More on Greece

Colm McCarthy and I were up in front of the Oireachtas Finance Committee last week to talk about Greece.  I attach my speaking notes. (Colm’s were essentially as published in the Sunday Independent the other day). I think it’s fair to say that we both kicked to touch on Pat Rabbitte’s question as to what politically acceptable solution could have been pulled out of the hat. This is a question for the diplomats and politicians rather than economists.  The radicals and the establishment parties across Europe had manoeuvered each other so that they ended up painted not so much into a corner as up against an open 10th floor window.  Someone was going to be defenestrated.  And it was never going to be the strong.

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66 thoughts on “More on Greece”

  1. Tuff doin macro without that pesky variable termed POWER!

    Power may be positive or negative … dependent on where one stands.

  2. I have three criticisms of the speaking notes which I will cover in three separate posts.

    First:

    “fixed exchange rates were undesirable because the system was open to speculative attack (e.g. 1992 and the end of the “narrow-band ERM”)

    •With Germany’s recent floating of the notion of a Greek “time-out” from the euro, we are now back in the world of fixed-exchange rates”

    Surely somebody on the finance committee had the minimal amount of savvy required to spot this folly. It is not possible, for example, to launch a “speculative attack” on the “Irish euro”. It is possible to launch a speculative attack on Irish interest rates. In 2010 when rates spiked at 15% such a speculative attack was in full swing, and indeed in those times exit from the euro was being priced in, and positively promoted by the likes of DMcW. This time round there was hardly a ripple on Irish rates which are so incredibly low that clearly nobody prices in any possibility that Ireland will exit and devalue.

    In fact, Syriza have given the credibility of the single currency in peripheral countries a huge boost – if looneys like that can go to the very brink but in the end find exit unthinkable, surely either (a) our own home grown looneys will never be given such an opportunity or (b) even if they are they will be careful not to make Syriza’s mistake. It would be interesting to see how Target2 fared over that last few weeks but my guess is that there are no signs of mini runs in any of the peripheries.

  3. The Greek deal was a classic pyrrhic victory I suppose – both sides lost. Greece has to undergo more years of austerity, this time with greater surveillance, while , despite all the rhetoric and bluster, Germany is again willing to lend yet more money. EMU has indeed become an end in itself. The issue of debt sustainability could still scupper an agreement, of course, and the treatment of the banking system will be of interest, including any bail-in of creditors and haircuts on unguaranteed deposits.

  4. Second:

    “◾“Reprofiling” is essentially a pretence: €1000 to be paid back tomorrow is completely different from €1000 to be paid back 50 years from now

    ◾This is a kind of write-off but, unlike a real write-off, it does not allow Greece to return to the financial markets”

    Not quite the non-sequitur of the exchange rate comment. Unless you are referring to the interest payment, and I don’t think you are, pushing maturities out to 50 years frees up access to the financial markets at maturities less than 50 years.

  5. Third:

    “•Germany has reversed 50 years of hard work developing goodwill from the other peoples of Europe”

    An impressive geopolitical flourish but perhaps you should have stuck to your resolve not to stray into political and diplomatic territory.

    Syriza celebrated their first day in office by reliving some drama of WWII.

    The rest of Europe have moved on from that. Perhaps one of Syriza’s greatest naivitees was to believe that others would warm to this anti German invective. Instead they found a solidarity of 18 to 1 against – nobody bought in!

    The fact that for some peculiar reason, which maybe you can explain, a certain section of Irish economists buy into this Syriza narrative would not be losing Angela much sleep. After all the Anglo tapes already revealed how small minded certain of our citizens can be when it comes to attitudes to Germany.

  6. t seems to me that many observers are missing the really seismic shifts in governance at an EU level that are in the offing. This link, and the one to the Bruegel article I gave below, is an indication that a lot of thought is being devoted in Berlin, notably by Weidmann of the Bundesbank, to how the landscape of a stabilised euro zone will look.

    http://www.ft.com/intl/cms/s/3/189204d0-2c7c-11e5-acfb-cbd2e1c81cca.html?siteedition=intl#axzz3g2y08WlA

    cf, in particular the embedded link to the most recent Weidmann speech.

  7. The Bruegel commentary.

    http://www.bruegel.org/nc/blog/detail/article/1687-five-lessons-on-greece/

    “First, there is a classical moral hazard problem, both for private creditors and sovereign borrowers. As demonstrated by the behaviour of Syriza government (and demand of populist parties in other European countries) this is not a hypothetical threat.

    Second, as in the experience of many federal states (for example, Argentina, Brazil or Russia in the 1990s) lack of discipline on a sub-federal level may easily lead to a fiscal crisis on a federal level and destabilise a common currency. Fortunately, the EU/EMU did not get to this point yet.

    Third, if the federal level lends to a distressed and undisciplined sub-federal entity it quickly becomes its financial and political hostage. This is indeed the most dramatic dilemma faced by the euro area countries and the ECB today: allow Greece to go bankrupt and accept loses on the outstanding claims on Greece, or continue lending and increase their exposures, even if chances of debt repayment remain highly problematic. The July 13 agreement can be seen as a dramatic attempt to keep Greece afloat but at least partly reinforce rules. It remains to be seen whether this attempt has any chance to succeed.”

    Is Sligo County Council a topical case in point? After all, Irish governments are now holding popular consultations at the drop of a hat. This suggests that the country has turned, imperceptibly, into a kind of pseudo-Switzerland.

  8. How the French see it!

    https://euobserver.com/institutional/129713

    Luckily, the Germans do not see matters the same way.

    The discussion in all circles, academic included, should IMHO be how the country comes out on the right side of the up-coming negotiation. Given the return of the Irish establishment to its normal mode of operation, (especially in relation to the charade of dispensing -borrowed – largesse before an election), the omens are poor.

  9. @Barry & McCarthy

    This week, CounterPunch Radio host Eric Draitser goes one on one with award winning filmmaker and journalist, the inimitable John Pilger.

    Eric and John discuss the role of the corporate media in manufacturing narratives, its relationship to capitalism and commodification, and the importance of independent media to pierce through the propaganda. Pilger provides his blistering critique of the especially insidious liberal media whose misinformation and disinformation is so critical to the ruling class. Eric and John touch on an array of other topics including Greece, Ukraine, and debt as a neocolonial weapon. All this and much more on a slightly abbreviated Episode 12 of CounterPunch Radio, featuring as always intro and outtro music from the Dr. of the Blues, the man with a PhD in Boogie Woogie, David Vest.

    http://store.counterpunch.org/john-pilger-episode-12/

  10. “The assumption was that when cracks appeared, this would lead to closer integration: a United States of Europe with a Washington-style budget. But since there is no appetite for this now, we are stuck in limbo.”

    It may seem like Limbo, but it now feels more like being quick marched towards exit from that Limbo, by increasingly undemocratic European forces and institutions. There were only two exits from Limbo, to Heaven and to Hell.
    For a vast minority of the citizens of Europe, pearly gates are not what is coming into view.

    For that sizable minority, only a rejection of the euro holds any prospect of economic liberation.
    https://www.jacobinmag.com/2015/07/tsipras-syriza-euro-austerity-debt/

    “Uneven and combined developmental dynamics in the European periphery highlights the need for the Left to move from a defensive fight against austerity toward a positive agenda of systemic alternatives. The Greek experiment demonstrates that, on this path, there is no other choice than breaking with neoliberal European institutions and regaining democratic sovereignty on domestic currencies.”

  11. Someone was going to be defenestrated. And it was never going to be the strong.

    This is just ex-post facto rationalization of the train wreck of the last 2 months. If you had told your past self that the Eurogroup would have engineered a bank run, Greece would have fallen to a coup, and the EU would have been permentantly politically ruptured Germany, your past self would put your current self firmly in the “crank” category. Yet here we are.

    We didn’t have to be here. A buch of so called political leaders, in a series of informal, undocumented, middle of the night altercations with one another have brought us to this point. They were able to do so because intellectually and independently, there is no longer a body of people willing to oppose or criticise their actions. The media, the academy, governments, and indeed the public effectively stood by silently while Greece got shanked and the German’s cleaned off the knife.

    Please don’t try to pass this off some kind of inevitable Hobbsianism in international political relations. Life is not nasty, brutish or short for modern states in 2015, or at least it is not supposed to be in our post-enlightenment age of mass education, mass communication, and mass liberty. Yet it is apparently so, largely because so many have decided to “go along to get along”, “accept the reality of the markets”, or any of the other euphamisms for giving in to fear and/or making this faustian pact with the single currency.

    Greece is not “an example”, or “a warning to the rest”. Greece is the future of every country in the eurozone sooner or later. Sticking heads in the sand and pretending that we have to accept the return of gunboat diplomacy is simply learned helplessness and will not help anyone escape what is coming. The Germans are coming, for our deposits, our tax laws, our tech sector, our CAP payments, and quite possibly our cars and our women at the present rate of EU politics.

    The intellectual and social duty of academics and professionals is not to cast arms up to heaven, not to mentally check out to the pub, and certainly not — though I’m sure some have considered — to take up the mantle of the EUisling and sell the rest of us out to the Eureich. If commentators find themselves unable to provide solutions or strategies for getting the country out of what the EU and euro is turning into, then they should gracefully leave the stage and retire down to the local tavern and let others step in start some kind of movement away from future european calamity. Either that or they can pull their socks off and start moving themselves.

    TL;DR: Keening is a waste of time.

    P.S.
    > kicked to touch

    This phrase doesn’t make any sense.

  12. @docm
    Not sure why an article on the design flaws of the euro ought to require mention of a party barely 6 months in power – unless of course one had an agenda to advance….I’m sure then u could find a way…”syriza were the evil geniuses that found the hitch in the euro!”

  13. @DOCM
    I’m not sure that ‘seismic shifts in governance at an EU level that are in the offing’ as both creditor and debtor fatigue means that a ‘fiscal union’, however loosely defined, is highly unlikely any time soon.
    The markets never believed the ‘no bail-out’ clause and of course have been proven right, with Greece alone on course to get a third . Given bail-outs, the EA have come up with increasingly complex and intrusive fiscal rules but they are not credible, as no one believes that a euro member will actually be fined for a breach. Moreover, the Commission has repeatedly shown that the ‘rules’ do not apply to larger countries, with France the most recent and glaring example.
    So EMU is in a very uncomfortable position- there is no democratic mandate for closer political union but also a fear of letting anyone leave the club. That could still happen in Greece ( the latest Budget votes appear to have dropped measures aimed at farmers and Bank resolution is problematical) but Syriza has ruined their best chance of a clean exit. Greece was on course for a primary surplus in 2015, so allowing for an easier debt default, but that prospect has now disappeared.

  14. @ The Second,
    Your point that there can’t be an attack on e.g. ‘the Irish euro’ is so obvious that it didn’t require explicit statement (by me at least). Attacks on the exchange rate (if defended) and on bonds have the same effect – unsustainably high interest rates. The Irish government wrongly expected the Bundesbank to defend the fixed punt-DM link in 1992/93. Given the difficulties the ECB faced in being able to promise ‘to do what it takes’ when inflation was at zero, imagine the difficulties that it would face if inflation were at its target level when the next crisis occurs.

    Your second point: “Pushing maturities out to 50 years frees up access to the financial markets at maturities less than 50 years”. Really? At what interest rate?

    Your third point: You don’t agree that Germany has suffered reputational damage. Maybe you have a more extensive international network and better antennae. Maybe not.

    Finally, if you are suggesting that I am buying into the Syriza narrative you haven’t read me with any degree of care (as I would suggest is apparent from your first point).

    @ DOCM
    Re: fiscal union. Most of my Irish and other European colleagues do not agree with me on the importance of fiscal federalism to monetary union (though I agree that banking union will go a major part of the way). It is true that “the US states successfully shared a currency for a good 150 years before there was any fiscal union to speak of”, but recall from ‘Golden Fetters’, Eichengreen’s history of the Gold Standard, that governments were much less troubled by unemployment in pre-democratic and proto-democratic times.

    The Asian Crisis, where even the most fiscally-conservative states suffered contagion, influences me in thinking that rigid fiscal rules will not obviate the need for fiscal federalism. And yes, it’s true that the insurance element is what is important here, but I think it needs a transfer element (‘community rating’ maybe?) because monetary policy has to be set for the ‘core’ (where the majority of the population is) whether or not the periphery is in sync.

  15. @ Frank Barry

    Your assertion that we are now effectively in a “world of fixed exchange rates” is patently false by any criteria.

    I guess you were speaking rhetorically but I doubt whether you would have risked this to an audience of your peers. That the folk who are in charge of the finances of the country are receptive to such a fallacy is somewhat worrying.

    I am probably wrong on the profiling point. A debt overhang beyond 50 years, even if interest free for that 50 years, could cast a shadow over earlier maturities in the sense that in the event of future default the haircut would be deeper than if the longer debt had already been subject to 100% cut. Possibly those more expert such as BEB might have a comment on this.

  16. @ Dan McLaughlin

    If one works one’s way through the material to which I linked above, what emerges, in terms of the logic of the situation, is that the countries using the euro, being unable to go back, will have to go forward.

    It also demonstrates that neither “fiscal” nor “political” union, whatever meaning one gives to them, is essential to making the euro work. The real sine qua non is that the governments involved AND their banks restore full confidence in one another. This process is underway. Syriza thought it could drive a coach and four through it. It is finding out the hard way that the other countries of the EZ have much more holding them together than driving them apart.

    The seismic shift will be in governance i.e. some institutional arrangement which will give public expression to this increasing coherence. Membership will depend on the willingness of governments to get their budgetary and banking houses in order. There is no evidence whatsoever from the debate in Ireland that this point has sunk home. We may get away with continued national navigation by the seat of the pants because of FDI, but the next collapse will simply be around the corner.

    Incidentally, Tsipras may actually get Greece back on the rails. At least, the NYT thinks so.

    http://www.nytimes.com/2015/07/22/world/europe/alexis-tsipras-transforms-himself-as-he-sells-greek-bailout-terms.html?_r=0

  17. @ Frank/Second

    Ultimately any level debt is serviceable and maintainable if the coupon is low enough and the maturity is long enough.

    Seeing as Frank won’t suggest any solutions (a bit of a cop out to be honest, given the other political commentary he was more than happy to provide to the Committee. The German “reversal of political opinion” comment is especially odd – that’s not even a political commentary, that’s a personal opinion, one probably not shared my a large proportion of the European population), i will: Max out all Greek Troika debt into a 30y 1.5% loan (ie existing German/Finland/Netherlands 30y levels) and you’d have debt burden equivalent to 2.75% of GDP, a level which would put it somewhere in between the UK and Belgium in terms of the relative burden of servicing this debt load. As part of this, ensure that Greece did not have to (or seek to for that matter) return to the markets for at least five years, and possibly even ten years if required, unless Greek debt was to return to yield levels below an agreed level.

    Do the markets buy into this? Actually, yes. Greece raised 5y debt (€4bn) despite a 170% debt/GDP last year, at a rate of 4.75%. They also raised 3y debt (2bn) at 3.375%.

  18. There has been a growth crisis in Europe since the end in 1973 of what was called a Golden Age of growth and Germany has been an outlier in recent times in having the capacity to respond to rising demand from emerging economies led by China – the latter became the world’s top manufacturing nation in 2010, following a decade when many US firms transferred jobs there. General Motors had over 618,000 employed in the US in 1979, in well-paid jobs; Apple has about 50,000 jobs today in the US and the majority are in low-paid retail and call center positions.

    Rising public spending was increasingly funded by deficits from the early 1980s while the goal to join the euro system in the 1990s prompted reform moves in several countries including France, Italy and Greece but the weak euro fiscal rules were largely ignored after 1999 and most countries had not the flexibility to handle financial crisis.

    I referred last week to persistent deficits and I have added more data here:

    http://www.finfacts.ie/irishfinancenews/article_1028925.shtml

    Finland at least provided for the rainy day and in 2015 has net public assets rather than debt as it struggles with the demise of Nokia, the fall in demand for paper due to the Internet, a steel glut and EU sanctions on Russia.

    However an 8% fall in GDP since 2008 is not a “depression” as Paul Krugman termed the contraction. However, it does show how vulnerable small economies can be.

    The New York Times this week cites inflation-adjusted per-capita GDP growth from 1998 to 2008 in Germany and the United States at +17% in both countries; Finland’s growth in the same period was +33%; Sweden’s was +28% and France was at +15%.

    In 2008-2014, Germany is up +5%; US up +4%; Sweden, which has its own currency, is up +1%; France down -1%.

    The US performance has been better than the Euro Area’s but not impressive and incomes of much of the US population have been stagnant for years.

    Nobody knows when strong global growth will return and that outcome will shape how European economies will perform in coming years.

    In December 2007 the United States economy entered into recession and since then 6 countries have joined the euro system and today there are 19 member countries from 28 members of the European Union — recent polls have shown that 7 out of 10 Greeks wished to retain the euro.

    The outlook would have to be very grim for a country to voluntarily quit the system.

    Germany, France and Italy account for two thirds of EA GDP.

    Martin Wolf of the FT wrote in 2011:

    “Suppose the immediate crisis were indeed overcome…Would this promise a sunlit future for the euro? No. Nor, as so many suggest, is some sort of fiscal union the answer. True, if creditworthy members were to transfer resources to the uncreditworthy on a large enough scale, the Eurozone might be kept together. But, even if such a policy could be sustained (which is unlikely), it would turn southern Europe into a greater Mezzogiorno (Southern Italy). That would be a calamitous outcome of European monetary integration.

    The fundamental challenge is not financing, but adjustment. Eurozone policymakers have long insisted that the balance of payments cannot matter inside a currency union.

    In 2014 41% of Germany’s trade surplus was with the US and UK, and 29% with the Euro Area.

  19. re Debt

    Yes, the overall debt burden may not be a good indicator of potential default- (a lot of LATAM defaulters had ratios around 60%)and it depends who owns the debt; debt in bigger countries like Japan it is largely owned internally. Italy’s debt is now €2.2trillion or 135% of GDP but no one seems to care that much, for the moment at least.
    Granting Greece or anyone lese 30 or 50 year loans is fine but there is obviously a significant refinancing risk- the ESM will probably roll over the funding every 7 years or so, so the interest rate in 2022 may be 5% or more but who knows? The IMF also has to be considered; they deem it necessary to have a debt ratio falling from very high levels, so requiring a persistent primary surplus which could be high in Greece’s case, unless growth snaps back very sharply.

    @DOCM

    What form will ‘some institutional arrangement ‘ take?. Inevitably one that involves the further loss of sovereignty which goes back to the issue of a democratic mandate .

  20. Meh…little criticism of Syriza who monomaniacally focused on just one aspect of Greece’s problems (debt sustainability ) to the detriment of all else.

    No criticism either of eminent economists, e.g. Profs Krugman, O’Rourke and Sachs who irresponsibly advocating a Grexit without saying how it would work and without even the most basic of econometric models.

    Better standards ought to have been expected of both.

  21. re debt

    http://www.voxeu.org/article/debt-sustainability-puzzles-implications-greece

    @ DMcL

    It will, I think, be some re-arrangement of the existing institutional structure e.g. removing the “informal” character of the Eurogroup and creating a separate chamber of the European Parliament made of up of countries that have adopted the euro which would provide the necessary “democratic mandate” or, at least, the appearance of it.

    Your point about a further “loss of sovereignty” is based on a widespread misunderstanding best explained by quoting from the French constitution;

    “Article88-1.

    The Republic shall participate in the European Union constituted by States which have freely chosen to exercise some of their powers in common by virtue of the Treaty on European Union and of the Treaty on the Functioning of the European Union, as they result from the treaty signed in Lisbon on 13 December, 2007.”

    That provides an excellent summary of the constitutional position of all member countries of the EU (although one would be hard pushed to find it in our own constitution). Some of the powers in question relate to taxation, notably in relation to indirect taxes, VAT being the obvious example. In taxation matters, however, the member states have taken two steps forward and one step back i.e. by making all decisions subject to unanimity. Such a rule guarantees near stasis. Changing it would not actually alter the transfer of “sovereignty” which has never occurred in the first place.

    But the real meat of the changes is already taking place under the existing EU legal structures (banking union etc.). Indeed, one could argue that a central error made by Germany at the start of the crisis was in going outside them in terms of providing financial assistance. This is all being done in a separate legal context (Fiscal Treaty, EFSM, ESM) However, one has only to look at the behaviour of Osborne with regard to the involvement of the UK in any new help to Greece to see the other side of the argument.

  22. @DOCM,
    I believe the EU has moved away from the unanimity requirement on direct taxation via ‘enhanced cooperation’. Proposals, such as the CCCTB, which may be deemed unlikely to gain unanimous agreement can still proceed if a group of nine or more Member States (according to the Lisbon Treaty) decide to work together to pursue common interests, provided a qualified majority of all Member States gives its approval.

  23. @ Frank Barry

    I am not clear as to what point you are making. There are a number of examples of the use of enhanced cooperation outside the area of taxation with one within it, in relation to the FTT, which seems to be stuck.

    http://www.euractiv.com/sections/euro-finance/france-and-austria-table-compromise-launching-ftt-2016-311476

    The CCCTB proposal is a matter of company law in the first instance and the approach of the Commission is EU wide.

    The main legal point at issue as far as Greece is concerned is summed up in the Pringle judgement on which I posted what seems to be an informed blog commentary above.

    Whatever may be around the euro corner, neither a fiscal nor a political union is likely to figure. enhanced or otherwise. The euro does not need either in order to become simply what it was intended to be i.e. a – confirmed – stable credible currency facilitating European economic integration.

  24. Some lite hermeneutic reading for those interested in propaganda, misinformation, and well spun power narratives …

    http://www.theguardian.com/books/2015/jul/22/goebbels-peter-longerich-review-joseph-nazi

    @all

    Just thought I’d mention the figure of €100 BILLION (h/t The Guvnor) as the alleged cost of the imposition of financial system fu*k ups on the Irish Citizenry … motivation for engaging on this blog many moons ago …. imposition of financial system debt, by whatever means, is the neu weapon of mass destruction on the humble citizen-serfs. The empirics are basically uncontestable.

  25. The FT says “François Hollande wants to be the new Jacques Delors. Back from Brussels, where he helped salvage a deal to keep Greece in the Eurozone, the French president has embraced an idea first formulated by the former European Commission boss — like him, a socialist — for a ‘Eurozone government.’ He would bolster it with a budget and a parliament.”

    This is bs and certainly it would do nothing to fill a perceived hole that is sometimes called a democratic deficit.

    I agree with DOCM that a fiscal union and political union are not needed — and could make the situation worse.

    Just consider the CAP welfare system which for a time was a positive for Irish agriculture but success or failure, an Irish agriculture minister is going to fight for as high an allotment from the budget as possible.

    Recently Frank Barry’s former TCD colleague Alan Matthews suggested Irish beef farmers should switch to growing trees as they could not survive today without subsidies.

    Because of the number of Irish farm holdings, CAP receipts are higher than in Denmark and the Netherlands — two of Europe’s food giants — and the system results in a very low turnover of land which puts Irish agricultural prices among the highest in the world. That is a stupid situation for a food producer.

    In the US system, a long-serving senator from a small state can get a disproportionate amount of federal outlays while states with big per capita federal receipts can be the ones with no local income tax!

    Without national tax harmonisation, an EA fiscal union wouldn’t fly.

    There will be less abuse of the corporate tax system in future with likely agreement on sharing tax rulings etc. Remember when the Swiss said banking secrecy was untouchable?

    When most foreign economists who through boom and bust have commented on the Irish economy, they revealed how little they understood it. Wonder would the same apply to Greece?

    What is clear is that until the leaders and citizens of a country take responsibility for addressing their own economic problems, there is limit to what outsiders can achieve.

    You can take the horse to the water but you can’t make it drink!

  26. This further link to Martin Sandbu’s column is of particular interest in terms of addressing the central issue of the sovereign banking nexus.

    http://www.ft.com/intl/cms/s/3/05402576-2f9a-11e5-8873-775ba7c2ea3d.html#axzz3g2y08WlA

    Weidmann also addressed the topic of the distorting impact of the differentiated tax treatment of banking debt and equity.

    There is no shortage of issues on which EZ governments could agree a common policy. Getting the political impetus to do so going is another matter.

  27. @DOCM,
    You say “I am not clear as to what point you are making.”

    In a previous comment you had said: “In taxation matters, the member states have taken two steps forward and one step back i.e. by making all decisions subject to unanimity.”

    I was just pointing out that this reference to unanimity was incorrect. Nothing more.

  28. @ Frank Barry

    If you read the wording of the last paragraph of Article 329 of the TFEU which governs the procedure fro the establishment of an enhanced cooperation, it reads: “Authorisation to proceed with enhanced cooperation shall be granted by a decision of the Council acting unanimously”.

    I presume that, in relation to the stalled proposal on an FTT, the countries not participating in the agreed enhanced cooperation had no objection to those participating shooting themselves in the foot (and, no doubt, in the case of the City of London, sending some business its way).

    What the situation would be with regard to other aspects of taxation is an open question.

    On the CCCTB, the legal basis for the proposed directive is Article 115 which requires a decision by unanimity.

  29. Ok – here’s a good synopsis
    http://m.huffpost.com/us/entry/55b127dee4b07af29d57c5cd?
    I still think it’s sad that you can’t accept that the bankers should never have lent money to Hreece in the first place.

    For all your pseudointellectual b***t Tullmacadoo you chose to disregard this because it is easier to pick on poor Greek pensioners than wealthy bankers. It’s just too easy.
    With regards to Bond I have a certain respect but your industry messed up big time in all of this

    If Greece goes and fails it’s a disaster for Europe, if Greece goes and succeeds it’s a disaster for the Euro

  30. Thanks for censoring my last post, Frank. It was making the altogether legitimate point that a great many people (not only on Irish Economy) seem to think that German actions and attitudes from 1933 to 1945 are “ancient history” and of no relevance to current German behaviour and attitudes while the (horror the horror! of) hyper-inflation during the Weimar Republic from 1918 to 1933 is of the highest pertinence.

    But it was making it in a funnier way than this one. What are you afraid of?

  31. Here’s former German Foreign Minister and Vice-Chancellor, Joschka Fischer on the “return of the ugly German.”

    The issue was fundamental: Her finance minister wanted to compel a eurozone member to leave “voluntarily” by exerting massive pressure. Greece could either exit (in full knowledge of the disastrous consequences for the country and Europe) or accept a program that effectively makes it a European protectorate, without any hope of economic improvement. Greece is now subject to a cure – further austerity – that has not worked in the past and that was prescribed solely to address Germany’s domestic political needs.

    But the massive conflict with France and Italy, the eurozone’s second and third largest economies, is not over, because, for Schäuble, Grexit remains an option. By claiming that debt relief is “legally” possible only outside the eurozone, he wants to turn the issue into the lever for bringing about a “voluntary” Grexit.

    Schäuble’s position has thrown into sharp relief the fundamental question of the relationship between Europe’s south and north, his approach threatens to stretch the eurozone to the breaking point. The belief that the euro can be used to bring about the economic “re-education” of Europe’s south will prove a dangerous fallacy – and not just in Greece. As the French and Italians well know, such a view jeopardizes the entire European project, which has been built on diversity and solidarity.

    Germany has been the big winner of European unification, both economically and politically. Just compare Germany’s history in the first and second halves of the twentieth century. Bismarck’s unification of Germany in the nineteenth century occurred at the high-water mark of European nationalism. In German thinking, power became inextricably associated with nationalism and militarism. As a result, unlike France, Great Britain, or the United States, which legitimized their foreign policy in terms of a “civilizing mission,” Germany understood its power in terms of raw military force.

    The foundation of the second, unified German nation-state in 1989 was based on Germany’s irrevocable Western orientation and Europeanization. And the Europeanization of Germany’s politics filled – and still fills – the civilization gap embodied in German statehood. To allow this pillar to erode – or, worse, to tear it down – is a folly of the highest order. That is why, in the EU that emerged on the morning of July 13, Germany and Europe both stand to lose.

    Notice that Fischer thinks Schäuble’s actions are rolling Germany back to 1945, not some other date.

  32. Eureka,
    What you are proposing is that taxpayers in the rest of the EZ take a hit on their loans to Greece and then lend them more money the day after so they continue to enjoy a lifestyle that exceeds that of many of the other member states. So can I ask you again what taxes do you want to raise here in Ireland and what expenditure you want to cut so that Greeks can avoid paying tax & retire earlier than anybody else.
    Schauble has proposed a way out whereby Greece can leave the EZ, default on its sovereign obligations & see can it re-invent its economy. Otherwise it continues to live off the charity of other EZ voters.

  33. @EB

    Thanks for post. Fischer has his finger on the pulse and to prove his point the current stance out of Grillo in Italy – comedian or not, he is leader of Italy’s second largest political party – highlights just how much damage the Greek saga has done to europe in solidarity context…

    http://www.beppegrillo.it/en/

  34. @ Ernie

    Googled this Fischer guy. Here is an extract from Wiki:

    “From 1983 to 1985, Fischer was a member of the Bundestag for the Green party. His stint in federal parliament saw him frequently engage in a frank and confrontational debating style, exemplified by an incident on 18 October 1984, when he addressed Richard Stücklen, then vice president of the parliament, with the words: “If I may say so, Mr. President, you are an asshole” (German: “Mit Verlaub, Herr Präsident, Sie sind ein Arschloch.”).”

    In short, he is a looney. That’s the nature of German democracy, looneys can get high office, but the rest of us, including you Ernie, should not subsequently be duped by his CV into thinking he is a profound thinker.

  35. Joschka Fischer is perfectly entitled to provoke this debate in Germany, but for the EU to become excessively focused on internal issues it will deprive itself of the cohesion, outward-looking and forward-looking impetus it requires to engage effectively with the rising economic and military global powers in China, Brazil, India and the dozens of emerging economies follwoing in their tracks. The lifting of 100s of millions out of poverty since the decisive rout of totalitarian Marxist-Leninism is greatly to be celebrated and one can only hope it will continue, but it poses major challenges for the developed economies. It is true, as Fischer observes, that the EU has been built on diversity and solidarity, but it cannot survive when the modus operandi of a member-state is characterised by lying, cheating and corruption and its citizens and politicians are unwilling or unable to ensure a measure of sensible and competent governance. (Like all countries Ireland has its own brand of lies, deceit and corruption – and it sailed very close to the wind after 2008 – but it was saved by the extent to which it has outsourced its industrial and export policy to the MNC enclave, by the existence of sufficient governance capacity and by induslgin the various powerful special interest groups to prevent them from scuppering the required process of adjustment.)

    Germany and the member-states which share its focus on an outward and forward looking EU should not be forced to compel a member-state to provide and pursue a basic process of good governance. It appears though that the possibility of receiving the treatment it thoroughly deserves (as outlined by the Germany Minister of Finance) has encouraged enough Greek citizens and their politicians to seek to close the gap between their desire to remain in the EZ and what they are prepared to consent to to sustain this result.

    It is the Greek people – and only the Greek people – who can decide whether or not they want a reasonably uncorrupt and sensible system of governance. In the historcial context it is unfortunate that it has fallen to a senior German politician to have to make this clear. But there is no doubt he has considerable support from many other government within and outside the EZ – with the possible exception of those who tolerate more corruption and the abuse of economic power by special interest groups than they should.

  36. Nocense,
    If the “damage to European solidarity” results in the death of ever closer union then it will be a good outcome.

  37. @The second

    That is truly a damning indictment of fischer you put forward there after ‘googling’ him! Good for the old google, a quick look at wiki, draw down an extract of man referring to another as an “asshole” and ordain him a looney off the back of this single crime.

    Columbo is shaking in his boots!

  38. @ Nosence

    Ernie introduced our sage as follows:

    “Here’s former German Foreign Minister and Vice-Chancellor” I simply included the Wiki extract to put some balance into his CV.

    It is not impossible that Gerry Adams will be Tanaiste (or even Taoiseach) of this country. I shudder to think of gullible foreigners subsequently referencing the geopolitical wisdom of our Gerry.

  39. @The Second
    Fischer is former German Foreign Minister and Vice-Chancellor.

    That sort of an introduction certainly requires some “balance”….eh????

    Did you know that Bobby Charlton used to play for Manchester United (I should point out however in the interest of “balance” that he was follicly challenged)

  40. @The Second

    Let me get this straight: calling someone an asshole in the 1980s invalidates anything that one might subsequently say or do? Is that your point?

  41. @ Ernie/Nocence

    This is my third attempt to address this point. I hope the very fact that I said that does not make me fall foul of the censor yet again!

    I, like you two, initially took those thoughts seriously because of the impressive CV. If it were simply Herr Jo Blogs speaking we would ignore it. So does the guy command that level of respect? I decided to dig a bit. The guy turns out to be a populist and a publicity seeker. I suppose he is the equivalent of our Paul Murphy. That makes a difference to the significance I attach to his musing. Ironically it probably also makes a difference to yourselves albeit in you case it probably enhances your admiration.

    BTW it doesn’t fizz on me at all that he calls people Aschlochs, that was not my point.

  42. @ Tull
    This was predicted – bankers would walk away from their mistakes and leave nations to pick up the pieces. It has been done and it’s too late to undo it but it will be important to recognise it.
    The solution would be to spread the cost as widely as possible across banks and nations.

  43. @The Second

    Maybe instead of playing the man (and deciding on the “level of respect” to give him based on virtually nothing), you should play the ball. Do you have anything to say about what he says rather than about what he is?

    Because if that’s the standard, what’s the appropriate level of respect to be accorded to random and anonymous posters on this blog?

  44. @EB
    Good link to Fischer, who puts the fight in context.
    Schaeuble would appear to demand nothing less than a cultural revolution of Southern Europe, to satisfy his requirements for a continuation and expansion of German hegemony.

  45. @Ernie

    You introduced him with his impressive CV. It is you therefore made him a legitimate target. If you had simply posted his thoughts anonymously then of course it would only be legitimate to address those thoughts.

  46. Here’s something posted by some guy:

    reece doesn’t need a new currency, it needs control over its central bank.

    The Greek crisis is not fundamentally about Greek government debt. Nor in its current acute form, is it about the balance of payments between Greece and the rest of the world. Rather, it is about the Greek banking system, and the withdrawal of support for it by the central bank. The solution accordingly is for Greece to regain control of its central bank.

    I can’t properly establish the premise here. Suffice to say:

    1. On the one hand, the direct economic consequences of default are probably nil. (Recall that Greece in some sense already defaulted, less than five years ago.) Even if default resulted in a complete loss of access to foreign credit, Greece today has neither a trade deficit nor a primary fiscal deficit to be financed. And with respect to the fiscal deficit, if the Greek central bank behaved like central banks in other developed countries, financing a deficit domestically would not be a problem.

    And with respect to the external balance, the evidence, both historical and contemporary, suggests that financial markets do not in fact punish defaulters. (And why should they? The extinction of unserviceable debt almost by definition makes a government a better credit risk post-default, and capitalists are no more capable of putting principle ahead of profit in this case than in others.)

    The costs of default, rather, are the punishment imposed by the creditors, in this case by the European Central Bank (ECB). The actual cost of default is being paid already — in the form of shuttered Greek banks, the result of the refusal of the Bank of Greece (BoG) to extend them the liquidity they need to honor depositors’ withdrawal requests.

    2. On the other hand, Greece’s dependence on its official creditors is not, as most people imagine, simply the result of an unwillingness of the private sector to hold Greek government debt, but also of the ECB’s decision to forbid — on what authority, I don’t know — the Greek government from issuing more short-term debt. This although Greek treasury bills (T-bills), held in large part by the private sector, currently carry interest rates between 2 and 3 percent — half what Greece is being charged by the ECB.

    And of course, it’s not so many years since other European countries were facing fiscal crises — in 2011–2012 rates on Portugal’s sovereign debt hit 14 percent, Ireland’s 12, and Spain and Italy were over 7 percent and headed upwards. At these rates these countries’ debt ratios — not much lower than Greece’s — would have ballooned out of control and they also would have faced default.

    Why didn’t that happen? Not because of fiscal surpluses, delivered through brutal austerity — fiscal adjustments in those countries were all much milder than in Greece. Rather, because the ECB intervened to support their sovereign debt markets and announced it would do “whatever it takes” to preserve their ability to borrow within the euro system.

    This public commitment was sufficient to convince private investors to hold these countries’ debt, at rates not much above Germany’s. Needless to say, no similar commitment has been made for Greek sovereign debt. Quite the opposite.

    So to both questions — why is the failure to reach an agreement with its official creditors so devastating for Greece, and why is the Greek government in hock to those creditors in the first place? — the answer is, the policies of the central bank. And specifically its refusal to fulfill the normally overriding duties of a central bank — stabilization of the banking system and of the market for government debt, a refusal in the service of a political agenda.

    The problem so posed, the solution is clear: Greece must regain control of its central bank.

  47. A comment by Michael Hennigan (above) got me thinking about our Geeky problem. Had my suspicions. Confirmation looks probable. Its a mathematics matter.

    The causal link is via economic growth rates. These must be in excess of the interest charged on borrowed funds. The historical evidence is that economic growth rates have (for at least two decades) underperformed in respect of interest rates. Though the FED and various CBs have set interest rates close to the Zero Bound in an attempt to keep the economic growth rate above the interest rate. Alas, it has not worked out as they expected (debt levels are a negative, and reduce economic growth rate proportionately). The result: Greece. But they are not alone. We, and other western developed economies are not far behind.

    From Wikipedia:

    “The large impact of a relatively small growth rate over a long period of time is due to the power of exponential growth. The rule of 72, a mathematical result, states that if something grows at the rate of x % per year, then its level will double every 72/x years. For example, a growth rate of 3 % per annum leads to a doubling of the GDP within 24 years.

    Finance:

    Compound interest at a constant interest rate provides exponential growth of the capital.

    Economics:

    Economic growth is expressed in percentage terms, implying exponential growth.”

    What’s the lesson here? Well, money being a virtual entity can grow ad infinitum through inflation. Not so economic growth. Economic growth is a physical process occuring within a finite physical space: it consumes generated energy, material commodites and oddles and oddles of credit. It must eventually (as of now I believe) max out. Debts then become unsustainable and unpayable. Funny olde worlde.

  48. @ Joesph Ryan,

    I have spent a bit of time in Germany and Austria. Perhaps you have too!

    The trains run like Swiss watches, I did not see public drunks, or bus shelters / DART stations getting smashed or garbage everywhere.

    In fact I witnessed a social order which is not normally seen even in Ireland!!

    Where people are honest… and live within their means etc. A bottle of wine costing 2.50 euro… and no drunken orgies of young people to avoid.

    If this is Herr Schaeuble’s view for Europe…. I say bring it on. Schaeuble should not just be looking at Greece, but Italy, Spain and Ireland.

    I for one sleep a lot sounder at night, knowing every year the Irish Budget is vetted in Brussels / Berlin before being announced to the muppets which make up Dail Eireann.

  49. @ Ernie,

    Thanks Ernie!!

    However there is a lot of huffing, puffing and indignation about Ireland and various other EU peripheral countries losing their sovereignty and so on etc etc.

    Have you read today’s article in SBP…. by Mr Tom McGurk on TTIPS?

    You may have already read it / be familiar with TTIPS. Certain journalists are starting to sound alarm bells over what Mr Richard Bruton is trying to get in the door.

    But the mainstream media.. is oblivious, or perhaps they already are aware… but prefer to bleat / whinge about TTIPS after it has been introduced.

    Do you not think it is ironic that another part of Irish Sovereignty is about to be given away?

    Just goes to show… you can fool all of the people…. all of the time!

    Future Generations will look back at this time and comment …. ‘What on Earth were they thinking back then?’

  50. “When the weak cannot comply with the rules, they cheat..”

    Nobody compelled Greece to join the EZ. But the freely elected government and its officials decided to cheat and lie to get in. In addition, it would be interesting to find out how the billions the so-called “reckless lenders” lent to Greece was spent. This is the other side of the travesty of bailing them out to the extent that they were.

    This is now in the past and the challenge for Greece is find a way forward. In addition, there is a pressing need for a coherent critique of the current centre-right dominance in the EU that will secure sufficient popular support to eject these centre-right governments. Relying on out-dated ideological clap-trap and wallowing in the memories of past injustices and a sense of victimhood while determinedly protecting entrenched special interests and the maintenance of the damaging policies that entrench them isn’t going to achieve that.

  51. If Greece were more powerful or just bigger, all this moralising from the likes of Paul Hunt would never arise. Can we really imagine the same actions being taken accompanied by the same kind of moralistic discourse if we were talking about Italy (about which many of the same things can be said)?

    Regarding Greek “cheating”: who devised the instruments allowing them to cheat and where are they now?

  52. “If” was never at the start of a good story. If this and if that…what about this and what about that..all wonderful fantasising about what might have been, what was or wasn’t done and what should be done.

    Generally the purveying of these fantasies has little impact because the vast majority of citizens quite rightly ignore them. But those purveying them make quite a lot of noise and take up more of the space for public discourse than their witterings deserve and they both stymie and distract from genuine efforts to craft a plausible left-of-centre alternative to replace the current centre-right dominance.

  53. @Paul Hunt

    You know who else “cheated” to get in? Read it and weep. The “convergence criteria” were every bit as political as are Schäuble’s invocations of “the rules” today: making up “rules” that don’t exist and ignoring inconvenient ones that do exist.

    Meanwhile, the upshot of my point about the powerful in my previous post is that this really has nothing to do with morality and everything to do with power and its exercise. If Italy or Spain were in Greece’s shoes, Schäuble would be bending over backwards to keep them onside.

  54. @ Ernie,

    Ernie… this is the news.

    http://www.independent.ie/irish-news/outrage-as-yellow-road-marking-painted-over-cat-on-roadside-31406376.html

    Just check out the comments, in particular guru55,

    Greece is not the news, or the loss of Ireland’s sovereignty or TTIPS could match this.

    On another point… I saw a Ferrari F40 parked on the street today, I did think of you … and I commented that it was fortunate you were not here to see it. (estimates at auction here… http://www.hemmings.com/classifieds/cars-for-sale/ferrari/f40).

  55. All ‘ifs’ and ‘buts’ again, Ernie. Greece, in the context of the EZ, is ‘sui generis’. Why not have a look at this by a highly erudite and genuine gentlemen who occasionally is able to break free of the constraints and conflicts that fence him in:
    http://www.irishtimes.com/business/economy/john-fitzgerald-the-calm-after-the-eruption-1.2298733

    And as for power and its exercise, Alexis Tsipras’ has provided a masterclass in completely routing and replacing PASOK, in effecting the resignation of his principal opponent, Antonis Samaris, in compelling the much-weakened opposition parties to support his government (which much strengthens his hand in the detailed negotiations with the Troika) and in isolating the academic incompetents and the left-wing headbangers in Syriza.

  56. @ Eureka

    read the actual report on Puerto Rico. It says, simply and uncontroversially, “lower expenses given that there is lower population/lower enrollments”. Education expenditure per newly enrolled student is +90% in a decade.

  57. @Bond
    Thanks for getting back on this. Just trying to think it out.
    My point is that the reason that the expense per enrolled student increased at that rate is because money was lent to the government without doing due diligence.
    Basically why would you lend to a sovereign so that it could increase expense per new student by 90% – you shouldn’t.
    Why do the hedge funds lend to sovereigns in the first place? Do they analyse a business plan of the sovereign? Do they do risk assessment?

    I think that sovereign debt is a bit of a gravy train at the moment for investors. Basically the return is not guaranteed through analysis of business plans. It is guaranteed because the sovereign has the capacity to collect taxes (and increase those taxes) on its people in order to pay the debt.

    So in summary:
    The time to insist the plan is prudent is before not after lending the money

  58. @ DOCM,
    I have just now got around to checking what you said about Article 329 of the TFEU. You are correct in stating that it reads: “Authorisation to proceed with enhanced cooperation shall be granted by a decision of the Council acting unanimously”.

    It is followed however by Article 330:
    “All members of the Council may participate in its deliberations,
    but only members of the Council representing the Member States participating in enhanced cooperation shall take part in the vote.
    Unanimity shall be constituted by the votes of the representatives
    of the participating Member States only.”

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