In football, there is the following expression: he reads the game well. All good players read the game well. The same goes for rugby. Today, you will hear commentators say about Brian O’Driscoll that he reads the game.
This means that Drico can see where the game is going, where the next play is and how to either deal with it or seize the opportunity. In soccer, the player who reads the game knows where the ball is going next. They used to say this of Roy Keane. It is the same for all major sports.
Many years ago, I spent a summer working in Canada, where the national hero at the time was Wayne Gretzky, the brilliant ice hockey player. Gretzky was so good that, when he retired, his number – 99 – was retired from all North American professional hockey teams. His most famous quote followed a simple question from a commentator about why he was so successful.
Gretzky didn’t even think, he just responded as if it were the most simple thing in the world: “I skate to where the puck is going, not where it’s been.”
Our politicians and those who negotiate for us, whoever they are, would do well to listen to the sportsmen. Head to where the ball is going, not where it’s been.
The European financial and economic ball is moving and the fiscal treaty is all about where the ball has been. By focusing on this treaty, we are like footballers worried about where the ball is now, rather than where is it going next.
Where is the eurozone going next? Well, either it’s going to break up or it will head towards further fiscal integration.
Of the two, fiscal integration is a bigger threat to Ireland. Why? Because our low tax rate goes with it. Make no mistake. The price of fiscal integration has to be tax harmonisation. That’s the way it works.
We can kiss goodbye to the one part of this economy that is truly globally competitive.
Forget the workforce and all that stuff. The reason companies are here and not in Belgium or the Netherlands is because we give them a reason to be here – tax. The new French administration is already targeting it. Wait until we sign up now and see where this is leading us.
If I were a foreign investor, I would be much more worried about Ireland being subsumed into a great European tax bracket than anything else. Maybe the investors who have signed up this year are betting that when push comes to shove, the Irish will opt out the day the Europeans insist on tax harmonisation. I agree with them.
But if this is our position, then we should be preparing for it because this is where the ball is going.
However, the ball will not travel smoothly from A to B.
In contrast, the past week has heightened the sense that the euro will break apart. The focus of attention right now is Spain and Bankia, Spain’s Anglo, which is following the same pattern as our banks, but in a much shorter time frame. Every time the bank ‘fesses up, its losses are greater than it had admitted before. We have seen this pattern.
The core of the problem, which is sometimes overlooked, was highlighted in the Financial Times last week by the brilliant writer Gillian Tett. She looked at the huge interbank loans that were the result of the first ten years of the euro. Banks all over Europe loaned to other parts of Europe and other countries.
When the currency was not in doubt, the people who manage risk at banks (I know, don’t take these guys too seriously) were happy to have a liability in Germany and an asset in Italy.
So, if a German bank lent to an Italian bank, the asset was in Italy and the liability in Germany. But now, in what is called asset liability matching, or ALM, banks want to match their asset and liabilities in the same country. So if a bank has loans in Italy , it will want to also have its liabilities in Italy because it is worried about the euro falling apart.
Now no one wants to lend cross-border – the only way that banks can square these positions is by deleveraging in the periphery. This means squeezing the economies more. This leads to less and less credit and more and more unemployment. The IMF estimates that, over the next 18 months, this will happen to the tune of $2.6 trillion. They will take $2.6 trillion out of the European economy.
This is a huge amount of money. Let’s just get a handle on how big it is for us, the citizens, trying to get finance. It is 26 followed by eleven zeros. If you were to spend $1,000,000 a day it would take you 7,123 years to spend $2.6 trillion. That is what this means. At today’s exchange rate of the euro to the dollar of $1.25, it would take 5,698 years. So it’s a lot of bread.
As a good proportion of this money will flow out of the periphery, the rate of unemployment will rise again and again. This is when, eventually, the lender of last resort will be Germany and the periphery of Europe will be one large economic zone that is sinking.
This is when the Germans have to properly consider the notion of “peripheraid”. Peripheraid is where the eurozone is going.
Peripheraid is the ongoing infusion of German cash to the south and the west. It will have to work the same way as the Italian state has operated in the past 50 years where the north subsidises the south of Italy. The German people, at some stage, will say enough.
Last weekend, I was in Munich. I spoke to lots of Germans. Bavaria is the richest part of Germany. Unemployment is below 3 per cent. The people have no idea what is going on in the rest of Europe because their circumstances are so different. However, when asked about the euro and the ongoing crises, they responded that they wouldn’t pay indefinitely for the rest. They understood that they were huge beneficiaries from the euro, but they also understood that they are now Europe’s ATM machine.
This is where the ball is going. Break-up is the most likely solution and some sort of two-speed Europe will emerge. The fiscal treaty is already redundant. No peripheral country will make these targets in the face of the huge deleveraging and, in the end, we will break our own laws.
We are in a game of poker where everyone has their price. The thing about poker is you have two minutes to figure out who the fool at the table is. If you haven’t figured it out in two minutes, the fool is you. Why fold now, when the game is only beginning?
See Punk Economics 4 on You Tube for an alternative view of the fiscal treaty.
Yep….I am in Bonn this week. That’s how Germany sees it. Udo Lindenberg wants his savings back.
Jens Weidmann, head of the Bundesbank shot down European Project Bonds that Hollande has been pushing with all his might to fund infrastructure projects as part of his “growth” policies.
“This debate irritates me a bit,” Weidmann said. “Every month, ingenious ideas to counteract the crisis surge out of nowhere before they disappear a month later. Now it’s project bonds…. It’s not a lack of infrastructure that is slowing down growth in these countries.”
Caveat Emptor folks when voting.
Just TWO Minutes Only !
Where are My Pockets ?
The Spanish authorities appear to be hoping that their bank bailout liabilities will be shared by the ECB and not all imposed on the sovereign http://www.guardian.co.uk/business/2012/may/27/spain-bankia-bailout-plan-ecb Spain has still a far healthier deficit rate than Ireland albeit with higher unemployment and yet it wisely realises that it simply can’t afford to independently fund its deficits and assume all the private bank date resultant from private speculation. As the wider tectonic forces in Europe are moving yes or no in Ireland is unlikely to have any real impact on our future in the EU and the cost of such membership. It… Read more »
The fact that the government has such a sinister and snide response to any legitimate grounds for voting no, choosing to attack the advocate rather than their argument on virtually all occasions does not inspire any confidence in the validity of their view. That bank debt can not be legitimately accepted in the interests of the future of this state. Its imposition to the the extent and by the means of its incursion were unjust a resort to basis arithmetic dictates it is equally unsustainable. The markets did that arithmetic a long time ago,and only for the people who imposed… Read more »
Spain is continuing to unravel. The imbalances in the Spanish banking sector, the wholescale misallocation of resources is now being apparent. Spain is Ireland’s banking crisis all over again. Cronyism. Bertie Factor politicians who knew how to buy votes. Noonan factor politicians who knew how to over promise and under-derliver. Waste. Quangos. Jobs for insiders. Funny banks. Mad bankers. Compromised regulators. And it all had the full blessing of the Brussels nonsense factory. Brussels, and the ECB has been busy. Here is a banking crisis that we made earlier. We made it years ago, with cheap interest rates, and full… Read more »
We have a political class, and a media class who never seen where the puck was going. Maybe it was because they were paid to not see where it was going. Well, in any case if any of you trusted the mainstream in Ireland, you are now well and truly thumped by the establishment. The bankers and the developers have the money somewhere hidden. It did not just disappear. Multiple accounts. Just look at the crooks in NAMA. So many of them buying back the property that there were not able to fund with loan repayments. That line from Leonard… Read more »
David’s article summarises thus: Ireland with its tax advantages and own currency at a safe distance from Europe OR Ireland as a sub state of Germany under German rules or worse as the worst part of a 2 speed Europe all bowing to German Rules. To be honest, there are a lot of things I’d like to become more teutonic around here – from a distance, having the vorsprung durch tecnik approach to life looks great until you realise that Germany has its inefficiencies and incompentcies by the bucketload. Germany is not flexible. Will never be flexible and does not… Read more »
Wrong David, better to buy the lock for the stable door when the horse has bolted than to get a new horse and loose that horse too. I am assuming you are advocating a no vote but I am not aware if you have made this clear by actually saying that you are voting against this treaty. I know that you are in the broadcast business and taking sides may not be a good career move but this is a referendum not an affiliation to a political party. In the past 30 years or so I have always voted no… Read more »
BANKIA BANKRUPTCY BANKRUPTS SPANISH GOVERNMENT BAILOUT FUND May 27 (LPAC)–To ward off formal bankruptcy, recently nationalized Bankia, Spain’s fourth largest bank with 10 million clients and 20,000 workers, was just promised an additional 19 billion euro bailout by the Spanish government, bringing its total bailout (so far) to 23.5 billion. That amount, incidentally, is four times the size of the government’s annual budget for scientific research. But there’s a minor glitch: The Spanish government’s bank bailout fund that was established to handle such contingencies, the FROB, doesn’t have the money. After all its earlier bailouts, the FROB now has a… Read more »
This is a cover-up.
The banking system used the euro to bastardize the fractional reserve banking ratios and cream the CDS instrument innovation in a gargantuan ponzi scam.
Anything else like what Tett writes on is hiding the simple truth of it.
EUROPEANS DEVELOPING `PLAN B’ FOR CRASH OF EURO May 27 (LPAC)–European governments and financial institutions are now openly acknowledging that they are, indeed, putting in place Plan B options for the disintegration of the euro system. In an interview with the Sunday Telegraph, Lloyds of London’s CEO, Richard Ward, said bluntly, “I’m quite worried about Europe. With all the concerns around the eurozone at the moment, we’ve got to be careful doing business in Europe and there are a lot of question marks over writing business in the future in euros. I don’t think that if Greece exited the euro… Read more »
subscribe.
Hi coldblow
re a reply you made to my comment in the previous blog
Minimising the influence of the media and the significance of whom it serves is to miss a lot…IMO
My references to the human species in my posts is because I view what is unfolding as a planetary crisis generated by our species.
It’s interesting to note that at all times economists and most citizens assume that the current system of governments borrowing money at interest from private banks and other financial institutions on the so-called ‘free-market’ is the natural way to finance the state. Remember, the banks are bankrupt…so where does that leave us? Consider Draghi’s munificence to the sum of 1 trillion Euros of cheap (1%) credit to the European zombie banks; and ask how is this supposed to help the European national economies. This is how it works: 1. the banks are bankrupt 2. the central bank loans them money… Read more »
We are conditioned from a young age to respect those in authority. It comes as a surprise when you first realise that people in top jobs in both the public and private sector here and elsewhere are not impressive. They are not that bright, they do not have and original thought. all they can do is deal with what they have now. They cannot imagine anything else. Do not credit our politicians with any agendas. Most of us have met them. They are ordinary average people. Only now they are scared shitless. They need a yes vote because for them… Read more »
the-game-is-only-beginning. Yes it’s all a game,the big boys ant going to lose out either way,they owe to much it will be written off or they will do a runner. This country has gone down the tubes we are being hammerd at every turn where are the people who cause this ,gone or here and still enjoying ther liberty, You owe the bank money you can’t sleep ,thoes who caused this can sleep like a baby and the bankers can’t sleep.to night on pat kenny look at the suffering of thoes people and another thing that was mention the good old… Read more »
Following the digital money ball can provide a good analysis of why this recession is so unique and where we may be headed. Prior to the 1960s a fifth of our money supply existed as cash. The remaining 80% existed as bank-account money. While cash and bank-account money appear to be one and the same, since they are interchangeable, both have remarkably differing properties. Cash is created by the state and is spent into circulation by the Government. Bank-account money is created by the banks and loaned into the economy. Hence every bank-account Euro has a matching debt. Bank-account money… Read more »
20 years ago we believed the financial sector and the IFSC was to be a great boon to our national economy. Now we know it was a Trojan horse.
The enemy is within the walls. The vandals and wreckers of civilisation are ransacking our nation. The neo-liberal barbarians are doing to Ireland and to Europe what they did to the third world in previous decades.
Since the ultimate guarantor of the monetary system is the citizens and the nation; the central bank should be under national control – not private control; and should issue national credit at minimal interest. Credit for productive activity; not financial speculation. Banks have a vital social function. But financial speculation is completely toxic and must be outlawed. It is nothing more than gambling; with the assets and livelihoods and even the lives of the citizens of the world. What we have today is a global financial coup; and if it is not opposed and stopped we are heading into global… Read more »
Another debacle unfolding in the Dublin Finance Sector. One of the owners of the ISEQ is under intense scrutiny.
http://www.independent.ie/business/irish/top-watchdog-probes-all-stockbroking-firms-3122921.html
I have a question.
If certain behaviour was happening in this blueblood D4 trading house, since 2007, why is it that five years later the Central Bank decides that there is something amiss ?
Another question, what were the auditors doing in all this time ?
The game is a POLITICAL one with Finance and Economics being the backroom staff. Fiscal integration is the first half followed by political integration in the second half. The match will come down to who aligns to Germany and who does not. Those who won’t align will leave the Eurozone. The match will end before the general elections in Germany and Italy in Spring 2013. The match started in November 1989 with the fall of the wall. Now what if Ireland chooses to align to Germany? 1) Ireland will be assured a place within the EZ and the EU as… Read more »
[…] David McWiulliams: The Game Is Only Beginning (DavidMcWilliams.ie) […]
I like this article, I like the way it presents the progress of how things may happen in the future and does not focus purely on economics-talk. But I must ask, as David very adroitly avoids this issue within this article, and to continue the poker analogy, even if the Fiscal Treaty is redundant, is voting yes or voting no revealing our hand in the game too early?
http://www.telegraph.co.uk/finance/debt-crisis-live/9296529/Debt-crisis-live.html { “Spain has engaged in a policy of delay and pray,” Echavarren told Bloomberg in an interview. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.” The Economy Ministry says that Spanish banks have €184bn of developers’ loans and assets that are “problematic”, while the remaining €123bn are performing. } This is the essence of what has been happening in Spain and it’s banking system. “The problem hasn’t been quantified by anyone because there is huge pressure not to tell the truth.” Nobody wanted to hear the truth. Denial – an… Read more »
“If I were a foreign investor, I would be much more worried about Ireland being subsumed into a great European tax bracket than anything else. Maybe the investors who have signed up this year are betting that when push comes to shove, the Irish will opt out the day the Europeans insist on tax harmonisation. I agree with them.”
Are you saying that you agree with the investors betting that we will opt out on that day, or do you agree that we will opt out on the day?