To stroll around the old walled city of Dubrovnik on the Croatian coast is to savour one of Europe’s gems. From its marbled streets to the immense baroque cathedral, the heavily fortified harbour and the oldest pharmacy in the world, ancient Dubrovnik exudes affluence. In fact, many of the cities of Dalmatia’s coastline — where I am writing from — attest to huge past wealth.
With the world’s oldest orphanage (founded in the 14th century) and one of Europe’s oldest synagogues, it’s clear the people of Dubrovnik were both enlightened and tolerant. So where did the cash come from?
The Dubrovnik Republic was one of a number of very powerful city-states that emerged in the Middle Ages of which Venice was the most powerful and influential. The city-states were constantly playing the role of middleman between the big powers, sensing the big powers’ weaknesses and anticipating their next move.
As long as a city-state juggled its allegiances and avoided any military showdowns with the big boys, it could trade and export its way to prosperity.
The elders of Dubrovnik realised that the city was in a delicate position, occupying a crucial strategic point in the Adriatic, half way between the expanding Ottoman Empire to the south-east and the rapidly developing Renaissance markets of Italy, France and Flanders in the north-west.
Trading with Renaissance Europe in lead and silver from Turkish-occupied Serbia and Bosnia (the silver mines still exist in Kosovo today) and silks and spices from the Levant, generated Dubrovnik’s immense wealth. Indeed, the Republic’s most famous son, Marco Polo (allegedly born on the nearby island of Korcula), epitomised the swashbuckling, capitalist adventurers of the time.
In the first example of a national branding campaign, by the early 17th century, Dubrovnik had opened trade consulates in 80 cities from Alexandria to Marseille. As a result, Dubrovnik was always watching the big powers and seeing where their interests were heading.
Today, small countries like Ireland could take a leaf out of the book of the old city-states. Instead of committing ourselves totally to one sphere of orbit, we could play a trading game, seeing where the big powers’ interests have shifted and altering our own policy accordingly.
Events of recent days have shown how dangerous it is to be dependent on one large trading bloc. It is clear our Government was slapped down on burden sharing at the last minute. In a world of free moving capital, this humiliation has to be acted on.
Maybe Barack Obama’s visit next month, along with that of Queen Elizabeth, will open our eyes to the fact that there is more to the world than Germany and France.
In fact, the changing relationship between Germany and France may explain why our Government was left isolated in Europe last week.
Think about Germany. It is clear to anyone who has watched German diplomacy in recent years that Germany is falling out of love with Europe — or at least a certain type of Europe. German tolerance has ebbed and its willingness to turn the screw on us might be more a reflection of the fact that its concerns are elsewhere and it is not as obsessed with Europe as it used to be.
One of the explanations for this might be the chart in the accompanying cartoon. It shows that the influence of China and Russia on German trade and shows how together with Poland these new trading partners are eclipsing France as Germany’s main market. The Germans are turning east at a rate not seen since they turned west in 1945 and this trend is going to continue.
The Germans know that three-fifths of Germany’s population will be aged 60 or over by mid-century, and it seems unlikely that the country’s fertility rate of around 1.3 births per woman will change even if Mrs Merkel were to return to the old cash-for-babies policy.
So in crude terms the Germans have to “bank” their competitive advantage now in order to pay for the old Germany of the future. They won’t do this if they have to keep bailing out the likes of us, so they have doubled their bets on the east and clamped down on what they see as ongoing transfers to the EU’s periphery.
But frankly, that’s their problem and once you figure out the weakness of the people on the other side of the table, you begin the process of strengthening your hand.
I come back to the so-called bailout because we can’t pay for the banks’ debts and, interestingly, there are not so much “our” banks as “their” banks because the main creditor now is the ECB and as we all know from Leaving Cert economics, the creditor owns the company.
One other weakness the Germans also realise is that there are no real sanctions against a default in a monetary union. This is why they threatened our Government last week. The threat was that if we pursued “burden sharing”, the ECB would cut off funding to Ireland and flood the rest of the periphery with liquidity. This would show exactly what happens to a country that breaks ranks and imposes on German banks the losses that they should have taken anyway.
Well this proves that they don’t want to understand how a monetary union works. They could have cut off European liquidity to Ireland as much as the old Irish central bank could have cut off Irish liquidity to Mayo.
The money would simply find its way here as excess liquidity spilled over into all the nooks and crannies of the monetary union. Irish banks would have got liquidity as other banks lent on to the new Irish banks with the cleaned up — post default — balance sheets.
Their lack of comprehension about how a monetary union works on the way up when money cascaded into Ireland is only matched by their lack of understanding about how a monetary unions works on the way down. Yes, we would be downgraded, but there would still be ample euro financing around and, more importantly, as our balance sheet improved, together with a credible budget adjustment programme, money would flood into Ireland to recapitalise us.
We have to understand that this ECB Emperor has no clothes. There is no sanction against an Irish bank default within the euro bar threats and these threats are idle because the system is set up to make sure that liquidity seeps around the union. The threat is as hollow as Gerald Ford’s threat to New York City when in 1975 he said he wouldn’t bail out NYC and told the bankrupt city to “drop dead”. Of course he did a deal. The ECB and Europe’s politicians would do the same.
Yes their priorities have changed. Germany needs China more now then ever and this dependence will increase, but that’s our opportunity. Like Dubrovnik of old we should be watching the big powers. China is now the world’s banker and increasingly Germany’s future. But all this does is generate more surpluses in China because China is using German heavy machinery to add value and export even more. So where will all this money end up? Back in Europe of course and we need to look elsewhere for bridge financing if only to show the ECB that its money isn’t the only cash on the table.
Excellent article David. China is the way forward. Keep it up. The people deserve to be made aware of this option. Once the citizens of Ireland become aware that there is in fact an option other than the ECB IMF bailout, then the stage will be set to demand real change from our government. Change that will bring about prosperity and regain our sovereignty. Keep up the good work.
Very enjoyable article. Our problems have been, our bankers know little about banking, our politicians know even less about banking or economics. To have creative input in DmcW suggestion into our economic and banking system, we would need expertise afforded by the likes of those who ran the banks of the city states of Croatia and Italy, eg the Medici family who ran the bank Of Florence in the fourteenth century…we’re back to zombies and gombeens again:) But we’ll have to think outside the euro project as its getting ready to blow soon. Future build on our economy on sound… Read more »
‘Very enjoyable article. Our problems have been, our bankers know little about banking, our politicians know even less about banking or economics.’cbweb
Says it all really… but they like us need educating.
David. Dissect and reveal. Empires are in flux. The article connects. However, the insiders are running the shop. Their interests are not aligned with running a free market system which is not under their control. Thus, the euro chess piece is a spiders web spun by the euro insiders with a geo-political agenda. Irish insiders gamed the euro and landed the country’s economy in the euro spiders web. Two things here. First, at least now the Irish people can see the country is under the grip of insider elites with no loyalty except to themselves, fumblers in the greasy till.… Read more »
I agree wholeheartedly with everything you’ve stated on this website, David. If only the current and previous governments would’ve listened and listen now and do what had needed to be done and what needs doing now things mightn’t have been as bad as things have turned out. I know that certain people have said that the advice you gave the last Government in regard to the Bank Guarantee back in September 2008 is the main reason why we now find ourselves in the position that we’re in. You know and I know along with a whole lot of others that’s… Read more »
The position being taken by Germany and France is very similar to the Allies approach at the Treaty of Versailles. One would think that of all countries Germany and France would realize the corner they are pushing us into…
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Ever feel like you are wasting your breath D?
I watched the video you posted of the Prime Time programme from 2003. Not only did the policy makers not listen to your sound advice, the people at large did not either. 3 more years there were of demand for the bubble commodity of the day.
I am reminded of a melancholy Don McLean lyric…
“They would not listen,
They’re not listening still.
Perhaps they never will.”
Arriving back into Dublin on Tuesday night and to dodge the state controlled taxi rank at the arrivals I nipped upstairs to meet my lift.I was just heading out the door when I noted a huge queue and looked up at the overhead sign to see where it was destined for.Guess what.It wasn’t the States ot Oz. No it was Riga.Thats odd.That must be the capital of Jepordy cause I heard that there was another shit load of jobs in Jepordy while I was away.Then the penny dropped.It was the first Tuesday of the month.Ah that meant I was sorted… Read more »
Ireland was gifted a position between the US and Europe, plenty of EU development money from the outset, US money (like Chuck Feeney bankrolling the University of Limerick), easy access to markets, peaceful country, stable democracy, educated, English speaking population, honest broker image (whats left of it) and still we are in the position we are in.
There are a million and one things that could and should be done but they won’t be done because the fundamentals remain unchanged, the vested interests entrenched, the narrowness of society continues.
What reform have we seen? What change of policy?
After the collapse of the central, imperial, corrupt Roman regime in ancient Rome the bishops of the Western provinces (well governed by local senates despite bad emperors) became de facto governors of the remaining Roman citizens (hence Roman Catholics), now ruled by pagan or Arian, heretical Christian, Germanic petty kings. In dealing with the new barbarian rulers the bishops used a Stoic, not Christian, philosophy to rebuke and instruct the new rulers. The great stoic civil virtues were prudence/realistic foresight (seeing the consequences of actions, with a paramount desire to avoid harm), justice, fortitude and temperance. That is, prudent justice… Read more »
Ireland is not part of a “trading bloc” as DMW describes it . Ireland is part of the European Union and a member of the more advanced group of countries within that union – the Eurozone. Decisions affecting the Eurozone are made by agreement among the members of the zone: that is even more the case now than it was before the PIGS showed what happens when the zone is not sufficiently coordinated. The last unilateral action which Ireland took was to throw the McWilliams bank guarantee in the face of its partners in September 2008. As long as Ireland… Read more »
The great Irish , they borrowed from Irsih banks until they were dry, then they proceeded to borrow from the ECB until dry…….now you want to borrow from the Chinese. How about just stop borrowing and start paying back debts. as if the Chinese would lend to us anyway , what a stupid idea. i dont like this “them and us” attitude from DMcW , Europe has been nothing but kind to us and we should be grateful and modest about it . Instead the Irish talk about telling the EU to go fuck itself when it comes to debts.… Read more »
I don’t agree with David’s thesis, put forward in this article, about our best strategy. But I do agree that we should have better links with the Anglosphere, and think outside the “Brussels” Box. I also think that we have to change our business culture and our societal culture. The problem is that the political culture is deluded and off-track in respect to both. They simply fail to understand that the dominant Irish concept of management is a serious impediment to us fixing our economic and societal issues. Therefore we need a completely different political option or set of options… Read more »
Interesting graph at the top of the article. There’s another one here that shows German exports to China overtaking those to the US at the end of last year:
http://www.amcham.de/fileadmin/user_upload/Newsletter/Documents_for_Newsletter/1103_rese_publ_mont_ecsp_englisch_110310.pdf
The way things are going, Germany will be asking itself if it has any need for the peripheral countries of the EU, and China will be asking itself if it has any need for the US. Maybe they’re both asking themselves these questions already and are preparing for a global economy that they dominate together.
I disagree with David’s unilateralism. The crisis should and will be solved in Europe because it is a European crisis… and beyond Europe, it is a global crisis. It is a crisis of our proto-global civilisation. I disagree with David’s provincial unilateralism. That’s not the way forward. We are not living in the myopic medieval world any longer. We have to find an agreed, rational and humane way forward into a new arrangement with our neighbours. We are all of us in the same boat now…Mother Earth. It’s no longer every man for himself; or time to play Billy off… Read more »
Chin up chaps. Be positive. We, the Irish, are being administered a harsh does of financial reality. Lets learn from it. As individuals we should understand that we are most likely (no certainties in life etc) one of the first dominos to fall in a global sovereign debt bubble. Listening to your government and the reactionary mainstream media will prove dangerous to your health in the long run. The wise among you will protect any remaining wealth you possess by investing in commodities (wheat, oil, precious metals, coffee, ‘pork bellies’). The numbers just don’t add up. This ship is going… Read more »
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“Paddy”s give the Irish people a bad name. Might want to change that…..
David, I have followed your articles for many years now, mostly in the context of the stupidity of Bertie Ahern. But this article reminds me that, more than 40 years ago, Germany was dumping cash into the Balearic Islands, allowing industry a 200% write-off of all Tourist Projects in Spain. In turn, a Travel firm, called Neckermanns, prepared a large brochure setting out, rather like Green Shield stamps, what a German worker could book in the islands. These were Bonus Points earned and gave an entitlement, rather like Air Miles, to a holiday. The more Bonus Points, the better the… Read more »
Some great ideas there, but “On this theme, it might be beneficial to consider a move from Income Tax (IT)- an unfair imposition on labour & entrepreneurial skills — and replace IT with a Consumption Tax (CT). This would be a graded sales tax with zero or minimal rates on absolute necessities rising to very high rates on luxury goods and non-essentials.”
Forget just cigarettes, this would fill our beaches with illicit contraband … illegal imports boosting the black economy…maybe go easy on that one:
Tax the wealthy and their wealth instead.
“Instead of committing ourselves totally to one sphere of orbit, we could play a trading game, seeing where the big powers’ interests have shifted and altering our own policy accordingly.” I think that that’s exactly what Irish politicians have tried to do in recent years but it’s ended in failure because they’ve been completely out of their depth at playing that game. The policy has been to be America’s gateway into Europe, as Enda Kenny described Ireland lately. This has meant dropping corporation tax for American multinationals, and at the same time agreeing to do whatever the expanding EU empire… Read more »
Courts finally making some kind of stance against mortgage lenders, the government has been too quiet on this issue, some intervention is required
http://www.irishtimes.com/newspaper/property/2011/0407/1224294084112.html
Noticed this site down yesterday afternoon/evening with WordPress error message, ‘account deactivated’..?
“They could have cut off European liquidity to Ireland as much as the old Irish central bank could have cut off Irish liquidity to Mayo.” Isn’t it extraordinary that no Irish county has so far considered seceding from the Irish Republic? I would have expected my native Cavan to be the first to do so. If the people of Cavan were to vote to be integrated into Northern Ireland and be re-absorbed into the UK, then their per-capita debt would fall by over 80% as part of a much larger jurisdiction of 60 millions. I no longer expect to see… Read more »
David, I’m afraid that I must fold my tent & leave. Nothing personal, but some of the comments, above, are so negative & irrelevant that I must look elsewhere for an intelligent debate on a very serious matter (not smuggling cigarettes on Ireland’s beaches, as one respondent opined). Maybe someone in authority should declare a State of Emergency. And it did occur to me after I had written (my only offering) that were Wave Power to prove viable, a network of trains, connecting the spatial hubs around the coastline of Ireland, together with a High Speed (TGV) link between Galway… Read more »
The Euro is overly undervalued for Germany and possibly France and overly overvalued for the peripherals. Germany is leveraging its growth from the flat to negative growth of others. They love the EU – or should. It is directly in their interests to keep the growth and economic prospects a poor as possible for the peripherals. Europe never integrated and looks set to disintegrate because it seems the prevailing mood among people in various nations is that it does not work. And can you blame them? The MEPs are on a gravy train and do no real work of involving… Read more »
What is happening in Ireland in the context of Europe is no different than the complaints of over-centralisation in Dublin by the west counties. If Europe was working properly, we’d have proper media coverage roasting the arse out of MEPs across Europe on a daily basis.
Iceland rejects Icesave repayment deal.
http://www.bbc.co.uk/news/world-europe-13022524
This is a great example of how democracy works. Can we learn from this? The ordinary people of Iceland should not have to repay the deposits in the UK and The Netherlands, just as we, the ordinary people of Ireland should not have to pay the German & French bondholders.
austerity analysis of Joe Stiglitz …. (he repeated this somewhere else in papers this weekend, link required) http://www.irishtimes.com/newspaper/opinion/2011/0409/1224294304548_pf.html Well, I pointed to Iceland early in the tragedy as a point of reference. A political dysfunctional class that follows special interests and not the common good can not be expected to support a referendum on the banking matters. Welcome to Absurdistan, where a morally corrupted Elite takes out decisions on behalf of generations with no mandate to do so, but people like Peter Sutherland and other sitting on their shoulders. The mission of Bankers in our dysfunctional democracy is one of… Read more »
http://bit.ly/eaodoR Stiglitz on IE
I have figured out the real problem with Ireland – it’s St. Patrick. He’s the patron saint of Purgatory and he’s determined to make the Irish suffer not only for their own sins, but for Europe’s as well. He has a lot of clout with The Big Guy, so he can pull it off. Perhaps a new patron saint is in order.
SMILE
http://www.youtube.com/user/LimerickPantoSociety?feature=mhum
The Political Class In Ireland or… START A FAKE REFERENDUM NOW! Iceland again rejected to pay UK and Netherlands, bravo! Here, we had an initiative by the so called ‘technical group’, while technically of political impotence due to the system inherent design of Irish democratic structures, they nevertheless started a initiative to call for a referendum on banking matters. To no surprise, the closed ranks of FG, Labour and FF prohibited this essential leverage to be given to politicians to go to the EU and tell them what the people here refuse to do. Of course they disallow the Irish… Read more »
New Labour……. TANAISTE and Foreign Affairs Minister Eamon Gilmore has insisted he did not know Prince Albert of Monaco attended a controversial dinner with Michael Lowry and Michael Fingleton during his visit to Ireland last week. The Labour leader’s deputy, Social Welfare Minister Joan Burton, said yesterday she was shocked by the reports of the unofficial gathering organised by businessman Dr Michael Smurfit, Ireland’s Honorary Consul in Monaco – a position controlled by Mr Gilmore’s department. The dinner took place in the K Club, which is owned by Dr Smurfit and is where Prince Albert usually stays when he comes… Read more »
Japan, earthquakes, food/oil prices, components, automotive industry…..
http://www.youtube.com/watch?v=KqO64-ipqAM
http://www.bloomberg.com/news/2011-04-11/toyota-may-lose-35-000-units-of-production-in-north-america.html
Good article from Will Hutton in yesterday’s Observer:
http://www.guardian.co.uk/commentisfree/2011/apr/10/will-hutton-keynes-austerity-osborne
“It’s a race against conventional thinking – and time.”
Similar stuff from William Keegan in the ame issue:
http://www.guardian.co.uk/business/2011/apr/10/were-not-deficit-deniers-we-just-want-to-stop-digging
Lilja Mósesdóttir is a former member of the governing Icelandic Left-Green party and a member of the Icelandic parliament. She resigned from the Left-Green party in protest at the IMF dictated economic programme being implemented by the government. She visited Ireland last week, and agreed to answer some questions on Ireland, Iceland and banking for Politico. …
http://politico.ie/latest/politics/7424-mosesdottirr-ireland-should-draw-on-icelandic-dissent
Large Financial Institutions: Panel at INET Bretton Woods Conference
Seven Videos http://tiny.cc/vvupk
Just finished listening to the AIB results. They will be lucky if they get away will “just” 2000 jobs being lost – and with overdue cuts in public expenditure (overdue becasue relative to the rest of the country you could argue it has grown), confidence is going to take a further bashing. Looks like a kleptocracy which robs from the productive and talented to give to a black hole – and yet Howlin is howlin’ that all we need is confidence to free up some of that save up cash the corporates and private individuals are hoarding away. Well, he… Read more »
In citing Iceland as an example, remember that the Icelandic Parliament has twice passed a bill agreeing to IMF terms. In response the President insisted on a referendum. Both bills were voted down in the referendum, but by a much slimmer majority in the second referendum. The second bill passed by parliament contained much lower interest rates, so the first referendum made the IMF willing to compromise.
When the Icelandic Parliament passes a third bill agreeing to IMF terms, that bill just might win approval in a referendum.
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