When was the last time you pulled a cork from a bottle of wine? In the wine industry, there is a debate raging about whether the cork itself is to blame for wine being ‘corked’.
Whether this can definitively be proved or not, the upshot of the cork being blamed for the oxidation – and the subsequent mustiness – of the wine’s taste has led to a dramatic shift in the way wine bottles are sealed.
Increasingly, wine producers are switching from corks and towards screw tops. Could this switch become the norm?
And, if it does, what is the connection between the wonderful ceremony of popping a cork and hearing the delicious gurgle of new wine cascading into a glass, and the latest, supposed ECB/IMF ‘bailout’?
If you have ever driven through Portugal, You may have seen the thousands and thousands of cork forests populating that beautiful country. Many years ago, while in Alentejo, I remember taking a nap in one of these splendid orchards, bees buzzing all around, snoozing in the afternoon sun . . . heaven.
Today, Portugal is the world’s largest exporter of cork. But what happens if the market for cork is undermined by a structural shift in the wine industry, which Portugal can do very little about? It means the demand for cork will fall, along with its price.
This fall means that the average Portuguese farmer will have to sell more and more cork in order to buy, let’s say, a VW Polo. In economics, this shift in the value of exports is called a downward shift in its terms of trade.
As the demand for cork falls, Portugal will see its trade deficit rise.
Therefore, it will run a current account deficit and will have to borrow to cover this. If it is shut out of the markets, it can only borrow from the ECB/IMF.
But – and here is the rub – the only way it can get back on to a growth path is to reduce government spending massively, which the ECB is now advocating.
But in a country like Portugal, this will cause the economy to contract and it will suffer the twin pressures of internal and external contraction, leading to more Portuguese waiters in west London, more Portuguese grape-pickers in the south of France and more Portuguese workers in Munich Airport.
It also points to the fact that the European elite has now officially presided over a two-speed, two-tier Eurozone, where the voters on the periphery are second-class citizens and those in the core are a protected species, shielded from the internal contradictions of the monetary union.
If those who lend money to either Irish banks or the Portuguese government are insulated from the implications of their reckless lending, and the citizens of these countries are forced to bear all the burden, what hope does the currency have?
After all, this is the third time the IMF has been in Portugal since the 1970s.
What more signals do you need? All this evidence was ignored in the ECB-inspired lending bonanza of the past few years but now, financial reality has hit.
The eurozone will be divided between debtor countries and creditor countries, where the citizens of the debtor countries bear all the cost and those of the creditor countries get a free lunch.
Could it be possible that ECB president Jean-Claude Trichet wants to scupper the euro himself and cement this division? It certainly looks that way.
The countries on the periphery of Europe – the ones with the huge debts – need lower interest rates and looser monetary policy, yet Trichet has moved to increase interest rates and, therefore, he has tightened monetary policy.
This will exacerbate the strains between the creditor and debtor nations, making it more difficult for the debtor nations to pay their debts, ensuring more austerity, which will contract those economies further and thus begin the gradual process of a two-speed economy in the eurozone.
After awhile, the politics of this move are pretty straightforward.
Whether it was 100 per cent true or not, this approach to the debtor nations will increase opposition in the periphery to the euro, and Europe in general. Such opposition, whether it is effective or not, will lead to lingering question marks over those countries’ commitment to the euro project, which will further heighten financial market tensions.
Such tensions will be manifested in higher risk premiums for the periphery countries, keeping interest rates high and undermining the very fiscal adjustment policies that Trichet wants to enforce.
To keep the eurozone from a trophying, the elite – two of whom are Portuguese (European Commission president Jose¤ Manuel Barroso and ECB vice-president Vitor Constancio) – will have to come up with a new blueprint.
Most likely, they will push for further political integration, which the European electors – both in the core and the periphery – have voted against.
So they will have to go back to the solution that has been screaming at them for ages, which is that debts have to be restructured periodically in a monetary union made up of countries that make corks and countries that make cars – or countries where the population is old and saving, and others where the population is young and spending. We need a clean break.
Sticking with our wine theme, what the European elite is trying to do now by pretending that the system is not broken is nothing more than putting ‘new wine in old bottles’ – corks or not. In the Bible’s parable of new wines in old wineskins, Jesus said: ‘‘And no man putteth new wine into old bottles; else the new wine will burst the bottles, and be spilled, and the bottles shall perish. But new wine must be put into new bottles; and both are preserved.”
He was trying to make a clean break between his new Christianity and the old religion, Judaism, suggesting that the disciples couldn’t just graft on to Judaism the bits they liked and continue as before. According to Jesus, they had to create a totally new faith or the new wine would simply break the old bottles.
Therefore, they had to start afresh.
The same could be said for the financial architecture of Europe. If the elite tries to preserve the old system, rather than trying to re-think the whole thing now, they are only buying time, and the old system, like the old bottles, will break apart.
‘Bible’s parable of new wines in old wineskins’
From Kathleen Barrington’s article in the SBP 10 April 2011:
A speaker at last year’s conference [organised by the Sovereign Society] to lower their incomes taxes, discover little known global investment opportunities and avoid invasions of their financial privacy, was Patrick Doherty, a former Anglo Irish Bank employee who is now a senior vice president of international private banking with Valartis Bank’s Austrian subsidiary.
Valartis is the Swiss bank that acquired a €600 million Austrian deposit book from Anglo Irish Bank in September 2008.
David. The old Empires at the heart of EU do not give a flying fcuk beyond their vested interest s, future income streams and geo-political standing. The Old Empire elites own the private banking industry controlling the EU economy. Not running the economy open to all free market principles of enterprise etc, controlling the economy. The PIIGS insider crony networks fed off the crumbs from the Old empire investment banks CDO mezzanine pyramid scam. Now that the CDO / CDS mezzanine pyramid scam has collapsed what we are all been fed now is the false paradigm of IMF / State… Read more »
Christ’s very first miracle was at the wedding at Cana where he turned water into wine, he enjoyed seeing people enjoying themselves. The European Project on the otherhand is hopelessly corrupt, run by money and power grabbing elites, it may well have to fall for the people of the European Union to be properly represented because the current system is a mere charade of democracy where referendums are re-run until the right result pops out. The way NATO is running around Afghanistan is a disgrace, the exploitation of developing (African) countries and the disgraceful way immigrants are criminalised and dehumanised… Read more »
Remember Iceland – it played tough with the markets and looked what happened…………..
Iceland broke the rules and got away with itNow Ireland and Portugal wish they too had got tough with the markets
http://www.guardian.co.uk/commentisfree/2011/apr/12/iceland-ireland-portugal-markets
I expect Lenihan is already preparing “we were given faulty information at a pressurised time, we made decisions in the best interest of the country” speech.
The following quote is completely true, except that the phrase “with the collaboration of the periphery’s local political and banking elite” should be added. These elite will become even richer as the economies of their countries shrink, immigration increases, and the middle class grows poorer. The elites have every incentive to join their Euro masters in exploiting the periphery. “It also points to the fact that the European elite has now officially presided over a two-speed, two-tier Eurozone, where the voters on the periphery are second-class citizens and those in the core are a protected species, shielded from the internal… Read more »
Concerning dependence on the bottle cork business, Portugal can sit there like as if it is incapable of doing anything, and ask for or it can adapt like the Swiss watch industry. Basically, obsolence happens in many sectors. Maybe Portugal might make more money from having people sit under cork trees than from harvesting the cork ? I mean Portugal has to consider changing circumstances, in it’s core markets. Having Barrosso in charge of the EU is not an industrial strategy. In fact it is more of a hindrance, because he will advocate the case, that Portugal is allowed dodge… Read more »
Just wondering. French Aristocrat Giscard d’Estaing drafted the EU Constitution. It was rejected by the French – obviously not to keen on aristicrats. And it was rejected by the Dutch – maybe not too keen on superstate structures.
Then it could recycled and repackaged under Bertie Ahern, as the Lisbon Treaty.
Does this constitute putting old wine into new caskets, or putting new wine into old caskets ?
Either way, it is funny business and not healthy.
This was one of your more insightful articles David and I hope many people get to read it. It goes beyond the technicalities of Finance and reveals how people and whole countries are strangled by debts the Euro has brought to being. And of course, after everything you describe comes to pass, the elites will go to these countries and buy them up cheaply. It is Financial Imperialism.
David writes that “The countries on the periphery of Europe — the ones with the huge debts — need lower interest rates”. I differ.
The countries on the periphery of Europe — the ones with the huge debts — need no interest rate. How can one member of our European family charge interest to another? Would you apply interest on money given to assist your family?
All Ireland should reject the payment of interest.
I know someone tried a similar idea nearly 100 years back but if anyone is free the week after next we might be able to break free from all this debt! Friday Good? THE PROVISIONAL GOVERNMENT OF THE LIMERICK REPUBLIC TO THE PEOPLE OF LIMERICK LIMERICKMEN AND LIMERICKWOMEN: In the name of God and of the dead generations from which she receives her old tradition of nationhood, Limerick, through us, summons her children to her flag and strikes for her freedom. ………………….etc.etc etc As for the 25 counties…..the best of luck to yee all and don’t worry you won’t need… Read more »
I know someone tried a similar idea nearly 100 years back but if anyone is free the week after next we might be able to break free from all this debt! Friday Good? THE PROVISIONAL GOVERNMENT OF THE LIMERICK REPUBLIC TO THE PEOPLE OF LIMERICK LIMERICKMEN AND LIMERICKWOMEN: In the name of God and of the dead generations from which she receives her old tradition of nationhood, Limerick, through us, summons her children to her flag and strikes for her freedom. ………………….etc.etc etc As for the 25 counties…..the best of luck to yee all and don’t worry you won’t need… Read more »
subscribe.
Would have been nice if David had referenced Jesus in the more appropriate context of injustice and liberation from debt and slavery.
Short article here by Michael Hudson on historical biblical precedence for debt jubilees:
http://www.yesmagazine.org/issues/living-economies/532
Jesus was a radical activist preaching non-violent resistance to the political & banking authorities of the day. -Interesting piece here on interpreting Jesus thinkings in the context of political struggle and “empowering the powerless to seize the initiative even in situations impervious to change.”
http://www.commondreams.org/views04/1216-30.htm
Problem? What problem? Move the government, parliament and capital to the Blaskets. Now the current Republic and signatory to all international agreements is headquatered in the Blaskets. In disgust at the move have the mainland 26 counties declare a breakaway Republic Part Deux with a new constitution its own currency and fiscal controls. You never know one day we might even join an EU that has actually considered economic variation? Pin the whole f**king mess on the people of the Blaskets (Is it still the Haugheys? – Now that really would be sweet revenge!) Blaskets permanently out of bond markets… Read more »
When monetary union was agreed in principle almost 20 years ago in the Treaty of Maastricht its full implications were not understood. When the Euro was introduced in 1999, some of the peripheral countries took advantage of sharing a hard currency whose value is based on the entire productive effort of the Eurozone by having a big party. They generously overpaid their public sectors and hugely overallocated resources to unproductive bricks and mortar: roads that lead to nowhere in Portugal, large and ugly houses to disfigure the Irish countryside. In the atmosphere of easy credit which prevailed generally at the… Read more »
break Europe, if the member states are unable to achieve the necessary convergence. However, the effort involved in such convergence will bring the states closer to facing the underlying reality of currency union and that is the ultimate necessity for a real political union in Europe.
Only full political union can ensure the policy coordination, resource allocation and solidarity throughout the Eurozone which will be necessary if currency union is to benefit all parts and all people of the zone.
Very well thought out article David. Does anyone know can a referendum be brought by the people demanding it? i.e. so many signatures on a referendum petition?. If so come on lets get it on.
Deeply philosophical article from David this week. ” In the wine industry, there is a debate raging about whether the cork itself is to blame for wine being ‘corked’.” In my opinion that is the key to the problem. Rather than drawing monetary parallels with old wine and new wine, we need to think about the differences between palatable wine and the taster we politely spit in the ice bucket. Europe’s fundamental problem is that ‘good money’ is being squeezed out of the market by ‘bad money’. ‘Good money’ is that which has been earned by traditional honest toil, building… Read more »
What do you do when you can’t sell cork? You grow something else, and sell that instead.
As Gunny Highway said in the movie Heartbreak Ridge, you ‘improvise adapt and overcome’.
http://www.youtube.com/watch?v=VWCYv40Ur1g
You don’t sit on your ass feeling sorry for yourself, falling asleep in an orchard.
If Brussels will not listen to millions of dissenting citizens, but instead routinely patronizes them or avoids them, then they will not listen to you regardless of your track record.
The problem is not you. It is their inability to listen until disaster show up.
OK. You can have your referendum. As long as you agree to have another referendum if we the Media & Political ‘mainstream’ disapprove of the result. Same terms as usual in other words.
You Irish have had your fun, now please resume drinking the koolaid* while we process you.
It only hurts if you resist.
*http://en.wikipedia.org/wiki/Drinking_the_Kool-Aid
Check out MK’s post in response to the article in the link. His post is about a third down the page.
http://www.davidmcwilliams.ie/2008/10/01/lenihans-masterstroke-has-bought-us-time-to-sort-out-our-own-problems
MK, if you’re out there you’re a pretty smart guy!
Two points in Europes defence that I can come up with:
Didn’t Merkel suggest burden sharing even before we weren’t able to borrow on the international markets anymore?
Didn’t the EU urge us to cool down the overheating economy during the so called boom years – but our government ignored them.
“We won’t allow taxpayers alone to bear all the costs of a future crisis,” Merkel said. Mark Rutte, the Dutch prime minister, echoed Merkel’s comments, saying that any effective crisis mechanism should “emphasise burden-sharing for the private sector”. Her argument also made sense in terms of basic justice. She said on numerous occasions that those who profited from the high interest rates on eurozone bonds should be asked to incur losses when the value of those investments dropped. She said at the G20 meeting in Seoul that taxpayers could not keep being told they “have to be on the hook… Read more »
Cracking article as are all the attending comments. I think this is hitting the core of the current problem. Keep digging. We need people to start to openly question the governance structures in Europe and its history. We need more questions on the real base value of the Euro and where it is coming from. we need to see why one nation in Europe can hold others to ransom at a whim and finally, we have to properly understand who is really paying our politicians to foist harm on their local protectorates. Right now, the concept of Europe is dwindling… Read more »
Why are these peripheral countries borrowing so much money in the first place? This is the real issue. If you didn’t borrow so much money, you wouldn’t have to pay it back with interest.
These peripheral countries, and Ireland is the prime example, are addicted to spending other people’s money, and invent bogus theories about why they should not live within budget.
Austerity is a good thing for these countries in the long run. It’s the only way to learn what truly has value, and what truly generates wealth.
No pain no gain, as the fella says.
Well, it looks like “Be with AIB” will no longer apply in a matter of employment sense for 2000 people, from a moment soon forward.
http://www.breakingnews.ie/ireland/aib-boss-redundancies-will-be-compulsory-if-necessary-500969.html
AIB in retrenchment.
Just wondering, what is the pension being received by Suds, Dermot Gleeson, Lochlain Quinn, Eugene Sheehy, etc.. and is it still being paid ?
The bankers – they have not gone away you know.
I find it intreesting the way we get told that AIB lost 10 Billion last year, as a sort of a minor story, released to justify the retrnechment.
‘We must separate our bank debt from our sovereign debt. But we must honour our sovereign debt.’ How many times have you heard that in the past few months, especially during the election. The premise behind such a statement is that bank debt has no connection to the average Joe, and that sovereign debt does. But the end product of misinvestment in both sovereign and private debt is very similar. For example, if you take a drive through Cork City centre, there you will see the Elysian Tower, a product of a failed private initiative, a waste of money. Today,… Read more »
If you want to understand the bank bailouts, and their moral lseaziness, read this article by Matt Taibbi in Rolling Stone. It covers the US Fed’s bailout, but it also reveals how the WORLD banking system exercises vast control over the US government and other governments.
Warning. It’s a shocker.
http://www.rollingstone.com/politics/news/the-real-housewives-of-wall-street-look-whos-cashing-in-on-the-bailout-20110411
I think a plainer expression of the scam is needed here. If we were a “normal country” with control of our own interest and exchange rates, you have to ask would this have happened. Answer – Not a snowballs chnace in hell. The interlock between exchange rate and interest rate would throttle the speed of money long before it became a problem. Basically, perceived affordability is well managed. When money floods in with no control (the whys and wherefores etc. are a mystery to me, all I see is a bunch of bankers satisfying an unregulated demand & can you… Read more »
Author Adam Nicolson is a fan of The King James, good at research and done a good documentary, not aware he’s a verily member of the KGB, or KGB have taken over the BBC:)Interesting the Whigs went on in the US to have Abraham Lincoln in their number, on banking they believed in protective tariffs and nationalised banks if I’m right, they’d like the Bank of North Dakota and be disgusted at our lot of treasonous pro bankers anti citizen parties…
..’the old system, like the old bottles, will break apart’….
Hardy wineskins on tonight’s cracking lineup on VB : Max Keiser, Constantin, Paul Sommerville, and Brian Lucey.
Elties in Europe and elsewhere are trying to save their careers and their reputations, this isn’t about bailouts for peripheral countries, it is being spun as punishing the ‘reckless’ with straight profiteering thrown in for good measure because bankers and their friends fund political campaigns and Obama, Merkel and Sarkozy won’t bite that hand.
A bit of light gibberish meditation on the nature of propaganda: http://www.k-1.com/Orwell/site/work/summaries/animf.html Squealer: Squealer is an intriguing character in Orwell’s Animal Farm. He’s first described as a manipulator and persuader. Orwell narrates, “He could turn black into white.” Many critics correlate Squealer with the Pravda, the Russian newspaper of the 1930s. Propaganda was a key to many publications, and since there was no television or radio, the newspaper was the primary source of media information. So the monopoly of the Pravda was seized by Stalin and his new Bolshevik regime. In Animal Farm, Squealer, like the newspaper, is the link… Read more »
Off topic perhaps – but this anthropologist’s take on debt, credit and money has some interesting parallels. http://www.eurozine.com/articles/2009-08-20-graeber-en.html
PORTUGAL BAILOUT: How Housing Will be Effected…
Faced with its worst financial situation in over 30 years, Portugal avoided default on Friday by paying off maturing 2005 bonds.It depleted its cash reserves and sold €4.2 billion ($6.1 billion) worth of bonds, with the 10-year yielding roughly nine …..