From the Statistics Offices

It is a real shame that it has taken a spat over phone tapping for the US to finally call out Germany’s fiddling while the periphery burns, a luxury afforded them by the pre and post trade surpluses with the EZ.

http://www.irishtimes.com/business/economy/merkel-hits-back-as-us-questions-germany-s-role-in-economic-crisis-1.1579919

“Ireland has come a long way. They’ve fully implemented the programme, there’s never been any delay, all the reviews were always concluded as scheduled, so the programme was always on track and markets are rewarding this. 10-year government bonds are at an absolutely sustainable level of around 3,5%”
http://www.esm.europa.eu/pdf/10-23%20Regling%20EN_4%20expresso.pdf

But unemployment is still ultra high, emigration is ongoing and how about the unbounded optimism of a statement such as of “following a review RBS has decided to continue to operate Ulster Bank in Ireland”.
The programme was fully implemented but unfortunately the legs may still be amputated.

Bailout loans for Ireland and Portugal were given a grace extension to 7 years in March but will that be enough to convince the markets that everything is tickety boo especially during the next wave of economic nihilism ?

Here is an article by an Italian-Canadian on Italian emigration. It would require little tweaking to fit the Irish model.

http://www.theglobeandmail.com/report-on-business/international-business/european-business/italys-economic-woes-pose-existential-threat-to-euro-zone/article15224210/#dashboard/follows/

I thought this quote from Paul Gillespie’s piece was an example of an ill thought-out response.

“a 21st-century Marshall plan to renew the continent’s infrastructure, decarbonise our economies and get people back to work”

Get people back to work. Great idea, but how? And what is the nature of that waged-labour employment? Manufacturing stuff? Fine, but we have computer controlled robots for that and the Asian economies have a surplus of human robots available. So it has to be in waged-labour employments that are welded and anchored in local economies. This is also fine, but someone like to venture a plausible explanation as to why we have a nasty problem with the Dublin area water supply. That’s infrastructure isn’t it?

And since it ’employments’ at the top of the thread, anyone like to venture a valid classification to describe our population and those willing and able to engage in waged-labour.

@ Joseph Ryan

While youth unemployment rates of over 40 or 50%, are shocking, the reality is not as bad as that figure suggests – according to Eurostat, when for example youth in Greece who are in third level education are excluded from the denominator, the rate of 55.3% in 2012 becomes an unemployment ratio of 16.1%; Spain’s falls from 53.2% to 20.6%. 

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Youth_unemployment

@Michael Hennigan

Thanks for that and the link. I struggled a bit with the rather confusing link but now I get it.
In effect, youth unemployment rates cannot be realistically compared with overall unemployment rates, because low labour participation % in the youth category reduces the denominator in the formula, and therefore increases the percentage. Still there are very significant intra-country differences when the better youth unemployment ratio is used.

Either way, it is another case of economic statistics being misleading.

I came across another one in Martin Wolf’s Canadian lecture. He used a labour productivity slide, indicating that labour productivity rates had fallen in Germany, the US and UK during the crisis, quite counterintuitive to what many would think. It sounded a bit odd to say the least.

One thought that occurred to me was that the ‘fall; in labor productivity was simply as a result of price discounting to keep both market share and keep volumes up.
That would make sense to me, and I assume that is what happened, rather than a reported ‘fall in labour productivity’.

http://www.irishexaminer.com/ireland/eu-citizens-enjoy-very-generous-welfare-here-247744.html

@jg: Hi, there. Sitting beside my turf fire – cold, wet evening here. Some of my posts are ‘stuck in transit’ – ???

@jg: That Charlemagne thingy is a load of old cobblers. Shooting the wrong fish.

” … by holding down wages, as Germany did before the crisis; ”

That’s not so difficult when your economy is ‘expanding’ – in aggregate, and the income distributions are not really that inequitable – as they are in Irl and US-of-A and UK-land!

“Many urge Germany to stimulate its economy to help its crisis-hit partners.”

That’s a bad joke – on us! Its Political Economy rubbish!

“But given France’s slow progress in pension and labour reforms …”

Reforms? Eh! You mean ‘downsizing’? Next!

“Internal devaluation still has a long way to go.”

I’ll desist. My comments, at this point, would be completely profane.

Someone needs to set out a clear, definitive Theory of Income in respect of the current economic mess. Absent an income (or a diminished one) you are not a worthy consumer. It might also be useful (given the context of this thread) if we had a clear explanation of ‘work’ – not just as in waged-labour type of stuff, but in respect of the population where a significant proportion of able-bodied folk are both willing and able to ‘work’ – but where jobs are either not available or are held down by robots.

I hear the Chorus of the Challenged – “the government can ‘stimulate'”. Sure it could – if it had the moolah to do it. But it only has the moolah for the banks. Why? The Dublin area is a tad short of water (as in drinking sort). Nightly water curfew! Seems we have 1200 miles of leaky pipes. Apparently they have managed to replace only 120 miles in the last 10 years! And that’s progress? Mindboggling!

How do you classify folk whose intellects are shrouded in a persistent fog of denial and psychological displacement?

Excuse me whilst I pour myself another stiff jorum and put some logs and turf on that fire.

Enjoy the rest of to-day.

I searched IE on Michael Pettis and found only a 2010 reference.

He has a very thorough paper on his 2011 predictions as well as explanations as to where he was off track. The language is technical but plain and easily understood. Search on Germany for best results if you are time constrained.
blog.mpettis.com/2013/09/revisiting-my-2011-predictions/

@ Sarah Carey

Being useless is not necessarily being the worst in the current Cabinet or compared with recent predecessors in office.

It’s in fact striking how alike Richard Bruton is with recent predecessors: mainly making jobs announcements, delivering windy aspirations but avoiding any hint that challenges could lie ahead or that any existing policy needs to be seriously retooled. Batt O’Keefe did establish a group to recommend research priority areas. It proposed 14 and that was accepted last year but this is not material in the context of the overall policy.

Meanwhile, the state enterprise agency chiefs who through their staff are in a much better position than ministers to know what’s
happening at enterprise level, continue to be silent lambs in public and likely also in private.

Bruton did make a statement last year that some may consider visionary but it is delusion that comes with a huge price tag:

“As I have said before, our industrial policy must not just be aimed at attracting the next Google or Microsoft to Ireland – we must strive to create the next Google or Microsoft here in Ireland.”

Early in the period of this government, when Bruton upset Gilmore about proposed changes in sectoral wage committees, Kenny testily suggested that it wasn’t Bruton who would be making the decisions.

Whether right or wrong in the past, Bruton used to express some original thinking but the failed leadership heave appears to have left him as a defanged pussy cat!

If he retains an aspiration to become minister for finance, suggesting a hint of some clouds to blur Enda’s sunny scenario, surely wouldn’t be welcome.

@ veronica

I do not think the outlook is that bad. It is no longer possible to fiddle the books. If an attempt is made to do so – by whatever party – what the country has been through in the past five years will seem like a picnic.

cf. Colm McCarthy

http://www.independent.ie/opinion/columnists/colm-mccarthy/budget-discipline-must-continue-as-troika-exits-29722067.html

Restoration of the role of the Oireachtas will come about as a result of these pressures. This is what has happened in other countries facing lesser if similar crises (Sweden, Finland, Denmark being the best examples for Ireland).

Global inflation rates, we need 3% plus to reach escape velocity.
The new trade partner (2015) Canada is at 1.1% presently.

http://www.tradingfloor.com/posts/macro-alert-europe-heads-towards-disinflation-82469679

@David O’Donnell

Ireland is but a small row boat in a world of behemoths. Our government has been trying to game the system using short sighted scams. The main one being how low can we go with corporate taxes. To make matters worse they then do side deals tailored to individual companies at less than 3%. Any lunatic country can play the how low can we go game and we are not alone or unique in any way.

Government spending since 2008 has been fueled by loans from abroad as the national debt increases quarterly with no end in sight. One cockamamie decision after another delaying short term pain for long term torture and poverty over decades. Sure boys if we only hang in ’til after the next election we can get the gravy train back on track. No one told them that the track is being washed away in a world where even an additional trillion of QE in the US is not moving inflation upward. In Japan Abe’s best anti-deflation efforts are getting poor results as the rest of the world stagnates.

In the present circumstances world economic power is fragmenting and Ireland is only a small part of the collateral damage. No doubt the next round of stimulus will tend toward massive public works funded directly by governments. Ireland of course is in no position to fund the repair of potholes not to mind embarking on major public works.

@ veronica

“The problem goes a lot deeper than political action to resolve the fiscal deficit.”

Agreed! My point is that being forced to fix said deficit is the catalyst that will start the process. Indeed, to describe the deficit simply as a “fiscal deficit” is a euphemism. We have had deficits before but the country never went broke.

One can see the start of the process in the emerging political consensus as to whether a credit line is necessary in the context of leaving the bail-out in the sense that the debate is about the pros and cons, despite the best efforts of some involved to turn it into a party political issue.

I share your aversion to “hard-line ideology, right or left”. It is an aversion that is rather more widely shared than many imagine, I suspect.

@ DO’D: re: ‘the Big Corporations’. Some eye-catching eye candy.

http://www.itulip.com/forums/showthread.php/26228-The-Free-Market

@ JG

I refer you to the point I made to Veronica above. This is the one weak point in the analysis by CMc. He fails to include the dynamic of the four-cornered struggle going on between (i) creditor countries (i.e. Germany) (ii) debtor countries (iii) ECB and (iv) Commission with regard to the ultimate shape of the banking union. There will be no answer to the issue of EA, as opposed to, national “backstops” until late in the overall process. The ECB has no choice but to press the point of the absolute necessity for backstops, national being the only ones available at this stage of the game.

But the ESM is not there simply as some form of decorative ornament. If it has to be used, it will be. The name of the game as far as Germany is concerned is to limit this eventuality as much as possible; a perfectly logical position.

@ JG

FYI report on the rather bizarre situation where the insistence of the CSU on the introduction of a motorway toll confined to foreigners is apparently the sticking point in the coalition negotiations in Germany.

http://www.fr-online.de/bundestagswahl—hintergrund/koalitionsverhandlungen-nur-die-maut-sorgt-fuer-aerger,23998104,24892128.html

But there are more serious matters at issue.

http://www.reuters.com/article/2013/11/02/us-germany-coalition-idUSBRE9A107N20131102

Rather unhappy timing with regard to establishing the conditions surrounding Ireland’s exit from its bailout as the SPD proposes to consult its 475,000 members on December 15; a few days before the December European Council (19/20 December)!

Goes well with JG above.

Someone mentioned they could not drag this.

FT Nov. 5th
Germany is a weight on the world.
Martin Wolfe

The criticisms that hurt are those one suspects might be fair. This might explain the outrage from Berlin last week over the criticism by the US Treasury of Germany’s huge and vaunted trade surplus. But the Treasury is to be commended for stating what Germany’s partners dare not: “Germany has maintained a large current account surplus throughout the euro area financial crisis.” This “hampered rebalancing” for other eurozone countries and created “a deflationary bias for the euro area, as well as for the world economy”. The International Monetary Fund has expressed similar worries.
The German finance ministry responded that its current account surplus was “no cause for concern, neither for Germany, nor for the eurozone, or the global economy”. Indeed, a spokesman stated that the country “contributes significantly to global growth through exports and the import of components for finished products”. This reaction is as predictable as it is wrong. The surplus, forecast by the IMF at $215bn this year (virtually the same as China’s) is indeed a big issue, above all for the future of the eurozone.

More
ON THIS STORY
Germany rebuffs US Treasury criticism
FT Long Short Germany feels US ire over war on currencies
Markets Insight Eurozone deflation
Markets Insight Debt crisis has left Germany vulnerable
MARTIN WOLF
Martin Wolf Carney’s big bet
Why the BoE must gamble on growth
Reality of US fiscal future
US The debt-ceiling doomsday device
Export surpluses do not reflect merely competitiveness but also an excess of output over spending. Surplus countries import the demand they do not generate internally. When global demand is buoyant, this need not be a problem provided the money borrowed by deficit countries is invested in activities that can subsequently service the debts they are incurring. Alas, this does not happen often, partly because the deficit countries are pushed by the supply of cheap imports from surplus countries towards investing in non-tradeable activities, which do not support the servicing of international debts. But in current conditions, when short-term official interest rates are close to zero and demand is chronically deficient across the globe, the import of demand by the surplus country is a “beggar-my-neighbour” policy: it exacerbates this global economic weakness.
It is no surprise, therefore, that in the second quarter of 2013 the eurozone’s gross domestic product was 3.1 per cent below its pre-crisis peak and 1.1 per cent lower than two years before. Its highly creditworthy core economy is subtracting demand, not adding to it. Not surprisingly, the eurozone is also stumbling towards deflation: the latest measure of year-on-year core inflation was 0.8 per cent. Since demand is so weak, inflation may well fall further. This not only risks pushing the eurozone into a Japanese deflationary trap but thwarts the necessary shifts in competitiveness across the eurozone. The crisis-hit countries are being forced to accept outright deflation. This makes ultra-high unemployment inescapable. It also raises the real value of debt. (See charts.)
The policies pursued by the eurozone, under German direction, were certain to have this outcome, given the demand-destroying impact of the all-round fiscal austerity. In a recent paper for the European Commission, Jan In ‘t Veld argues that contractionary fiscal policy has imposed cumulative losses of output equal to 18 per cent of annual GDP in Greece, 9.7 per cent in Spain, 9.1 per cent in France, 8.4 per cent in Ireland and even 8.1 per cent in Germany, between 2011 and 2013. Inevitably, monetary policy is going to find it almost impossible to offset this. Before the crisis, it could work by expanding credit in what turned into the crisis-hit countries – above all, in Spain. Today, it is working against the background of a weak banking system, debt overhangs in crisis-hit countries and an aversion to borrowing in creditor countries.
The most likely way that a more aggressive monetary policy would be effective is by depreciating the euro’s exchange rate. If, for example, the ECB were to undertake large-scale quantitative easing, by buying the bonds of the members in proportion to their shares in the central bank, a falling euro would be the most likely result. But that would exacerbate the tendency of the eurozone, operating under German influence, to force its adjustment on the rest of the world.
As the vulnerable countries shrink their external deficits, while the chief creditor country remains in surplus, the eurozone is generating huge external surpluses: the shift from deficit towards surplus is forecast by the IMF to be 3.3 per cent of eurozone GDP between 2008 and 2015. Given the shortfall demand in the eurozone, the shift might need to be even larger, at least if the vulnerable nations are to have much chance of cutting unemployment. This is a beggar-my-neighbour policy for the world. The US has every right to complain about it, just as others had a right to complain about past US regulatory failures.
It will be impossible, however, for the eurozone to achieve prosperity on the basis of export-led growth: it is too large to do so. It has to achieve internal rebalancing, as well. Hitherto, as the IMF’s October World Economic Outlook shows, it is mass shedding of labour that has raised competitiveness, and collapsing domestic demand that has reduced external deficits in the crisis-hit countries. Thus the adjustment successes have been the other side of the coin of economic slumps and soaring unemployment. Yet, even so, the IMF does not forecast significant reductions in net liability positions. Their vulnerability will endure.
So what, in brief, is happening? The answers are: creeping onset of deflation; mass joblessness; thwarted internal rebalancing and over-reliance on external demand. Yet all this is regarded as acceptable, desirable, even moral – indeed, a success. Why? The explanation is myths: the crisis was due to fiscal malfeasance instead of to irresponsible cross-border credit flows; fiscal policy has no role in managing demand; central bank purchases of government bonds are a step towards hyperinflation; and competitiveness determines external surpluses, not the balance between supply and insufficient demand.
These myths are not harmless – for the eurozone or the world. On the contrary, they risk either trapping weaker member countries in semi-permanent depressions or leading, in the end, to an agonising break-up of the currency union itself. Either way, the European project would come to stand not for prosperity, but for poverty; not for partnership, but for pain. This, then, is a tragic story.
martin.wolf@ft.com