Archives for category: Do the Euro United States exist?

I have been writing a great number of post of the non recovery of the Eurozone, when many economists, analysts, journalists, etc… kept saying that the Eurozone Recovery was there.

I have also issued many posts on France’s immobilism, commenting repeatedly that the Eurozone could not continue abiding with the fact that the second biggest economy in the Eurozone was at best stagnant and had declared that it would keep a too high deficit and indebteness until 2017 included.

Remains to be seen how the “new” European Commission acts upon receiving a 2015 French Budget which is totally non credible, having accepted the nomination (under questioning now) of Mr. Moscovici, the former French Minister of Finance and Economy, who was a major participant in France’s decay,, to the European Commissioner for Economic and Financial Affairs, Taxation and Customs post, where  if accepted, he would be “supervised” by budget hardliner, new VP Mr. Dombrovskis, in a”gesture” to assuage Germany who did not “want” Mr. Moscovicvi due to his bad performance during two years in France,

The Brussels’mammoth was already far too big, now Mr. Juncker in his new “organization chart (sic) added seven VPS  who will partly supervise some of the 28 Commissioners, always more high paid European “executives”, when the same Commission requests “austerity” from the Eurozone countries, who “supervises” the laxity of the European Commission?

Coming back to Eurozone “recovery”, I am referring to The Telegraph‘s 10/04/2014 article Hans-Werner Sinn: eurozone doomed to ‘decade of crises“, which I will quote (colored lettering is mine ), preceding quotes with my own comments.

My  Short Comments

Ifo’s President, Mr. Sinn, has resumed to a great extent what I have been writing in my blog since its creation in April 2011, this is why I colored a large part of the quotes.

From what he writes down to realty thre is an enormous “hole”, which I have severe doubts can be filled, even through one or two decades. 

I just do not believe in the “United States of Europe”.

The Eurozone was so badly construed since the beginning, that to “over do it” seems too unrealistic a task, because of the innate century long sovereignty that impedes “old” countries to redo themselves.

To aim for an economically integrated Euroizone is for me the “top”, and this, by itself, will be a long and hard process which requires a complete and drastic change in approach to opportunities and problems in European and Eurozone Governance.

This is the main reason for writing my book: “Why Macro Governance is Obsolete and is Killing the World Economy”, which was published in May 2014 as an e-book and in September 2014 as a paper version by Amazon, it is not about “sinistrose, and offers concrete alternative solutions for economic integration.

Quotes

Hans-Werner Sinn, the president of the respected German Ifo think-tank, says France could put the future of the single currency at risk and warns that the Ukrainian crisis threatens to trigger a “triple-dip depression” in parts of the bloc.

Hans-Werner Sinn said Europe was at risk of falling into a “triple-dip depression” because of the crisis in Ukraine.

The Eurozone is doomed to a decade or more of economic stagnation and civil unrest that could destroy the single currencif countries such as France do not implement vital reforms, according to one of Europe’s most influential economists.

Hans-Werner Sinn, the president of Germany’s Ifo Institute for Economic Research think-tank, said policymakers would continue to misuse capital to finance the higher living standards unlocked by joining the euro, while dragging their heels on reform.

“My prediction is not that the euro will fall apart, but that it leads to a stagnation and animosity even more than we see today among the people of Europe,” he said.

“You see this very strongly in southern Europe, where people face this mass unemployment, in France, where Marine le Pen in the polls has the strongest party and with Syriza in Greece which is presenting radical decisions and has the most support in the polls.”

In an interview with the Telegraph, Mr Sinn also warned that while the Ukrainian crisis would hit German growth, the pain for its neighbours, many of which rely on Europe’s largest economy, would be more severe.

“There is now a risk of a triple-dip recession in some southern European countries, if not a triple-dip depression.”

He warned that if French policymakers failed to implement the vital supply side reforms needed to stimulate growth, it could be the final nail in the coffin for the euro.

Mr Sinn said it was vital that France shrank its bloated public sector, which currently represents 55 pc of gross domestic product (GDP), by at least 10 percentage points.

“If France continues this way and doesn’t want to scale down and go through austerity, but rather seek Keynesian solutions, then they will threaten the stability of the eurosystem.

Of course borrowing at the moment gives us some Keynesian demand stimulus, which for a year or two may help, but it just postpones the necessary reforms and it exacerbates the situation in the long run.

“It is as if you are sick, need surgery and take drugs to numb the pain.”

Mr Sinn highlighted that many workers who had left France’s uncompetitive manufacturing sector now worked for the state.

“French industry has been dying for decades now. The share of manufacturing in GDP is only 9pc, less than half of what the German share is. The people who were set free from manufacturing, or their children, have by and large been absorbed by the government sector, which has now a quarter of the workforce, twice that of Germany.

“Hiding the unemployed in government offices is not a healthy solution.”

Mr Sinn recognised the task facing France. “It’s very difficult and I wonder if the current socialist government will be able do it, but sometimes it takes Nixon to go to China. In Germany we saw that only the Social Democrats under Chancellor Schröder at the time were able to carry out market-orientated reforms.”

Mr Sinn, who presents a bleak picture of the 18-nation bloc in his latest book, the Euro trap, suggests countries should adopt a “breathable euro”, where struggling nations could temporarily leave the single currency, write-off some of their debts, devalue, and then re-enter.

“Greece would have done better had they exited the eurozone in 2010, but not permanently,” he said. “The proposal is that the exit is only temporary and that the country stays legally part of the eurozone. It devalues its currency, carries out reforms and returns when it has recovered. I see this status of being outside the euro as a sort of hospital stage.

“The realignment of relative prices that Greece and perhaps other countries need cannot really be achieved within the euro because it would either mean astronomical inflation in the core or deflation in Southern Europe of an order of magnitude which requires so much austerity that society may fall apart.

“The whole point of structural reforms is that you become competitive.

What makes you competitive? You have to have prices which for a given type of product are not higher than elsewhere. The southern countries all inflated incredibly under the credit bubble that the euro brought them. This extra inflation now has to be undone.

“No dream of any politician can overcome this fundamental problem of having the wrong wages and prices,” he said.

What will the eurozone look like in 10 years?

He also said Germany should accept higher inflation in order to offset some of the pain in southern Europe.

“Germany could and should accept some inflation, but some deflation in southern Europe is also indispensable. Which southern European states are willing to live with that I do not know,” he said.

“According to Goldman Sachs a German inflation of 70 pc would be needed to make southern Europe competitive without price cuts there. That is 5.5pc annual inflation for ten years in Germany or an average inflation of 3.6pc for the eurozone. That is simply too much and not compatible with the mandate of the ECB.”

Mr Sinn advocates a “United States of Europe” in his book, and says that ultimately, the eurozone will have no choice but to integrate further.

However, he warned that achieving a common European state with equal living standards would be difficult. “I find it very unlikely given the difficulties we see today and I see growing animosity towards the European project. This is a big pity but I insist that Europe in the end has no alternative but to unite.”

 

After a series of sanction’s escalations which have had no effect whatsoever and if continued will only create “losers” all over (I wrote about 20 posts on this conflict since it started over 5 months ago), a preliminary agreement between Russia and Ukraine for natural gas delivery, now the US government (better said the US Secretary of Commerce – sic) calls on Ukraine  to implement economic reforms – “now”?…

I have several times mentioned that my blog is not “political”, nor are these comments, which I hope are taken as being as objective as possible, which I have by now made repeatedly on the Russian – Ukraine conflict.

My anticipated comments

Mrs. Pritzker, US secretary of Commerce, believes that she is Secretary of State (Foreign Relations), by making the statements she has done, see further on “News” please.

What, to me, is required, mil repetita in this blog, is that “top level” (Presidents / Prime Ministers and FO Ministers – not Secretaries of Commerce…) participate in a series of “global” meetings  to start discussing – all together – the alternative solutions to the now over 5 months Russia – Ukraine conflict, the meetings to be attended by all countries involved (Russia, Ukraine, a Separatists’ Eastern Ukraine representation, Europe (mainly Germany and UK ) and last but not least, the US, who is far less tradewise committed than Europe with Russia and Ukraine).

These meetings will put an end to innumerable rumors and declarations by not named spokesmen, and will significantly diminish macro volatility and confusion on this very important issue.

To implement drastic reforms in Ukraine, a country with per capita income of only 3900 USD (IMF source), for Ukraine to, maybe, join the Eurozone by 2020 (?), ressembles the troika’s (EU, BCE, IMF) “efforts” with Greece, which cost the Eurozone over 300 Billion euros, the cost going to be much higher for Ukraine.

The Eurozone, with Lithuania’s entry by 01/01/2015, will  have 19 member countries, and gets to be every day an excessively complicated and  badly “managed” area, and Ukraine’s demands to join will most probably end up like Turkey’s some years ago, which was non acceptance…

This US intervention could also be labelled as being intrusive, the US having “better” things to do, like (sic) conducting a well planned and intelligent fight with jidahism, the obvious number one priority, instead of meddling with the ex-USSR (Russia being a needed “ally” and not a “foe” (ready to start Word War III…) like hawkish advisors say to President Obam, and being able to intervene in the fight against jihadism), and thereby diluting its foreign affairs efforts.

Comparisons with the “Marshall Plan” are absurd, nearly 70 years later, the world has turned a “100 times” in between.

The News

The US seems ready to make investment in Ukraine, but the country must undertake difficult economic reforms, said in Kiev, Mrs. Pritzker, the US Secretary of Commerce, by making a parallel with the Marshall Plan.

“Ukraine is facing significant economic challenges,” said Mrs. Pritzker Saturday to the press after meeting with Ukrainian President Poroshenko, who announced on Thursday – 09/25/2014 – a series of economic and social reforms to modernize his country in the perspective of a membership in the European Union in 2020.

“These measures will be difficult but they can change the fate of your country,” said Ms. Pritzker, citing the Ukrainian economy marked by red tape, corruption and inefficiencies inherited from the Soviet era.

Ms. Pritzker, who is herself of Ukrainian origin, spoke about the American aid under the Marshall Plan in Western Europe after the Second World War.

The Marshall Plan “called for the adoption of a large number of reforms to open the economy to foreign investment and that is precisely the object of our discussions,” she said.

While commending the Ukrainian leadership for their “ambitious vision”, she felt that “concrete measures” were needed “right now.”

After the reforms, Washington will help popularize opportunities in Ukraine in order to “bring the private sector of the United States to this market,” she promised (sic).

Ukrainian Prime Minister, Mr.Yatsenyuk, recently acknowledged that his government had made ​​little progress in the fight against corruption, but put it up on behalf of the dispute with Moscow and pro-Russian conflict with separatists in the east.

Lithuania will be the 19th country to join the Eurozone by 01/01/2015 , an area who has a lot of problems already in integrating its current 18 member countries

This post is based on Todd Buell at todd.buell@wsj.com post of 09/27/2014, my personal comments are in purple italics, I have also underlined in blue parts of the quoted text .

Quotes

Lithuania’s looming entry into the Eurozone will shield the small Baltic country from geopolitical tensions in Russia and other parts of the world and open the door to higher standards of living, the country’s central bank governor said in an interview.

“Frankly speaking…we feel safer in the eurozone,” Vitas Vasiliauskas said in an interview with The Wall Street Journal on Thursday in his office in Vilnius, the Lithuanian capital.

Mr. Vasiliauskas, 41, has headed Lithuania’s central bank since 2011. When his country joins the eurozone on Jan. 1, he will become a member of the Governing Council of the European Central Bank, which sets monetary policy for the currency bloc.

Entry into the eurozone is an important step for the Baltic nation of just under 3 million, which gained its independence from the Soviet Union in 1990. Eurozone accession completes the country’s transformation from a Soviet planned economy to a capitalist economy, fully integrated into the European mainstream.

Support for the currency union has increased significantly in Lithuania recently. According to a recent European Commission survey, Lithuanian support for the single currency jumped 10 percentage points over a one-year period to hit 50% this summer. Another Baltic country, Latvia, joined the euro at the beginning of 2014. Estonia and Slovakia have also joined the currency zone in the past five years.

The eurozone has been able to add members even as its economy was ravaged by a pair of recessions since the global financial crisis. A debt crisis that began in Greece in 2010 and extended to Ireland, Portugal, Spain and Italy raised doubts about the currency’s survival in 2012. Those fears have since receded, largely due to the ECB’s commitment two years ago to purchase open-ended amounts of government bonds of vulnerable euro members, if needed, to prevent bond yields from reaching ruinous levels.

Mr. Vasiliauskas said that the volatile situation in Russia may make people warm to eurozone membership. “Yes, I think it makes an influence because membership to the eurozone means more integration and under current geopolitical circumstances, more integration means more safety.”

Still, “the Russian factor is only one of the factors if we are talking about safety,” noting that for his country it was beneficial to join the common currency to eliminate exchange-rate risk. “That is also a very important factor for us.”

The green is greener ouside of one’s “home”, this  is what transpires from Lithuania’s Central Banker’s declarations.

This blog has dedicated about half of its to date 1400 posts – directly or indirectly – to all the huge mistakes and immobilism of the so called Eurozone  techno bureaucratic “Governance”, which has not reached financial integration, is far from reaching social-economic integration, and in my personal opinion will never reach political integration. To add a 19th country will make it even more “complicated”…

The central bank governor, however, said that merely joining the eurozone won’t on its own arrest a decline in population that his country has experienced almost since its independence. Official data show that the population has fallen from about 3.7 million in the early 1990s to under 3 million today.

“Eurozone membership per se will not turn around (population decline), but it is an opportunity for economic convergence” (please refer to my above comments) he said. This brings with it the chance to raise standards of living and improve economic conditions, he said.

His remarks came only hours after ECB President Mario Draghi and other top European officials celebrated the country’s euro membership, and recent economic success, with a grand ceremony in a concert hall.

“In 2009 Lithuania’s [gross domestic product] declined by roughly 15%. Today, Lithuania is one of the fastest-growing countries in Europe,” said Mr. Draghi. “While Lithuania’s government deficit stood at 9.4% in 2009, last year it had fallen to 2.1% and is expected to decline further,” he added.

In a news conference later in the day, Mr. Draghi said that Baltic “growth-friendly” consolidation efforts sent “a powerful message to everybody else.” ECB officials have urged euro members to shrink their deficits in a way that doesn’t harm their economies by, for example, cutting taxes in a way that yields a high economic payoff and cutting state spending in unproductive areas.

ECB’s President, Mr. Dragui, with his obsessive monetarist expansion policies, has managed to allow major Eurozone countries, like France and Italy, to delay social-economic structural reforms, and given only artificial and temporary respite, the basic problems remaining practically intact.

Although Lithuania’s economy accounts for only a tiny share of eurozone GDP—its $50 billion GDP is about one-fifth that of Greece—its euro entry means significant changes in how the ECB functions.

Lithuania’s entry as the 19th euro member will, under European Union rules, trigger a new voting system whereby national central bank governors will vote on ECB policies on a rotating system.

Under current rules, each governing council member votes on ECB policies.

All this will make decision making even more difficult than it already is!

Mr. Juncker, the newly nominated President of the European Commission for the next five years, starting November 2014, will put into effect a new organization of, the call it, Financial and Economic Eurozone area, which seems rather “complicated” and I feel will not make decision making easy (?).

Mr. Juncker was head of the Eurogroup, which is composed of Eurozone Financial Ministers, for two terms of five years each, and resigned in 2013 before the end of his last term,the Eurogroup’s peformance during the crisis was far from being successfull.

While Mr. Moscovici has  been named to the Economic and Financial Affairs post, he will be “overseen” by Vice President, Mr. Katainen  for Jobs, Growth, Investment and Competitiveness and Vice President Mr. Dombrovski for the Euro and Social Dialogue.

As above commented, this “political organization” might make decision making even more difficult, in any case it will be more costly and create confusion and tensions in the EC, an example in “non organization” for all Eurozone countries, all this because of French “politicking” to “accomodate” Mr. Moscovici as  the “French ear” in the EC!

According to Open Europe’s 09/12/2014 post, which I will quote only partially, the “real” organization is as follows:

Quote 

We have already pointed out in our full response to the new Commission that, contrary to popular belief (at least in some quarters in Germany), this does not necessarily change much – a lot of Eurozone rules are already set in stone. However, it is important to delve a bit more into who has what powers or controls which areas?

Katainen’s key responsibilities:

  • Helping bring together an investment package to mobilise €300bn in additional public and private investment via the European Investment Bank within the next three months – expected to be discussed at tomorrow’s eurogroup meeting and unveiled soon.
  • Coordinating the mid-term review of Europe 2020 strategy and long-term EU budget.
  • Pushing economic policy coordination in line with view of “social market economy” while also pursuing a strong structural reform agenda.

Dombrovski’s:

  • Steering the ongoing reform of the Economic and Monetary Union and, importantly, in charge of pursuing the work of the four Presidents’ report on creating a ‘deep and genuine’ EMU. This suggests he will play a significant role in the bid to create a sounder eurozone and finding a way to marry the existing currency union with greater political union. It’s important to note that this will bring him into regular contact with Lord Hill who is responsible for banking union in the new Commission – exactly how the financial stability aspect and the eurozone prosperity aspect will fit together here will be interesting to watch.
  • Formal oversight of the European semester – the mechanism through which budget rules are enforced in the eurozone. Also tasked with reviewing the mechanisms for achieving structural reform.

Moscovici’s:

  • As might be expected there is significant overlap with those above. He has also been tasked with handling the European semester. It is expected he will handle the day to day evaluation and, in cooperation with others, will sign off on national budgets and reform plans.
  • The language around the Stability and Growth Pact is also in line with previous thinking, tasking Moscovici with making “best possible use of the flexibility that is built into” the rules.
  • The focus of this role seems to be on the macroeconomics and fiscal coordination of the eurozone. With that in mind, its expected Moscovici will attend Eurogroup meetings on behalf of the Commission.

Overall then, while France may have got what it wished for, Moscovici looks firmly shackled to two fiscal conservatives. None of his tasks relating to the Eurozone are separated from these two VPs. More broadly, as the FT has pointed out, Moscovici (a French socialist) is also severely ideologically outnumbered not only within the broader Commission but specifically in the economic and financial posts.

End of Open Europe’s text quote.

Mr. Moscovici was the former Minister of Finance and Economy of France, from the Hollande government’s initiation until March 2015, where he was not named anymore in the “new” French government.

He then campaigned with great vigor (sic) together with French President, Mr.Hollande and with the help of his “old friend”, Mr. Juncker, to become Eurozone Commissioner of Economic and Monetary Affairs, but see above his “real” responsibility….

He has been named and confirmed in this post on 09/10/2014, the same day that current French Minister of Finance, Mr. Sapin, changed for the umptieth time the 2014 and 2015 French deficit forecast to bring it to 4.4% in 2014, 4.3% in 2015 (same as in 2013) and declaring that to bring it down to the Eurozone, committed by France since 2012, “goal” of 3% of GDP, it would take France until … 2017.

Mr. Hollande made x promises about reducing unemployment, increasing growth, meeting the 3% deficit goal,etc…, throughout half of his 5 years’ term term, and did not keep a single promise.

Mr. Moscovici was one of the most important Ministers of his team and was directly involved in all this disaster over 2 years, and therefore directly part and at the origin of these unfilled promises.

Now  he will be the Commissionner who  will have to judge France’s new budget and deficit, but under the “supervision” of two VPs…!

Mr. Juncker when asked about Mr. Moscovici ‘s credibility, he said that he had the advantage of knowing all the past French  failures, this is proof of great cynicism! 

To me, This is going over the limit, the Eurozone Governance has overdone itself, and is being  shameless and “political” (the latter has always been true).

What credibility can, Mr. Moscovici have to “judge” France’s economic and financial policy (?) – None, that is why the 2 VPs “supervision”!

Anyhow, the French government is “planning” (sic) to let the deficit “go”, the 3% Eurozone ratio on GDP “goal” is being pushed forward to…2015 (!), because there is no margin within this totally mismanaged economy to respect the, anyhow, “obsolete” Eurozone 3% goal deficit.

If so and accordingly, Mr. Moscovici, by himself, will have to take no decision (a great relief for him!), it will be taken by the two VPs who “control” him, it will have been made by “his” former government, and the French proposition will most probably be approved with “severe” restrictions”, and we will see how all this “new organization” works out!

Eurozone zero growth in July 2014 needs additional analysis, please refer to my 08/14/2014  (yesterday) post:Eurozone’s growth in 2014 2nd Qtr. was zero due to Italy, France, Germany” with Eurozone’s now “official” growth zero in July 2014 – some additional short comments on the “Why”s  of such a stagnation, when many supranational “organizations” were forecasting limited growth, as well as in France.

As already mentioned in several posts in my blog, I never believed that the Eurozone was “in Recovery” because, quite simply, seeing economic facts, one after another every month, macro data was getting worse (in general).

Eurozone”s total, and uneven by member country macro data:”total” unemployment including under employment, deficits, growth, indebtedness, etc…, all told a negative “story”, but since “politicking ” and short-term sightedness prevail, there were  a number of undue “optimists”, who frequently before crass facts, like zero growth inspite of Germany (which represents about 25% of Eurozone’s GDP), change minds, until the next time…

France

EC, IMF and France halved the original 1.0% GDP growth objective France was committed to, down to 0.5% from an “intermediate” growth forecast of 0.7%. I believe  that unless some unpredicted development happens, like the total and effective settlment of the Russia – Ukraine “conflict”, that growth in France, if any will be minimal (lower than 0.5%)?.

At the same time, the deficit objective,already several times changed for 2014 will now not be 3.8%, but is “estimated” to exceed 4.0%, which it will for sure.

No growth ingriedients are included in President’s Hollande “agenda”, other than the not trasparent benefits derived from a “Responsibility Pact” which, if so, will really start by having effect mainly in 2015, but then most people, including me, do not understand how the 50 Billion euros savings over 3 years will be attained, which due to lower or no growth makes the needs even higher.

No social-economic structural reforms are planned, nor for labor flexibility to make working easier which would attract investment to France, nor for the size (very – relatively – small adjustments) of the government’s apparel, nor for decreasing extremely long in duration unemployment benefits, nor for eliminating unproductive subsidies and not continue piling new subsidies on top of existing ones, etc…

Since there is no growth, taxes collected are and will be lower and most probably the government will have to break its twice “firm” promise to not increase taxes and or charges.

So, this makes France’s President blame the Eurozone’s management, and indirecty its “de facto” leader, Germany, for trying to extract too high austerity for countries in need of growth, and not propose alternative solutions for Eurozone growth, like the x times mentioned and refused Keynesian methods of Eurozone infrastructure investments to reduce Eurozone unemployment.

Accordingly (sic), France’s big argument is that their problems are – basically – Eurozone’s ones, and more precisely Germany’s “responsibility”, like what is happening to his (former?) partner in such “negotiations”/ “argumentations”, Italy’s PM, Mr. Renzi, whose economy is in contraction (minus 0.2%) in the 2nd Qtr. of 2014.

Mr Sapin, French Minister of Finance, said that France would now cut its deficit “at an appropriate pace” (sic) given the deteriorated outlook. “The truth is that, as a direct consequence of sluggish growth and insufficient inflation, France will not meet its public deficit target this year”, he wrote in the declaration made.

In my yesterday’s – 08/14/2014 – post I commented  on what I consider lack of “understanding” of the “dangers” of deflation: “Deflation “dangers” – Not the real consequence of this huge “new” crisis which is far from ended”.

Germany, in a very direct style declared, by Mr. Weidmann, Buba’s President and member of the BCE Governor’s Committee, that countries needed to take corrective action by themselves.

Germany’s economy, which provides more than a quarter of the Eurozone output, shrank to only 0.2%  growth in the 2nd Qtr. of 2014.

Also France continues requesting a drop in the Euro which Germany contests, since the DM / Euro parity “arranged” when the Eurozone was created, was convenient to Germany…

Mr. Sapin continued declaring economic growth in 2014 would not be much higher than 1% (?) compared with a previous forecast of 1.7%, and  said that “all this” called for a review of European / Eurozone policy.

This being one of three leimotivs in my blog since its creation in April 2011 (now being close to 1300 posts published):  Eurozone’s ineffective Governance, you can read about 300 – 400 posts in which I refer to this, either directly or indirectly,with concrete proposals as to approach and “modus operandi”.

I also published a book: “Why Obsolete Macro Governance is Killing World Economy”, early May 2014 with Amazon / Kindle as an e-book, and to be published by Amazon – CreateSpace in August / September 2014 in paper back version.

This book was written in order to be able to expand on the subjects which, to me, are relevant to be able to allow countries and supranational organizations to “function” more effectively and keeping up with XXI Century requirements.

 

This must be about 30th post in this blog referring to the first Russia / Ukraine conflict, where the US inmmediately intervened pushing for sanctions, which have now escalated 3 times and been finally accepted at a lower degree by Europe / Eurozone who is ten times more tradewise  – energy imports – committed to Russia than the US.

This process is due, personal opinion, to the fact that US President Obama, low in popularity, has been pressurizing Europe / Eurozone  for mostly “political” reasons, since President Obama thinks that the US population can better identify to “fighting” (not militarily) a “known” as “bad” (childish terms) entity – Russia – forgetting that Russia was an “ally” in World War II, the US government being, seemingly, uncapable of developing a realistic and not dispersed Foreign Policy with regard to the “real” problems which are in the Middle East, especially Irak with the persecution of Christian population, ISIS, and infiltration of terrorism into Europe and also the US.

This seems a far more “appropriate” targeting of US efforts than to continue with escalation of sanctions, which will not last long, and has and will have an increasingly deterioration of economic conditions, not only in Ukraine ( IMF is considering giving more aid) and Russia,but also in Europe and the Eurozone.

President Putin’s longstanding “plan” is to re establish the ex – USSR union, and I believe that Russia has no ex USSR expansion politics and therefore is far less dangerous to the West than all the califats and terrorists  -ISIS – movments which are definitely totally worldwide “expansionst”!

I believe and have commented so a great many times  since the beginning that the Russian problem can be solved with intelligent negotiations, not” reactivism” as has been the case since the beginning,  at now urgent “top level” (President / PMs – FO Ministers) meetings, attended by Russia, Ukraine, a representation of the Ukraine Separatists, Germany and UK representing Europe, and the US.

This blog is totally non political, it concentrates on this issue / large conflit because it has extremely important economic consequences, which relate to all countries / areas involved, and will be increasingly so, the US being far less impacted by this whole conflict.

 NYT‘s 07/29/2014 article: “Coordinated Sanctions Aim at Russia’s Ability to Tap Its Oil Reserves”.

I will quote (bold/colored lettering is mine) most of this long article, interject specific comments of mine in purple italics into the quoted text, my general comments will be short, most of them having been made at the beginning of this post. 

You can read the entire article (the below version omits only the last four paragraphs) by clicking on above link, or reading it entirely after “more” at the end of this post.

General Comments

Once more the European Commission / European Council had their “big idea”s.

They must live in a world of their own and listen (attentively this time for once…) to the US, and got carried away with sanctions which will have enormous costs in the near – medium and maybe even long -term future, but then they are “reactive” and” short- term”, this has proven to be the case always in the last five years, at least…

Quotes

The United States and Europe kicked off a joint effort on Tuesday intended to curb Russia’s long-term ability to develop new oil resources, taking aim at the Kremlin’s premier source of wealth and power in retaliation for its intervention in Ukraine.

In announcing coordinated sanctions, American and European leaders went beyond previous moves against banking and defense industries in an effort to curtail Russia’s access to Western technology as it seeks to tap new Arctic, deep sea and shale oil reserves.

The goal was not to inhibit current oil production but to cloud Russia’s energy future.

The new strategy took direct aim at the economic foundation of Russia, which holds the largest combined oil and gas reserves in the world.

The growth of the oil industry in the last two decades has powered Russia’s economic and geopolitical resurgence since the collapse of the Soviet Union and enriched allies of President Vladimir V. Putin. Russia pumps about 10.5 million barrels of oil a day, making it among the largest producers.

“The biggest edge that Western energy companies still have is their technological edge — that’s why these sanctions have the potential to have significant impact,” said Michael A. Levi, an energy expert at the Council on Foreign Relations.

“Chinese companies can’t step in and provide shale technology where U.S. companies are blocked. They can provide capital; they can provide people. They can’t fill in on the technology front.”

The technology cutoff could be important because Russia is only now at the early stages of developing new Arctic, deep sea and shale resources. Most of its current production comes from depleted Siberian deposits that will eventually run out. And several Western oil companies have been working with Russia to expand their resources.

ExxonMobil has a joint venture with Rosneft, the state-owned oil giant, to develop Arctic oil, and is scheduled to start drilling in the Kara Sea within weeks. BP, which owns 19.75 percent of Rosneft, just signed a joint venture with the Russian firm in May to search for shale oil in the Volga-Urals region.

Even though BP announced higher quarterly profits on Tuesday, its stock was hammered by the sanctions news, falling 3 percent. BP warned investors bluntly that further sanctions “could adversely impact our business and strategic objectives in Russia.”

Dan Yergin, chairman of Cambridge Energy Research Associates, said the new energy measures underscored how much ties had deteriorated. “A year ago, Western collaboration with Russia’s energy sector was one of the bright spots in what had become a dour relationship,” he said. “No longer.”

The carefully orchestrated actions on both sides of the Atlantic were intended to demonstrate solidarity in the face of what American and European officials say has been a stark escalation by Russia in the insurgency in eastern Ukraine.

Until now, European leaders had resisted the broader sorts of actions they agreed to on Tuesday, and their decision to pursue them reflected increasing alarm that Russia was not only helping separatists in Ukraine but directly involving itself in the fighting.

They are “meant as a strong warning,” Herman Van Rompuy, the president of the European Council, said in a statement on Tuesday that was joined by José Manuel Barroso, the president of the European Commission. “Destabilizing Ukraine, or any other Eastern European neighboring state, will bring heavy costs,” the statement said.

For sure that will bring in”heavy” costs, but the future costs with all these “ideal” proposals (which is usual for the EC and EU – and have all failed in the past) will be much higher, and anyhow, several large (oil – see above). companies)  will manage to find “ways” to continue doing business with Russia

What will happen with the two  French Mistral helycopters sold to Russia, one ready for delivery and paid by Russia as alleged (?), the other starting construction and occupying hundreds of workers, for total revenue for France of 2.2 – 2.4 Billion euros?

They were left out of the escalation, that is the “first hole”  in many to come!

President Obama said Russia’s economy would continue to suffer until it reversed course. “Today is a reminder that the United States means what it says, and we will rally the international community in standing up for the rights and freedom of people around the world,” he told reporters on the South Lawn of the White House.

Mr. Obama said the fact that Europe was now joining the United States in broader measures meant the moves would “have an even bigger bite,” but in response to reporters’ questions, he said it was “not a new Cold War” between the two countries. He also made clear he was not considering providing arms to Ukraine’s government, as some Republicans have suggested, as it tries to put down the pro-Russian insurgency.

“They are better armed than the separatists,” he said. “The issue is, ‘How do we prevent bloodshed in eastern Ukraine?’ We’re trying to avoid that. And the main tool that we have to influence Russian behavior at this point is the impact that it’s having on its economy.”

The American and European actions were intended to largely, though not precisely, match each other. The United States cut off three more Russian banks, including the giant VTB Bank, from medium- and long-term capital markets and barred Americans from doing business with the United Shipbuilding Corporation, a large state-owned firm created by Mr. Putin. The Obama administration also formally suspended export credit and development finance to Russia.

The European Union (EU) adopted similar restrictions on capital markets and applied them to Russian state-owned banks. It imposed an embargo on new arms sales to Russia and limited sales of equipment with both civilian and military uses to Russian military buyers. Europe also approved new sanctions against at least three close Putin associates, but did not identify them publicly.

European governments moved ahead despite concerns that Europe would pay an economic price for confronting the Kremlin more aggressively.

While their actions went far beyond any previously taken against Russia over the Ukraine crisis, they were tailored to minimize their own costs. The arms embargo, for instance, applies only to future sales, not to the much-debated delivery by France of Mistral-class helicopter carriers that resemble bigger aircraft carriers.

And the energy technology restrictions do not apply to Russian natural gas, on which Europe relies heavily.

Those who prepared – most probably the European Commission / European Union (?) – all this “esoteric” stuff must think that the Russian are defenseless (sic), they should realize that Russia will menace with  blocking exports of natural gas and sell more to China and in Asia, they are notall that”stupid”…

The new sanctions could take effect as soon as Friday, though the necessary legal formalities would most likely to take longer to complete, officials said.

It will not happen so fast…

 

Read the rest of this entry »

Mr. Juncker was appointed and confirmed this week as President of the European Commission (EC).

Mr. Juncker had done two five years’ terms heading up the Eurogroup without obtaining any results, but performance is not what counts, he finally resigned end of 2013, tired since his tenure encompassed the height of the European financial and sovereign debt crisis, which is not finished.

So, it not “fresh blood” that will direct the EC...

Mr. Juncker got the job after “huge” lobbying, they are very good at this, because he belongs to the EPP (the European People’s Party) winning party in the European Parliament recent elections. He had no worthy competition, because this”game” is played by ex-incumbent “members” and is therefore a “closed game”.

So do not expect that this EC will act differently than Mr. Barroso’s one, it will be techno bureaucratic, with a  great number of badly prepared “summits”, quarterly evaluation “books” and forecasts, all wrong in the past, because the EC has no “field ” knowledge, it gives directives out of Brussels and sends the “troika” (EU, BCE, IMF), hated everywhere, to do “audits” which always turn out to be unsatisfying because the goals fixed were totally unrealistic and timing of such even more unrealistic.

Because I think that this whole Eurozone Governance is doomed, as well  many big countries Governances, this made me start my blog – macrovolatility.com – in April 2011, with over 1200 posts  at date, many very repetitive.

I started writing a book, not as a compendium of my posts, but with clear guidelines and leitmotivs, called “Why Obsolete Macro Governance is Killing the World Economy”, published as an e-book by Amazon / Kindle early May 2014, and shortly I will publish with Amazon a “paper version” of same.

This book is pragmatic and not full of esoteric and unpracticable “ideas”, it offers concrete and detailed alternatives to be considered for Governance, Social-Economic Structural Reforms to diminish gradually but significantly the number one priority: “Total” Unemployment ( “official”/published one – plus under employment, where the real problems reside), reduce enormous Indebtedtness, etc… in order to drastically change the “modus operandi” and approach to opportunities and problems of most “Western” – Europe and US – governments.

As an example of current “Governance” inefficiency, I will present a true and very recent “anecdote”:

As part of a tour covering, say Italy, Mr. Sapin, French Minister of Finance, was Thursday – 07/17/2014 – in Berlin, where he was received by his counterpart, Mr. Schäuble. This is the second time in a few weeks that he visits Berlin.

In April, 2014 he came to present the outline of the Responsibility Pact, that has not advanced an inch in the meantime, as all the grandiose projects presented by France (and the EC), which imply other countries, since the French Government cannot establish its own social-economic policies.

“Today is not a process but decisions that I have come to present,” Mr. Sapin grand eloquently said.

The German government is skeptical about the reforms initiated by President Hollande and the reality of the savings to be made.

Mr. Sapin, once again came to give “pledges” (???): the amended Finance Act which provides 4 Billion euros of less spending (how?), the  50 Billion euros planned “committment”, which nobody understands how it can be fullfilled, in savings until 2017, and especially 21 Billion euros that will be provided in the next budget, which have not been explicited either (!).

All this was based on 2014 French GDP growth in 2014 of 1%, whereas the INSEE ( national statistics office) forecasts 0.7% – and it will be less most probably .

Mr. Schäuble reiterated that Germany was committed to “a strong France.” Translation: a France that has managed its reforms. If the French government is ready to do his part, he hopes to return a little more European commitment to growth. For France, Germany must participate in the investment effort.

At the turn of the conversation, the two ministers also discussed the composition of the new European Commission, and  the nomination of Mr. Pierre Moscovici as “European Commissioner for Economic and Monetary Affairs and the Euro”, Mr. Rehn’s former job, who had already been one of the worse performers in the EC, but Mr. Moscovici might just beat him…

The former French Economy and Finance Minister (sic), who achieved nothing other than “talk”, was removed in 2014 from the French Goverment to lobby for the key post of Economic Affairs.

He has the backing of EC’s new President, Mr. Juncker, a great friend of his…

But the Germans are questioning the relevance, as a symbol, to put in command of economic issues the representative of a country that does not respect the Maastricht criterias.

This is already becoming “funny”, Germany and France, early in the Eurozone “game”, were the fitrst ones to deviate from the 60% of GDP indebtedness “rule”!

Therefore, a better “criteria” to nix Mr. Moscovici, is because ot total lack of competence for the job ,but that is secondary and that is why the Eurozone will go under if the Governance does not change, because if not, it will painfully “survive” and gradually become less wealthy and its foreign trade will go down consistently.

Le Figaro.fr/vox/economie//07/16/-2014’s article: Economic crisis in Europe: we are up against the wall”.

By Emmanuel Sales, published 07/16/2014, translated by me, Mr. Sales is the CEO of Financière de la Cité, a management company portfolio.

I will quote (bold/colored lettering is mine) the entire article, interject some of my specific comments into the quoted text with bold purple italics, and precede quotes with my own comments .

My Comments

Very short, please refer to my specific comments – in bold purple italics – under the quoted text.

I will repeat the last comment:

All these above quoted comments are only “talk” unfortunately, they  clearly show what makes most of Europe (especially France) retrograde, they continue thinking that they are number one, dynamic, leaders in world trade, etc…, they do not react, because basically for “political” reasons no change is really “wanted”…

Nobody wants to change (!) – including Germany.

Germany is and will find its evolution outside of Europe, but will suffer from having far more competitive, aggressive and even, in some cases “devious” trade partners than in Europe, while making social-economic benefits allowances to the SPD, their “Grand Coalition” partner, which will diminish its worldwide competitivity.

I just published – early May 2014 – an e- book with Amazon / Kindle called “Why Obsolete Macro Governance is  Killing the World Economy”, which took me over 2 years, and is not a compendium of my blog. It offers concrete alternatives for drastic changes and approaches  in Western (Europe / US) Governance. It is written in basic “English”…, with no “economists’ jargon..

Quotes

For Mr. Sales, the Eurozone cannot solely rely on exports to cause the return of growth in Europe.

The European situation is the result of a historical error diagnosis on the nature of the economic shock. Financial turmoil originated in the United States’ uncontrolled expansion of money and credit. Crisis is the monetary and non-budgetary origin. This is the recovery of bad bank loans by the US which resulted in a surge in public debt in the Eurozone.

This is an easy “way out” (!), it pushes aside all the mistakes made in the Maastricht Treaty about the creation of the Eurozone and its modus operandi, ignoring fully that all the member countries were in very  different stages of evolution, with very different tax structures and social-economic situations, and that due to huge differences in history, ideosyncracies and mentality were far away from any Political Union.

Instead of acting on decreasing Debt, the United States and Great Britain growth favored the short-term risk of letting slip the euro.

Eurozone leaders (there were none, other than Germany’s Mrs. Merkel) preferred to engage in long-term policies (which ???) by supporting the weight of the adjustment to households and domestic banks.

This strategy today shows its limits: mass unemployment settled in, credit contracts and debt is increasing in all countries in crisis. The prospect of being unable to take over global growth weakened the Eurozone, and gave rise to growing divergence between the International Monetary Fund and European authorities.

Even more, conflicts were and are permanent between “strong” Nordic and “weak” Southern countries including France with latter, and also between Eurozone member countries and the European Commission, the latter having been totally ineffective; and dominated by Germany, the only really affluent member country and “de facto” leader of the Eurozone.

This techno bureaucracy will most probably not change much with Mr. Juncker’s (twice chief of the inefficient Eurogroup) confirmed appointment as President of the European Commission.

This “circus” continues with the political negotiations between member counties of having one of the important 18 (one per country…) Commissioners’ nominations, it being more than possible, that French ex-Finance and Economy Minister, dismissed from the French Govenment for (not “officially”) incapacity some months ago, might get the apparently important role of “European Commissioner for Economic and Monetary Affairs and the Euro”, so much for that!

German Renaissance echoed in France a spirit of decline particularly prevalent among the ruling classes.

In this drama, the French leaders on all sides have a special responsibility. After the shock of reunification, Germany, in order to boost its exports, led a solo reform policy away from the single currency. Literally mesmerized by the “German model”, the French politico-administrative elites supported the application of the same methods throughout Europe without seeing everything that Germany owed ​​its partners.

At the German Renaissance echoed in France a spirit of decline became particularly prevalent among the ruling classes. so long that the people of Europe are locked in this gloom, disenchantment has become their second nature.

In this situation, what to do? 

First rebalance the European project. Europe, said a great writer, is a balance, a swarm of people. The European institutions are built around a post-war torn Germany, which naturally sought an alliance with the West facing the hegemonic pretensions of the Soviet Union.

With German reunification, return to the center of the continent from an economic and commercial power obviously changed the meaning (???) of the European project. RFA’s Adenauer looked westwards to Europe. Today’s Germany is turning more towards the open sea, to China and the United States, where their most important  customers and interests reside

This mercantilist orientation meets the aspirations of the electorate heritage of the major parties of government. But for the European continent, it is a “Holzweg” this beautiful German word for the paths that lead nowhere.

Europe is the world’s largest economy. Its strength lies both in the dynamic domestic market in its trade with the world.

It cannot, without danger, sacrifice its future to foreign markets, moreover exposed to shifts in US monetary policy.

Rather than inviting all European countries to follow the same national model, better to go towards reducing imbalances within the Eurozone, promoting the upturn in demand in northern Europe, releasing unused energies in France and Southern Europe.

This has now been the object of “forty… Summits” since the crisis started, with no results whatsoever!

For this strategy to succeed, it is necessary to give more leeway. Major European bankers continue to think that restrictive policies are the best answer to the “balance sheet recession” due to the financial crisis. The idea is that economic actors should go through a period of deleveraging, before growth becomes established on a sound basis.

This too has been the object of innumerable discussions since two years between IMF, the European Commission, the Eurozone countries, etc, with, once more, no results whatsoever!

European monetary authorities are often referred to as the “good deflation” that preceded the rebound Scandinavian economies at the turn of the 1980s. However, the current crisis can not be compared to localized recessions of Suède9 or Denmark.

For the above strategy to succeed, it is necessary to give more leeway. Major European bankers continue to think that restrictive policies are the best answer to the “balance sheet recession” due to the financial crisis. The idea is that economic actors should go through a period of deleveraging, before growth becomes established on a sound basis.

The general impoverishment left a huge stock of outstanding debt, the amount, a percentage, is equivalent to the situation after the two world wars. How can we imagine to bear this burden on future generations, for decades? How to persist in conduct deflationary policies in an open world where the major economic zones seek to depreciate their currency? Either the debt is worn for twenty years, at the risk of sacrificing the forces and jeopardize sanitation hoped; either we take our losses, by having the creditors down the road.

This is like “smoking opium”, who really believes that the ex – Eurozone will “forgive” huge debt incurred, it’s totally theoretical – and definitely not realistic!

Europe needs a political power.

Continental mentality imbued Roman law, traditionally hostile to the latter option. Yet at the level of a country, this solution is sometimes the only way to ensure the maintenance of social order, provided that the leeway obtained are not wasted. The stabilization of the franc in 1928, the monetary reform in Germany in 1947, the creation of “heavy franc” in 1960 are outstanding examples of successful stabilization.

Finally, Europe must have a political power. In terms of accounting and prudential standards, trade, she must assert its rights. Strategic and financial interests are not those of the United States, any more than those of Russia, it is obvious.

Reality has proved, since the Eurozone was created, that no member country will give up an inch of sovereingty, that is how the “cookie crumbles”, unfortunately…

Men act, said Jean Monnet, that when placed in front of the empire of necessity. Classical federalism technocratic remedies will not suffice to rebuild confidence. If the elites do not make a step forward to provide concrete answers, the European institutions will collapse by themselves. Parties “sovereignist” can rejoice, however, marginalized states they will inherit will become satellites rising powers.

All these above quoted comments are only “talk” unfortunately, they  clearly show what makes most of Europe (especially France) retrograde, they continue thinking that they are number one, dynamic, leaders in world trade, etc…, they do not react, because basically for “political” reasons no change is really “wanted”…

Nobody wants to change (!) – including Germany.

Germany is and will find its evolution outside of Europe, but will suffer from having far more competitive, aggressive and even, in some cases “devious” trade partners than in Europe, while making social-economic benefits allowances to the SPD, their “Grand Coalition” partner, which will diminish its worldwide competitivity.

 

“Politicking” and “musical chairs “has started in the European Commission, now presided by Mr. Juncker, the usual bureau tecnocrat, as nominations for the 18 Commissioners ‘ posts are up for grabs, and not competence.

The worst example is that of former French Finance Minister, Mr.Moscovici ,who is regarded as the frontrunner to replace the very inefficient, Mr. Rehn.

Mr. Moscovici totally failed in his job in France and was not reconvened in the “new” French government.

As “consolation prize” he might be “kicked upwards / promoted” ( he has been  lobbying like mad since months) and might be made Economic and Monetary Affairs Commissioner, to “give directives” !!!

His biggest “competitor” is ex- Finance Minister and Eurogroup Chairman Jeroen Dijsselbloem from the Netherlands. who has very little experience in Economy and Finance and did not distinguish himself in the Cyprus affair when taxing bank deposits.

This is what UK’s Chancellor, Mr. Cameron has been radically fighting, all this incompetence, but he cannot have his cake and eat it, he wants to be decisionary but refuses to give up now exaggerated past arrangement in favor of the UK in the European Commission Budget. 

Nothing is going to change, unless other – concrete – alteranives are considered

Please refer to my early May 2014 e-book , published by Amazon / Kindle named “Why Obsolete Macro Governance is Killing the Word Economy”, it offers new and concrete (not esoteric) alternatives, worthy considering I believe.

 

Is Germany responsible for the Eurozone “mess”?

Please refer to “Irish Independent’s” 07/06/2014 article: “Responsibility for flawed design of eurozone rests with Germany”, which maintains that “Responsibility for flawed design of eurozone rests with Germany”.

I will make quotes (bold/colored lettering is mine) and precede quotes with my own  comments.

My Comments

Having carefully read below article, it is an indictment of Germany for having done the structural reforms over one decade before than all the other, now, 18 Eurozone countries.

The initial statement is rather “strange”, quote:” The EU will be led out 
of the current mess 
by Germany or it will not be led at all”, 
says Colm McCarthy.

If so, why not close all the Eurozone mammoth”non” organizations which house, all together, more than 40 000 employees of different levels and remunerations!

Sure, Germany profited from a favorable euro / DM parity, but even before that Germany’s GDP motor: Exports, had developed well over the other Eurozone countries due to the kind of products they sold and impeccable delivery and service.

Did Germany have the authority to “govern”Europe, which “de facto” they did, first in a duo with France, until France declined so much that it was Germany alone?

Point is, that the nomination of the extremely expensive supranational “non organization” mammoths were done by all countries, like this time.

It continues being some sort of a musical chairs’ game, with a so called elected European Commission President, representing the most voted party in European Parliamentary elections, of a totally inefficient European Commission and now 18 Commissioners, one by country(!) independent of size and economic value / potential (!!!) will be nominated, with all countries seeking the best possible nomination for their own interests, case of France seeking an “important” nomination for Mr. Moscovici, who greatly failed as France’s Minister of Economy and Finance since Mr. Hollande was elected, and lost  his job when the government was changed some months ago.

Are these “winners” (sic), the “people” who are supposed to “govern” the Eurozone, a bunch of bureau technocrats with no idea of how to be pro-active and dynamic, purely procedural, sitting in their offices and convening meetings with Eurozone governments’countries, to give erroneous directives with even worse timing, which is what they did since the “big crisis” began,which is far from being finished.

Is Germany faulty for all this? 

Had and have all – 17 now – the other Eurozone countries no “rights”?

Why is it that only the UK resisted Mr. Juncker’s nomination (twice President of the Eurogroup which did nothing) because of their notorious ineficiency which will not change an iota from Mr. Barroso’s “non reign”?

Sure, when the crisis started, the first thing they, the other 16 Eurozone countries at the time, all did, was to request financial assistance from Germany, the European Commission and European Council (a doubling up which does not justify itself), being “silent”…

Germany, having gone through all the efforts of  their reunification and taxing “Wessies” to help ” Ossies”, was very  reluctant, politically speaking, to help  one more time, countries who had obviously mismanaged their own economies for a long time, and which wanted financial relief, but were politically-internally not ready to do the “real” structural reforms (not “reformettes” for “make up”), mainly on labor flexibility, that Germany had done. 

Germany is not able to “direct” the Eurozone because its way of doing it, is to apply the same methods they applied to themselves to these  Southern “peripheral” countries, and now France. As an example of what should not be done, refer to the “Golden Rules”, about three years ago, which, pushed “pure austerity” and heavy taxing only, finally.

Germany is a rigorous, disciplined and constitutional country, whereas the above mentioned countries have a very different mentality and require a different approach to make them change, this is why the Macro Governance of the Eurozone has to either change drastically or clearly “disappear”.

This has been the leitmotiv of my blog – macrovolatility.com – and will continue being so.

In order to not repeat myself a “thousand” times, which is very boring for everybody, over two years ago I decided to write a book: “Why Obsolete Macro Governance is Killing the World Economy”, which resumes all these topics – for Europe and the US –  and has been published as an e-book early May 2014 by Amazon / Kindle, with a price  of 10.41 euros, and being able to be downloaded to various media if you no not have a “Kindle”, paying the price of the book to Amazon.

This will not give me”fantastic”revenue (sic), but the great  satisfaction of, maybe influencing some decisionary (politicaland not political) people by proposing concrete solutions and /or alternatives, to be reviewed, discussed and, even, maybe, decided upon!?

Quotes

The EU will be led out 
of the current mess 
by Germany or it will not be led at all, 
says Colm McCarthy

German Chancellor Angela Merkel with Taoiseach Enda Kenny during an economic forum in Berlin last Thursday. She promised to assist in Ireland’s ‘impressive’ reform efforts, but didn’t list which reforms she found impressive. Photo: AP

Germany has, by common agreement, had rather a good eurozone crisis (sic). Output in Germany in 2013 was 4.2pc ahead of the figure for the pre-crisis year of 2007, which does not sound too exciting until it is compared with the other two large eurozone economies, France, where output grew just 0.6pc and Italy, where it fell 8.7pc.

For the 18-member eurozone as a whole, output in 2013 was 2pc below the figure six years earlier – the longest downturn since World War II. The debt-ridden peripheral countries have done uniformly badly – in Ireland, output in 2013 was down 8pc on the pre-crisis level; in Spain almost 6pc down; in Portugal almost 7pc and in Greece there has been a horrendous 24pc contraction. 

Germany’s debt and deficit numbers look much better and this relative outperformance has been accompanied by increasing influence in European decision-making.

But the sun has smiled on the Bundesrepublik in other ways too. In the decade before the bust, Germany accumulated a large international creditor position through running big annual balance of payments surpluses, becoming a sizeable net holder of foreign financial assets.

A financial bust can be painful for creditors as asset values fall and borrowers default. This time round, the distribution of the losses from the bust has been creditor-friendly, particularly in Europe, as taxpayers in various countries were bailed in to protect domestic and foreign creditors of their failing financial companies.

The US government also rescued some Wall Street banks and insurers whose failure would have been costly to the German banks. If the worldwide financial crisis had been resolved through the distribution of losses to savers and investors, as in textbook capitalism, rather than to taxpayers in debtor countries, Germany would have taken a substantial hit.

But the perception has somehow been cultivated among the German electorate that they have ‘rescued’ the peripheral eurozone countries, notwithstanding the bailout of unwed and ill-designed common currency area. They have watered down and delayed proposals for the creation of a proper economic and monetary union.

Ironically, the design flaws inEMU Mark I are largely Germany’s fault: the European Central Bank in particular operates to a rule book based on the Bundesbank model, and it is no accident that its headquarters are in Frankfurt.

Responsibility for joining the eurozone rests with the governments which chose that course, as does responsibility for loose macroeconomic management thereafter; responsibility for the flawed eurozone design rests largely with Germany. The flaws have been recognised by some German politicians but there has been no admission of authorship.

This makes it hard for people to endure lectures from German economists and politicians about fiscal rectitude, market discipline and ‘reform’ in peripheral countries.

Germany wrote the rule book, has benefited therefrom and has resisted reform where it matters – that is reform of the flawed eurozone structures. Any meaningful reform would include market discipline (losses) for unsecured bank creditors, so the German memory loss looks self-serving to those who have compensated creditors for unwise investments in dud banks.

Enda Kenny’s most recent visit to Berlin last Thursday produced further effusions of goodwill from Angela Merkel and her colleagues in Germany’s CDU party. The Taoiseach addressed the CDU’s economic council, earning the following bromide from the chancellor: “Our task in the coming years is to show people in Ireland that the difficult path they took was worth it”, which is kind of hard to beat for sheer vacuity. According to the Irish Times, the chancellor pledged to assist in Ireland’s ‘impressive’ reform efforts, without listing the reforms which she found impressive. Aside from raising taxes and cutting expenditure, most observers in Ireland find it difficult to discern much serious reform intent in the Government’s performance to date. Perhaps Merkel regards fiscal tightening and reform as pretty much the same thing.

The secretariat of the European Parliament is seriously unimpressed with Germany’s own progress in implementing reforms. A report released last week considers the implementation by eurozone countries of reforms recommended by the European Commission in 2011 and 2012 under the so-called European Semester process. Out of 32 recommendations addressed to Germany, just three have been implemented in full. Work is under way to deal with a further 12, while nothing at all has been done regarding 17 recommendations, over half the total.

All countries to which recommendations were addressed (the list did not include Ireland, then under a Troika programme) have done poorly, but Germany is well down towards the back of the class, as is France. Areas in which Germany has done nothing include bank restructuring, the elimination of tax wedges which discourage employment, tax discrimination against second earners, educational reform, energy costs and the promotion of competition in the professions.

That is to say, Germany has failed to implement reforms in areas where it seems to be advocating reform for others. Yesterday, a report on Ireland from the Bundestag’s finance committee offered yet more free advice, including finger-wagging about bank supervision, a field in which Germany’s own performance through the crisis has been less than stellar.

Before convicting Germany of a narrow and hypocritical pursuit of its own interests in dealing with the eurozone debacle, it is worth considering what reactions in this country might have been if the boot was on the other foot.

Suppose for a moment that Ireland’s economic policies had been cautious and careful over the decade leading up to the crisis and that the banks had stayed solvent. Suppose further that various southern-European countries had encountered serious trouble and were seeking assistance.

It is not hard to imagine that populist Irish politicians would have shown no great concern for their plight, and would have offered lectures instead of help. This is pretty much what has happened in Finland, for example.

But Germany is not just a larger version of Finland and the relative decline of French influence means that the European Union will be led out of the current mess by Germany or it will not be 
led at all.

The semi-detached approach adopted by the 
United Kingdom, consequent on its non-membership in the eurozone, has made this inevitable.

The problems of the European Union extend beyond the common currency mess but the construction of a durable and soundly based monetary union is the key task.

Six years into the crisis, Germany’s immunity from the downturn appears to have translated into a refusal to accept any responsibility for leading the reform effort.

In appealing for relief from odious bank-related debts from the European Union’s rescue fund, appeals routinely deflected by that body’s spokespersons, Ireland looks to be flogging a dead horse. Anyway, it appears to be the wrong horse.

The rescue fund and its EU-level predecessors do not appear to have set out to impose improper costs on Ireland or to have strayed outside their legal mandate. The same cannot be said for the European Central Bank which, under Jean-Claude Trichet twice prevented Irish finance ministers from imposing haircuts on holders of unsecured bonds issued by bust banks, including banks already closed down. It is widely assumed that this policy enjoyed the support of the eurozone’s largest members, France and Germany. Ireland’s unfinished business over bank-related debt is with the ECB and not with the EU rescue fund.

The European sovereign-debt crisis has been averted for now, courtesy of the ECB’s credible threat to support sovereign bonds directly in the secondary market.

Borrowing costs for the troubled eurozone governments have declined sharply and there is plenty of happy talk about recovery and a peaceful exit from crisis.

There is not so much hard evidence of actual recovery, though.

Debt levels remain hugely overstretched in the periphery and the prospect remains of a prolonged further period of stagnation. The rate of unemployment in Europe remains almost double the figure in the United States.

Most worryingly, there is no evidence of urgency about developing a macroeconomic strategy to accompany the common currency with which most of the EU countries have encumbered themselves.

After the Second Punic War, Rome imposed on Carthage a draconian peace, divesting it of its colonies and enforcing a permanent tribute to Rome. The current calm in Europe has all the appearance of a Carthaginian peace.

There was, inevitably, a Third Punic War.