In the past week there have been a variety of reactions to the fiscal compact referendum. On the Yes side, we are getting the usual establishment cocktail of indignation, anger, haughtiness and scare mongering. It’s kind of pathetic the way the Yes side oscillates between apocalypse and indifference like a tired parent dealing with an irritating child.
One day it is “the sky will fall in” if we vote no. The next it’s a case of “nothing will happen, this will go ahead anyway and we will get left behind”; the inference being we don’t count so our vote is not particularly important for the bigger project.
In previous referendums the central argument was “we have to vote yes because if we don’t Europe will stop”. This time one of the central arguments on the Yes side is we have to vote Yes because Europe will just carry on regardless.
So we have to vote yes when we matter and yes when we don’t.
On the No side we also have the rather duplicitous “treaty on austerity” slogan, which seems to suggest that if we vote no there will be money aplenty for all things and the State’s budget can be in deficit for perpetuity.
It seems that we can look forward to a campaign based on half-truths from both sides.
Let us be clear about something. The fiscal compact is all about German politics. It is needed to win Ms Merkel the election. That’s it. It has no validity in modern economics. It is needed so that Ms Merkel can go to her voters and say we have tied the hands of the delinquents. Europe will then be once again safe for German industry to export to without the risk that the imbalances which Germany’s dominance causes might whiplash on the German taxpayer through a sovereign default in the weakened periphery.
In order to make sure that this doesn’t happen, Mr Sarkozy — the bridesmaid — has been leaning on the ECB to open up the monetary taps and print as much cash as is necessary to recapitalise the banks, so no one in the rich core of Europe really pays.
It has nothing to do with the economics of the euro.
The euro’s problems are centred on the wildly divergent current account deficits. These deficits will not go away because Germany has decided that Keynesian economics is dead.
The only way to make the eurozone work as a proper currency union is to force the Germans to accept eurobonds, so that we have a unified debt market. This would level the playing field because it would lead to interest rates at least being equal across the zone. But they don’t want this and every jitter in the future will cause a flood of worried cash to flee peripheral markets to Germany. Capital flows will simply reinforce Germany’s trade dominance.
We will be left with a defaulters’ charter, where money will once again move via the banks to the periphery in reasonably good times. Then when the next slump comes, money will gush back to Germany and periphery companies will default in greater numbers, irrespective of fiscal rules.
We will be left with the nonsensical situation of private sector defaults occurring in the midst of public sector stringency. The fiscal compact simply shifts the default risk from the sovereign to the private sector because it is happening at a time of mass monetary incontinence.
If you print as much money as the ECB is doing — €1trillion at the last count, and flush it into the system, it leaks out somewhere.
The crux of the eurozone’s problem, like the Gold Standard before it, is that the creditor nation is too strong and the balance of adjustment always falls on the debtor country, making it weaker. In the 1930s, the US was the creditor nation. Today that country is Germany.
The weaknesses between Germany and the rest are deeply structural. Italy will never be Germany nor will Spain or Portugal and frankly most Spanish, Portuguese and Italian people don’t want to be German.
Germany is just too strong for the competition in Europe. Even France, the country that most thinks of itself as Germany’s equal, is way off the pace. France’s trade deficit reached an all-time high last year — amounting to about €69.6bn — raising serious questions about French competitiveness. According to the French treasury, France’s share of global trade fell from 7.8pc in 2003 to 6.2pc in the final quarter of 2011. France is gradually losing its vitality and presence in global export markets. French imports climbed 11.7pc last year, while exports slumped.
So the eurozone isn’t even a two-horse race. It’s a walkover for Germany.
One way of visualising the economic problems of the eurozone is to compare it to the SPL — the Scottish Premier League — where Germany, traditionally known as the Hun, is Celtic.
Celtic are 21 points ahead. The league is a bit of a joke because the top team is just too strong. The second strongest, Rangers, had to do unnatural acts to keep up.
A bit like Rangers trying to keep up with Celtic, France is just way off the pace, spending money it doesn’t have to try to pretend it is still in the game.
As for the rest, we languish miles behind. We simply can’t compete. And the longer the SPL goes on with Celtic so utterly dominant the more of a Mickey Mouse league it will become.
Similarly the eurozone will just reinforce German domin-ance and guarantee recessions and defaults in the periphery.
Now think of the fiscal compact.
In footballing terms it is the equivalent of docking points from the weakest teams for being weak. Given that the economic weaknesses are structural, these weaknesses will just re-emerge time and again. Ireland is the Hibs of Europe in that case.
The thing about the eurozone now is that it guarantees defaults. But defaulting is like relegation in football. You lose a few ratings, the rates of interest go up but, like the relegated teams, the defaulting country doesn’t stop being an economy, it just competes more muscularly for capital at its own level.
Once relegation happens, the process of promotion starts again and away we go.
Without a Europe of different currencies and different economies, the different national economic structures will cause more and more dislocation. The alternative — a German dominated eurozone — is just the SPL with Celtic winning everything.
This is what we are being asked to vote on.
“On the No side we also have the rather duplicitous “treaty on austerity” slogan, which seems to suggest that if we vote no there will be money aplenty for all things and the State’s budget can be in deficit for perpetuity.” Ireland would have to leave the Euro and recover its monetary sovereignty to do that. Then you could offset non-government saving as much as required to maintain Full Employment and Price Stability – as Modern Monetary Theory demonstrates. But it means learning to trust (and control) your own politicians rather than hoping that the European ones are somehow better.… Read more »
We should implement a 10 year exile system and impound all funds/assests of all TD’s in the last Government, plus all senior Civil Servants at that time, plus all senior Bankers and market Traders, plus all Developers, plus all Estate Agents, Plus all Auditors & Legal Advisors of the failed Banks and Developers. We might have to include Architects and Consultants too if the Priory Hall syndrome gets any worse.
This would give them a ‘Taste’ of what they have done to the reak Irish Citizens and allow some fresh blood into the system.
perhaps Rangers going into administration this week is a sign of things to come for the French economy given the parallel you drew with the SPL
I am a bit perplexed by the reference to Keynesian economics. AFAIK Keynes proposed a “Bancor” world currency at the Bretton Woods conference. Luckily we did not get that, but the BRIC “basket of currencies” and the Euro itself seem to base themselves on the Bancor.
A world currency would have even crazier imbalances than the Euro test-case, bringing global austerity enforced by a world government, which I believe Keynes did understand. The IMF and WB were set up to counter this, but seem now to play a “governance” role.
As DMcW points out the glaring imbalances underlying the Euro will not be fixed by the Compact. This glaring obvious “error” comes up in many threads here. What if it is fully understood the Euro is merely a tool as apparently Keynes understood the Bancor to be? Here is what the tool is for, Italy : The Oligarchy Plans To “Perpetuate” the Monti Government and the Suspension of Democracy in Italy The internet daily {Affari Italiani} has published leaks about plans to perpetuate the Monti government beyond the 2013 deadline, if necessary by postponing general elections. Another option is to… Read more »
David, I find it hard to follow all your arguments but the gist seems to be that Ireland needs to regain it’s sovereignty and to do so needs its own currency. I am concerned with your denegration of the gold standard. “The crux of the eurozone’s problem, like the Gold Standard before it, is that the creditor nation is too strong and the balance of adjustment always falls on the debtor country, making it weaker. In the 1930s, the US was the creditor nation. Today that country is Germany.” In the period stated “in the 1930’s” there was not a… Read more »
I agree with pretty much everything you say.
If it’s such a zero sum game – why does matter if we vote yes or no?
Ultimately will the euro blow or survive regardless of our vote? When required the rule book can be re-written. Isnt it just an election sop to the France & Germany thats not worth the paper its written on?
subscribe (in hope).
Interesting analysis IMO.
The conclusion amounting to that one currency for Europe is an economic illusion if we are to have an economic system close to a free enterprise system reaching down to the man in the street.
But the thing is the Euro project is an extension of an Insider class running an oligarchy / old type feudal system going back 100’s of years.
And the Euro is working in an incredible way for europe elites. So much so that it is in the running to be the world reserve currency.
Can’t wait for Coldblow’s rebuttal!
I agree that “The only way to make the eurozone work as a proper currency union is to force the Germans to accept eurobonds, so that we have a unified debt market.” I think this is “circling the wagons” as a defensive measure against attacks by the US bond markets. Yes, Ireland’s wounds are self-inflicted (Lenny and Biffo inflicted actually) but the real crisis in the EMU zone is short selling attacks upon national debt in southern Europe. I say “US bond traders out of the EU”. A unified debt market would be managed from Frankfurt, not New York. US… Read more »
@Tony Brogan excellent.
David you seem to be saying (like John Mauldin) that the Euro operates (or used to before LTRO) as a sort of Gold standard.
IMO this is preferable to the Punt because as John mauldin says “I don’t trust the B**t**ds”.
Inflation etc would go through the roof. The Euro is better than a Gombeen currency.
And I don’t want the purchasing power of a “Betie note”.
David, Any chance you would consider taking an active role in the NO campaign in the referendum? (I was disappointed, but respected your decision not to get involved in the 2011 general election, Who in their right minds would want to join the culture of that lot in Leinster house, a lesson George Lee learned the hard way). The reason I ask is that I have some disquiet at the narrative that seems to be emerging that the No side are just a bunch of De Valera type, 1950s small nation sovereignty fantasists (a sort of maidens at the cross… Read more »
Look Folks, The game is up, you can have all the Fiscal Compacts and Lisbon Treaties, and referendum in the world, heaping debt on debt is a one way street, printing more money to pay more debt is a “death spiral”. Debt forgivness is the only answer and will always be the only answer, there is no digging our way outta this hole. Kenny and his troupe are just puppets at this point and they serve nobody but their ECB,IMF masters, they have no mandate no from the Sovereign Irish Citizens any more and there is only one way they… Read more »
“Bertie Punt”
Going slightly off topic:
Below please find a link to a Bloomberg article reference the Greek situation.
http://www.bloomberg.com/news/print/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels.html
Mention is made in comments above re ‘Goldman Sachs’ this article confirms to me anyway that this entire scenario has some aspects which were engineered, gladly assisted by incompetent politicians.
The secret and rushed meetings and decisions surrounding the Anglo debacle echo.
I have left Ireland, but the likely future for that place and those who remain saddens me.
I was angry and disillusioned, and my last vote cast in Ireland was with a boarding pass in T2………..
Hi, “This is what we are being asked to vote on” Assuming this point is correct if we vote yes Germany gets everything. Assuming we vote no we get tossed out of the Euro David, savers get their savings converted to a new Irish currency which will collapse in value, import costs will skyrocket, mortgage repayment costs will go through the roof and cause the collapse of BOI and AIB and what have you to say other than what you say to all your clients around the world? I can tell you David more of stating the obvious. In this… Read more »
Reportedly 1 million more unemployed in France since Sarkozy took office in 2007, serious issues at the heart of the French economy which are touched on in the article, I would really like to see that topic developed as too much focus has been on the extremely strong like Germany and the extremely weak like Ireland, Greece, Spain etc.
Any comment or an article on France from David McWilliams would be most welcome.
Have to fully agree with this. Living in Germany, it is perhaps easier to remember the simple facts that David pointed out here. Merkel, who is leading the Euro rescue, has a (constitutional) responsibility to German citizens. Not to the Irish, Greeks or whoever else. All treaties and negotiations should be approached with this in mind. This simple fact has been underlined when she has overstepped her mandate and been slapped on the writs by the Bundesgericht/High Court in Karlsruhe a couple of times for not consulting the parliament for a vote of some of the “rescue packages”. So these… Read more »
Punk Economics headlines in an entry on the Irish Economy Blog today 120308, video[s] cited by Philip Lane as an ‘excellent example’. :):):) Also plent of recent Target 2 stuff, Germany’s iceberg, there from 5 and 7 March. Hans Werner-Sinn’s pet favourite theme. Now that thing is a BIG BIG liability. Good old time-bomb iceberg there from a DD so fond of playing Schoolmistress to EU bad-boys who’ve been bold in the playground…. Maybe the Grande Dame will get along fine with GR new Finance Minister of today? Papademos has appointed 53 year Anna Diamantopoulou who is a qualified engineer.… Read more »
Hi David, nice football comparison! I wanted to point out that, like most commentators, you are looking at the various elements of eurozone crisis management as isolated pieces of a puzzle, rather than as a cohesive plan. Yes indeed, it’s no surprise that a cohesive plan is most definitely being put into action at this very late stage in the game. Look at it chronologically: The German’s have said there will be no eurobonds without fiscal union. So we are following a road map to eurobonds, and in the meantime, the ECB, despite lacking any official mandate for its actions,… Read more »
The Dail suspended Doherty for requesting scrutiny of Moran who operated ZCM.
Doherty was about to bring FoI legislation on NAMA to the floor. Are we seeing a Greek repeat?
http://www.sinnfein.ie/contents/22741
There’s the Iceland model. Repudiate debts. Stay out of Eurozone. Has worked very well. There’s the Swedish model (on banks). Nationalize the banks in the normal way, that is, take them into bankruptcy, automatically disowning their debts; run them publicly, with great prudence and disciple; straighten them out and get the right execs to run them; re-privatize them, paying off a percentage of what is owed to the bank debt-holders. There’s the Canadian model: a small number of big private banks well regulated and run by execs culturally averse to great risk, leading them to withdraw from the New York-London… Read more »
Remembering the 1980s…and all the gloom and doom, Thatcher etc we had then. No one predicted the mid 90s. NO ONE – except some taxi drivers, dustbinmen and a few businessmen. Now we are in the miserable teenys of the 21st Century. All gloom and doom. Same old nonsense really except a few people I see chiselling away in companies making it happen. People have short memories. Only a short time ago, Germany was a basket case and now…it is too big. Oh dear! As for the Euro…it looks like one great big cockup and it will either win or… Read more »
If you take the last sentence in David’s article,
“This is what we are being asked to vote on.”
And then rearrange the letters you get,
“His was a tweet binge.
Troika hes voted no”
Yeah yeah its a stretch, but he,y Ive been sober for nearly 62 hours! Okay 50, but who’s counting?
Lots of bloggers complaining there is no plan. The truth is they will not see the value of a plan if it landed on them, due to Tiger rose-glasses they have not tossed aside. There is a massive economic recovery plan, involving the entire Arctic region, the Eurasian Landbridge extending and linking into the New world via Bering. On top of that we need now 6000GW of power. Shipping via the Arctic involves Ireland. None of this has a mention of mesmerizing occult monetary theory of the bygone dark age – the 4th successive Empire now almost over. So if… Read more »
David I intend to vote no in this referendum whenever it occurs. The reason I am doing this is because it is the first time we have been given a vote on the bank bailout. In the general election we had the Fine Gaelers telling us clearly that “not one red cent” would be paid to unsecured bondholders unless they faced a severe haircut. This has turned out to be another pack of lies and we now have these same smug conmen trying to pretend that these debts are actually national debts and it is somehow our duty to pay… Read more »
Ditto- hear,hear!! Fantastic posts today, a bit of the old fighting Irish spirit has returned!! You must all be weaning off the Fluoride (fluorosicilic acid poison)! I had my water filters installed today-a general filter-chlorine etc, plus the fluoride filter, will save a me fortune as have been buying glass bottled spring water for the last 4 months, the supermarket can’t keep up with demand and the plumber said filter business is brisk. Lets join the 98% and make Europe almost 100% fluoride free!
Morning David.
Would you consider emailing every T.D in Leinster house your Punk economics lesson 2 as I found it simple and excellent in its content.?
Or I would gladly do it for you, if allowed.
Did you know that JP MORGAN CHASE sits on the deciding committee of international swaps and dirivetives association [I.S.D.A] who decided whether or not Greeks new debt/bond deal was a default or not,obviously they decided it wasn’t……….!!!!!..How convenient,
Best
RR6
This is a defeatist article. The minnow can defeat the whale. The last Scottish football club to lift silverware in Europe was Aberdeen, when they won the European Cup Winners Cup in 1983. In the same period in the mid 80s, they won the Scottish Cup, 2 League Championships and the UEFA Super Cup. This was under the stewardship of one Alex Ferguson, who if he hadn’t gone to Man U, would have continued to hand the Old Firm their asses on a plate. He didn’t buy into defeatism, he took what he had, and he made the best of… Read more »
Why is Crumlin children’s hospital begging for money ? Even in Texas (where I lived for 2 yrs )things were never this bad . Welfare state for business, capitalism for the rest.
Austerity Pact: What bribe will the government use now? The Irish Times reported this morning that” the Government’s campaign to reduce its banking debt is running into strong resistance within the European Central Bank. More than six months after Dublin first raised the matter with the ECB, the Frankfurt-based institution is pushing back heavily against persistent Irish demands for a concession to ease the cost of rescuing the former Anglo Irish Bank.” Since this had been one of the big bribing points in the governments case for a yes vote , do they have any more carrots or just sticks… Read more »
Intellectual Revolution
Celente and Ron Paul agree that politicians are all suffering from Intelligence Deficit Disorder:
http://www.rense.com/general95/celen.html
I like the footballing analogy David but football was aye corrupt and does not offer a baseline to compare the mechanics and stupidity of the EU elite and it’s corrupt monetary circus. The cool reception says so. You were probably running on empty when you penned this bhoy but I still like it because it has merit. It sounds like you and that is not a bad thing. A familiar voice moving with the times It plays like a rare Beatles B side you can’t stop listening to but can’t explain why you keep playing it. Do you remember the… Read more »
Paul
The less said about Leeds the better!
D
Great Article as usual, to hansel a phrase,
“there has been much said, and too well said, so I will not occupy the time” Edward Everett Hale
Well Done
Folks,
The entire financial – banking system design is false.
Here is an essay by Chris Powell of GATA which high lights the fact that Paper money is the basic problem of the world. Loss of control of monetary policy by any nation is a loss of sovereignty designed by the money masters to help us on the way to the authoritarian dictatorship of one world government. It points to the reality that it is necessary to return to inelastic commodity money which is essentially privately owned and thus a requirement in the pursuit of individual liberty. Issuance of commodity coins into circulation by the Irish mint for purchase by… Read more »
Apples & Garlic Market Protection racket for French Garlic is evident in the recent prosecution in Dublin against the biggest fruit importers in the country. Non EU garlic imported attach 232% duties as opposed the lowest rate for other produce at 9% and zero from within EU .That variance is an obvious attempt to protect the endangered French producers . Do we have such rate to protect Irish produce ? Legislation is written to protect the insiders and big country members in EU . Nevertheless it does raise the question how does China produce so much garlic for export when… Read more »
@Paul Divers really enjoyed that post. A friend who is really into Scottish football let me know that Dundee United beat Barcelona in the 1986 Uefa cup quarter final in the NOUCAMP! Amazing.
http://www.youtube.com/watch?v=5MPGq9hJG2U
David please get a proper message board sorted. I’d love to get in contact with Pauldiv re Glasgow, Bonbon re Hamiltons bank and Donal re living frugally!
@Deco
A little light reading here;
http://www.henryfarrell.net/Keynes.pdf
Whoever controls the money is the strongest and has the most votes and has a big veto power.