Sinking, fast and slow

For well over a year now some of us have been pointing out that the Eurozone crisis was entering a very dangerous phase, in which slowly increasing unemployment would eat away at the foundations of Europe’s societies, while short-sighted politicians and excitable journalists proclaimed that the Euro was saved. The invaluable Eurointelligence has been doing a great job recently tracking the apparently inexorable deterioration in the economic fundamentals of the Eurozone, with Germany itself now apparently affected. But for both political and personal reasons I find myself worrying most about France.

Twiddling their thumbs and hoping that something (the economy) will turn up, flawed macroeconomic policy notwithstanding, seems to have been the French government’s master plan up till now. As a result it is hard to see Francois “Say” Hollande, or any other Socialist for that matter, getting through to the second round in 2017.

You may think that Paul Krugman is being too alarmist when he raises the possibility of President Le Pen, and I hope you are right. But Sarokozy’s apparent return to the political fray does worry me. Of course, you may think that if he wins the UMP nomination, the Left will rally round and vote for him when it comes to the second round.

How confident are you about that?

Comments

comments

70 thoughts on “Sinking, fast and slow”

  1. Sarko is part of the problem. He’ll say anything. He reminds me of Timoshenko in Ukraine. The people may have moved on.

    The euro crisis has thrown up the Catalan referendum in Spain. economic mismanagement in the ?UK delivered the Scottish vote. Popular discontent is on the rise. The PTB had enough time to show that their approach didn’t work.
    Time for a change. Le Pen would be a disaster.

  2. fyi

    ‘Exploiting the flexibility in all the new fiscal regulations introduced in the euro crisis, officials in Paris, Berlin and Brussels are moving toward a resolution of the French budget problem based on three factors: politics, economics and bureaucratic procedure.

    Starting with politics, the key point is that while the EU budget rules were agreed to by national governments, led by Germany, enforcement is up to the European Commission. Governments, and specifically the German government, have no direct input into the assessment of national budgets. This is overseen by the commissioner for economics and monetary affairs, now Finland’s Jyrki Katainen, but due to be replaced on Nov. 1 by the former French finance minister, Pierre Moscovici. Responding to German misgivings that Moscovici might show “favouritism” to the French budget (which he largely wrote), Juncker created a new procedure whereby Moscovici’s judgments will be co-signed by another commissioner, Latvia’s Valdis Dombrovskis, reputedly a fiscal hawk.

    But Dombrovskis has conveniently turned more dovish since his appointment, telling the European Parliament that “we are now gradually moving from the stage of fiscal adjustment which … has by and large been done.”

    http://blogs.reuters.com/anatole-kaletsky/2014/10/10/an-atomic-bomb-is-hovering-over-frances-economy/

    As for Sarkozy – a good few of the decent people in Libya and across N. Africa wish they had never heard of him: as do I. Methinks the French centre left would vote for Le Pen over Sarkozy … must check if Blind Biddy can resurrect that case for Den Hague vs Nikki on behalf of the Libya people …

  3. A useful summary of the various positions from Reuters.

    http://www.reuters.com/article/2014/10/11/us-imf-economy-highlights-saturday-idUSKCN0I00QL20141011

    And another useful link (H/t Seafóid).

    http://blogs.ft.com/andrew-smithers/2014/10/the-eurozone-and-quantitative-easing/

    This extract is a neat summary of the overall situation as it is generally perceived.

    “There are three possible ways forward. The first is that my prognosis is too pessimistic and domestic demand in the eurozone economy will pick up, either of its own accord or because QE is effective. The second is that Germany’s view changes under the pressure of reasoned argument and that its government introduces a sharp rise in its fiscal deficit. The third is that events, rather than reason, cause a policy change. This last is the usual pattern and therefore seems the most likely.”

    The error in this analysis is that the German position is somehow the key and that it is this that must be influenced by future events. The view is erroneous. It is but an element in an overall compromise on the future direction of economic policy on which all countries, and especially those members of the Euro Area, have to agree.

  4. The non-Le Pen alternatives look fairly uninspiring to me, and I imagine the French wouldn’t have any particular reason to view it differently. There has been a collossal failure of political intelligence in Europe. In the UK the decades of standardization of the path to a career in politics has alienated party leadership from ordinary people who haven’t spent thirty years learning the art of professional, robotic, misrepresentation.

    There has been a real mindlessness in some of the analysis influencing market pricing – particularly from the US, where many are only just beginning to question the equivalence in intention and power between a Fed “whatever it takes” and an ECB one.

    They were very frustrated with JCT and were ready and willing to be convinced the new guy ‘gets it’. WIT was the specific phrase they had been waiting for, and not many over there were interested in looking into the details carefully.

    Now they are starting to wonder why Fed style WIT isn’t underway in the EZ.

    Draghi bought the EZ time by talking the talk and from recent comments it is apparent he realizes the can is due either another kick, or the process of germanifying the periphery need to get going quickly.

    As of about 10 days ago the downward movement in many equity markets broke the pattern of the dips typical of a bull market. Some had turned earlier than that. Last December and again in July there had been unusually high measures of confidence/complacency and the mood now seems to be swinging the other way. When that happens things sometimes get unpredictable.

    I is though, probably unlikely to go far enough to shift policy, at least not short term, because at the end of the day every asset that has a yield, every company that can pay a dividend, is being priced against ZIRP – and can be argued to be cheap.

    Market signalling to policy makers has always been problematic, but ZIRP has really banjaxed it.

    Reasons to sell and force prices down and alarm politicians are suppressed by central bank financial repression until there is a convincing case for enough of a recession to force the cancellation of dividends or coupons on junk, or there is such a threat of inflation that the end of near-ZIRP can be assumed. Outside those parameters, the market is only interested in taking the yield.

  5. “Of course, you may think that if he wins the UMP nomination, the Left will rally round and vote for him [Sarkozy] when it comes to the second round.”

    The left will do the ‘right’ thing, in the end?
    That would be a very naive left indeed.

  6. Summers versus Schaeuble!

    http://www.cnbc.com/id/102074335

    To quote Andrew Smithers.

    “It is a common error to assume that economies are so alike that one medicine is always the answer for all those suffering from weakness or excessive strength. The difference between economists often consists of which nostrum they favour for all occasions, and they therefore give insufficient consideration to the particular and relevant circumstances of the individual economy being studied. Those who favour more fiscal stimulus have therefore been pushing this, not only for the eurozone, but for the UK and the US as well. Those who see money as the route of all growth want more quantitative easing everywhere and there are those for whom deflation or deleveraging is the bugbear.”

    The Euro Area is neither Japan nor the US nor the UK; and vice versa”

  7. France’s economic malaise long predates the Euro. Ditto Italy and a few others. These countries have been growing at snail pace since the early 1980s. Blaming the Euro and Germany is a cop-out. These countries need to reform themselves like the UK, Ireland and a few other European countries did. Quite simply, they need to get their finger out. I was never a lover of Mrs Thatcher because of her attitude to N. Ireland, but France sure could have done with someone like her. France today is the pre-Thatcher UK under Sunny Jim Callaghan.

    France’s problems have less to do with Germany than with their own restrictive anti-business practices and generally workshy attitude. Short working week, a ludicrous number of bank holidays, virtual immunity from being sacked in many areas no matter how bad you are at your job, hanging around university studying useless subjects until you are nearing middle-age and balding, then retiring at 55, going on strike at the drop of a hat, high taxes on business, and so on. I’m 65 and I worked 60 hours last week. No intention of retiring until I drop dead. My father retired at 83. I hope to beat him. If I was in France, I’d probably be in jail for breaking some absurd labour law. I went skiing in France last April. In the town where I was skiing all the shops closed for lunch from 1pm to 2pm. They used to do that in my home village in Tyrone, but they abandoned the practice around 40 years ago. They are still doing it in France. And their education is lousy. They ranked miles behind Ireland in the last PISA tests in 2012. Having largely got rid of Church education (as Dubln 4 liberals would like to do here), their state schools are full of bearded Trotskyite buffoons masquerading as teachers. And, while Ireland has Ryanair, last week Air France announced that they had lost 500million euros because of a strike. A few years ago I was in Vesuvious restaurant at the top of the Champs Elysees and the waiter wouldn’t bring me the bill because he said it wasn’t his job to, and that I’d have to wait until the one whose job it was to do that was in a position to do so.

    If the Euro and Germany are so bad, why is Ireland growing at 6 per cent? If the Euro is so uncompetitive, why are Ireland’s exports growing at 13 per cent? If cutting government borrowing is such a deterrent to growth, why has Ireland managed to cut its deficit to to 2.7 per cent next year and still grow fast, while France refuses to cut its deficit below 4.5 per cent next year because it would slow its growth too much.

    I can understand the embarrassment that left-wing economists like Kevin O’Rourke feel at the condition of France today. But, rather than admit that France’s condition might have something to do with the left-wing policies Mitterand and Hollande inflicted on France (with Chirac and Sarkozy being little better), they simply say its all Germany’s fault. A complete cop-out.

  8. @JTO
    We should be worried that Ireland is so out of sync with the Euro Zone. We do not control our financial policy, the (germans) ECB does!

  9. @DOCM

    So, do I take it from your approving citation of Andrew Smithers that you were opposed to the Fiscal Compact? After all, “It is a common error to assume that economies are so alike that one medicine is always the answer for all those suffering from weakness or excessive strength.”

  10. @paulr

    You are quite correct. I agree totally. If a number of important European countries are suffering economic stagnation because of their foolish policies, this holds back growth in other European countries, even those that are pursuing sensible policies.

    For example, the number of overseas tourists to Ireland is up 10 per cent so far in 2014. But, the number from U. States is up 14 per cent and from continental Europe only 6 per cent. If continental Europe was growing as fast as the U. States, the number from there might be up 14 per cent as well. Apart from possible (but still unlikely) disasters due to ebola, mid-east war, all-out Russia/Ukraine war and cut to gas supplies etc, the relative stagnation in continental Europe is the main risk to Ireland’s current high growth. So, I agree with you that the Irish government should be concerned about it and taking steps to address it. If continental Europe could only get its average growth rate up to a modest 2-3 per cent over the next decade, Ireland could easily average 5-6 per cent. But, if continental Europe manages only 0-1 per cent average over the next decade, this might drag Ireland back to the 2-3 per cent range.

    However, my point is that for France and others to be putting all the blame on Germany and the ECB for their slow growth is a cop-out. It does not address the real problem, which is their own lack of internal reform. For example, last year they were blaming Germany and the ECB for the euro being too high. But, as anyone living close to Ireland’s artificial border will be very aware, the euro is 12 per cent lower now against £sterling than it was last year, and lower against the $dollar too. Ireland is having an export boom on the back of it. What’s stopping France and Italy and others doing the same?

    One other important factor I forgot to mention in my first post on why some continental European countries are doing so badly is their disastrous demographics. Ireland is the only country in Europe with half-decent demographics. To be fair, France is not the worst in this respect. Italy, Spain, Germany and others are worse. In many of these countries there are now far more people aged 65 plus than aged 0-20. In Ireland its the opposite. Ireland still has an abundant supply of young people coming on stream, although Dublin 4 liberals are working flat out to abort this flow. That’s one of the many reasons America multi-nationals prefer Ireland. No one wants to invest in countries where there are more 65+ geriatrics (like myself) than there are 20 somethings. And their ridiculously low retirement ages compound the problem.

  11. The wonders of the internet.

    A NY Times article on France sinking into ‘Le Malaise’. Full of lots of stuff similar to what we read currently. Except this article is from December 1990, long before the Euro. They weren’t blaming Germany then.

    http://www.nytimes.com/1990/12/23/world/france-questions-its-identity-as-it-sinks-into-le-malaise.html

    Tragic and bringing tears to my eyes (almost) to think that the first time I went to France was in June 1967, during the summer vacation of my first year at Queen’s University. Then, France was at the peak of its prosperity, glory and prestige. It was probably the most admired country in the world then. In DeGaulle It had an austere conservative Catholic President, a little bit reminiscent of De Valera, and with some Irish blood to boot. Under his leadership, France was enjoying an almost Celtic Tiger-type boom. It was a high-growth low-tax (by today’s standards) socially conservative country, with patriotism, religion and tradition being given due respect. No talk about ‘Le Malaise’ then. But, a year later in May 1968 the lunatics came pouring out of the universities (led by the half-German self-confessed pedophile who is still an MP in the Euro parliament and has many admirers among the Dublin 4 trendy set), all intent on tearing everything down, and France has been going down the plughole ever since, with the descent accelerating each year as the veterans of the 1968 ‘revolution’ gradually worked themselves up the ladder to the point where they now control every level of society. I’m no expert on current French politics, but I would guess that nostalgia for the pre-1968 France, which was a vastly more successful and respected country than 2014 France, is part of Le Pen’s appeal, much more so than anything to do with the euro.

  12. @ Ernie

    The Fiscal Compact is not the horse medicine you assume it to be.

    FYI a 2012 link to a contribution by Seamus Coffey that explained for me how the system actually works (and which I assume is till up to date).

    http://economic-incentives.blogspot.ie/2012/05/hitting-structural-deficit-target.html

    @ JTO

    Given the state that you consider France to be in, is it not remarkable that it continues to be the most visited country in the world in terms of overseas visitors (your good self included)?

  13. @DOCM

    Was that a “yes” or a “no”? It remains the case that the fiscal compact is aptly characterised as “one medicine for all,” injected by our German overlords.

    Were you for or against?

  14. @ Ernie

    Of course I was for it, the real version that is, not the one imagined by you. It was, incidentally, adopted in Ireland by popular vote – uniquely within the EU – by a 60%/40% majority on a turnout of over 50% of the electorate.

    @ All

    Two more interesting links dealing mainly with the lack of understanding of the accounts of Ireland Inc. in relation to pensions; and the parties taking advantage of this fact.

    http://www.independent.ie/opinion/columnists/marc-coleman/pension-levy-was-always-a-wheeze-too-far-30656108.html

    And the inimitable Eddie Hobbs!

    http://www.businesspost.ie/#!story/Comment/Opinion/The+shameful+legacy+of+Theft+Tuesday/id/91efe6b2-5462-4572-8a5a-7425af8e3a6b

  15. Yeah, I find that the electorate is very responsive to economic blackmail. Usually, it doesn’t even have to be made explicit.

  16. The latest major news from France is the near downgrade of the country’s credit status by S & P.

    http://www.lesechos.fr/economie-france/conjoncture/0203850716294-sp-maintient-le-aa-de-la-france-mais-sous-perspective-a-negative-1052436.php

    (The full S & P document is accessible within the link).

    Portugal seems to be doing rather better.

    http://www.rte.ie/news/2014/1012/651743-portugal/

    The central issue remains that of tackling the varied economic distortions which give rise to the structural deficits in individual economies, the issue of the funding of pensions being a prime example in the case of Ireland.

    Finland has also lost its AAA status. Only Germany and Luxembourg retain it within the Euro Group.

    An interesting background to the meeting of the Group tomorrow!

  17. @ Ufc

    No sooner said than done (free of charge; courtesy Google Translate!). A bit rough and ready; but accurate enough.

    FOCUS 42/2014Konflikt zwischen EZB-Chef Draghi und Bundesbank-Präsident Weidmann schärfer als angenommen
    Sunday, 12.10.2014, 10:06
    Print Send

    Munich . The conflict between ECB President Mario Draghiand Bundesbank President Jens Weidmann over the course of the European Central Bank is more severe than expected. According to the magazine FOCUS it holds for Draghi hardly possible to work with his German opponent in the Governing Council. Weidmann was unlike previous proposals Draghi has not been opened previously in the planned expansion of central bank balance sheet by up to a trillion euros. The Italian ECB chief characterizes the Bundesbank president after statements from witnesses ears internally on a regular basis with the three German words “No to all”. According to insiders, therefore Draghi no longer even trying to win the Germans for its programs. Since July there was a direct contact between the two presidents of the outside of the two Council meetings in early September and early October, the ECBand the Bundesbank given. Weidmann criticized in particular that the ECB from November also wants to buy securitized loans and other risks.

    With the ECB deals on Tuesday, the European Court of Justice (ECJ). The judges there is the question of the Constitutional Court that the decision of the Bank, if necessary, unlimited buy government bonds of euro countries, is still covered by its mandate. Lead Plaintiff Peter Gauweiler (CSU) told FOCUS, the case still ended up in the Constitutional Court, should the Court reject the objections. “Then the ECJ has committed a vires because he had subsequently approved something that is not covered by the European treaties.”

  18. It is also worth noting that S & P have made a parallel downgrade for the European Financial Stability Facility (EFSF) as France is its second most important guarantor after Germany.

  19. @Ernie Ball

    “Given the state that you consider France to be in, is it not remarkable that it continues to be the most visited country in the world in terms of overseas visitors (your good self included)?”

    It wasn’t me who launched this thread. The title of the thread is ‘Sinking, fast and slow’ and the author of the thread, Kevin O’Rourke, makes it clear that ‘sinking’ is primarily referring to France. So, that France is in a very poor state at present is the raison d’etre for the thread. I am merely disagreeing with Kevin and others about the cause. They say its primarily the fault of Germany and the ECB, while I say its primarily the fault of France itself for reasons that predate the Euro by several decades (as I said, the rot started in 1968). So, no disagreement at all with Kevin O’Rourke about the France’s condition, just about the causes. If France was in a good state currently, why would anyone be worrying about Le Pen coming to power?

    Can’t see why that would stop me visiting France. Actually, I was in southern France last weekend. Have visited scores of times since 1967. Great weather. Great mountains. Great museums. Great food. Great skiing. No reason not to enjoy these just because its current political class is useless, degenerate, corrupt, and riddled with crooks and perverts from top to bottom, DSK being only the tip of the iceberg. It needs a good clean-out, and a return to more traditional conservative values, both in the economic sphere and the social sphere. Nice to see it confirmed that the lunatic does indeed have admirers among the Dublin 4 trendy set.

  20. Marine Le Pen may well not seem a huge risk for France to take in 2017.

    With a country like Denmark putting restrictions on immigrants, immigration is unlikely to be a huge issue.

    However, leaving the euro as an “an unbelievable opportunity” would need to be credibly fleshed out and if the euro crisis had been deferred for a decade, Alex Salmond would now be preparing to be PM of Scotland.

    So scaring older voters about the risk to their savings would be a potent weapon in the hands of opponents.

    Manuel Valls, the French PM, has said that his boss committed a “strategic error” in not explaining during his election campaign “what a bad situation France was in.”

    In 2017 Valls with 3 years in office as a reformer, could have enough appeal to get into the second round against Le Pen.

    …or the situation may not still be bad enough for voters to support clarity over fudge.

    France and Italy account for 37.5% of euro area GDP and Germany 28%.

    In 2013 France’s GDP per person was ahead of the UK’s.

    The three countries have about €2 trillion in public debt each and in 2012 Japan spent less than 1% of GDP on servicing costs while Italy spent 5.6% – 60% of the debt was held in Italy.

    In the early 1990s Italy was paying about 12% of GDP in servicing costs – almost 20% of current public spending.

    So the recent dips in bond yields and about one quarter of the debt maturing in the short-term, is a help to the economy.

    There is no consensus for a union wide stimulus nor has there been in the US.
    The global model that was dependent on credit and commodity price booms coupled with surging emerging market growth, cannot be easily replaced.

    Reza Moghadam, head of the European Department at the IMF until recently, has become the vice-chairman in Global Capital Markets at Morgan Stanley, and in an FT op-ed on Saturday said:

    Europe has to try something bolder – and soon – before stagnation becomes the new normal. This must involve fiscal policy, structural reform and ECB action all at once. Acting in just one area reduces pressure to act in the others, and can even be counter-productive: fiscal stimulus alone will raise fears over public debt, structural reforms alone invite social strife, and monetary easing alone may do more for the price of chalets and fine art than for employment.

    First, fiscal policy. There is scope for a stimulus across the Eurozone, not just in Germany. It should amount to between 1 and 2 per cent of the bloc’s gross domestic product – more where demand shortage is keeping output below potential, less elsewhere. The stimulus could come from higher public investment, for which the International Monetary Fund and others have made a strong case. But the scope is limited. Even the “shovel-ready projects” touted by the Obama administration at the height of the economic downturn raised US public investment by only 0.25 per cent of GDP. A permanent cut in payroll taxes would be more practical.

    Second, the reform agenda. This needs to be ambitious, in core and periphery alike. Wages and other labour costs are simply too high, even by the standards of rich countries.

    Third, the ECB needs again to start dictating the agenda. This requires a decisive programme of quantitative easing.

    http://www.ft.com/intl/cms/s/0/b08047ae-4fa3-11e4-908e-00144feab7de.html?siteedition=intl#axzz3Fyn8PpmA

    Cutting wages while arguing for a stimulus is an issue that cannot be dealt with in a soundbite.

    It would be naive to believe that price is the main factor in Germany’s export dominance over France.

    German manufacturing pay outranks every significant manufacturing country in the world and in 2012 was 28% above France’s (that is pay and does not include employer’s social security).

  21. @JTO

    I didn’t make the statement about France you’re attributing to me.

    @All

    I see in today’s paper that Minister Noonan is going to drop the 41% tax rate to 40%. Now, I know many of you were hoping that he would do something about that confiscatory 52% tax rate. I hope you’re not too disappointed that he apparently won’t.

  22. It is highly likely that Le Pen would stand up for what she perceived to be the interests of France. Her presidency would certainly be a game changer. What Europe needs now is a figure with the status of De Gaulle. Instead it has the “Rice Pudding”. Going back to Sarko is not going to change matters.

    Now it might not end well but it would certainly break the current impasse.

  23. Valls is telling the City he loves business. Neither the left nor the right in France did anything about restructuring the model for 40 years and now they have to do something under extreme duress. It’ll take something seriously shocking to get a grand plan going. And I’m not sure the UK is doing that well either. The current account deficit is still crap.
    The EZ has a political problem but lower debt to gdp than the anglo saxons. The absence of real non debt driven growth is the key issue. And the system is still very unwell.

  24. Le pen would stand up for France, Tull? And les Shinners would do the same for Ireland, surely? Democracy is about giving people what they want and giving it to them good and hard. None of those charlatans incl UKIP have anything coherent to say as policy. I want a change is not good enough. Look at Obama. French Hopey changey even with docs is not going to fly.

  25. @ JTO

    Far be it for me to stop you visiting France (although how any such intention could be read into my rather rhetorical question escapes me). The point that I was making is that you are grossly exaggerating the situation of the country and your contribution is, in itself, inherently contradictory i.e. how could a country so badly led end up being so attractive to you and to visitors from all over the world. I would not mind if we had its health service either.

    On the impact of the euro, it was France’s own decision to join (with a admittedly a tiny majority) and the country must now live with the consequences, the most difficult being that it can no longer devalue a French franc to restore competitiveness. To that extent, the euro, and how it is managed, is a vital element in the overall mix.

    S & P deal with this, and other points, in its rating decision. (I cannot find a link to the original English version).

  26. @ DOCM, JTO

    Is the euro not just highlighting the rot, by not letting the politicians off the hook? How many countries have got wealthy devaluing their currencies? I suspect the number is small. Argentina certainly hasn’t.

    Now, one could argue that making the necessary adjustments are impossible without the rise of the easy answer brigades, though one could just as easily argue the status quo only has itself and it’s cumulative poor and/or lack of economic policy to blame.

    It’s analogies to the LTV and LTI limits proposed by the Central Bank. By preventing credit being used to bid up property prices enough to make it more profitable to build, the central bank has kicked the problem of pricey builds to government to solve. If they solve it, the country as a whole will be better off, as we’ll have more reasonably priced property, less private debt per citizen ( and so more consumerier consumers), with healthy banks and better competitiveness. If they don’t we’ll all be worse off in the long run as credit, like devaluation only seems to delay the underlying problem.

  27. “Wages and other labour costs are simply too high, even by the standards of rich countries.” [Reza Moghadam]

    What sort of silly rubbish is this? ” … stagnation becomes the new normal.”

    “Hello, Reza” – stagnation (in developed economies) IS the ‘normal’.

    And this crapola – ” There is scope for a stimulus across the Eurozone, not just in Germany. It should amount to between 1 and 2 per cent of the bloc’s gross domestic product – more where demand shortage is keeping output below potential …”

    Completely contradictory – and fails to ‘see it’. Attempt to stimulate demand with fiat credit and simultaneously real money reduce wages ???? So now, the new normal is to drive your car with one foot firmly slammed on the accelerator, whilst the other is equally firmly slammed on the foot-brake – and both hands jerking the hand-brake as hard as you can.

    @ MH: “Cutting wages while arguing for a stimulus is an issue that cannot be dealt with in a soundbite.”

    Agreed, but that well superannuated, demented soul is sure trying their damnedest! Do sentient economic folk believe still believe this dreadful, contradictory nonsense? Seems so.

    @ Seafóid: ” … real non debt driven growth is the key issue.” Yeah! And our ‘great leaders’ do not know how else (with copious amounts of fiat credit) to power Permagrowth. It would be Marxian (as in Groucho) if it what is actually being implemented, were not so destructive.

    Its one thing to close-up a business and board up the windows. Its another thing entirely to demolish the actual building. Its the latter that is in progress – and progress is pretty good! And a bunch of bureaucratic creeptoids in the US of Amnesia keep telling us – “Its all KO!”. “Just – CARRY ON!”.

  28. From today’s Ir Times
    http://www.irishtimes.com/business/economy/draghi-weidmann-fight-intensifies-as-ecb-debates-action-1.1961552

    “Building up assets is the last monetary tool the ECB has left after it cut interest rates to a record low, Draghi said on Oct. 11 in Washington. Action taken so far pushed the euro as low as $1.2501 this month, the least since 2012. The ECB’s balance sheet now stands at €2.05 trillion, below the 2012 peak of €3.1 trillion and €2.7 trillion at the start of that year. “I gave you a kind of ballpark figure, say about the size the balance sheet had at the start of 2012,” Draghi told reporters. Weidmann responded within minutes. “I don’t need to explain to you that there has been communicated a certain target value for the balance sheet,” he said. “How formal this target value is, that’s a different question.” ”

    Who is running the ECB? Draghi or the 22% shareholder?

  29. @Thats Legal

    “By preventing credit being used to bid up property prices enough to make it more profitable to build, the central bank has kicked the problem of pricey builds to government to solve. If they solve it, the country as a whole will be better off, as we’ll have more reasonably priced property, .”

    I could not agree more.
    The fact is that at current Dublin house prices, the majority of aspirant home buyers cannot afford a house, and are in effect social housing candidates.
    This is neither the fault of the central bank or the people themselves.
    It is the direct consequence of land profiteering and govt levies taking economic priority over the basic housing needs of citizens.
    The central bank should not row back one iota from its targets. In fact they are too soft.
    It is a matter for politicians, and a Minister for Housing if we had one, to ensure that reasonably prices houses are available to people living on reasonable wages.
    Land profiteering and people making ‘property plays’ should be routed out of the system [and out of the country if needs be].

  30. @ JR: “This is neither the fault of the central bank or the people themselves.”

    I disagree Joseph, the ‘elevated’ house prices in Dublin are a direct consequence of the Financial Regulator to act to restrain the emission of fiat credit. Not the Bank, the regulator.

    “It is the direct consequence of land profiteering and govt levies taking economic priority over the basic housing needs of citizens.”

    Again, I would disagree with you – thought more cautiously. Profiteering and levies would have been significant, but if historical mortgage lending protocols had been maintained, residential property prices (and hence sales) would have paralleled income increases. Historical mortgage lending protocols were trashed – and may never be fully re-instated.

    At risk of being branded an outright sexist – of a porcine nature, the waged-labour salaries of female partners should never be considered when assessing ability to pay a mortgage. Females bear children! Their domestic job consumes 25 hours/day alone – so where is their time to be a debt slave?

    Excuse me, whilst I re-locate my personage!

  31. @BWS

    Bank credit is only part of the problem in Dublin. Almost 33% of new house cost in Dublin is made up of land profit and State or State agency taxes. If ‘developers’ had been denied credit it might have helped considerably. Not only did they get credit, but it seems that Ronan and Quinlan (from recent reports) are back again for more money]

    Equally if this gent was selling the land his company is sitting on at agricultural prices, it would knock about €40,000 at least off the prices of the houses being build on it. [In the event that building is more profitable than hoarding, that is]. But Ireland in its wisdom has decided that it is better for property players to make a killing that it is for aspirant home owners to own a home at reasonable cost.

    But in the short term the restriction of bank credit will certainly force up rents and will bleed the tenants as assuredly as any bank mortgage ever did.

    I tend to agree with you re a one salary being the benchmark to measure a mortgage against, if as a society we intend to procreate sufficiently to remain a society.

  32. @ That’s Legal

    I agree with your analysis, especially on the point you make with regard to the euro preventing politicians from taking what might be described as the palliative route of a devaluation; which does nothing to resolve the underlying problems of the loss of economic competitiveness.

    Therein lies the great political danger.

  33. Two French Nobels: Jean Tirole has been awarded the Nobel Memorial Prize in Economic Science for his analysis of market power and regulation, seen as a vital component in understanding the regulation of industries with a few powerful firms.

  34. @ JR: Thanks for that. This mortgage thing has a long way to go yet.

    That Indo piece is a load of self-serving, vacuous b*ll*cks. Whatever way you look at it, over the time period 1996 – 2007, Irish res property prices increased by 3.5 fold, whilst incomes increased by what? And now? I suppose one will not ‘see’ what one wishes to avoid seeing! Inconvenient perhaps.

    re: ‘back for more’ – bloody Oliver Twist(s) – and his damn begging bowl. They know neither shame nor contrition. What can the ordinary citizen do to rid themselves of these obnoxious, mendacious social parasites?

    The Irish residential property market started to go off the rails back in 1996. So, getting it back on track is going to be a really difficult – political task, and Prof Honahan is either brave or foolish to expose himself over the parapet on this one, because if it comes down to the hard political choice of support for ‘developers’, versus support for the regulator – guess who will be shown the ‘middle-finger’?

    I agree about the problem with the rental sector. I guess its virtually intractable in the short-to-medium term and it will never be fully resolved. But there are appropriate models that we could adopt. Unfortunately, hysteria may become the order-of-the-day. And we have to endure a further round of reckless problem solving.

    Cheers.

  35. This talking point about no one getting rich by devaluing their currency is daft. The point about floating currencies is not about getting rich or not getting rich. It is about having an effective mechanism to correct economic imbalances – turning national economic success into greater spending power on imported goods and services rather than boomy bubbliness, and loss of competiiveness into inflation rather than large scale unemployment. We left the gold standard because, on the whole, once things start going very right or very wrong economically you are better off with a floating exchange rate.

  36. As I understand it, the Council of Ministers can overrule the Commission in terns of a fiscal censure, with a 2/3 majority. The Council did just that in 2003 when Germany and France were in breach of the Stability and Growth pact.

  37. Wall Street Journal

    ERLIN—Germany and France have tapped a prominent economist from each country for policy advice to counter “the risk of a lost decade in Europe” in an attempt to bridge the growing divide between the two countries over how to revive flagging economic growth in Europe.

    German Economics Minister Sigmar Gabriel and French Economy and Industry Minister Emmanuel Macron recently solicited help from French economist Jean Pisani-Ferry and Henrik Enderlein, lecturers at the Berlin-based Hertie School of Governance, in separate letters seen by The Wall Street Journal.

    http://online.wsj.com/articles/germany-france-asks-economists-for-advice-to-avoid-lost-decade-1413221631

  38. @ DMcL

    A lot of water under the bridge since Chirac and Schroeder pulled that stunt; both for domestic political reasons.

    http://ec.europa.eu/economy_finance/articles/governance/2012-03-14_six_pack_en.htm

    The entire exercise in recent years is aimed at preventing a repetition.

    “The six-pack introduces reverse qualified majority voting (RQMV) for most sanctions, therefore increasing their likelihood for euro-area Member States. (RQMV implies that a recommendation or a proposal of the Commission is considered adopted in the Council unless a qualified majority of Member States votes against it.)”

  39. @ BCT

    Does the euro not have a floating exchange rate?

    Wanting a national currency with a floating exchange rate is not compatible with joining a currency union. If one does join, one must confront the resulting consequences/challenges. Basing policy on the illusion that one has actually not done so cannot be recommended.

  40. Ambrose Evans-Pritchard in fighting form.

    ‘The great Lira revolt has begun in Italy’

    “The Fiscal Compact is economic insanity. It would force Italy to run massive fiscal surpluses for decades. These would cause an even deeper depression, pushing the debt ratio even higher, and would therefore be scientifically self-defeating. Historians will issue a damning verdict on the scoundrels who foisted this atrocity on Europe.”

    http://www.telegraph.co.uk/finance/economics/11159649/The-great-Lira-revolt-has-begun-in-Italy.html

  41. The euro floats,but the euro zone has demonstrated that it is far from an optimal currency area. It is evident that it was a blunder on the part of the EU to establish it. The economics were nonsensical, and events have shown that that the politics were misguided and naive.

    For the moment, at least, it seems that dismantling it is both economically and politically impractical, although I think Kevin is right to hint that this may not last. In the meantime, the trope that no one ever got rich by devaluing simply diverts attention from the fact that almost every developed country in the world has for long periods benefited greatly from the shock-absorbing capacity of floating exchange rates on national currencies.

  42. @Gavin

    Clearly, you haven’t understood the subtleties. DOCM will give you several links. Read them or the beatings will recommence.

  43. @ Ernie

    “DOCM will give you several links. Read them or the beatings will recommence”.

    do you bother reading them? My understanding is that DOCM works for some euro outfit and then she/she comes along and says France is entirely responsible for the situation it finds itself in. Nothing about the wider dysfunction. What happened to the notion of the union ?

  44. @Gavin
    re AEP article in Telegraph

    “Note that the Monti government said three years ago that Italy’s debt ratio would end 2014 at 115pc. In fact it reached 135.6pc of GDP in the first quarter this year, soaring at a rate of 5pc of GDP each year, despite a series of austerity packages, and a primary budget surplus of 2.5pc. ”

    Its beginning to look like the austerians did not even understand basic mathematics in relation to the debt/gdp equation.
    How on earth was it supposed to fall with the kind of growth rates we have in Europe.
    The whole edifice is very shaky and the only solution still being proposed proposed is structural reforms, i.e reduce the wages of the grunts.

  45. @ BCT

    No argument with you there! But you seized on a point being made – the general ineffectiveness of devaluations in a historical perspective – which only came up in passing and in the context of the inability of the euro countries to devalue. From my limited knowledge, it can only work – or, rather, help – in the context of (i) a general budgetary retrenchment and programme of reform and (ii) when nobody else is doing it (the example of Sweden in the 90s comes to mind). If it did work independently, the massive devaluation in Sterling vis-a-vis the euro – now reversing – would surely have given UK exports a boost?

    @ GK

    I believe Ambrose carries the nickname “Armageddon” and one can see why. Maybe he could do a piece on the UK economy cf. Robert Skidelsky.

    http://www.theguardian.com/commentisfree/2014/oct/09/labour-george-osborne-recovery-coalition-cuts

    “There is one possible exception: if wealth-holders believe that the government needs to cut its deficit – because otherwise, say, Britain would “go the way of Greece” – then the announcement of a credible deficit-reduction plan might increase their confidence in the future and cause them to increase their spending.”

    Maybe this is what is happening in Ireland! But the warnings of the Fiscal Advisory Council regarding external economic weakness seem to be based on solid ground. To this extent, AEP is right.

    In a nutshell, Ireland has been borrowing money to ease the impact of austerity but has failed to target it correctly i.e. on maintaining the standard of living of those lucky enough to remain employed rather than following the advice of Skidelsky.

  46. On the upcoming budget, a useful check-list from the SBP on what is likely to be in it.

    http://www.businesspost.ie/#!story/Markets/Economics/Budget+2015%3A+What+to+watch+out+for/id/87198161-2385-43cd-2827-d89661896229

    No sign of any sea-change in approach! The item on the private pension levy is the most interesting (in terms of providing a small chink of light with regard to geting an agreed view on how the various bits of the Irish economy fit best together).

  47. https://uk.news.yahoo.com/germanys-fischer-warns-looming-political-crisis-europe-090440524–business.html#f6nx3ub

    Joschka Fischer (former German Foreign Affairs Minister)
    “Europe is our best investment. We would be the biggest losers if we allowed the project to fail.”

    Our failure to recognise our key advesary’s/antagonist’s greatest weakness in our debt negotiations at the key moments is what has us facing a debt:Gdp ratio north of 120% instead of north of 60%-80%. The social cost of this delta is substantial but immeasurable.

  48. @seafóid

    do you bother reading them? My understanding is that DOCM works for some euro outfit and then she/she comes along and says France is entirely responsible for the situation it finds itself in. Nothing about the wider dysfunction. What happened to the notion of the union ?

    As with all propaganda the content is irrelevant, it is why it is being said (normally to muddy the waters or derail a thread here).

    It is hard to know what nexus of the financial sector, Eurocracy and the European right DOCM
    represents but if he (or she) is being being paid to ruin the blog and distract from the underlying issues that face Ireland and the EU it is money well spent – he shows real commitment.

    For instance in this thread 29% of posts, and possibly more of the content, comes from DOCM.

    What continues to puzzle me is why the blog’s moderators allow it.

  49. It seems that the WSJ report linked to by Frank Galton above has real substance.

    http://www.reuters.com/article/2014/10/13/us-germany-france-reforms-idUSKCN0I21QO20141013

    The situation highlights the long-standing and rather curious relationship between the Chancellor and her finance minister. What the real German policy position is remains as undecided as ever.

    The possibility of agreement on some form of EU-wide stimulus programme seems, however, to be increasing. This cannot but be helpful and must push Ireland further along the road to recovery (especially against the background of a budget without any evident immediate banana skins).

  50. Because it is an unmoderated site & does not engage in censorship. We all have ebough lee way to yank DOCM chain & wind up Earnie.
    Docm takes it well but Earnie does not like u pointing out he is of the 2-3% rent seekers.

  51. @ Shay

    “As with all propaganda the content is irrelevant, it is why it is being said (normally to muddy the waters or derail a thread here).”

    Do you think many people read it? The EZ is on the edge of a chasm called deflation and even LBS has given up on the notion that the current approach is working.

  52. @BWS

    http://www.independent.ie/business/personal-finance/property-mortgages/new-mortgage-rules-madness-says-developer-30656077.html

    “That Indo piece is a load of self-serving, vacuous b*ll*cks. ”

    It has served that company very well tonight. Safe to say that this land speculating company will be several millions better off tonight, as they can now sell the land hoarded, subject to a 35% CGT tax, versus the 80% land tax speculation rate that they would have paid yesterday.

    Great budget for retiring farmers as well. Ranchers can now retire and get tax free lease income on the ranch.

  53. From JTO:

    “I’m 65 and I worked 60 hours last week. No intention of retiring until I drop dead.”

    Wow. As somebody only about 8 years along in my career, that sounds exactly how I’ve always dreamed my life would go: Working 12 hour weekdays (or perhaps “just” 9 hours every day?) so that I’m too tired to enjoy the pay I receive, have sex with my spouse or get to know my kids before they grow up… and continuing like that forever until one day when I collapse at my desk.

    Unfortunately, I’ve also seen Dead Poets Society… and I value working AS THE MEANS to have both wealth and free time to enjoy other pursuits in life. But good luck to you… perhaps all the hard work you’re putting in will earn you a ticket to first class in Protestant Heaven.

  54. One of the points made about the most recent financial collapse was that nobody did anything well.
    Same goes for the EZ with pitifully few exceptions.

    Arnaud Montebourg was sacked by Hollande for speaking up.
    “If the situation is serious, if Europe is the only region where there is no
    growth and it doesn’t start again it’s because the ECB didn’t do its job .
    It can’t continue like that. Europe needs new direction. The ECB will have to buy sov debt and relax the fiscal rules”

    “There is a real risk of deflation in Europe. And it took Japan 15 years to get out of that hole. And it was the nationalist right wing in Japan that understood what needed to be done “

  55. @ JR: Thanks. Just confirms what I believe – there are ‘triple -Oirish’ tax breaks for some Irish non-taxpayers – that is, they not only do not pay income or similar taxes, they get rebates on their water charges and their debt payments! Bloody lovely! I’m jealous – of course!

    And, whither oil? If there is all this wonderful green shootery going on all over the shop- why is oil price down 25% ??? It should be increasing!!! Lets see if the prices of other raw commodities and finished goods with a high oil content, also ‘deflate’. Hmmmm.

  56. @JtO
    I have spent about half the summer in the South of France and been affected by air and train strikes. What’s worse, the weather has been worse than in Ireland.

  57. Is there any substance to the news reports that Noonan ate Google’s sandwich and existing arrangements have a stale by date of 2020. Google’s stock rose slightly on the news which means the news was priced in.

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