Canaries in the coal mine

The European election results are coming in, and in France they are catastrophic.

There are two obvious points to be made which work in opposite directions.

First, the vote for the FN and similar parties is an under-estimate of eurosceptic opinion, since these parties come with so much baggage that many voters who hate what Europe has become would never, ever dream of voting for them. And quite right too.

Second, it may well be that these parties would have done less well if there had been national elections last weekend: voting for the EP is one thing, voting for national governments another. (But who really knows.)

Expect many mainstream commentators to point out that the centre has held, that the EPP have won, that Juncker is the people’s choice for EC President, and all the rest of it. This strikes me as exactly the wrong response.

My big worry this Monday morning is that Hollande and others (but I am mainly thinking of Hollande) will continue with their current economic strategy, which as far as I can see consists of crossing their fingers and hoping that something will turn up. Yes, some day this recession will end, since all recessions do, but the timing of this will depend (probabilistically, since life is uncertain) on policies: monetary and fiscal policies, obviously, but also policies to fix the European banking sector. Right now, given Europe’s policy choices, there is no good reason for the French government, or any other government, to expect that the real Eurozone economic crisis (which has to do with growth and unemployment, not yields on government paper) is going to end any time soon. And certainly not by 2017.

M. Hollande and his like may believe that sticking to the programme is their only option, and that any other course of action would be far too risky. They should ask themselves what the political landscape will look like if the Eurozone crisis continues for another 3, 5 or 10 years. It’s not impossible. Perhaps something will turn up, and perhaps the status quo merchants will get away with it. But perhaps it won’t, and perhaps they won’t.

People who argue that there is no alternative presumably see themselves as prudent and responsible. But you could just as easily regard them as drunken gamblers on a losing streak, forever doubling up.

Comments

comments

50 thoughts on “Canaries in the coal mine”

  1. The main political divide in the European Parliament used to be right versus left. Now it is europhile versus eurocritical/eurosceptic. The competition for the the EP’s nomination for EC president was supposed to be between the main blocs. Now it is between factions of a single bloc.

    This election gives us inklings of a demos, but now that integrationists see it in practice it’s not the demos they wanted.

  2. The main political divide now seems to be between ‘loud’ and ‘quiet’. I’ve never seen as many shouty show-offs in an Irish election. Given that Shane Ross wasn’t running this seems remarkable. I fear this trend is only going to intensify – maybe Brian Blessed will run in the Roscommon by-election.

  3. @ Grumpy

    “European stocks rose to their highest level since 2008, as Italian banks surged after Prime Minister Matteo Renzi’s party” cont p 94

    Markets have no way of divining what is going on. Trina cheile is very hard to model . Gut feel is also difficult to project out 2 or 3 years

  4. UKIP have no policies. I wonder what they’ll do. Maybe they could emulate the Shinners and not recognise the Parliament.

    The mainstream parties will claim this is a protest vote unlikely to be replicated in a “real” election.

  5. @ seafoid

    Markets may be taking the view that some of the big players are now likely to relax a bit on austerity, leading to higher earnings for large EU corps as per Andrew Smithers recent blog in the FT.

  6. When all these euroskeptics / socialists / left wingers / ultra far left or whatever you want to call them….

    1) turn up in Brussels,
    2) get settled in..
    3) then get paid their first monthly salary,
    4) then submit expenses….

    they will very quickly become pro Euro.

  7. “People who argue that there is no alternative presumably see themselves as prudent and responsible. But you could just as easily regard them as drunken gamblers on a losing streak, forever doubling up.”

    With respect, they are anything but drunken gamblers. The key is that they are not on a losing streak. The decision makers, the bureaucrats, the financial sector etc, in the various countries are doing quite nicely. They will tough it out, because they are being well rewarded for toughing it out.

    Bank stocks have risen in Italy because the success of Renzi means that Italian banks (investors) will be bailed out on the national purse, following the ‘stress tests’. [Why else would banks stock rise? There has been no good economic news, just news of a EZ Bank Guarantee, writ large in the election results. Not just in Italy, but in a coalescing of the centre groups in the EZ]

  8. “voting for the EP is one thing, voting for national governments another” … and voting for a Eurovision act is yet another. Perhaps if the Irish could get Dustin the Turkey elected to the EP, and he formed a coalition with the bearded lady from Austria, the European Parliament would get the level of respect it deserves.

  9. Also lovely to see Fianna Fail, the party that both caused the economic meltdown and designed the austerity framework for dealing with it, topping the polls up and down the country. Wisdom of the crowd innit.

  10. Mentioned this in the other thread but its appropriate here too.

    Europe has a badly damaged economy and the current elites are wondering about (a) making the current failed policies law (fiscal rules and so on) and (b) Giving themselves more power.

    @Joseph Ryan

    +1

    I would agree with you there. Though many of those forcing the current policies on Europe do believe that they may eventually work (or that they will not collapse the economy) these people are also not fools, or not just fools. These policies suit Merkel, they suit the European Commission, they suit the financial sector and they suit conservative ideologues.

    The failures of European economic policy makers and their stake holders is not just incompetence and delusion – it is greed, prejudice and self protection.

  11. Arghhhh. Scanning fail.

    The failures of European economic policy making and of its stake holders are not just incompetence and delusion – they represent the success of greed, prejudice and self protection.

  12. The Irish total employment level in March 2014 has been cut by 22,000 from the Dec level.

    I said in March that the total of 61,000 jobs that were officially added in 2013 was not credible.

    As for Hollande, he cannot increase taxes nor cut spending. Deferring the EC requested adjustment would give some leeway but not much.

    Public spending is at 56% of GDP.

    Germany’s growth in Q1 was domestic as emerging markets are under pressure.

    France has run a trade deficit every year since 2002 and a budget deficit every year since 1974.

    Infrastructure? I don’t know.

  13. I see Krugtron 3000 is more on Kevin O’Rourke “Fools first, cads second” wavelength.

    Paul Krugman on “European Green Lanterns

    Barroso just declared that the euro had nothing to do with the crisis, that it was all failed policies at the national level; a few minutes ago he said that Europe’s real problem is a lack of political will.

    This is quite amazing, in a really bad way.

    As always worth a read. Just because the “The Eurozone crisis is actually just a weirdly simultaneous set of unconnected national crises in countries which do not border Germany” thing is tired does not mean we can not kick it for some laughs.

  14. I suspect that the election result, particularly in France, may make a policy re-think more likely, with a Franco-German agreement to further ease the pace of fiscal retrenchment, particularly as monetary policy is at or near its effective limit. QE is unlikely to be very effective in Europe as bank credit is much more significant than it is in the US. The ECB may try a UK style Funding for lending scheme (linking longer term funds directly to bank lending) alongside rate cuts (including a negative deposit rate) but eventually may accept that looser fiscal policy is the better bet now.

  15. talking financial numbers as for thread topic “canaries-in-the-coal-mine”

    as of this hour, US S&P 500 is at a record high, the German DAX jumped with a frivilous 1.8% increase to an all time high of 9890, taking it now from somewhat overvalued to significantly, but not yet enough to ponder sell recommendations, on my side.

    On the bond side (http://www.bloomberg.com/markets/rates-bonds/), the German rates did not move one single base point. Italy and Greece fell by 12 and 17 points.

    The English and China signed huge gas deals with Russia. France is on track to deliver carrier ships to Russia.

    Total disaster for the US State department and UK Hague.

    But of course this is all the fault of the evil german workers, and the majorities they voted for : – )

  16. @ Francis

    “as of this hour, US S&P 500 is at a record high”

    Und?

    How many trillion have the CBs printed ? where did you think it would go ?
    How are valuation multiples looking compared to the long term averages ?

  17. Gilmore resigning is a bit of a dent in the Irish recovery story.
    Surely the people would have voted for the government if everything were tickety boo.

  18. The comment by Dan McLaughlin seems to me to be closest to the mark.

    Even within the new fiscal rules, there appears to be considerable leeway for a better response from European policymakers than that of just sitting on their hands. This – somewhat dated – comment indicates where this might lie.

    http://www.voxeu.org/article/fiscal-compact-treaty-keynes-and-german-taxpayer

    With regard to the Ukraine, this Guardian report gives a good picture of the situation. As one frustrated voter in the east of the country said, “it is time to get rid of those idiots in masks”.

    http://www.theguardian.com/world/2014/may/26/new-ukraine-president-petro-poroshenko-vows-stop-war

    One way or the other, as the reaction of the markets indicates, there is no risk of an immediate EU explosion, despite the arrival of numerous canaries in the European Parliament. The reason being that these are incapable of tweeting together as the public statements from the successful Sinn Féin candidates and Luke Ming Flanagan have already indicated. They would not be seen dead, it seems, with some of the other recent arrivals, wrapping themselves in the respectable cloak of euroscepticism; subsidiarity.

    This tactic will not, however, wash when it comes to participating in what the European Parliament actually does i.e. deciding under co-decision with the Council on precise legislative proposals.

  19. @Michael Hennigan

    [Sorry, off topic]
    “The Irish total employment level in March 2014 has been cut by 22,000 from the Dec level.”
    http://www.cso.ie/en/releasesandpublications/er/qnhs/quarterlynationalhouseholdsurveyquarter12014/#d.en.65058

    You did call that one before, but there is something unusual in the ‘fall’ from Dec 2013 to March 2014. It seems, looking at table 4, to be spread across many categories. Even if ones compares Sept 2013 there are unusual movements in some categories.

  20. @Dan McLaughlin

    re
    “QE is unlikely to be very effective in Europe as bank credit is much more significant than it is in the US. The ECB may try a UK style Funding for lending scheme (linking longer term funds directly to bank lending) alongside rate cuts (including a negative deposit rate) but eventually may accept that looser fiscal policy is the better bet now”

    If some element of QE is to be considered, [reasonable people would at this point, politically if for no other reason, make some effort to change policy as you suggest], would it not make more sense for the ECB to issue compulsory COCO bonds (say at ECB rate) to all EZ banks, based on current book values (not market prices). That would not be monetary financing of governments and the ECB would not, in theory at least, be inflating asset values across ranges of assets.
    One could argue that the ECB could lose, and that therefore it would be mutualising any embedded losses in banks, but it would begin to establish a fund from the interest with which to absorb the losses.

    The politics of the situation on the ground are very serious and doing nothing, other than centre groups coalescing together to give us more of the same and frustrate change, is hardly a long term solution.

  21. @ seafóid

    Who cares!

    @ All

    This euobserver analysis offers some informed insights as to the impact of the arrival of the canaries. The short analysis is that it is likely to exacerbate existing divisions between the main political groupings, especially in relation to trade and protectionism where the EP has been given increased powers under the Lisbon Treaty.

    http://euobserver.com/eu-elections/124349

  22. @ seafoid

    At least Karl Marx and Adam Smith can rest secure knowing they didn’t leave any faulty Excel macros lying around behind them

  23. @Dan McLaughlin

    “would it not make more sense for the ECB to issue compulsory COCO bonds (say at ECB rate) to all EZ banks, ”

    That should have read ‘for the ECB to force banks to issue compulsory COCO bonds ‘ , lest the bank balance sheet watchdog is looking in!

  24. @Seafoid

    “Did anyone see the FT go after Piketty at the weekend? ”

    Very weak indeed. The 1920 entry for Sweden was apparently the 1908 error!
    Imagine that. On data errors such as that Great Recessions are born!!!!

  25. DOCM, seafoid,

    I do actually care.

    I actually spent some effort to buy and READ piketty and legrain, and for the latter I have posted on this blog some serious doubts, to say it politely.

    For Piketty’s, I see two main arguments:

    a) r greater g as a theoretical argument for increasing wealth inequality

    b) the claim that there is practical evidence for that in historic data

    the first is solidly dead in my view

    the second got thoroughly trashed by the FT Chris Giles, as it stand in this moment, from my point of view.

    If Piketty does not remedy the second point convincingly, his whole oeuvre is partisan french socialist trash. Sorry.

  26. @ seafóid

    Probably to distract the UK FT reading electorate from more serious matters; like the advent of UKIP. And the blind alley into which it is leading the UK.

  27. @Minister Eamon Gilmore

    You might sort out that ‘error of judgment’ on the Teheran Embassy before your official exit as Foreign Minister. Nowhere in the Annals have the Hibernians been unfriendly towards the Persians; sort this now.

    Good to hear that you received cross party recognition in part of Ulster on your levels of commitment, involvement, & understanding of their issues in competently conducting your official role.

  28. It would be a tragedy for Gilmore if Draghi opened up the sluice gates as a response to the Euro elections.

  29. Francois Hollande turned into a damp squib shortly after being elected. His popularity has been flirtng with single digits for some time now. Marine Le Pen is an experienced and polished politician who is benefiting from France’s economic stagnation and political stasis.

    England has had anti immigrant impetus since the Romans and the Danes (pre dates the Irish) Farrage is just the latest rider of that old chestnut. Remember the guy from Manchester who used to say “the Irish should be hung high” every British Indian knew him well.

    Mario Renzetti is the latest and greatest white hope for Italy, still in the honeymoon stage. Kenny and Gilmore had a similar short honeymoon, then ardours cooled as reality intruded.

    Considering how many countries and millions of people that have been negatively affected in the past five years, the level of support for the EU is very healthy.

    In some countries it appears to me that the voters are attributing some blame to their national governments.

    One does not have to be a super optimist to expect improvement in EZ economies over the next five years.

  30. @seafoid

    The Ordoliberal Germanii Battalions are still lined up (prob contributing to docm’s pension) around Franfurt. The Germanii have looted the rest in their own short term financial interest and upped the intake of Winstonian Soma …

    Perceptions of Germanii Winstons here:

    ‘So, if the poor economic balance of the crisis-fighting measures is so obvious, why does the German public not see through it?

    One reason might be tunnel vision. The economic climate in Germany is not bad. Unemployment is at a record low and the German economy is benefiting from record-low interest rates, caused both by the ECB’s lose monetary policy and capital inflows from the periphery into the German government bond and covered bond markets. Young Germans only encounter double-digit unemployment rates in news reports.

    The other reason might be German elite’s and media’s adherence to ordoliberalism – an economic policy concept that has always had an anti-empirical approach. Ordoliberals rely on principles to determine what is right and wrong, and do not rely on data from messy reality to draw conclusions. So who needs to look at GDP or unemployment data to evaluate whether a policy was good or bad? After all, Germans know, without a doubt, that they have been right about austerity. Isn’t it obvious that thrift is better than profligacy?

    http://www.social-europe.eu/2014/05/angela-merkel-right-end-wasnt/

    I hear that Angela barely resisted a ‘let them eat cake’ aside to Hollande today! Sarkozy is sulking somewhere …

    EZ leadership ain’t democratic.

  31. @francis
    If the FT is anti Piketty then we have proof positive that in British eyes Piketty is driving a blunt stake through the hearts of the British Upper Crust. Being German you cannot begin to fathom the sense of entitlement that upper class birth confers on British people.
    Germans used to base their prejudices on blood lines. The British base theirs on things like being born in a council house as compared to an old mansion and old money.

  32. David, the man is wearing an Uncle Sam stars-and-stripe suit and top hat! He sought power in 2011, he got it, and completely fluffed everything from then on.

    @ DOCM: “With regard to the Ukraine, this Guardian report gives a good picture of the situation. ”

    God bless you. But anything, and I mean anything, about Ukraine that emanates from the western media is to be completely distrusted. It might come as a rude shock, but the greatest ‘supporters’ of his Volcanic Majesty in Berlin, in the late 1930s – were the British conservative politicians, their government and their civil administrators. Funny that.

    The only consistent siren voice warning of Germany’s intentions was Litvinov – but sure he was only a Bolshovik. Folk should really read up on the history of the Eastern European lands from 1917 – 1939. The consistent political belligerents were the US, the UK and France. Even the Poles had a go. When did the murderous pogroms cease? 1946? Later? The folks in those areas have very, very long memories. Funny that.

  33. @seafóid

    Did anyone see the FT go after Piketty at the weekend?

    Not sure if if you follow @billmon1 on twitter (famed Iraq War II blogger and former financial journalist) but he suggested not wasting time on the Giles attack on Picketty unless someone specializing in income inequality said it had some validity.

    Sure enough Gile’s important critique of Picketty has gotten a thorough beat down from a number of sources (eg: Branko Milanovic) and I think the piece is now filed under “Embarrassing and ill advised hit piece” and not “Bigger than Reinhart and Rogoff”. I was surprised that the FT published it but the commentary does seem to be a bit more hawkish of late. It could be representative of a change for the worse in FT editorial policy or Gile’s getting carried away by the talk in his gentleman’s club. Two can play at class war Monsieur Picketty!

    As you say it might also suggest that the “Waiting for the Picketty thing to blow over” approach is now considered not good enough in financial capitalist high command – can not have the danger of a a good example.

  34. @Sarah Carey

    As I see it there are two likely explanations for what Paul Krugman said.

    (1) That he meant “before the Euro but after the formation of the EEC there were no incidences of truly pan European recession.”
    (2) That he got too close to Barroso and caught a dose of the stupids.

    I for one would never allow myself to get near Rehn, Barroso or Buti without a hazmat suit – that stuff is contagious. However if Paul does now feel the urge to profess “strong determination”, build confidence and promote a stability Kultur I hope that he has a quick recovery.

  35. @David O’D
    A man with your great talents should find a better target than the Germans. Their ace in the hole is that they work more productively and for less than the PIIGS. They did not vote for lower wages, it was imposed on them without consultation by the left wing SPD around 2003.
    “The poor have clearly lost out to the middle class, more so in Germany than in other countries,” said OECD economist Isabell Koske.

    The Franfurt bankers are paupers compared to their New York and London counterparts. They take the S Bahn to work not a chauffeur driven limousine.

    German prosperity is built on the backs of the poor. It gets even worse with rampant Mac jobs, part time, casual labour and very poor unemployment supports.

    Germany is now discovering that some countries have minimum wage regulations and are studying how they can be implemented in Germany without damaging the middle class.

    Compare that to Ireland where the middle class and small businesses prop up the oligarchs willingly (John Corcoran excepted).

    The working German is worse off than most European workers, statistics to the contrary notwithstanding. Deutsche Schule are thriving all over the developed world funded by the German Government and giving German language instruction to the children of German immigrants.
    You find the Irish in the pubs and the Germans in the schools.

  36. Draghi would help by improving credit flows and pushing down the euro but the key issues are:

    1) business investment
    2) wages
    3) external demand

    Collective bargaining this year in Germany is expected to help increase wages by 3%.

    There has been some agreement on a trade-off with big companies in France but governments do not have much influence with international companies.

  37. [Off topic]

    @ Joseph Ryan

    Some detail here.

    Last month when I was back in Dublin I went to a Richard Bruton press conference on an OECD report on his Action Plan for Jobs.

    I put it to him that the acclaimed 61,000 jobs that were added in 2013 was unreliable and I wondered where did the 27,000 jobs in ‘Agriculture etc’ – a 30% rise – come from?

    Bruton was adamant that all the sectoral data was reliable and so on but Monday’s data showed otherwise.

    The conclusion from the data is that many of the additional jobs being created in the Irish economy are in areas of low pay or non-regular pay and the rate of job creation is at a slower pace than conventional wisdom would like to believe.

    Irish Economy 2014: Number of employees remains below bailout quarter of 2010

  38. From BBC News:
    “Speaking on French TV, Mr Hollande – a leading champion of the EU – said the project had become “remote and incomprehensible”, and that that had to change.

    “Europe has to be simple, clear, to be effective where it is needed and to withdraw from where it is not necessary,” he said.

    He said the union had overcome the crisis in the eurozone “but at what price? An austerity that has ended up disheartening the people”.
    http://www.bbc.com/news/world-europe-27579235

    Some are interpreting the phrase “to withdraw from where it is not necessary”, as if it means not legislating on the size of bananas, but could it be much more than that? Could it be a veiled warning that France will not endure the euro to the point of self-destruction.

    The left in Europe have slavishly supported the euro project, and its God of competitiveness even though it has caused huge unemployment and hardship, and guarantees a life-long scramble for low paid work.
    In doing so the left has deserted it support base, and its clothes have been stolen by the anti-euro right.

    Only a full blown anti-euro campaign, by the left, will arrest the drift to the right.

    @David O’Donnell

    re; Let them eat cake.
    I saw the Merkel clip on RTE, urging everybody to more competitive, and was immediately struck by the resemblance to the ‘Let them eat cake’ moment.
    She either does not understand, or does not want to understand, the situation she is dealing with.

  39. The OECD today provided an example of the fragility of the global economy.

    In Q1 2014 of the G-7 (Canada, France, Germany, Italy, Japan, UK, US) only Germany and Italy increased merchandise trade.

    All the 5 BRIC countries saw trade decline.

  40. @ Joseph R: “The left in Europe have slavishly supported the euro project, and its God of competitiveness even though it has caused huge unemployment and hardship, and guarantees a life-long scramble for low paid work. In doing so the left has deserted it support base, and its clothes have been stolen by the anti-euro right.”

    The root cause is the ‘entry’ of near enough one billion low (or very low) paid waged-labour folk into the global workspace. Think of connecting two water cisterns with a pipe: water will flow from the cistern with the higher level of fluid (the west) into the cistern with the lower level of fluid (the east). Competitiveness has nothing to do with it – that’s merely a political excuse.

    Once that connecting pipe is opened, the water levels will equilibrate unless you either shut off the flow or add a pump to reverse the flow. Low-paid waged-labour is the new ‘black’ in western economies.

    The so-called Socialist Left are mere bystanders. Someones else controls the tap. And as for the advent of the ‘skeptics’ or whatever you want to call them – the governing elites will tolerate them out of fear of the Socialists. Funny that.

Comments are closed.