I AM writing this piece from Arizona where I have just heard the brilliant American economist Austan Goolsbee — the chairman of the Council of Economic Advisers and the youngest member of Obama’s cabinet — argue that the European economic crisis will go on for a long, long time. He kicked off Google’s Zeitgeist conference with a tour de force on the US and the global economy.
Is he right? Will the crisis go on and on?
The political news of the past few days suggests that this titan of American economics has good reason to be fearful. Consider this litany from European politics in the past week, a litany that is likely to culminate with Spain asking for EU assistance to keep the lights on.
We kicked off with Angela Merkel greeted by riots in Athens. Meanwhile, Catalonian nationalists announced that they would bring forward elections in the hope they will lead to more sovereignty. In Venice, 200 years after the Republic of Venice ceased to exist, local politicians are again talking about a new Venetian Republic.
Meanwhile, the finance ministers of Germany, Netherlands and Finland go rogue; they claim that legacy bank debts are none of their business. All the while, the people at the top of the European pyramid react to these local and national solo-runs by calling for more federalism, something that nobody wants.
This is an elite that is out of touch with the people. This is probably not surprising because, despite everything that has happened, the people who are running the European project are dancing to bankers’ and financiers’ tunes rather than listening to the people who are pulling in the opposite direction.
The people in Brussels and deep in the policy-making establishments in every European capital claim that they are increasing moves towards more federalism in order to save the euro. This is their prerogative. However, in order to save the euro, they will risk destroying the EU.
The euro was supposed to bring the people of Europe closer together, but it’s obvious from taking the pulse of the streets — rather than the boardrooms — that the effort of saving the euro is driving the people apart, increasing nationalistic feeling and splitting the unity of the EU as countries move to protect their own interests.
Rather than seeing the euro as being the cause of the problem, the elite is portraying the chaos in the eurozone as being the consequence of other policy mistakes which had nothing to do with the currency at all.
This is nonsense. Here is what happened. The architects of the European project calculated that by imposing a new single currency led by Germany, the rest of the Europe would become more German. This counter-cultural notion was based on the idea that a German currency would impose Germanic discipline on the rest of us.
But what actually happened was something entirely different.
Within the euro the Greeks became more Greek, the Spanish more Spanish, the Irish more Irish and so on. In fact, far from disciplining the rest of Europe, German money actually allowed the rest of Europe to indulge national idiosyncrasies. Here is the rub: the huge amount of German cash, which cascaded into the periphery, allowed the periphery to become less not more German.
Now this realisation is dawning on the German people and they are beginning to reassess everything based on the fact they know they might have to finance the periphery into perpetuity.
The economy is not just weakening in Ireland, it is weakening all over Europe and the country which is the really weak link in the chain is not Spain, but France.
France is a county that is incapable of reforming itself. Due largely to the position of the trade unions, the chances of France implementing an austerity programme are virtually nil. But why might France have to implement an austerity programme, you ask?
The reason is as growth falters, financial markets will look at France’s current account deficit, its budget deficit and its weakened and exposed banking system and then they will sell French bonds. This is likely to cause French bond yields to go up and, like Spain, it will need a loan from the rest of the EU.
That loan will come with conditions and those conditions will demand that France implements large cuts in government spending to qualify for the loan. This is something that France will be incapable of delivering.
Once this becomes apparent, the position of Germany will be stark. Up to now, Germany has been talking like it wants to “do everything possible to save the euro” but in reality it has been trying to do as little as it can get away with. If France wobbles, Germany will not be able to maintain this position because it will have to act to save France. The Paris/Berlin axis is the heart of the EU and — unlike Dublin, Madrid or even Rome — it will not be sacrificed.
The implication is that Germany might decide to protect France by letting the peripherals go into a weaker or second-tier euro. This is what is ahead of us. While the focus today is on Spain, the real battle will be in France.
EU and MU taken out, for me that’s a twofor!
I do not see any Public Trustee’s / Governments anywhere in Europe listening to their citizens, this will be there downfall, the talk in numerous circles in Ireland is of new political parties, attempts are being made in some circles, the problem is, we are so disillusioned with the political class in Ireland that any talk of new political parties is a real snorefest for the ordinary punter. So, we must make the effort to change the system and eject the gombeen men before we end up with the other side of the mirror – Fianna Fail, back in power… Read more »
Will the Germans have enough money and patience to save the French Central Bank, when the French Socialists do not have enough intelligence or courage to do it themselves ?
The strange thing currently in all of this, is the tendency of Hollande to take a path away from the Germans, and thereby undermine any sense of solidarity.
The EU and its so called leadership is full of shit. Drive down the south rim of the Grand Canyon. Meet the Indians dealing in jewelry made in Mexico.
Go to Rods Steak House in Williams Arizona. Eat a porter house that will slay you!
Buy some Levis for a good price.
Forget about Ireland for a while. We will be fine. The Euro will be gone this time next Xmas,2013, and most importantly Romney will be starting a recovery that may actually take hold. Oh and if you get time buy a good Carnitas Burrito!
Have we paid too much already to the bond holders to make it worth our while but is there still a strategic advantage for us to be the first country to exit the euro? What will the reaction of the rest of the eurozone be? What will be the reaction of the multinationals based here? What about our debts denominated in euros? Basically, I’m asking what’s the exit strategy?
Actually the argument is based on false premises, a fallacy of composition to be precise. The single reason for the Euro, was Mitterand and Thatcher’s geopolitics after German Re-unification. Kohl got the choice, ok, but away with the DM, a national currency. That has been repeatedly pointed out here and elsewhere. That is the game Ireland played-along, to get-along, to hell. That is the price for group-think. Taking away the DM was not voluntary – no vote was ever passed on any of the treaties from Maastricht on. This kind of geopolitics can only be destructive, based on no economics… Read more »
not buying it
the eu is part of an evil plot in a globalist takeover, the euro crisis is just part one the plan. the communists figureheads (barrosso) of the eu are doing as the globalists tell them, they new mao. these people are exactly who the banksters want in “charge” – crazy people
the imf will step in to supposedly “save” everything (same crowd who control eu), they will propose an electronic global currency, and the idiot sheeple will go along with it
next stop the abattoir – brought there by the globalist banksters
Considering what I just posted, look at Angela’s behavior. How to make sense of this? The German chancellor has called for the EU to be given the power to veto member states’ budgets, hours before leaders meet in Brussels for a summit. Angela Merkel said the economics commissioner should be given clear rights to intervene when national budgets violated the bloc’s rules. The idea is likely to be strongly opposed by members concerned about any increase in the EU Commission’s powers. http://www.bbc.co.uk/news/world-europe-19986603 — First Angela has lunch with 7000 armed guards in Athens, now does this. Do I detect sheer… Read more »
Posted recently here, but I would like to point out another fallacy : Catalan Separatist Vote Scheduled for November 25 Oct. 1 (LPAC)—Artur Mas, the president of Spain’s Catalonia region, today signed a decree calling for regional elections on Nov. 25, including a referendum on Catalan “sovereignty.” He told the press that recent attempts to intimidate people against proceeding with the referendum would fail. The state “cannot use weapons” to stop a sovereignty process if it is backed by a broad majority, he said, adding: “The world is watching Spain.” Mas made it clear that this initiative conforms precisely to… Read more »
Any relief on the promisary notes has been vetoed the Dutch, finland and Germany. Enda has been given the two fingers. We’re coming up to a bank holiday weekend. Time to pull the plug and refill the ATM’s with punt nuas (which have been printed btw). If only we had politicans who had the guts….
Who is Goolsbee I wonder? Well decide for yourselves : An expose of April 13 2009, Time Magazine, identifies the circle near Obama : behavioral economists including Cass Sunstein, Austan Goolsbee, Richard Thaler, Dan Ariely to name but a few. Goolsbee is Uni of Chicago where Obama taught law for years, a fringe of the Milton Friedman School of Pinochet fame. Here is an extract from one of Goolsbee’s ramblings in an article for Slate in 2006: “Where the Buses Run on Time: The Lure of Incentive Pay.” This study of the Chilean economy, where “incentives” are given to bus… Read more »
Well done David. Ray Crotty is vindicated.
From the BBC link i posted just above : Despite the smiles the French and German leaders disagree on EU integration moves. French President Francois Hollande said the summit must keep focused on plans for a banking union. He wants action to revive growth, while Germany stresses budget discipline. “The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision. The other topic is not on the agenda,” Mr Hollande said.… Read more »
Where is FRANCE I remember in primary school Murphy asked the visiting priest if God is everywhere and is HE in Murphys back garden to which the priest replied ‘ of course HE is ‘ to which Murphy responded , ‘ we have no back garden’. In Ireland , France is everywhere and in Murphys back garden too because he moved to a new address . Just think about it and why : France Doms in Ireland Diageo – Guinness is the Irish for ‘ Allez France ‘. JC Deceaux – check your local advertising board and local toilets ;… Read more »
Excellent 10/10 article. There is little by way of histrionics. The scene is well set. We are not a European community…we are a Europe of communities. Is it not interesting how many of us here say, in the end, look after your local community. As the Red C poll indicated this morning – FG is down, FF up, SF is down and so on…but the damning thing is “Do Knows” is way up. Our political elite are now being increasing viewed as useless and that the notion of Nation being held together by these people is becoming more untenable. No… Read more »
“EU ELITES ARE DESTROYING NATIONAL ECONOMIES IN BID TO SAVE THE EURO” Not quite. The “elites” are destroying national economies to force “free-trade”. The Euro is the tool. The objective is unbridled libertinism, something DSK, Dominique Strauss-Kahn of the IMF expressed. As Goolsbee wrote in ““Where the Buses Run on Time: The Lure of Incentive Pay.” a study of the Chilean economy, where “incentives” are given to bus drivers for punctuality and passenger totals, shows where this “behavior modification” is leading. Instead of any economics at all, pleasure and pain, the free-market as Adam Smith expounded. Everything the nation-state is… Read more »
While it breaks up all around do something to protect yourself.
DMcW, very good to mention Austan Gaolsbee, you hit the real point – behavioral economics. Could it be that the apparent refusal of the people to “wake up”, is an instinctual resistance, deep suspicion of behavioral modification? I would like to think so. Yet people do play along with these incentivizing programs, based on pleasure and pain. This is calculated by party hacks, articulated in detail by Adam Smith, Bentham et al… The bestial outlook is pervasive, and the basis for control. Yet economic collapse can be the only result. In other words refusal, or prevention, to be human guarantees… Read more »
The great thing about your more recent articles is that they are becoming increasingly political a coming of age so to speak . Well done. You might be able to confirm on your travels in the US by the way if it is true that the individual states’ police forces are swilling themselves with armoured cars etc or did you think that this was happening by accident in light of the weaning of the union over there? One of these days Peter Sutherland will declare you one of the biggest idiots ever and then you will know you have it… Read more »
The euros not the problem, its just a unit of financial measurement. Countries living beyond their means is the problem.The Irish and Spanish borrowed and paid too much for houses, the Greeks spend too much on their army, the Italians and Portuguese pay themselves excessive pensions from too early an age. The euro has just forced them to face these facts. The euro will teach them to reform themselves and live on less and stop borrowing from their grandchildren. It will be in their own best interests long term because the Chinese havenÂ´t gone away you know…
Hollande in Delirium: The Worst of the Crisis Has Passed… PARIS, Oct. 18, 2012 (Nouvelle SolidaritÃ©)–In an interview with six European newspapers, French President FranÃ§ois Hollande illustrated once again his utter incompetence on economic and other matters. “Concerning the end of the crisis of the Euro one, we are close, very close,” he began. “The worst,” he added later, “i.e., the fear of an explosion of the Eurozone, yes, is over. But the best is not yet there.” Hollande also announced what his stance will be at the European Council of Ministers meeting today and tomorrow in Brussels, in the… Read more »
I think this article is a bit like looking at a brick, you need to step back and see the wall. The EU is destroying national economies because it is in the interest of those in power to expand their powers to assume control over a greater amount of Europe. The plan is going swimmingly, with only the Germans, Finns and Dutch standing in the way of all out United states of Europe. They appear to be the only ones looking out for themselves, the rest of the national leaders though while looking out for themselves, it doesn’t include looking… Read more »
Greetings David, Fellow contributors An interesting piece but to my mind this piece and the contributions illustrate two distinct views on the Euro crisis. On the one hand we have your analysis which is primarily economic (but has recently veering towards the political). This view could broadly be termed micro, because it discusses the nuts and bolts of the ongoing Euro/Financial crisis. The other views seem to be geopolitical. This might formerly have been termed conspiracy based (and to many still are) I enjoy your economic views and respect your analytical abilities, particularly as you demonstrated them w.r.t the Irish… Read more »
Hardly comes as a surprise that elites are out of touch, or doing whatever they can to protect their financial interests, while the political elite jump to the tune of financiers and bankers. The EU is designed for elites. Also no surprise that the crisis in the eurozone is going to rumble on, 4 years of inconclusive meetings prove that, now there is a EU banking Tsar, big deal, will the position have any teeth, of course not. EU as an entity is fracturing in places, the financial crisis is fuelling separatists move, you may also see something similar in… Read more »
Fianna Fail or should I say the last shower we removed from office are going up in the opinion polls.
How can this be , is it the Irish mentality or are people so fed up with the current shower.
The German banks did not put a gun to the heads of mafia run Irish banks to take the excess cash and inflate a property pOnzi bubble and drown the Celtic Tiger in debt.
Direct Democracy Ireland ( Ireland’s new political party, as of 12 October 2012) 1. We believe the agreement to socialise bank debts was reached under duress and coercion, and as such the agreement has no legal standing. 2. In international law Odious debt is a legal theory that holds, a debt incurred by an administration for purposes that do not serve the best interests of the people, can under law be regarded as Odious. We have a case pending in the High Court. The actions of the ECB could well be considered “crimes of aggression” against the people of Ireland.… Read more »
Silver Coin Design Competition 2013 advertised by Central Bank in today’s Irish Times!!!
I can’t get the link online…but Tony…if you are feeling creative… this one is surely for you :)
An interesting summary of the state of things:
Council of Europe Rules Greek Labor Reforms Illegal; Greeks Cannot Afford To Bury Their Dead Oct. 19, 2012 (EIRNS)–At least some of the so-called “labor reforms” being forced on Greece by its international creditors have officially been declared in violation of European law. The 47-nation Council of Europe — based in Strasbourg, no relation to the European Union or the EU ruling agency, the European Council — declared that some of the reforms to Greek labor law violate European law. Its judgment, however, is non-binding. The ruling, based on an appeal by Greek public sector unions, concerned two measures adopted… Read more »
“..the developments that will surely follow…”
i’m guessing those ‘developments’ won’t be the good kind
“can’t afford to bury their dead ”
what a world we live in …what a fuckin mess !
Hollande sur La Mer
Today while in company at the Congres de Mutuelle en Nice M. Francoise Hollande passed by with his entourage of decorated colourful war generals . He was a real Magnet to everyone around him and displayed the enthusiasm of a pop star .Bono and himself would have stood shoulder to shoulder even in the shades.
The last time I saw a politician here at the Acropolis was our Berti racing across sticking his chest out and going un-noticed.
Gerry Adams: If Government Separates Bank and Sovereign Debt They Have Sinn FÃ©in’s Support
Sinn FÃ©in leader Gerry Adams said the Government had failed at Thursday’s EU Council meeting to secure a deal on legacy debt because since they came into office they have never had a strategy to achieve such an objective.
Mr Adams said a deal has to be done on banking debt as it was unsustainable but this will only be achieved if the Taoiseach changed tactics. If the Government does this he said, it would have Sinn FÃ©in support.
Thank you for your support.
I will let you know when/where our meeting is.
Gold price in 4 major currencies show they are on track for eventual hyperinflation
“It’s not a straight line, but rather, a parabola. If it were a straight line, the gold price would be rising at the same rate. But because it is a parabola, gold is rising at an ever greater rate. Gold is in an exponential upward trend.”
super interesting Tony
The British Empire must be dissolved, freeing the UK from the burden of raping Africa and participating in a system of “governance” of captive puppet-nations – this is the only remedy now, first for the impeachment of Obama, and avoiding general warfare. The entire transatlantic region is now approaching desperation.
This week we celebrate the Victory at Yorktown :
we should threaten to pull out – convert debt to punt and then it would devalued in real time!
Once again, I have a problem with this article from a money creation point of view. We’re told, “German cash, which cascaded into the periphery…”, giving the impression that the German Bundesbank was able to print lots of Euros, presumably the idea being that a country prints Euros in proportion to projected GDP or some other factor. German investors didn’t need these Euros after all and lent them to the periphery. This is just not the case at all. It’s the local commercial banks in the periphery countries which create Euros through loans. Separately again, German banks create Euros through… Read more »
Time to help dismantle the empire of the Lord Snootys with Glass-Steagall! Enda Kenny tells us that he’s not going to waste time or energy chasing after rainbows. Well, we’d like to ask him just what he thinks he’s been doing this last 6 months, chasing after the mirage of a deal on Irish bank debt which never existed in reality and never could exist within the current financial framework. The Government’s belief that it was possible confirms that they are in a state of denial, or worse a state of ignorance, about the magnitude and the terminal nature of… Read more »
EU SUMMIT #20 MEETS, DISAGREES, AND GOES HOME–AS EUROPE HEADS TO BLOWOUT AND CHAOS Oct. 21 (LPAC)–“All of Europe is in hyperinflationary blowout, and heading to chaos,” Lyndon LaRouche commented today. “What’s going to happen isn’t predictable. It can be intervened in; but it is not predictable.” When the dust settled on the Oct. 18-19 summit: * Germany’s Merkel had called for a supra national budget authority to impose still further austerity on the dying continent; and * France’s Hollande had failed in his effort to have a supra-national European banking supervisor in place by January 2013. Merkel kicked that… Read more »
Very interesting article by Ambrose Evans Pritchard.
Would government issued money replace the debt based fiat money in existence and wipe out the National Debt.