J.A. Hobson on the Eurozone crisis (sort of)

Philippe Legrain points out that, far from creating the sort of European-level democratic space that would allow citizens to choose between political and economic alternatives, closer European political union is likely to place more even restraints on the power of politicians to respond to voters’  demands for alternative policies. This is because ever more rules proscribing what others can do, and made up by Germany, is what Germany wants (not that she has historically felt bound by rules when fundamental national interests are at stake, as inter alia the collapse of the EMS and the scrapping of the excessive deficit procedure inform us; and quite right too in my view).

But why does Germany want this?

Harold James has one view here.

And here is J.A. Hobson:

Moreover, while the manufacturer and trader are well content to trade with foreign nations, the tendency for investors to work towards the political annexation of countries which contain their more speculative investments is very powerful.


36 replies on “J.A. Hobson on the Eurozone crisis (sort of)”

The topic of the day!


And the comment I made on this particular contribution by still another US professor.

“This article makes little or no sense. It simply illustrates the author’s lack of knowledge of how the EU functions. The EU is a supranational construct defined by rules. If they are routinely broken, it will collapse.

Nevertheless, the article does draw attention, almost certainly inadvertently, to the fact that the rules being applied to Greece are not those of the EU but of a series of intergovernmental agreements insisted upon by Germany, mainly because of a mistaken concern about the attitude of the country’s constitutional court which – almost alone among such courts – refuses to concede to the European Court of Justice the role of final legal arbitration assigned to it under the EU treaties, of which Germany is also a signatory.


It is largely because of this that Germany is in such difficulty in terms of European public opinion. The political relations of the EU with Greece appear to have been reduced to the management of the country’s intergovernmental financial relations with the major European powers, the UK included. And not for the first time!

What is different this time around, however, is that Greece is in a monetary union with all except the UK. The actions required for successful participation in it can only be made digestible for the Greek electorate by the institutions of the EU, especially after the forced introduction of capital controls. It remains to be seen whether they can pull this off.

If they do, we may expect the folding of the ESM into the EU’s rules based structure (as recommended by the so-called Report of the Five Presidents into the future of the EMU).


One could add that, in the meantime, the EU will have to struggle on in the wake of this major political wrong turn by Germany with Greece being the test case. The one set of new (and decisive, in this context) rules that are within the EU legal framework are those that relate to banking supervision by the ECB.

The relevant texts on banking supervision.


It may be noted that the member states had the power under Article 127(6) TFEU to assign these powers of supervision to the ECB. They had simply not agreed to do so. Big, big mistake!

Speech by Draghi at the time of the mechanism’s adoption.


The left-wing (Europe)/liberal (US) bias of many academics is reasonably well documented:
and this post is one of many on various blogs that convey a deep ache and desire for a credible left-of-centre alternative that will secure sufficient popular support to replace the current centre-right hegemony throughout the EU. This is something I believe is long overdue. But, unfortunately, the left-of-centre parties which traditionally alternated periods in power with centre-right parties are now assailed by populist nationalists, green fantasists and hard left crusties. And their electoral appeal is being diminished further by being captured by special interest groups in the public and parastatal sectors (which thrive on inefficiencies and unjustified rewards at the expense of the vast majority of citizens) and by the desertion of those whose prosperity has been enhanced by left-of-centre policies, but who are fearful and want to prevent those on the lower rungs of the economic and social ladder from threatening or accessing this enhanced prosperity. These parties’ appeal to voters is further weakened by an instinctive, atavistic distrust of markets subject to efficient governance and effective economic regulation and by a reflexive affection for statist, centralised policies in all circumstances. Their future is bleak.

As a result, it may be necessary to separate Germany’s desire for rules that are policed and enforced (which is shared by most reasonably well-governed EU Member States) from the political complexion of Germany’s government and the dominance within that government of the CDU-CSU. In this context Greece is sui generis, because SPD MPs supported the government’s approach while many CDU-CSU MPs voted against or abstained. It is for the Greek people to decide whether or not they want some minimum degree of the sensible competent governance that most governments in other Member States deliver – despite there being wide variation in delivery from time to time. This is the type of governance which most voters in these Member States want and which primary EU legislation and regulation seek to support and harmonise across the EU.

An excellent example of these rules is the European System of Accounts 2010 (ESA2010) which Eurostat carefully and meticulously applied to the politically convenient and special interest group-favouring optical illusion about Irish Water which the Irish Government compelled the CSO to project and which Eurostat duly and comprehensively shattered. This also conveniently exposed the dishonesty, hypocrisy and disingenuousness of the populist nationalists and left-wing crusties opposing water charges. Unfortunately, neither the Government side nor those opposing it on this issue provide much of a choice of sensible and viable policy alternatives for voters – and I would be surprised if many are not feeling disenfranchised (or turning to innocuous but ultimately useless independents). EU rules don’t always deprive voters of a choice.

And while there are numerous other examples of Ireland applying EU rules in a way that runs counter to their intent and favouring influential special interest groups at the expense of ordinary citizens and while there is always a number of formal infringements, what should be celebrated is that the Irish Water case is the most egregious and publicly noted incident. What the Greek voters and their government would give when they contemplate the challenges they face if dealing with an issue of this nature had a high priority?

Periodic but apparently futile reminder: It would improve the usefulness of this blog, and help its accessibility to new readers in particular, if people came to a gentleperson’s agreement that no one would post more than 10% of the comments once there were more than 20 comments.

In one recent thread of 107 comments one person sent 22% of comments, more than twice as much as the next most prolific author.

What makes this even more tricky is that frequency of commenting often seems to have an inverse relationship with the relevance of those postings to the OP.

Come on folks, clean up your act.

This Reuters report relayed by Ekathimerini suggests that the rot may have been stopped, at least as far as Greek banks are concerned.


Another point worth mentioning with regard to the SSM is that it was adopted by way of EU Regulation i.e. it is now part of the legal order of all EU member countries and an example of them “exercising sovereignty in common”. (It is not possible to be ceding it in this way and retaining it at the same time as many commentators, especially on the far left and the far right, seem to think).

@ PH

The term “rules” requires detailed definition to be meaningful.

Legrain is absolutely correct in his view that more of the same, even more strictly enforced, is not the way to proceed; and it would be far better for France and every other non-Germanic country to make a stand on this right now.

However, Legrain’s willingness to consider removal of risk free rating for sovereigns, a view being pushed by Jens Weidmann would, IMHO, be a move fraught with problems and danger.

Consider for a moment a situation in which an ailing sovereign, whose banks are already suffering capital flight but are still being propped up with the contingent support of its national government, including a deposit guarantee scheme.
Those national banks, on whom the economic health of the country depends, now reward that national government by investing its depositors money anywhere in the world except in the banks of national sovereign!

Why on earth should a sovereign feel at all compelled to, or even desire to, support those same banks.

As both sovereign and banks would become stressed virtually at the same time anyway, the removal of the risk free status on national bonds, would immediately accelerate capital flight from the banks of stressed countries.

It is a proposal that will institutionalise capital flight to the core, and condemn peripheral countries to high interest rates forever. This proposal should be strongly resisted, to the point of making it a real red line issue.

minor point:

That which Hobson views as a ‘tendency’ is actually a fact.

Hibernia is, more or less, neatly trussed up and colonized by the more piratical wings of the financial system which continues to maintain odious influence and veto powers over its political system.

An imposition of 100 Billion on a citizenry certainly ain’t democratic. It is piracy.

Battle continues in the columns of the FT.


The penny must ultimately drop that the EU has already created its own unique form of federalism i.e. one in which the participants are both the members of the federation AND its executive. The issue is not one of following in the path of the US – civil war included – but of deepening what already exists. The heterogeneity of European nations leaves no other choice.

One further point in relation to the proposal to remove the risk free status from govt bonds on bank balance sheets.


The attached link is the press report on Nov 4th 2014, announcing the commencement of the Single Supervisory Mechanism (SSM) for banks, together with the Chair (Daniele Nouy) and Vice-Chair (Sabine Lautenschlager) of the ECB Supervisory Board to oversee SSM.

It is important to note that Ms Lautenschlager has argued strongly against treating government bonds as risk free assets, and is now in a key position to give more weight to those views.

“During her time at Bundesbank, Lautenschläger pushed for the ECB’s stress tests on bank assets to be tough and credible, while calling for the euro region’s prospective bank-resolution mechanism to have a strong legal basis.[7] She has been among those who have warned about potential conflicts of interest when the ECB has responsibility for both monetary policy and banking supervision, and has argued against treating government bonds as risk-free assets on banks’ books.[8] She also warned of the risks of keeping interest rates too low for too long.[9]

In line with the Bundesbank board, Lautenschläger consistently opposed the ECB’s bond-buying plan, known as Outright Monetary Transactions (OMT).[10]”

I concur with Shay. It is a bit outrageous that DOCM (I’m not above naming noms de guerre) basically has carte blanche, basically, to spam this board.

We get it: rules rules rules, structural reform, structural reform.

Except when the rules interfere with Germany’s ability to exert its sovereign Will. Then the rules are like so many Maginot lines.

@Shay, EB
I thought the crusty left were against rules.
DOCM may produce 20% by quantity but IMHO 50% by quality – the links are superb. The mind boggles how s/he finds the time.

On topic, let us remind ourselves that the main attraction of joining the euro was its anchor tenant the D-mark. The French franc or the Italian lire wouldn’t have quite the same appeal.
Some interpret Germany’s position that default/write down are fine outside the euro but verboten within. With that kind of moral hazard why is there not a rush of pigs for the exit?
Frankly the anti German mantra is becoming nauseating, to be expected for sure from the FT but from our own crusty academic left!!

@The Second

‘… 20% by quantity but IMHO 50% by quality – the links are superb. The mind boggles how s/he finds the time.’

Methinks ‘quality’ and ‘superb’ demand some qualification …

‘In a couple of interesting posts, Jonathan Hopkin and Ben Rosamond, political scientists from the LSE and Copenhagen respectively, talk about ‘political bullshit’. They use ‘bullshit’ as a technical term due to Princeton philosopher Harry Frankfurt. Unlike lying, bullshit tells false stories that pay no heed to the truth. Their appeal is more to common sense, or what Tyler Cowen calls common sense morality. At a primitive level it is the stuff of political sound bites, but at a slightly more detailed level it is the language of what Krugman ironically calls ‘Very Serious People’.

The implication which can then be drawn is that because bullshit does not reside in the “court of truth”, trying to combat it with facts, knowledge or expertise may have limited effectiveness.’



Spot on. There are people using the site as a personal blogosphere. I’m not a fan of censorship but neither am I fan of serial and exponential propaganda.

@The 2nd
“DOCM may produce 20% by quantity but IMHO 50% by quality – the links are superb”….here’s another interesting link you may be interested in.


There is no poster on this site that deliberately sidesteps issues he/she feel challenged on than DOCM. I have given up even attempting at this stage – I have challenged him to answer his/her position on numerous issues that he simply sends on irrelevant links with his commentary on unrelated issues.

“DOCM may produce 20% by quantity but IMHO 50% by quality …”

Methinks a re-think might be useful. Pasting a link requires little physical effort. Cognitive level?

I’ve given up reading DOCM’s posts. They provide little by way of a meaning intellectual encounter with what is – a hibernating economic crisis. And the longer its kept in that mode the snarkier it will be when it emerges. As it must.

@ DO’D: Frankfurt’s little monograph is a real gem.

@ the first BW
“As it must”
What makes me think you are looking forward to that day?
At least a decade of recession was the Keynesian wisdom of the CAL. And those crusty old academic lefties seem really upset that they got it all so wrong.


@Second, when someone has the institutional resources of the ECB behind them, the fact that they can come up a bunch of interesting links, most of which distract from the topic under discussion, is anything but mind-boggling.

@the 2nd
“At least a decade of recession was the Keynesian wisdom of the CAL. And those crusty old academic lefties seem really upset that they got it all so wrong.”

,….did they?….I must have travelled through time…its not 2015 then! What are we really at 2010/11? or maybe it all just happened again!

So you think the ECB have planted DOCM as a fifth columnist to subvert this blog.
What’s the next grade up from “boggles” coz that suggestion had propelled me there?

It should immediately obvious to everyone by now that “futher european integration” is a euphemism for “becoming a German vassal state”. Europe has returned to the days of Great Powers, with banks and computer code replacing armies and gunboats. Anyone in denial about this is either clueless or a shill.

So you think the ECB have planted DOCM as a fifth columnist to subvert this blog.

That one is simply the self-reinforcing end product of financial and neo-liberal propaganda. The real plants are pro-euro newspaper editors and think tanks. Everything else, politicians, economists, random internet posters, are entirely secondary tto the main ideological and propagandistic source of pro-euro, pro-austerity, and pro-kleptocratic policies. There is a lot of money in selling out your fellow man to continental neo-liberalism.

The slower learners may still be in denial. But when the likes of the Irish Times and the usual europhile academe start calling for Ireland to join EU military projects, or preening over the prominent presence of EU flags during the 1916 “remembrancing event”, the wool might be pulled from a few eyes yet. The shills however, will never stop talking shite.

@ 2nd: Being a mathy type of person you should have no trouble understanding the Gaussian (Normal) plot line. It goes up, inflects over to a max, then goes down. In the case of economic activity occuring in a physical system (subject to the Physical Law) and consuming raw materials and energy, the plot line of Economic Activity v Time traces-out in a similar manner to the Gaussian. Not symetrically: the down side looks like a Seneca Cliff!

My guesstimate is that economic rates-of-growth (which follow an exponential-like function – same as compounding interest) are inflecting over to their max. This will take at least a decade – but more likely two. The other matter is the number of ‘doubling intervals’. It is more or less agreed that with a 3% p/a compounding rate of economic growth, the ‘doubling interval’ is 23 years. You might stretch it to 27 to allow for some years when growth rates are lower.

I won’t explain here the physical consequences of the doubling of economic growth – over 7 iterations. Its very nasty indeed. And I believe we have arrived at the margin of this bad place.

Will I see The Day? Probably not. But I do accept the truth of the Physical Law and the iron rules of math. OK?

Is this site still called ‘The Irish Economy’?

There is now precious little about the Irish economy on it.

Last week the most important figures of the year on the Irish economy were published by the CSO., i.e. the complete (including revisions to previous years) national accounts figures for 2014 and the first set of figures for 2015.

Yet, not a mention on the site. Zero, squilch.

But, we get thread after thread after thread on the Greek economy.

And now increasingly threads that appear to be part of an anti-euro political campaign.

Is the lack of threads on the Irish economy to spare the blushes of certain prominent economists who have been proved totally wrong in their predictions?

I suggest the organisers of the site consider renaming the site ‘The Greek Economy’ because that’s what is becoming.

@ the1st
The average height of the human race is growing exponentially. Although the rate is slow I estimate that in a billion years the average man will be the height of Mt Everest and the average woman K2.
Or maybe not.


Seamus Coffey’s blog is the one to visit if you want to discuss the actual Irish economy. Some recent highlights:

1. Gross Government debt to GDP will be below 100% before the end of 2015.
2. Net debt will be down to 80% (i.e. taking into account reserves).
3. If you take into account the stakes we have in banks it could be less than 70%.

To the Keynesians these stats are like garlic to a vampire. It’s now 100% undeniable that the course taken by the Irish State has worked, and the alternative route proposed by Syriza Fein and fellow travellers would have been a disaster.

But here is the irony. By remaining silent about the recovery, and pretending that we are still one quarter away from disaster the left-wing academic economist who dominate discussion on the Irish economy are playing right into Noonan’s hands. He does not want the discourse to become focused on the spectacular growth figures because then the discourse will turn to giveaway budgets. Fintan O’Toole has just cottoned on to this – all his recent columns have been about spending increases (without ever acknowledging that the budgetary decisions taken by the current Government, which he has criticised at every possible opportunity, are the very reason that the opportunity for spending increases has arisen at all).

So my advice would be to let sleeping fools lie.

“To the Keynesians these stats are like garlic to a vampire. It’s now 100% undeniable that the course taken by the Irish State has worked, and the alternative route proposed by Syriza Fein and fellow travellers would have been a disaster.”

Not a shred of evidence to support this position – not one iota only rhetoric. Easy to diss the counter factual when it doesn’t exist – and its taken almost a decade to get there before you can pluck the courage to do so…hmmm.

We are still near double digit unemployment, yet we enjoyed enormous good fortune in that the euro has remained weak – ironically not least because of the Greeks misfortune, and that europe generally has remained sluggish – thus prompting several years of extremely low interests rates that has kept the wolf from the door for nearly 400k families enjoying tracker mortgages…that can be very grateful Ireland weren’t the only ones to suffer from the Euro project folly – otherwise many of them would be on the street now. We were hostages to fortune and we have MAYBE broke even but we remain part of a monetary union that is fatally flawed. Variable rate mortgage holders don’t see what the value of the Euro is because our banking system is still hopeless broken. Our public infrastructure is creaking after a decade of zero investment the implications of which has not yet hit home. We remain within a whisker of double digit unemployment not withstanding 100s of thousands of our youngest and brightest having gone on the brain drain train….a Health service in utter chaos…no political reform whatever….

But never mind the evidence – the facts are out….had we burned senior bondholders when we had enormous negotiating leverage at several points during the crisis…this country woudl be on its knees now…that is a fact, its a fact because…well someone says it so (i.e. the government and their accolytes who want to see them reelected)…

Its post likes this that makes you long for the days of Johnny Rotten and the Sex Pistols…God Save the Regime!

But good to hear “you’re alright Jack!”


Never too late to take a reality check.

This compares with falls from 13.7 to 13.0 & 11.6 to 11.2 over the same periods in the previous two years.

The crucial point however is that we have less than 40k more in employment now in Ireland than was the case in the 2010. Hardly an economic miracle – more a tip of the cap to the Irish people’s willingness to get on the plane unlike many of our European brethren.

By comparison Obama’s “failed” Keynesian style stimulus has seen unemployment fall from almost 10% to 5.3% over the same period….and newsflash….the yanks ain’t emigrating!

This represents a 7.2% increase in net new jobs by comparison to 2.1% in Ireland.

Before anyone starts hollering about inappropriate to compare Ireland with the US….actually, happy to hear the explanations because that brings our EU masters into the mix.

Anyway the point is can I just get the address for those rose tinted glasses opticians JF and some others have been going to?



The real world for most people is far removed from sterling GDP growth data, and deb/GDP rate reductions. Its a question of how to put a roof over your head.

There is a failure at the heart of the economy, in terms of housing provision, that is having life changing effects on vast numbers of young people. Better that the govt and its spokespersons get their act together, and stop supporting the new landlord and landed class in Ireland, of which they are very much a part.

In the meantime every else on the lower echelons awaits the 10% pay rise consistent with a 5% GDP growth in 2014 and the expected 5% growth in 2015. Do you think we will have long to wait?


I agree entirely – let us continue to beat the drum of doom, at least for a few more years, until we’ve stabilised the State’s finances completely.


It is apparent that ‘stabilising state finances’ is the sole measure that represents success in your world order. In that case you are the one that should be lamenting the past. We could stabilised them in pretty short order several years ago. Debt default, rapid budge adjustment….hey presto…state finances totally stabilised.

Now if we want to look at the bigger picture to sound dreadfully boring….things ain’t so pretty. Lets beat the drum of reality and ignore BOTH the doom and spin drums a while.

@ nocense
I agree with you we got a few breaks and admit to much surprise even some skepticism that things have improved as stunningly as JtO keeps reminding us.
Where I suspect I differ from you is that I welcome these developments even if they come with a huge dollop of luck.

“Where I suspect I differ from you is that I welcome these developments even if they come with a huge dollop of luck.”

Your suspicions are ill-founded. I happen to be a citizen of this country where I am paying 52% marginal tax, I pay 4.5% variable mortgage with no better offer on the table despite free money being doled out by our supposed Central Bank, the level of stealth taxes has increased significantly for me in the last number of years, I am father that has concerns about youth unemployment, I am son with elderly parents that has serious concerns about the shocking state of our health service while we pay nearly 9billion a year in debt servicings, at least half of which is totally unjust and unjustified, I am witnessing the shocking lack of investment in public infrastructre – water, rail, roads, schools, hospitals…many of which in second world state. I could go on.

So please spare me the ‘stabilised public finances’ spiel as some wonderful endorsement of the decisions taken by a government that sold me a pup.

Simply deal with fact that since 2010 only 40k new jobs has been created in this country? Don’t colour it with the decline in unemployment figures because the answer is emmigration. Its the difference between talking reality and spin. I would love to see unemployment at 9.7% if it meant we had 150k new jobs in Ireland since 2010….

so I suspect where we differ is the spin makes you feel good, while for me it makes me indignant.

re Irish economy
The CSO recently started to publish a monthly estimate of the (seasonally adjusted) unemployment figure, which is normally published in the Quarterly National Household Survey. The data showed the trend decline in unemployment slowing over recent months, which was a puzzle given the other macro data, and in July unemployment actually rose, albeit by 300. The unemployment rate was unchanged at 9.7% for the third consecutive month.


You attributed the following statement to me:

“To the Keynesians these stats are like garlic to a vampire. It’s now 100% undeniable that the course taken by the Irish State has worked, and the alternative route proposed by Syriza Fein and fellow travellers would have been a disaster.”

Actually, it was JF who said it. But, I’m happy to take underserved credit for saying it, because every word of it is true.

Regarding the increase in the number in employment. You chose 2010 as the base date. But, in 2010 Ireland was still in the recession, or barely out of it, and the number in employment was still falling. It hit bottom in Q1 2012. Since then the number in employment has been rising faster than in any other EU15 country. The increase in employment between Q1 2012 and Q1 2015 was 105,000, or an average of 35,000 annually. This is an annual increase of almost 2%. And the trend is increasing. Between Q1 2014 and Q1 2015, the increase was 40,000. Its likely to be higher in the year to Q2 2015.

Since the unemployment rate started falling in 2012, the fall recorded in the monthly figures has invariably been revised to a higher fall in the QNHS. Its likely the same will happen in the next QNHS.


I wouldn’t want to be accused of cherry picking so maybe lets broaden the comparator base:

The current rate of 9.7% was a rate not seen pre-crisis since July 1997.
9.7% is 6 percentage points higher than when we entered the euro (hasn’t it been a resounding success).
We are still at the same level as January 2009 when the crisis was well underway.
We are 240k off peak employment in Q3 2007.

While we are on the subject – and I will leave you to read what you will out of it but to consider in the context of Germany having been built up to be the “saviours” of the god forsaken periphery this last several years.

In June 2005 German unemployment stood at 11.24%. Ireland – 4.67%, Spain – 9.16%, Italy 7.8%, Portugal 8.7%, Greece 10%

Jun 2015 – Germany = 4.17%, Ireland = 9.7%, Spain – 22.5%, Italy – 12.7%, Portugal – 12.4%, Greece – 26%

One could be cynical and run a regression analysis with Germany as the Y variable and the PIIGS as the X variable and I think you would find the negative correlation between ones good fortune vis-avis the others to have a very high R-Squared indeed!

But back to the central point I was making. You are correct more jobs has been created since 2012, in fact you do your case a disservice because in the last 2 years the rate of job growth is 41k per annum, the rate of growth is increasing. This is all to be welcomed and I delighted about it.

My gripe was in trying to bring some context and reality to the position extolled by JF that “didn’t our wise and wonderful leaders take us on the right path and reject the folly of keynesian style stimulus policy (which destroyed the US???)”….rubbish, some perspective please and the hypotheses ought to still be rejected if unemployment was down to 7% this time next year.

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