levels, we cannot roll back on austerity now!

  7. I think he just called Ireland a predatory country. Is that worse than being called a tax haven?

  8. Consider this: there are two parallel processes.

    The theoretical (carefully designed and constructed to a detailed blueprint with precisely dimensioned Lego-bricks) and its practical counterpart (a Heath-Robinson contraption constructed a confused plan and with bricks of many different dimensions). The Austerity programme espoused by those who will be little effected by it, and the actual consolidation programme which will have a significant impact on the rest of us folk. Like bad!

    You must carefully interrogate the proposers (if you can even get close enough) about the outcomes they expect. Forget the majority of MSM – they could hardly beat their own way out of a wet paper bag. If that process fails to elicit the information you need, then just believe the evidence of your own eyes on the matter. Its bad! That’s it! The rest is simply bar-stool gossip.

    At some point a deathly realization may dawn. You cannot unwind 300 years of European political and economic development. If you do attempt this – you will fetch up with a disagreeable surprise in the form of barely governable states – not one, but several contiguous ones – with substantial populations of p*ssed of citizens. We’ve been there! The only reason capitalism has succeeded – so far anyway, is the presence, and maintenance, of the Rule of Law and the consent of the populations to be so governed. Its the Rule of Law that is being undermined by the elites proposing Austerity. They became affluent by persuading their political supporters to waive, suspend and even delete laws which protected ordinary citizens against financial malfeasance. That works – for a good while anyway. But eventually – like now, things start to unravel. Austerity’s proposers and supporters need to take greater care what they wish for!

  9. “The only reason capitalism has succeeded – so far anyway, is the presence, and maintenance, of the Rule of Law and the consent of the populations to be so governed.”

    Concerning market gamblers – I think Lemmy talks a lot of sense

    “If you like to gamble, I tell you I’m your man
    You win some, lose some, it’s – all – the same to me
    The pleasure is to play, it makes no difference what you say
    I don’t share your greed, the only card I need is
    The Ace Of Spades”

  10. A well-argued letter, but the fourth point is particularly important and deserves special attention:

    “Fourth, Europe’s monetary policy must become more expansionary. …… it is becoming increasingly clear that Europe’s financial crisis cannot be overcome in a deflationary environment, so a different inflation outlook is necessary. We must rethink the ECB’s role and powers.”

    The flawed monetary policy architecture of the ECB is a substantial reason for the very slow (almost nonexistent) recovery. The ECB will claim that they are only following the rules as laid down in their charter, but those rules are deeply flawed and causing enormous, preventable hardship for many EU citizens.

  11. @ All

    Despite its somewhat self-congratulatory tone, this lecture by the incoming governor of the Bank of England is a must-read.

    http://www.bankofcanada.ca/wp-content/uploads/2013/05/remarks-210513.pdf#chart4

    If Europe were but Canada, with a modest population relative to her enormous natural resources (not to mention the tar sands of Alberta; being exploited with little regard for the environment), the solution would be obvious.

    The relatively modest amount of federal fiscal transfers may be noted.

  12. @ Gregory

    Did you not wonder listening to Chopra last week why there was no safety net designed for the EZ? No Bank recap scheme, no LOLR, nothing. And every bailout has been cat. What were they thinking of at the time they designed the rules ?

  13. Seafoid — I do not understand the meaning of your sentence “And every bailout has been cat. ” is there a typo?

  14. @ DOCM
    Its not too much to ask you know – a Europe wide health budget with transfers to fund it.
    Huge efficiencies and the right thing to do. Disgusting to watch the Greeks run out of medicine.

  15. @ Eureka

    Dream on! Even in Canada, as I understand it, the cost of health care is carried mainly by the provinces (although the federal government has a decisive guiding and equalising role).

    The intriguing question posed by the compare and contrast exercise indulged in by Mark Carney, IMHO, is whether the hasty and not fully thought out decision to create a single currency can lead to a higher level of federalisation in Europe, reversing the order in which such developments have occurred in the course of history.

  16. Greg,
    If you are in the BUBA tower, ECB monetary policy looks loose enough to the point where Jens would,vote against further expansion. I would not hold my breath expecting further massive easing.
    As regards KFW lending to Spain, it looks like a pre election stunt.

  17. @ DOCM
    It’s a shared system.
    I have never quite figured you out – you seem to be pro-European but have absolutely no idea of what that Europe should stand for.

  18. “Seafoid — I do not understand the meaning of your sentence “And every bailout has been cat. ” is there a typo?”

    I also have it as meaning to be rubbish in a let-downy way, eg ‘this new Bowie album is cat, hi’ (agreed)?

    But I have only heard it used by people from Donegal and I suspect it may be of Irish language origin. I don’t think it is catastrophe, cat-o-nine-tails or anything like that.

  19. “Cat” for a dreadful thing, is also used in south Kerry “yerra shure twas cat”…

  20. O if only we didn’t have those pesky constitutional right, then we could do ll sorts eh Michael?

  21. @ Brian Lucey

    Sweden, Finland and that other tax haven, Switzerland, would be more my cup of tea.

    All workers having equal rights — surely not revolutionary?

    As for dictatorships, the embattled Spanish government has interesting priorities.

    It plans to have the mausoleum where the former Spanish dictator Franco lies buried, the Valle de los Caídos, renovated and put out a bid for tenders worth 300,000 euros for the project in mid-May.

    La Repubblica of Italy comments : “The wind of the Counter-Reformation that is blowing through the ranks of Rajoy’s People’s Party could already be felt when the proposal to designate July 18 as the ‘Day of Condemnation of the Franco Dictatorship’ was rejected. … The day of Franco’s coup and the start of the Civil War should, the Socialists had proposed, be made a day of remembrance and of condemnation of all forms of political violence and dictatorship. And now, even in a country with empty state coffers, money has been found for the restoration of what half Spain sees as a desecration of the memory of those who were defeated in the Civil War.”

    The El Mundo newspaper reported last week on the latest developments in the submarine saga that has given Spain’s defence department a sinking feeling.

    The €2.2 billion contract to design and build four S-80 underwater craft, billed as “the most modern submarine in the word” has been put on red alert after engineers found flaws in the plans and sounded the klaxon.

    €530 million had already been spent when calculations made by engineers at Navantia, the construction firm, revealed that the submarine as designed would dive to the bottom of the sea and stay there due to excess weight.

  22. All im noting M is that we have a constitution which is very strong on actual implied and for all I know desired property rights. And other rights. If we have learned anything its that we mess with the Bunreacht at our peril and only when at need.
    Frankly, I would not take a single economic lesson from the PRC. As for the others,
    Finland… I think of Monty Python. Sweden is busy dismantling the structures that served it so well for decades and our friends in the alps…http://www.youtube.com/watch?v=dv1QDlWbS8g

  23. Re “cat” I don’t think it is from Irish. “Cat melodeon” is used in Connacht and in Ulster. It’s is often used to describe GAA performances. Eg Down were cat yesterday.

    Noël Coward had a variation on the theme

    http://en.wikipedia.org/wiki/After_the_Ball_(musical)

    “I have been having a terrible time with After the Ball, mainly on account of Mary Ellis’s singing voice which, to coin a phrase, sounds like someone f*cking the cat”

    Can anyone explain why there was no safety net for the EZ when TSHTF?
    Chopra described what such a system would look like last week in his presentation about how to move forward on banking regulation. Colm McCarthy has been banging on about it for some time.

    The ad hoc approach is a mess and none of the bailouts have been “least cost”. Cui bono?

  24. @ Eureka

    I will come out with my hands up.

    To sum up my position (i) I consider the European Union to be a noble cause; if contrasted with what has gone before in Europe (ii) it is made up of nation states that have agreed to act in common (to take the simple language of the French constitution) in a manner which can, and has, led to quasi-federal action (iii) the sine qua non is that the states involved honour their commitments regarding the objectives set out in the treaties (“pacta sunt servanda”) and (iv) that these are achieved as soon and as effectively as possible.

    If I want to find out “what Europe stands for”, I refer to these elements.

    What Europe should be in an ideal world, I leave to others. The political actors arguing for this or that change are usually trying to camouflage their failure to live up to their existing commitments.

  25. A little digging around gets us here:

    How to Talk Like a Local: From Cockney to Geordie, a national companion
    By Susie Dent

    Sadly not cut-and-pastable, so briefly, no undisputed origin, but possibly:

    * cat melodean (with regional pronunciations of same)
    * Irish cat marbh – mischief or calamity
    * Catastrophe

    So points all round.

    In my memory of it being used, ‘cat’ pronounced quickly but with nearly two syllables, ‘Key-aht’

    http://books.google.ie/books?id=5FA1R3fKY_wC&pg=PT51&lpg=PT51&dq=%E2%80%9CCat+melodeon%E2%80%9D+meaning+origin&source=bl&ots=-tnSJXlciS&sig=2VTUVFBMycuXW7mdCf5rUtjenWU&hl=en&sa=X&ei=ebelUZPeH87y7AbWq4C4Cw&ved=0CDsQ6AEwAg

    Meanwhile Seafoid’s notes on Bank Resolution Mechanisms Conference here:

    http://www.irisheconomy.ie/index.php/2013/05/16/final-reminder-conference-on-bank-resolution-mechanisms/#comments

    I like the cut of Chopra’s jib and what he offers is better than what Europe has, but one suspects at best it will be a forever evolving process.

    Front page of the FT today implicitly contrasts state of US with EZ/EU: ‘US Steps up Pace of Economic Recovery’, vs, ‘Europe Looks to Break Free from Austerity’.

    Due to personal and structures EU types find it very hard to say, ‘well that was a terrible decision, let’s reverse it’, and so are all tangled up with really weird formulations like ‘austerity can only take us so far’ and frowning heavily whilst rubber stamping increased fiscal deficits.

  26. The current crisis response mechanism is a mess. Trust breaks down at the first sign of trouble. The equivalent of a fire panic in a theatre unfolds. Better informed punters get out first. Efficient markets my a*se. Same story for Ireland, Greece, Portugal and Cyprus. Costs are multiplied and the crisis deepens.

    There is zero transparency. Add this to austerity without anything done on capital imbalances and you get to where we are now.

    http://www.ft.com/intl/cms/s/2/d3508ac0-c687-11e1-943a-00144feabdc0.html
    “I turn to the ECB’s insistence that governments, particularly in Ireland’s case, should not allow default by their banks to creditors. What was the thinking behind that?
    “This was something which was very lengthily and thoroughly discussed,” says Trichet. “And the judgment was that at that time and in these circumstances, the threat of contagion in Ireland itself was such that it would have been extremely dangerous [to allow the Irish banks to default].””

    Chopra’s view was that it’s far too expensive to leave the response to people like Trichet. Why don’t we have mechanisms in place to deal with market failure?

    Here’s something from the latest issue of Private Eye (no link available)

    “A judicial review brought by campaigners UK Uncut Legal Action against HM Revenue and Customs’ dodgy deal with Goldman Sachs, first revealed in Eye 1287 2 years ago , exposes how craven the tax department is when up against big business- and deepens concerns over the National Audit Office’s whitewash of the deal.

    An internal mail from Dave Hartnett, the tax boss who in November 2010 shook hands on the deal that let the great vampire squid off a GBP 20m interest bill on an old national insurance avoidance scheme reveals how the tax man gave in.

    When the settlement was rejected days after the handshake by an HMRC
    board set up to review big settlements, Goldman’s UK tax director “went off the deep end” ”

    Voilà

    And how do economists price influence and corruption into their models ?

  27. @ Eamon Moran

    Stiglitz;

    “Why should taxpayers in Germany help bail out citizens in a country whose business model was based on tax avoidance and a race to the bottom – and why should citizens in any country allow their companies to take advantage of these predatory countries?”

    The answer to the first question is that these German taxpayers allowed their government to sign up to a single currency, the relevant treaty articles stating the blindingly obvious; it should be run successfully. Saddling Irish and other taxpayers with enormous costs due to a collective failure to do so cannot be ignored in this cavalier fashion.

    As to the answer to the second question, by all means, let us have a global agreement regulating company taxation. Seeking a convenient – and not very significant or powerful – scapegoat, while mixing apples and oranges in the process, is not going to bring this about. The major gainers of the present system are wealthy US – and other – investors. They are a much harder nut to crack.

    Economists, however eminent, when they descend into the political arena, demonstrate little other that they should have stuck to their lasts.

  28. http://www.guardian.co.uk/politics/2013/may/28/contributions-welfare-debate

    “Now let’s get this straight (Aditya Chakrabortty, G2, 28 May): even in “prosperous” Sweden 25% of young Swedes are out of work, and 40%-plus in Spain and Portugal. Yet we apparently are faced with too many older people for the working population to support. Why is the top priority not to convert these millions of unemployed into earners who can support the ageing, rather than negatively reduce the living standards of both groups? Has nobody any constructive ideas? Anyone who has visited less-developed countries will have seen the crowds of unemployed young men who, probably out of resentment and boredom, are available for any kind of incitement to unrest.
    Ralph Gordon
    Romford, Essex “

  29. @ Eamon Moran

    It’s ironic that it’s American action that will end Swiss banking secrecy, while its big companies are availing of tax haven services in Europe.

    It’s interesting amidst the faux-outrage in Dublin, there appears to be no concern that an Irish company could be viewed as stateless with billions channelled through it while filings are not made anywhere.

    Wonder if the Las Vegas mafia have missed out on these facilities?

    So a director can be charged with false accounting but not with no accounting.

    Whatever, Minister Lucinda Creighton seeks to achieve on her spin trip to the US, the game is up on massive revenue transfers.

    Eric Schmidt, Google’s executive chairman, has defended the web giant’s maligned tax affairs, saying it would pay more if laws were changed, and that he’s “rather perplexed by this debate.”

    The US National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s co-founder, Sergey Brin, while he worked on that research.

    The UK market is Google’s biggest overseas one but sales are booked in Dublin and profits are routed through Bermuda where there is no corporation tax.

    Yahoo! had started as a directory service supported by a search engine. Alta Vista, Lycos and a few others were the pioneers.

    Google improved on what the pioneers were doing by producing better search results through popularity of linking and highlighting searched text on web pages.

    Yahoo! selected Google as the search backup and in 2003 Google acquired Applied Semantics, which provided the software engine for Google’s advertising system.

    Eytan Elbaz, founder of AS is a graduate of UCLA, a unit of California’s public university system.

    The web developed from a government-funded project…

    Congress is cutting funding for basic research to reduce the deficit.

  30. The problem that I have with this letter is that it’s ineffective. The arguments it contains may have merit, but at whom are they directed? And to what end? Apart from the political curiosity of having Joan Burton’s signature, as the only currently elected politician and serving member of a national government, appended to it, it has attracted little or no media or political interest.

    You get one shot at something like this. If you miss, it’s dead as a dodo. So I would have thought that a more suitable target for publication of such a missive would have been the FT, since that is the acknowledged ‘journal of record’ for the Brussels’ elites and for most of their national political counterparts throughout the EU; and thereafter, publication in all national ‘papers of record’ of eurozone MS. That way it stood a chance of either creating some momentum behind its proposed plan of action or generating national commentary and political discussion. The Guardian ‘Comment is Free’ section hardly fits the brief, and it’s not yet clear what other EZ mainstream press outlets were supposed to run with it. As it stands, it appears to have had about as much impact as throwing a small pebble into a large lake.

  31. @ DOCM
    Appreciate the engagement.
    You describe something like those triple entente jobbies of the 19th century – they were a disaster.

    What rights should a European citizen enjoy?

  32. @ Michael

    Stewart Lee continuing the theme of government tax based support and what it means

    http://www.ft.com/intl/cms/s/2/bea2c458-14fd-11e1-a2a6-00144feabdc0.html

    “He especially regrets the disappearance of the old “support networks”, such as the unemployment and housing benefits, that enabled artists to live cheaply and find their way. “It’s all over. There’ll come a point when somebody will suddenly realise – there’s loads and loads of Coldplay but there isn’t a Radiohead, there’s loads and loads of ITV1 sitcoms, and things with Robert Lindsay in a house, but there isn’t a League of Gentlemen. Someone will be reading an embossed novel about a missing artefact, and they will suddenly think, ‘Didn’t there use to be books that were not just a list of events?’ ” (Lee’s well-known parody of a typical Dan Brown sentence goes: “The famous man looked at the red cup.”) In 40 years, he reckons, people will be saying, “Where’s all that stuff gone that was … good?””

  33. @ Micheal Hennigan

    “It’s interesting amidst the faux-outrage in Dublin, there appears to be no concern that an Irish company could be viewed as stateless with billions channelled through it while filings are not made anywhere.

    Wonder if the Las Vegas mafia have missed out on these facilities?

    So a director can be charged with false accounting but not with no accounting.”

    This for me is a key point every one in Ireland is seeking to ignore. There are countries that allow companies to be incorporated but then allow them to declare tax in another jurisdiction.
    But how many allow them to be incorporated but not have to be registered for tax anywhere? Is this uniquely Irish?

    The Tainiste would like to wash his hands and say the US should legislate.

    Does the US allow companies to be incorporated in the US and make profit but not have to be registered for tax anywhere?

  34. @ Eureka

    I suggest that you break out your copy of the current treaties – and purchase one if you do not have it – and look up the rights that citizens enjoy. Failing that, you can always consult the texts on the Net. I cannot, offhand, think of any additional rights other than full citizenship of a “United States of Europe” which is not exactly on the cards.

    http://ec.europa.eu/justice/citizen/

    @ Veronica

    Do not forget the power of correct ideas! They usuallly win in the end.

    @ MH and Eamon Moran

    Ireland is to become the paragon of international taxation virtue? Where, exactly, do you see the benefit in that?

  35. @ DOCM
    Let me make this simple for you:
    What’s the buy-in for Europes citizens?
    As far as I can see citizenship of Europe is serfdom. No right to health, no right to education, no right to vote for Europes president or directly elect the commission.

    Europe, as it stands, means nothing.

    Are you French by any chance – your arguments are often quite circular

  36. @ DOCM

    EM says:
    ‘This for me is a key point every one in Ireland is seeking to ignore. There are countries that allow companies to be incorporated but then allow them to declare tax in another jurisdiction.
    But how many allow them to be incorporated but not have to be registered for tax anywhere? Is this uniquely Irish?’

    We have a good expression in Ireland for that sort of thing. It’s called ‘tearing the ar5e out of it’. Everything in your comments conveys your support for reasonable and reasoned government. So how is this sort of arrangement defensible ? Irrespective of how many wigs give it the nod, the ordinary citizen will regard it as an obvious scam.

  37. @ Paul Quigley

    To coin a phrase; it takes two to tango! One of the partners in this curious relationship can step, and has stepped, on every toe in town. I am not defending it. Simply pointing out that the initiative hardly lies with the junior partner.

  38. @ DOCM

    Ireland is to become the paragon of international taxation virtue? Where, exactly, do you see the benefit in that?

    Ireland will likely do nothing — I’m not naive.

    However, it is for example reasonable to expect given the coordination between the UK, Germany, France, the OECD and G-20 coupled with EC moves on tax transparency and public outrage, that for example Amazon’s tax-free status in the UK, its biggest market, is unlikely to continue.

    Yesterday, the Swiss breached their own banking secrecy fortress and there is more to come.

    @ Eamonn Moran

    I have more detail here on different levels of company compliance in Ireland or none.

    http://www.finfacts.ie/irishfinancenews/article_1026060.shtml

  39. @ MH

    I doubt if Ireland will do nothing. But I see no benefit in the country getting ahead of the posse. The one benefit that I do see from the current furore is the growing realisation that putting all one’s eggs in the MNC basket is ultimately a very risky business strategy; to the extent that such can be said to exist for the country as a whole.

  40. @ DOCM

    How many decades has it been now since we ceased, at official level, even to think about any other strategy ?
    Sleepwalking.

  41. @ PQ

    As long as things are working reasonably well, there is little incentive to change the situation. However, the solution for a peripheral island nation like Ireland is not obvious. I am reminded of an event years ago at the height of the oil boom when I teased a Swedish friend that the latest status symbol in Norway was a Swedish chauffeur. Like a flash, he responded; “Yes! Driving a Volvo”.

    Volvo has since fallen on hard times but the point is a very sound one.

    What can Ireland come up with?

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