European integration and the Incompatibility of National Varieties of Capitalism

New paper from Aidan Regan (UCD) here.

19 replies on “European integration and the Incompatibility of National Varieties of Capitalism”

I was going to quote the second paragraph on page 21 but the document doesn’t seem cooperative.

Nice paper. I would just note that, although it might not suit some, there was plenty of insight on this many years ago, but also a very considerable bandwagon whose passengers didn’t want to know.

The anti view in the UK could be summarized as being that even with UK involvement, it was eventually going to be about convergence with Germany, and that we were confident the UK would not manage that. The idea that certain other ‘peripheral’ states would, was just ridiculous.

Perhaps it was something to do with the history between Britain and Germany that did not allow the idea that the Germans would just eventually mellow-out about the Bundesbank and anti-inflationary dogma to gain sufficient traction.

V. Useful … from the ‘varieties of capitalism’ perspective.

On Streeck vs Habermas [n. 18] … worth a scan on Catch22 €

If one addresses the controversy between Wolfgang Streeck and Jürgen Habermas following the “logic of demand and supply” that Hans-Georg Gadamer[1] posed as the foundation for all pragmatics of an agreement, what strikes one is the “polarity of familiarity and extraneousness” [Polarität von Fremdheit und Vertraut­heit] of these two intellectuals, who, although both debating the future of European integration, follow diverging argumentative paths and refute the dominant theses of their reciprocal stands. In his reply Vom DM-Nationalismus zum Euro-Patriotismus? Eine Replik auf Jürgen Habermas, published in September in the “Blätter für deutsche und internationale Politik,”[2] in fact, Streeck totally rejects the nucleus of Habermas’ critique of the “nostalgic option” in favour of the old national-state[3] of which he is not at all a strong supporter, blaming Habermas for the passage from the “nationalism of the German mark” to “the patriotism of the euro” which certainly provides an image that does not reflect his thoughts on the European Union.

from Journal in following thread:

Luigi Guiso, Paola Sapienza, and Luigi Zingales inquire into “Monnet’s Error?”
“Europe seems trapped in catch-22: there is no desire to go backward, no interest in going forward, but it is economically unsustainable to stay still. . . .

On the one hand, Monnet’s chain reaction theory seems to have worked. In spite of limited support in some countries, European integration has moved forward and has become almost irreversible. On the other hand, the strategy has worked so far at the cost of jeopardizing the future sustainability. The key word is ‘almost.’ Europe and the euro are not irreversible, they are simply very costly to revert. As long as the political dissension is not large enough, Monnet’s chain reaction theory delivered the desired outcome, albeit in a very non-democratic way.

The risk of a dramatic reversal, however, is real. The European project could probably survive a United Kingdom’s exit, but it would not survive the exit of a country from the euro, especially if that exit is not so costly as everybody anticipates. The risk is that a collapse of the euro might bring also the collapse of many European institutions, like the free movement of capital, people and goods. In other words, as all chain reactions, also Monnet’s one has an hidden cost: the risk of a meltdown.”
Brookings Papers on Economic Activity, Fall 2014.

Angela’s Delusion:

‘The ultimate problem is that what Germany sees as virtue is pre-Keynesian macroeconomic nonsense, nonsense that is doing other countries a great deal of harm. The best one can say in mitigation is that, in a sort of collective stockholm syndrome, too many in these other countries also mistake nonsense for virtue.


Is Simon Wren Lewis making sense?


A convincing article by Simon Wren Lewis.
” Germany’s current position is unsustainable, as its huge current account surplus and relative cyclical position shows. It will be corrected by undoing what happened from 2000 to 2007. Over the next five or ten years, German inflation will exceed the Eurozone average until its long term relative competitive position is restored.”

If anybody, in Germany or elsewhere, thinks that the current zero growth, obscene levels of youth unemployment, negative debt dynamics and several other negatives can continue for another 10 years, they simply do not understand society.
But the ECB mandate, or lack thereof, will be dumped as soon as it is in the interests of the great powers (including Germany) to dump it. That time has not arrived yet in Germany. Up until now, Germany is doing very midst in the midst of mayhem.
The Stockholm syndromists in other countries will get their p45s in due course.

I think all forms of capitalism are merging into stagnation. Financialisation rules everywhere and there is just too much money looking for rent.

Mr Wood worries that since the crisis, in fact, corporate earnings have been growing far less swiftly than corporate borrowing, which cannot be a good thing for their lenders.
The bond market also suggests that corporate leverage is increasing. Studies from Goldman Sachs, moreover, show that the reason for that pick up is involuntary, since it reflects weakness in the growth of top-line revenues and earnings. “The era of conservative capital structure management now looks firmly behind us,” a recent report on the trajectory of US credit fundamentals concludes.”

This is an interesting paper and while absolute economic convergence has been a mantra of policymakers in Europe for decades, it’s generally a myth.

The evidence shows that it is also an illusion in most emerging economies.

Regional economies tend to converge overtime and 25 years after the fall of the Berlin, GDP of Germany’s eastern states has only managed to reach 67% of that in western states – generally convergence can take at least a century if at all.

A recent report by Deutsche Bank economists suggests that German aversion to inflation is set to continue as ageing accelerates.

Outside Germany there appears to be a consensus on what is required to jump-start European growth – it could work or not – so it should be tried.

There is little attention given to the global trends as if Europe can inevitably revert to pre-2008 times.

Governments have made themselves doormats for international business and despite all the negatives, capitalism in a mixed economy is the only system that could give the typical citizen a much better life than John D. Rockefeller had or Louis 1V of France (1638-1715) in the splendour of Versailles who out-lived several heirs who died of various diseases, and was succeeded by his great-grandson.

I find this paper to be most unusual in that it advances much data which is not open to question and still fails to convince. The explanation for me lies in the approach to what is assumed to define “different varieties” of capitalism. It would be more accurate to say that all the countries of the EU follow the same rules of capitalism – they are even bound by treaty obligation to do so – but that the sharing out of the spoils of it is what gives rise to the different varieties. Nowhere is failure to recognise this more obvious than at the bottom of page 10 dealing with the disparity between the level of wages in the non-trade and tradable manufacturing sector comparing the “Northern” variety to the “Southern” one. (The disparity in question is extraordinary and goes a long way to explain the differences in economic performance).

Accepting the situation as a fatality and as being attributable to the “absence of coordinated wage-bargaining institutions” in the countries affected simply will not do, anymore than blaming “excessive levels of wage moderation” in Germany, as a guide to the future.

The paper is, nevertheless, invaluable in identifying where exactly the shoes pinches across the entire gamut of topics even if it does not come to the correct conclusion as to what should be done about it.

Also not to be missed Wolfgang Munchau!

The embedded video commentary, however, knocks a few further holes in the general thesis that the woes of the Eurozone can be overcome by any means other than, slowly, through major structural reforms (i.e. those that increase overall productivity and spread the benefits in a manner that enhances further productivity) by all the countries involved; Germany included!

An interesting article on Forum Monetaire de Geneve, largely on US/Russia/Ukraine. It raises issues that matter very much in the EU wrt respect to the survival of Europe as a viable force on a global scale.
In French but there is an English button near bottom on the left (above calendar).

@ Mickey Hickey

There can be no confusion as to which side of the argument the Forum is on (although the casual reference to the possible use by Russia of tactical nuclear weapons (!) rather gives the game away).

However, your link does draw attention to still another weakness in the paper under discussion i.e. its treatment of the Euro Area as something of a closed system when the logic of integration and the single market requires that the situation of the EU as a whole in a wider global context be considered, including that of its survival as a global economic force. The fact that it is a drum that Merkel continually beats does not make it less relevant.

@DOCM Mickey Hickey

The forum is ‘factually’ correct.

The US Neocons via Nuland of State Department essentially invaded Ukraine ……. and a massive propaganda machine ‘blamed’ Russia … in the process turning the EU into ‘Uncle Sam’s Bitch’ (The Saker) … and seriously damaging the sane EU/Russian Federation relationship …

Blind Biddy has been on the ball on this throughout ….

Two further items on the economic topic of the moment.

To the layman attempting to make sense of the conflicting arguments, the conundrum lies in this comment by Skidelsky.

“But, it will be said, Britain did start growing again in 2013, so that proves the government’s long-term economic plan was right. Wrong. The resumption of growth had nothing to do with fiscal “austerity”. It was mainly caused by quantitative easing (QE) – pumping money into the economy – which a country with its own money-creating central bank can do, but which the European Central Bank currently lacks a mandate for. Hence Britain is recovering, the eurozone is still stagnating. However, QE has produced a lopsided British recovery. The new money has gone mainly to owners of assets, who use it to buy up securities and real estate, reproducing the bubble economy that caused the crash in the first place.”

The logic of this is that it would also be wrong for the ECB to copy the actions of the US and the UK with regard to QE.

One answer that suggests itself to the puzzle of why governments in the developed world are failing to follow the policy which to followers of Keynes is self-evident is that we are no longer living in a world that Keynes would recognise, especially in relation to the enormous growth in the levels of government expenditure and the taxes required to fund it. Getting the ball back from the fierce hound that the beneficiaries of this expenditure now represent is the core of the political difficulty.

I was in Ireland primarily for a wedding late Oct. early Nov.. Ireland is changing rapidly. My Kerry relative who was a staunch SF funder and supporter now tells me that SF are not fit to govern. I believe that as the probability of SF leading a coalition increases he has become uneasy. The previous strategy appears to have been the old Irish standby “send a message” to the natural governing parties FF-FG.
In Drumcondra the upper middle class friends and relations are now actively discussing who (FF) eliminated rates, why (pre-election vote getting) and have it pegged as the beginning of the ruination of Ireland. Water they see as being handled out of General Revenue and the creation of a Quango and metering and charging as double taxation, outrageous is the consensus. In D4 they are still relieved that FF saved the banks and FG continued with the sound FF policies.

The Bride and Groom, both over educated, start work in Cambridge this week. Some things never change.

The salaried class shouldering more than their fair share of the burden and declaring a willingness to pay rates is revolutionary in Ireland. I have never previously heard the slightest hint that Irish property owners were willing to pay rates.

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