Irish Economic Policy: ‘Suddenly, German is Being Spoken in Europe’ edition

What’s the problem for democracy? The budget still needs the support of Parliament to pass. Irish sovereignty isn’t infringed here. Nor is it if Germany decides democratically not to pay for Irish debt if Ireland doesn’t do other things. Last I checked, nations do not have to be nice to each other to respect sovereignty, and even Rousseau admitted that promises to other nations were not constraining on the sovereign but rather products of their freedom.

At what point do we start calling the current setup the Fourth Reich?

A Europe in which Germany is both the paymaster and the taskmaster is not going to be a happy Europe…

If Germany is the paymaster, it gets to be the taskmaster. Those two go together. Of course, if you don’t want their money, you don’t have to accept their rules.

@David Wright

Surely you’re going to expand on this in a manner that isn’t entirely vacuous?

Of course, if you don’t want their money, you don’t have to accept their rules.

Oh, so that’s how monetary union works. Oddly, I don’t remember them emphasizing that part in the run-up to the euro.

This is reminding me of Derek Hatton: https://en.wikipedia.org/wiki/Rate-capping_rebellion
The aim of European integration was surely always to transfer power to the centre, wasn’t it? This is what you wanted, no? So national governments end up like local councils, with centrally constrained budgets and narrow limits on what policies they are allowed to pass. Whereas all the people demanding better democratic accountibility before integration were dismissed as xenophobes.

Look, democracy relies on an implicit third person plural: we pay our taxes so that we may recieve those services we have decided to provide publicly. The extent to which people feel that solidarity makes a big difference in how social-democratic a country can go.

What I’m hearing from Europe meanwhile is “we won’t pay for their pensions” and “they need to get their house in order”. The solidarity between Germany and Greece isn’t there.

There’s a darker side to that solidarity too: it limits whose police can act against whom. American police beating up American demonstrators doesn’t force American bystanders to take sides. White police versus black demonstrators, or British police against Irish demonstrators, now that’s the sort of thing that forces everyone to take sides in the ensuing violence.

What’s going to happen when a group of Greek and Italian demonstrators decide to #occupybundesbank and gets smacked down by German police?

I dont care if they are more progressive, less progessive, more nice, love puppies, or what.

I didnt vote for them.

I dont vote for Merkel, yet Merkel can call and ask for a change of MY COUNTRY CONSTITUTION and our politicans bend over to do it.

I dont vote for Van Rumpoy, yet he can ask if it would be a good idea to take out the vote of countries that not comply with rules put up by unelected officers.

If I had know that my support for European integration would end up being a support to be ruled by unelected technocrats and Berlin & Paris interests without any meaningful participation from anybody else, I would have said FUCKING NO to this “integration”.

Right now, it is not even possible to reject being rescued. Or ask the question to your constituency, ask Greece. We are trapped in a maze of Very Serious People that somehow both know what we have to do and dont need to sell it to us , and in fact consider us a bothersome barrier in the way of actually running the world as it should be – by unelected, unaccountable technocrats that only answer to 1 country.

Its either more democratic integration or dissolution. This, this is not acceptable, and at some point is going to blow. If “Germans” dont want to pay for “Europe”, we dont want to be ruled by Germans. If we are an union, then we are an UNION, not a bunch of client states and banana republics

‘gay rights’ rather than ‘ga rights’. I don’t know what Obam’s position on the rights of Georgia is – though he’s probably against them.

I do see this as unfortunate but I am not sure why – per Henry’s claim – it will not be a sustainable political equilibrium. Some countries more or less dictating to others, sometimes using international institutions as the middle man, is quite a frequent outcome in world politics.

David Wright 11.18.11 at 4:42 am

” If Germany is the paymaster, it gets to be the taskmaster. Those two go together. Of course, if you don’t want their money, you don’t have to accept their rules.”

Adding on to cian’s remarks, David, it’s going to be very, very hard for Germany to maintain an durable good exporting economy if the rest of Europe is poverty-stricken and/or in the political garbage heap. What’s happening now is the financial elites in Germany, the UK and France are sucking the lifeblood of the rest of Europe; this will reduce demand a lot. When the economy shrinks by 10%, what happens to durable goods purchases.

And the start of this was the deliberate destruction of wealth by those same finanical elites through quite forseeable malinvestment, because the elites were skimming large bonuses for their ‘productivity’.

Nice observation by the FT:
http://ftalphaville.ft.com/blog/2011/11/18/753461/sprechen-sie-deutsch/

Friday’s quote du jour comes from German paper Frankfurter Allgemeine Zeitung and its interview with Irish prime minister Enda Kenny.

First question – “Mr Irish prime minister, do you speak German?”

Answer: “I can only say good day, but my children are learning.”

Oh, the unintended irony.

I’m also amazed by the blatant Hun-bashing on this thread. Do you guys just imbibe this stuff with your breakfast over there? Why are Irish people, above all, so ready to buy into British formulations of hatred toward other nationalities?

it’s going to be very, very hard for Germany to maintain an durable good exporting economy if the rest of Europe is poverty-stricken and/or in the political garbage heap

Is that a fact, though? Surely there is a whole lot of other places to export.

British formulations of hatred toward other nationalities

I got the impression that they kinda respect the Germans, but hate the French.

Is that a fact, though? Surely there is a whole lot of other places to export.

Its where an awful lot of their exports go. I have the number 50% ratting around in my head, perhaps erroneously. Certainly a massive part of their exports. Not something you can easily replace, especially when your economy is export led like Germany’s is. And they’ve already forced a round of deflation onto workers – debatable whether they can keep doing that,.

I got the impression that they kinda respect the Germans, but hate the French.

It depends on whether you think UK tabloids adequately represent British opinion. Neither is as true as it used to be, plenty of British people are francophilic (middle class), most probably don’t care either way. I doubt its a subject most youngish (under 40) British people give a lot of thought to. Its like the food – times change.

Pete 11.18.11 at 2:21 pm

” “deliberate destruction of wealth” Really? What specifically do you mean by that and do you have figures?”

Did they or did they not run up a massive housing bubble and sell vast quantities of allegedly low risk instruments which failed like tissue paper in the rain?

For example, do you think that the big banks loaning money to the Greek government didn’t have a very good idea of that government’s true financial state?

Hektor Bim 11.18.11 at 1:53 pm

” The current situation is not sustainable, but then, lots of current situations are not sustainable.”

” I think it is worthwhile rereading Kennan’s long telegram today. No one power can dominate Europe. The British, French, Germans, Russians couldn’t do it and they still can’t. We’ll see what happens.”

The USA spent a few decades somewhere close to that, please remember.
And many of the attempts you mentioned were called ‘wars’, and were unpleasant to be around during. If Southern Europe is bankrupted, whether they leave the Euro or not, life will be worse for them for decades.

Lemuel Pitkin 11.18.11 at 3:01 pm

” According to Eurostat, in 2007 Germany had E620 billion in exports to the rest of the EU, and E340 billion to the rest of the world. So closer to two-thirds. On the other hand, by 2010 exports to tehr est of the EU had fallen to E580 billion, and rest-of-the-world exports were up to E380 billion. So there is some reorientation toward other markets going on, but they have a long way to go.”

That still means 60% of their exports are intra-EU.

I don’t see at all what any of this has to do with “hun bashing”. I read Henry as bashing the Irish government as much as the German one. After all, Germany cannot in fact force the Irish government to keep the budget secret from the Irish people while sending it for approval to Germany. It’s a European coalition of capital against the rest of us, and of course German capital (being the strongest in Europe) is at the center of it. As a German I don’t feel bashed by this rather banal observation, since I have nothing in common with German capitalists beyond a shared language.

In the course of reading this thread, I’m tempted to say something simple-mided, like all wars are culture wars. Still, when I think of how long the American South remained undigested after the Civil War (and we’re only now beginning to realize just how undigested) it seems to me that arguments over whether politics or economics is the key to European salvation are in some way beside the point.

The European crisis befuddles those seeking a technocratic solution not so much because the technocrats can’t agree, or because the demos hasn’t been adequately prepared for the difficulty of negotiated sovereignties, but because the Germans, the French and the peripheral countries in the Euro simply don’t see eye to eye on what their mutual relationships are, or in fact need to be.

The Germans would like to be considered primus inter pares, but they don’t want it to cost them what it necessarily must cost them. The peripheral countries don’t want to be dictated to, but a number of them have overlooked the cost of contenting themselves with dysfuntional national governments. Both are just about out of time, and they’re still talking about the nastinesses they’ve always despised in the national cultures of their neighbors. A U.S. citizen like myself has no moral authority, certainly, to give Europeans advice, but perhaps a public expression of sympathy wouldn’t be considered out of place.

Yes, and I’d bet that outside of the EU, Germany is facing stiff and rapidly increasing competition from China. Which means that reorienting to a extra-EU export economy means taking a colossal hit – short-term and long-term.

@Lemuel Pitkin
Thanks for the link.
inf
@Watson Ladd
Maybe the NYT counterpoint by Silverberg helps to clear up some of the confusion:
http://www.nytimes.com/2011/01/19/opinion/19iht-edcounterpoint19.html?_r=1&ref=deflationeconomics

@christian_h
A point which Flassbeck has made again and again. In terms of wages and inflation only France has got it right. In this recent article he has a nice graph on the unit labour cost divergence in the eurozone (figure3).
http://flassbeck.de/pdf/2011/August2011/IntereconomicsAug2011.pdf

The collapse of the euro would make Germany uncompetitive in the way Ireland or Italy are today

What on earth are you talking about? There’s no reason whatsoever to believe this is true. German capital is in a much stronger position than Italian, let alone Greek capital. A collapse of the Euro would of course damage German industry just as it would the industry of the other European countries, and indeed that of the other major centers of international capitalism. But the belief you seem to have that markets of German corporations would then be all taken over by… who exactly… is not supported by any fact. International capitalist competition cannot be reduced to geopolitics.

In fairness to Hektor Bim, although there really hasn’t been any “hun bashing” on this thread it is rampant in parts of the media, sections that an outsider might mistake as being reputable.

http://www.independent.ie/opinion/editorial/diplomacy-is-a-stock-set-to-soar-2537997.html

I don’t think this is neccessarily one way however, look at the use of the term pi(i)gs, so forgive me if this newly found north european sensitivity leave me cold.

It should be added that the one tiny hint of “hun bashing” I detect is the entirely misplaced faith that it is German (and French, as French banks are even more exposed to Greek and Italian debt) pressure that makes peripheral governments engage in savage austerity, rather than national capitals (<– not the cities, the collection of capitalists) acting in collaboration with pressure from the outside to neo-liberalize economies that have so far escaped that transformation. Those here who (just guessing) voted for Irish Labour or other centrist options should ask themselves whether this was the right decision.

“What can the result be, other than a breakup of the Euro? It’s not that Italy (for instance) won’t acceded to German demands, it’s that Italy can’t.”

Italy isn’t Greece. Italy can collect enough taxes to pay for its government output. It can’t collect enough taxes to pay for government output PLUS its old bonds if rolling over the bonds ends up taking place at a high interest rate. It doesn’t really need to acceed to anyone’s demands unless the bond rates get too high. But if that happens, default/exit starts to look attractive compared to crazy levels of government cutbacks. (Because then at least you get to repudiate the debt, and the pain gets shared across the eurozone rather than concentrated just on your country.) The downside is you risk banking collapse, but the slow run on Italian banks that is already happening makes that downside risk look less bad (because the run is happening already).

Apologies for posting in two threads, but this does seem on point here: Wolfgang Schäuble, as quoted in the New York Times

http://www.nytimes.com/2011/11/19/world/europe/for-wolfgang-schauble-seeing-opportunity-in-europes-crisis.html?pagewanted=2

bq. “There is a limited transition period where we have to manage the nervousness on the markets,” Mr. Schäuble said. “If it is clear that by the end of 2012 or the middle of 2013 that we have all the ingredients for new, strengthened and deepened political structures together, I think that will work.”

bq. He sees the turmoil as not an obstacle but a necessity. “We can only achieve a political union if we have a crisis,” Mr. Schäuble said.

The only thing that makes sense to me is for Germany to want human capital, engineers and nurses, to migrate from South to North, and work there for lower wages than the native workforce. This would help also with the aging demographic problem.

So we have a form of colonialism, with the resource to be extracted from the deliberately impoverished colonies to be not minerals or oil, but young professionals. Alpine crossing instead of Atlantic crossing.

There is more to be worked out, like how to get the immigrants entrapped in Germany.

“….there was a surprise tax on pensions in the last budget. Had people a month’s notice of this, you’d have seen a large chunk of the tax base disappear.”

(I’m assuming that people have options to either monetize their pensions, or take other steps to make what is now a pension either untaxed or invisible to the state. Exactly why is not trivial, but I will forge ahead on suppositions.)

As a historian, I feel obliged to point out that budgetary measures that must be kept secret because otherwise many citizens will take steps that will negate their usefulness are REALLY BAD IDEAS. Indeed, there is no better prescription for popular revolt and civil war, historically, for at least two reasons.

First, because people do not like to be overtly deceived by their rulers, which is what this looks like. It creates a strong structural sense of ‘unfairness’, which is politically dangerous (far more so than immiseration per se).

Second, because any such policy requiring secrecy inevitably leaks in insider circles, who then DO get to do whatever it is that will evade the measure. News of such cheating inevitably leaks, and sharply intensifies the already significant sense of unfairness that sneak attacks on citizens’ property entails (and I say this as a liberal who supports sensible progressive taxation, just for the record).

A nice example took place in 1653 in Switzerland. The collapse of the wartime boom economy after 1648 hurt both cantonal finances as well as over-leveraged agricultural entrepreneurs. Several cantons (in collusion) decided to respond by devaluing their seriously degraded local coinage (each canton minting its own coins, but at set face values that tended to circulate in the whole region.) Naturally, a devaluation of old coinage is in effect a large (~30-40% as I recall) expropriation from those who HOLD the old coins. And just as naturally, insiders in Berne and Lucerne prudently divested themselves of such coinage in advance of the devaluation, which was supposed to be a ‘secret’ surprise so that no one could divest in advance of the devaluation.

The result is known as the Swiss Peasants’ War of 1653, which while like most of the many Swiss civil wars rather unbloody, saw the magistrates lose control of most of central Switzerland for several months.

Beware, oh Ireland!

Does Germany really want the PIIGS to get their act together and become trade-surplus net export economies?

What makes you think there’s a choice here? The old level of imbalance cannot be kept up. Germany knows that. So the goal is to fix this mess as cheaply as possible for Germany.

The old level of imbalance cannot be kept up. Germany knows that.

I don’t think she does. I think the German authorities are in massive denial on this issue, which may be part of the problem.

61:The old level of imbalance cannot be kept up. Germany knows that.

It is too easy to say “This can’t go on” without imagining what might replace it.

My question, is that even imagining a EU that manages a successful rebalancing, is the change in balance of payments politically viable for the core/North? What does a Sweden or Germany that is not a net exporter look like? What happens to those political economies?

Too many people are saying “This must happen” without helping me see what happens after that, 4-10 years down the line. If what “happens after that” is very bad or very difficult there may be more choices than we presume. Perhaps Germany is better off with a devastated periphery and finding new markets for their exports.