Is this the same Germany as described by Derek Scally in the IT last January?

http://www.irishtimes.com/news/new-airport-proves-not-to-be-best-example-of-german-efficiency-1.957296

Respect, +1, or as we say in Ireland, fair play to you.
I am somehow reminded of Smiths’ Theory of Moral Sentiments. Something was good in the old GDR after all . I can see that you don’t really concur with the late Ms Thatcher, God rest her, that ‘there is no such thing as society’. Neither do I.

Thanks for all the detailed points. As I am not an economist, I won’t take issue with your specifics, except for this. Michael Pettis is, IMHO, one of the most open-minded and far seeing economists on the planet. Take a look at the comments section of his website, where he responds with the utmost courtesy and patience, to a whole range of expert and not so expert, commentary. We all learn by doing, so please make the effort to understand his perspective. As Shimon Peres put it, we don’t make peace with our friends.

Your take is genuinely fascinating, as you bring both the Ossi and the Wessi experience to the table. Ireland, and Irish attitudes, cannot be understood without reference to our history, north and south, with its fiercely contested versions of the past. And then there is British history which provides the context for it all.

I do think there is a difference between criticism and blame. Without criticism we get no new ideas, but blaming just makes people put up the fences. So blame, zero.

Core and periphery is a big theme. Is there any real security for Israel which does not also deliver security for the Palestinians ? It’s still a Darwinian world, in many respects. The history of the world economy is also the history of genocide, or as Gore Vidal put it, ‘every civilisation is built on the bones of the defeated’ (sic). I am also reminded of the American general in Vietnam who said, ‘I have seen the enemy and it is us’. Ain’t dat de truf.

With economic strength goes political responsibility. Nuclear war has been avoided, so perhaps anything is possible. The values which you express can, and should be shared, and I agree with DOCM that die Angela is the best of a mediocre bunch of leaders. In any case, I thought that co-operation, and not finger pointing, was what the EC was supposed to be all about.

Almost certainly, it will be the former. Central banks may well be inflating the biggest financial bubble the world has ever seen, the popping of which would trigger a second global slump, but they are convinced they know what they are doing. Extra liquidity, they believe, will feed through into higher business and consumer confidence through a wealth effect, and this will put the global economy on a stronger growth path. Given the choice, they prefer to have the problem of having asset prices going through the roof rather than the problem of deflation. If they are wrong and the bubble bursts before the recovery arrives it will be the mother of all credit busts.

Pure Keynesian? What about Austerity?

What is this ’sustainable’ stuff? A borrower either has the necessary nett disposable income to discharge the mortgage (and all costs directly related to ownership of a residence), as contracted - or they do not. Sustainability has no meaning for the latter category of borrower. They are insolvent - period. Hence they must go bankrupt and have a major proportion of the debt written off, or be given a Jubille.

The Negative Equity category is a real, future problem (absent the necessary inflation of existing res property prices - not values!). This is improbable. So what happens when a negative equity borrower wishes to sell up? Or is dis-possessed? Who ‘eats’ the loss then? Or, how is it to be ‘consumed’? Will it be digested? Or like undigested fibre - be shat out somewhere?

I’ll read, and hopefully digest, the full briefing.

Title

‘Europe’s Lost Keynesians’

Who, what, where, when?

Opening para.

“CAMBRIDGE – There is no magic Keynesian bullet for the eurozone’s woes. But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising. Commentators are consumed by politics, flailing away at any available target, while the “anti-austerity” masses apparently believe that there are easy cyclical solutions to tough structural problems.”

“Cambridge”

Assumed knowledge.

“There is no magic Keynesian bullet for the eurozone’s woes.”

Who said there was? Why this cliche? Where in Keynes does he read that Keynes provides a magic bullet? Where is the ’silver bullet’ meme coming from (werewolves?). Smacks of desire to be one of VSP. Straw target ahoy.

“But the spectacularly muddle-headed argument nowadays that too much austerity is killing Europe is not surprising.”

Who propounds that argument? Hand-waving. Rhetoric. Object: to make the reader feel foolish. The writer is cleverer than you. Why is the extremely emotional verb ‘killing’ being used? Does tRogoff mean it? To be ‘not surprised’ indicates living on a superior planet.

“Commentators are consumed by politics”

Meaningless without explanation.

“flailing away at any available target,”

Good to say: no factual issues provided.

“while the “anti-austerity” masses”

Elitist perspective. I have a position in Harvard - you are part of the masses: therefore I know best. Calling Bunberry, should be ‘whilst’: not even a proper elitist. The inverted commas show cynicism.

“apparently believe that there are easy cyclical solutions to tough structural problems.”

Logic: The vast number of people, “masses” - whom one assumes are unemployed, underemployed, in fear of their livelihoods, think in terms of “easy cyclical solutions”. Evidence? Is that what people wake up in the morning and think?

Rogoff’s method: make fancy unsubstantiated claims. Stir up a big cloud of stuff in the first para. Then suggest radical stuff in the following that is cool and rational and self-promoting- quote himself. But show no mechanism how this will happen.

Careerist.

This Michael Pettis is a funny fellow. Whatever happens somewhere, of course it is always the fault of Germany.

1. “policies aimed at restraining wage growth “. Work tariffs are set in Germany between the employers and the employees, represented by their unions. That they made their choice for not ruining their fragile new companies in Eastern Germany by demanding wages above the productivity, in a situation of unemployment 15% or higher, is a perfectly reasonable choice.

2. The endless repetition of false claims “German national savings rates excessively. These excess savings“, which he could have checked easily then leads to

The criminal attitude of this Michael Pettis “except by forcing down the German savings rate” is really remarkable. Wage and savings decisions are done by the people it concerns here, and not by some alien control freaks.

The same holds for this funny Marios from Cyprus we had here recently, who demanded that we should bail out people from their gambling debt, who have 10 times more wealth than us.

Our saving rates are not too high, but average
http://www.gfmag.com/tools/global-database/economic-data/12065-household-saving-rates.html#axzz2U7vaxays

Given that the Wealth / income ratio in Germany and especially East Germany is substantially below many other European countries, and especially the medians, means that we should actually encourage our (lower income) folks to save a little more. But they do not trust stocks, buying real estate does not make sense, if you live in multi unit housing settings, and renting was until recently cheaper.

The net replacement rate of our pensions is somewhat lower than in many other European countries, because we cap the retirement insurance contributions at 20%, and given our demographics, they should build some capital stock to add to their retirement consumption. Saving a little more and certainly not drastically less, is the reasonable thing to do.

3. Of course “the German economy shifted from not having enough savings to cover domestic investment needs to having,”
That Germany “saved too little” during the 1990ties (negative CA , until the net international position was ZERO in 1998) was the perfectly reasonable thing to do, we had plenty of invest to do in run down Eastern Germany.
CIA world fact book: invest Germany 17.8% EU 18%. Apparently this amount of invest is enough to produce a 5 % CA surplus, with a 5% unemployment, there is absolutely no need to invest more, now

4. “the relative decline in German household consumption “ was the perfectly reasonable thing to do, given the rapidly increasing household debt, until 1999, which was most of the times not covered by a corresponding asset in terms of owning real estate. We still have about 100 000 cases per year of personal bankruptcies, cleaning up excessive debt from 10 or more years ago.

5. “The eurozone is not a small and open economy”, “let us pretend that Europe consists of only two countries, Spain and Germany.”
It is a open economy, we are all trading our goods in a global market, especially Ireland, and not just within Europe. And it was in fact remarkable that the German trade with Europe and especially the EuroArea stagnated, but flourished with the rest of the world.
And our Trade / CA surplus turned solidly positive in 2003, exactly at the time, the Euro Exchange rate went beyond the “Fair value” of about 1.2 Dollar, profiting from a strong Euro, which makes perfect sense, when our imports, like oil, are inelastic, and our exports of special machines as well, and it did not hurt that our competitors in Swiss Franc and Japanese Yen were a little undervalued. Just the opposite of what so many are claiming:”Germany did profit from a weak Euro”.

6. “It is tempting to interpret Germany’s actions as the kind of far-sighted and prudent actions that every country should have followed in order”.
LOL, this is not only tempting, but true : - )

Germany is the most popular country in the world, even after the substantial hate mongering in countries like Greece, Spain, Italy, by people who always have to blame others for their own decisions:
http://www.bbc.co.uk/news/world-europe-22624104

Some other guy this week claimed that the house price bubble in Spain was because “The Germans bid up the prices”. Some Germans bought summer houses there, when they were relatively cheap, pre reunification 1990, and were not amused that at some point some folks in Spain suddenly discovered that there was something wrong with the building permits, 30 years ago. This is a sure way to attract new buyers, especially at their overhyped prices.

7. “Germany’s Gini coefficient seems to have risen quite markedly”
Of course this went up in the 90ties, with adding a lot of unemployed Have-nots in the East.
Germany will not engage in any substantially larger redistribution of incomes to the lower side. Our net income distribution (e.g. Gini coefficient) is already less unequal (and slightly falling) than in most countries, especially in our southern neighbors.

One of the interesting point of living in Eastern Germany is actually, that you can here really see in real life, how economic principles works. With high unemployment the demand of my cleaning lady was low, but did rise, in several steps, by full 50%, after unemployment fell below 10% in 2008.

Up to the point, where my belly told me, that I need more exercise, and checking with some heart rate monitor, I found that rigorous cleaning is not only an excellent workout, but even trains muscles, I apparently used very little for anything else : -)

People here use the old small shop setups in the neighborhood to run little shops in an integrated work-life setting. Especially when the left/green fraction in the city council uses every trick in the book, to keep large shopping centers out : - )

8. And that, Paul, brings us finally back to your question “To what do the workmen and women aspire today?”

A decent life, some (Schreber)garten, to own their house, when they can afford it. To live in peace with themselves and their neighbors. To provide a decent (public) education to their kids. To value every citizen, and not only those with a tertiary education or a PhD. To be safe against the risks of life, universal health care and relatively decent social security against the big risks of life (like expensive illnesses, disability)
We value to live in walking distance to the things we need frequently. Our lifestyle looks pretty long term sustainable to us.
Not hurting our neighbours by supporting tax fraud. And bitching somewhat about less holier neighbors makes apparently many folks also happy to some degree : - )

This isn’t the first time that the Central Bank has played fast and loose with their graphs. Basically, I don’t see why we shouldn’t assume they’ve done the same with the figures. Credibility is like that unfortunately.

Yep! The so-called austerity consolidation programmes are a complete load of economic b****x. But sure, which local econ is saying this?

The hinky tax stuff is due to the ‘need’ for multi-nationals to use the untaxed revenues for financial investment (aka: derivative gambling and commodity trading). This gives a good return - until it does not! So its a no-brainer if they do no buy-off the local legislators to do their bidding. And lots of folk are going, “Oh my God!”. Its pathetic.

Expect little reform, change or whatever. Though some marginal reforms are happening. Things have to get a great deal worse: then maybe.

Off topic but an example of how soundbites can trip politicians up.

http://www.telegraph.co.uk/news/worldnews/europe/eu/10074456/David-Cameron-ridicules-EU-olive-oil-jug-ban.html

Most of the debate in the comments has been around your first three and last points.

http://www.japlandic.com/2013/05/i-see-what-you-did-there.html

Interrogating the 3% restructured “90 day+” arrears and looking at the temporary and permanent solutions being offered (which the CB obviously put in it’s press briefings and the media dutifully parroted) whilst ignoring the 9% “90 day+” arrears not restructured…

How very Irish!

“Let me begin with a proposition which I take to be true and relevant for Ireland. Indeed, few in Ireland will dispute the proposition, put well recently by a widely acknowledged expert, that “a cornerstone of the European approach to over-indebtedness relief has been and always will remain that debtors should fulfil their obligations if at all possible”

An widely acknowledged expert? Now let me see. could we be talking about the redoubtable BoI’s Mr. Wilbur Ross because Honohan seems to be repeating his words, word for word.

“Ireland did not need structural reform, all it needed was to fill the hole left by the banking crisis, he was not concerned by repossessions by the Bank of Ireland and other Irish lenders. The fact that home owners were left with debt in Ireland even after repossessions was a very powerful deterrent”.

I would not think Wilbur would try this line in the US where people are heavily armed and very attached to their NRA. But he has the measure of the sheepeople of Ireland and it guv in spades.

Ireland needs no structural reforms all Ireland has to do keep pumping money and your children’s future into my bank. Thanks for the Pillar bank strategy and all the cheap shares best investment ever! PS I’m off to Spain now!

Apple is skating right up to the edge of the law to avoid paying tax anywhere (US and Ireland and UK and France and etc);

The Republic of Ireland is very much facilitating this tax avoidance;

Therefore, the Republic of Ireland is a tax haven.

We are being called out on it now, loud and clear, from the US Senate chambers to the Opinion page of the NY Times to the halls of Brussels.

I don’t think this is going to blow over, we are going to have to change.

A very interesting link, especially the last Q & A.

“After the EU summit last June, Greece and other countries under adjustment programs, like Ireland, started hoping that the ESM would be able to recapitalize their banks directly. It’s not really clear yet what this means as each eurozone nation is giving its own interpretation of the decision. For example, Greece has borrowed 50 billion euros from the EFSF to recapitalize its banks. Will it ever be able to write this money off its public debt books?

We are working very hard on all the elements of the banking union. As you know, we have already agreed on the Single Supervisory Mechanism and the Capital Requirements Directive. Our current work focuses on two elements, one is the Resolution Directive, which gives us a harmonized framework to deal with banks in trouble, and the second one is direct bank recapitalization. Now whether direct recap will be accessible also to countries which are already under programs and have recapitalized their banks is yet to be decided. So I can’t answer that. We are trying to reach an agreement before the summer, but of course there are no guarantees. There are still elements to be discussed. I think it’s crucial to have the public backstop from the ESM in order to help countries facing problems. The conditions for that are now being discussed. Hopefully, we will have more clarity on that before the summer.”

The earlier agreement reached in the stand-off between Paris and Berlin - the key protagonists - was, it seems, that the conditions surrounding such re-caps would be put in place according to the June deadline, the actual implementation, whatever it includes, being dependent on the other pre-requisites set out by Germany; essentially all the elements in banking union being agreed.

Keeping to the time-table poses an interesting tactical political question for Merkel. Guy Verhofstadt is not impressed and evidently has concerns as to how it will be tackled.

http://www.ft.com/intl/cms/s/0/23d518d2-befb-11e2-87ff-00144feab7de.html#axzz2U7XoP8gP

@ BrianH

Is not the substantive question, allowing Apple “to pay virtually no taxes”, or rather more accurately to keep the profits subject to US tax in limbo technically nowhere abroad, more properly addressed to the US government?

‘”According to accepted ideas, for example, a certain way of living is considered the upper limit to which a workman may aspire in his efforts to improve his existence, and there is another limit below which he is not willingly permitted to fall unless he has seriously [d]emeaned himself.” (Durkheim 249) That scale will be different for different people depending on their class or occupation, but it applies in the same way to everyone. The upper-limit for a person is dictated to them and regulated by society, and this will shape him psychologically: “’

To what do the workmen and women aspire today ?

http://www.mpettis.com/2013/05/21/excess-german-savings-not-thrift-caused-the-european-crisis/

However, according to the Senate report, one of them, Apple Sales International, has reported billions in income from bigger amounts in Irish tax filings and paid Irish tax on the net income.

These revenues also likely became Irish exports.

Noonan not transparent on Apple taxes and US Senate report

http://www.finfacts-blog.com/2013/05/noonan-not-transparent-on-apple-taxes.html

“Question for the government of Ireland: Do you really want your country to be known as an offshore tax haven? Indeed, at a time when your citizens are dealing with the pain of an austerity program, how can you justify allowing Apple to pay virtually no taxes on a subsidiary established solely to avoid taxes in the United States? Just wondering.”

Article here: http://wap.nytimes.com/2013/05/23/opinion/nocera-here-comes-the-sun.html

“We are not capable of organising competitive grow ops. ”

We could, but the pecuniary return is somewhat low. Better to plunder folk’s wallets - “We KNOW your MPRN, we do!”

“A good source of revenue for the Gov’t would be legalised grass (production and sale) and just regular common garden VAT.”

Yes and no. Just regulate it - like alcohol and tobacco. Simple. The legislation is already tried and tested. Small revenue potential though.

The really big saving would be reduction in Garda, Court and prison resources (and the politically encouraged, criminal drug monopolies, of no fixed MPRN, should suffer some revenue decline as well). Regulation likely? No! Too many vested folk. We would need a Croagh Patrick Agreement for that!

On a lighter note. Why do we need taxes in the first place? Oh yeah! No taxes, no urbanized society! Maybe Dev was correct. We need to back to rural crossroads! That should solve it.

Or maybe its this:-

“I have a funny feeling that there’s a necessity driving this (hinky tax stuff) that no-one quite understands and it is this: “honest business” doesn’t pay enough to keep the system expanding at the required rate to make the debt load at least appear sustainable.”
[anon blogger: iTulip.com: 30-04-2010]

I take your general point that what has been going on here is effectively a very targeted and particularly attractive form of the “growth incentives” that all tax authorities are fond of riddling their corporate tax codes with. I also take your point that reform is probably a long way off in the US and Europe and that it makes no sense for Ireland to be a first mover in this area. I don’t disagree, but the PR battle is lost and that is not unimportant. It appears the delicate niceties of tax law are (deliberately?) misunderstood, even at MNC Board and US Senate level, to say nothing of ordinary taxpayers.

@Brian, and others.

OK, so tax avoidance is a bad policy basis for FDI and wider economic development and getting more unsustainable by the day. I could get behind that. What are the alternatives? Given the Irish disadvantages by comparison to the core can you summarise what options we have in changing a long standing policy base in a way that has some hope of maintaining FDI and developing a competitive indigenous corporate sector?

In particular, given that CCCTB appears to be the mechanism favoured by the Commission and the larger states for tackling transfer pricing, is there a configuration of the CCCTB apportionment formula that might keep Ireland an attractive FDI location? If so, how might we argue for such a formula and what would our chances be? I think I can guess the answers, but I’m interested to hear some knowledgeable opinions. Or have we a good PR counter-proposal if the CCCTB is anathema? As far as I can see, the recent kerfuffle crystallises the greater threat for FDI attractiveness of the CCCTB by comparison to any CT rate change.

We had a thriving Poteen production business in Kerry, killed dead by the Tiger. Now it is coming in from as far away as Sligo. I am sure there are many house plants that would be thrown out if the woman of the house knew what they were. We are not capable of organising competitive grow ops. A good source of revenue for the Gov’t would be legalised grass (production and sale) and just regular common garden VAT. A far more stable business than the Dublin Financial District. More palatable than property taxes.