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

by Henry on November 18, 2011

This story highlights the political awkwardness of the current European political dispensation. The German Bundestag’s Finance Committee apparently knows more about the Irish government’s economic plans than the Irish public or, indeed, the Irish parliament. Nor is it very good at keeping the information to itself.

THE GOVERNMENT has complained to the European Commission over the release in Germany of a document disclosing confidential details about new taxes to be introduced in Ireland over the next two years. In a deeply embarrassing development the document – identifying austerity measures of €3.8 billion in next month’s budget and €3.5 billion in budget 2013 – was made public after being shown to the finance committee of the German Bundestag yesterday. … Germany’s federal finance ministry confirmed yesterday that it had forwarded troika documents to the 41 member Bundestag budgetary committee in line with its legal obligation under European Financial Stability Facility guidelines. … Taoiseach Enda Kenny said last night he had “no idea” how details of the forthcoming budget ended up being discussed in the Bundestag in Germany. “Let me confirm something to you, the Cabinet has made no decision in regard to the budget which is on December 6th,” he said, referring to the documents [sic] specific references to the budget.

Herr Kauder’s unfortunate turn of phrase aside, this is not a sustainable political equilibrium, either for Germany or for the states on the receiving end of EU-crafted austerity policies. The politics of the bailout are embroiling the national politics of different European member states in ways that are likely to increase distrust and unhappiness in all of them. Nor is this going to get better without major institutional reforms at the EU level (assuming, of course, that the EU survives long enough to institute such reforms).

Skeptics of the need for ‘more Europe’ and in particular ‘more democratic Europe,’ have some excellent arguments. It’s extremely difficult to map out the political processes through which this could happen. But the ever-more-labyrinthine entwinement of different countries’ national economic politics with each other will be increasingly unbearable without some such changes. A Europe in which Germany is both the paymaster and the taskmaster is not going to be a happy Europe, either for Germany itself or for the countries entangled with it.

{ 62 comments }

1

MPAVictoria 11.18.11 at 3:39 am

What.
The.
Hell.
So much for democracy eh?

2

Watson Ladd 11.18.11 at 3:54 am

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.

3

rf 11.18.11 at 4:02 am

I really don’t see how there’s any future for the Euro politically, even if it was “economically viable” in the long term. Any reforms appear to be passing the problem onto the next generation. (At best) What does a Euro collapse mean for the EU? (Surely its very nature demands institutional progress)
I’m not saying this to troll but genuinely would appreciate the opinions of someone with far more expertise than myself.

4

Josh G. 11.18.11 at 4:07 am

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

5

rf 11.18.11 at 4:12 am

You’ll know when you see it Josh

6

David Wright 11.18.11 at 4:42 am

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.

7

Enda H 11.18.11 at 4:42 am

What’s the problem for democracy? The budget still needs the support of Parliament to pass. Irish sovereignty isn’t infringed here.

Ireland has remained largely in control of its budgetary policy as part of the bailout; the EU/IMF has set targets to be reached and Ireland decides how to get there. The Budget is intentionally kept from public view until its announcement in the parliament. (There are some good reasons for this: for example, 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.) The fact that a foreign parliament is looking through the budget prior to anyone outside the Irish government seeing it is an entirely new departure. Can you really not see how this might concern fans of Irish sovereignty?

Nor is it if Germany decides democratically not to pay for Irish debt if Ireland doesn’t do other things.

Germany is not paying off any Irish debt. Germany is insisting the Irish taxpayer pays bondholders of insolvent private banks. (By happy coincidence, many of these people who bought bonds in these crap banks are German.) So the Irish tax payer is handing over money to private German bankers, all the while the German tax payer is earning interest on the loan they’ve offered Ireland to do so.

If you’re of the opinion that this deal constitute Germany paying for Irish debt, I’d like to know if you personally have any debts and if you’d be interested in letting me pay for some of it.

8

rf 11.18.11 at 4:51 am

@David Wright

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

9

shah8 11.18.11 at 6:05 am

Don’t you mean “not authoritarian”, *rf*?

I’m not sure how much an Irish citizen should worry about this. This is late-stage capitalism. When the whole thing sags or finds another equilibrium of social and economic power, there will be major dislocations of all kinds.

10

mds 11.18.11 at 8:47 am

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.

11

Niall McAuley 11.18.11 at 8:54 am

I agree with David that this is no big deal.

It’s just the same as how the Governors of California, New York and the other Blue states regularly review the budgets of all the Red states before they are seen in the Red state capitols, and then they leak them to the press and make humiliating remarks about how they pay the piper, so they get to call the tune.

Right?

12

Pete 11.18.11 at 9:51 am

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?

13

J. Otto Pohl 11.18.11 at 11:09 am

Despite an historical hatred of Germany by self identified leftists due to the history of National Socialism, Germany today is a lot more progressive than many other European countries such as Holland, Sweden, or Belgium on a number of issues. From my own personal experience Germany is far, far ahead of Holland or Belgium in coming to terms with its colonial past. The German government is very eager for instance to fund scholarship on its colonial legacy in Africa, warts and all. This type of funding and coming to terms with the past is much less developed in most other European states. Belgium which oversaw the murder of more people in Congo than Hitler killed in Treblinka on the other hand does not seem to suffer any of the stigma that still adheres to Germany. Really do people at CT think that the current Dutch government is more progressive than Germany today?

14

Latro 11.18.11 at 11:39 am

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

15

cian 11.18.11 at 11:44 am

Otto, you know how when on the other thread when you went off on an irrelivant tangent you got called a ‘troll’. Well you’re going off on an irrelivant tangent again. The relationship of Germany to former colonies isn’t relevant, any more than Obama’s position on ga rights is relevant to the war in Afghanistan.

Its not a popularity contest, or who’s more progressive. Its about Germany’s relationship with other countries in the EU, and particularly (in the case cited by Henry) Ireland.

Now if you think that German bureacrats knowing more about Irish taxation plans than the Irish government is a ‘progressive’ thing, make the case. But if you keep sliding off into irrelivancies about how Germany is ‘best’, or leftists hate it, or whatever – don’t start complaining when people accuse you of being a troll.

16

cian 11.18.11 at 11:45 am

‘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.

17

cian 11.18.11 at 11:51 am

My guess, as a really poor analyst of Europe, is that this is going to seriously hurt Germany in the long run.

Economically, if the Euro splits up, then German exports are likely to become very uncompetitive. They’re already circling around recession.

Politically, is making everyone in Europe hate you a particularly effective geopolitical strategy? Currently its just Greece and Ireland. But Italy and Spain? Holland and France next? At what point does the EU start to become questionable?

As somebody who doesn’t know – is this really just German obsession with strong currency, or is this more about protecting the banks. As an outsider it seems like the latter.

18

otto 11.18.11 at 12:21 pm

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.

19

Pete 11.18.11 at 12:25 pm

At what point does the EU start to become questionable?

When questioning the EU doesn’t immediately consign one to the far right wilderness and the company of Nigel Farrage.

20

Barry 11.18.11 at 12:47 pm

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’.

21

dsquared 11.18.11 at 1:09 pm

What’s happening now is the financial elites in Germany, the UK and France are sucking the lifeblood of the rest of Europe […] 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’.

yes thanks, I am indeed enjoying my short break from the Internet.

22

chris 11.18.11 at 1:50 pm

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.

23

Hektor Bim 11.18.11 at 1:53 pm

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

The political crisis in Belgium isn’t sustainable, but it hasn’t collapsed yet.

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.

24

Hektor Bim 11.18.11 at 1:55 pm

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?

25

cian 11.18.11 at 2:06 pm

I’m also amazed by the blatant Hun-bashing on this thread.

Hmm. I can see one possible example of this with the joke at #4. What am I missing Hektor?

Why are Irish people, above all, so ready to buy into British formulations of hatred toward other nationalities?

Oh I don’t know, forced austerity being imposed by the Germans? The details in Henry’s post? No you’re right, it’s clearly irrational hatred. No reason for it at all.

26

Henri Vieuxtemps 11.18.11 at 2:16 pm

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.

27

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?

blatant Hun-bashing

This is what I meant by any dissent against European politics being considered the same as racism.

28

cian 11.18.11 at 2:30 pm

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.

29

politicalfootball 11.18.11 at 2:35 pm

Seems to me that David Wright speaks for both the German people and the German elites; moreover he’s right as a practical matter, if not as an ethical matter.

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.

30

Barry 11.18.11 at 2:58 pm

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?

31

Lemuel Pitkin 11.18.11 at 3:01 pm

Its where an awful lot of their exports go. I have the number 50%

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.

In general, I agree with those who think the German position makes no sense. Trade imbalances can be sustained indefinitely, but only if there are stable financial flows to go with them. The China-US dynamic is functional in a way that the intra-Europe dynamic is not.

32

Barry 11.18.11 at 3:03 pm

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.

33

chris 11.18.11 at 3:15 pm

@Lemuel Pitkin #32
“According to Eurostat, in 2007…”

Do they provide a time series? Do you have the link?
Thanks

34

Barry 11.18.11 at 3:31 pm

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.

35

Lemuel Pitkin 11.18.11 at 3:44 pm

Link.

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

Still around 60 percent. But slightly less than before the crisis. It may just be the result of falling incomes in Europe, though.

36

christian_h 11.18.11 at 3:46 pm

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.

37

Watson Ladd 11.18.11 at 3:51 pm

Maybe an economist needs to come here, but isn’t increasing Eurozone inflation going to also stiff workers by reducing real wages, while the bank recapitalization consumes investments? While looser money and monetization of debts might help Italy at some point, only increased spending financed by Germany directed at Italy can save it. Or am I just not understanding something basic about Keynes here?

Pete, the EU protects the rights of minority nationalities in Europe. This has frequently been a major bone of contention. France’s labor market regulations target the Roma. Opposition to European integration frequently mentions the loss of control over restricting muslims and Roma. The ECJ has frequently defended religious freedom. The future of the world will be stateless, and the EU is a step in that direction. Then again, one of my passports is far more valuable with the EU then without it, so I’m not a neutral observer.

38

William Timberman 11.18.11 at 3:54 pm

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.

39

cian 11.18.11 at 3:54 pm

Still around 60 percent. But slightly less than before the crisis. It may just be the result of falling incomes in Europe, though.

There was a boom in exports to China (machinery), but that seems to have fallen away in the last year or so. So probably a combination of the two. There seems to be increasing evidence that exports are falling to China.

40

Barry 11.18.11 at 6:01 pm

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.

41

Jeffrey Davis 11.18.11 at 6:06 pm

I don’t know the details of the various bailouts, but I hope they’re learning from the US efforts: recapitalize institutions and let the individuals dangle.

42

chris 11.18.11 at 6:08 pm

@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

43

Adrian Kelleher 11.18.11 at 6:50 pm

@J Otto Pohl

I agree with you about history in Germany, but the country will face practical problems of real severity if the EU ceases to be an effective vehicle for its interests.

The collapse of the euro would make Germany uncompetitive in the way Ireland or Italy are today, and it doesn’t have the same diplomatic latitude or network as the UK or France. In addition, all the old tropes about Germany would come to the fore: “Big enough for preeminence, not big enough for dominance”, “Germany and Russia come together over the grave of Poland”, and so on.

Having enjoyed ineffective opposition for years, Merkel has been revealed as a leader so hesitant that she has undermined her own position. Time and again her answers have proven inadequate and her efforts at enforcing prudence abroad have ironically have ended up costing Germans money.

Now the SPD are more brave than she. More tellingly, every living former chancellor has now made much more visionary statements about the crisis. Merkel has failed to offer any leadership at all — she follows public opinion. This has left her caught up in the self-serving narrative of events she herself has helped to establish, leaving her hamstrung at vital moments.

So if the fourth reich sneers seem painfully unfair now, imagine what they might be like with no functioning EU. Germany would be left beached like a whale in the middle of the continent. The UK, France etc. would dust themselves down and carry on unperturbed but this is not a possibility for Germany.

44

christian_h 11.18.11 at 7:06 pm

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.

45

Adrian Kelleher 11.18.11 at 7:08 pm

@christian_h

The New DM would skyrocket like the Swiss franc has done. The new punt, lire, drachma etc would all fall. That has to do with economics rather than geopolitics.

46

rf 11.18.11 at 7:09 pm

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.

47

cian 11.18.11 at 7:09 pm

Well they’d definitely lose some markets Christian, if only temporarily, due to the uncompetitiveness of the Deutschmark. In the long run I imagine you’d see German capital (even more than today) investing in countries with cheaper workforces. Probably not so bad for capital, but terrible for workers.

48

christian_h 11.18.11 at 7:12 pm

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.

49

christian_h 11.18.11 at 7:17 pm

Adrian (45.): Yes but this would of course be a temporary correction. The lack of international competitiveness of Italian and Greek capital is not merely a function of an overvalued currency. You might also note that Switzerland is not, in fact, in a recession. In any event you mentioned the “diplomatic latitude or network of the UK and France” in your original post, that made me think you were making a geopolitical argument.

50

Sebastian H 11.18.11 at 7:40 pm

“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).

51

Adrian Kelleher 11.18.11 at 7:40 pm

@christian_h

The “internal devaluation” which Greece, Ireland etc. are commanded to achieve has no independent existence from the concept of a devaluation. Devaluation is something which can be achieved overnight, but the “internal” variety has no basis in any sort of economic thought. It’s just a phrase to make economic disaster sound like it’s being managed somehow.

The conservative historian Michael Stuermer links German policies in the Imperial period with its geographical situation. Sonderweg proponents don’t like this argument, but it’s worth noting that countries’ strategic situations contributed to shaping political thought elsewhere. After a few iterations, the ultimate origins of political ideas become obscured, but it’s position certainly caused some in Germany to make an ideological virtue of necessity.

Now if Germany had been outside the EU, Nato etc. for 20 or 30 years — say if Stalin’s neutrality/reunification offer had been accepted — then it’s probable these issues would have been resolved. It’s quite a different proposition if it turns out the EU merely suspended their resolution instead of putting them to bed permanently.

52

Chris Bertram 11.19.11 at 2:36 pm

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.

53

Oliver 11.19.11 at 4:22 pm

In the long run I imagine you’d see German capital (even more than today) investing in countries with cheaper workforces.

But currency risks would return. That makes foreign investment less attractive, not more. Moreover, if you wanted cheap labor, there’s always Romania or Bulgaria.

54

bob mcmanus 11.19.11 at 5:01 pm

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.

55

bob mcmanus 11.19.11 at 7:21 pm

Okay, if the above seems a leap, my problem is in understanding Germany’s (North, France, Russia) medium-term goals.

Does Germany really want the PIIGS to get their act together and become trade-surplus net export economies? While Germany becomes a trade deficit net import economy? Believe it or not, this is a possibility, Germany essentially becoming a finance center like England and the US. But unlikely.

So what are the medium-term hegemonic goals/plan? Tell me this and I will look at the politics.

56

PQuincy 11.20.11 at 5:12 am

“….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!

57

niamh 11.20.11 at 1:31 pm

I agree with PQuincy @57 here. The sequencing of information availability this week has been embarrassing for the Irish government, not so much because of the content (most elements of which are in the public domain anyway), but because it underscores the contrast between the weak role of the legislature in Ireland and the strong oversight and scrutiny role it is able to play in other European countries (such as Germany).
Until the crisis hit, Irish governments carried on with the old Westminster traditions of ‘budget purdah’, in which only a select few were meant to know what the budget would contain, until it was revealed in a showpiece speech to Parliament. With no fiscal council to assess or advise, no backstop on checking the sustainability or wisdom of particular measures, no democratic forum in which the distributive impact of particular measures could be considered in advance, governments could make and implement policies which would prove to be really bad ideas. Think about measures such as, for example, dispatching branches of central government to rural towns, or tax incentives for property development that pump up the house price bubble and continue right through the boom, or the steady erosion of the income tax base and increasing reliance on construction related revenues which left the public finances so seriously exposed when the crash came.
The particular example cited here, about taking a scoop from private pensions last year, was itself justified in terms of the exceptionally generous tax treatment of pensions in previous years, which the new government now plans to curb. Not a good way to plan sustainable pensions policy for the long haul.
Ireland is taking slow steps toward more transparent fiscal policy processes in line with the pressure for better practices and greater accountability across the Eurozone as a whole. But political and institutional reform which would give real effect to these changes, and embed them in a more engaged and informed democratic legislature, is lagging badly.

58

Oliver 11.20.11 at 2:35 pm

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.

59

niamh 11.20.11 at 4:07 pm

Specifically on the publication of Irish budget plans as a result of their referral to the Germany Bundestag budget committee, I think this is an excellent summary of the reasons why it was quite inappropriate, made on irisheconomy.ie:

“It’s not a bilateral loan between Ireland and Germany. It’s between the Troika and Ireland. Enda Kenny, pre this unfortunate but unsurprising German political idiocy, said the same to Merkel on Wednesday – Ireland is in a program, has signed up to an agreement, and is meeting the demands laid down in that agreement. The Troika is supervising and analysing Irish measures and enaction of those measures, and it is happy. That is all that is required of Ireland. While the German courts have decided that the Bundestag should debate the contributions to the EFSF and what they are being used for, this does not necessarily necessitate them being given every document that has been provided to the Troika (as opposed to some headline numbers contained therein), and it certainly does not mean that the German Bundestag is entitled to leak it to journalists ahead of it actually being debated and enacted within the originating and ultimately deciding country. If the Germans want to play this game, I’d suggest they will find it very difficult to convince the periphery to yield more sovereignty to the core going forward. At some stage the Germans will have to realise that while they are the guiding force within the EU, they cannot simply do as they choose without there being some reaction from a periphery that is already struggling to keep their economies and societies together as-is.”
http://www.irisheconomy.ie/index.php/2011/11/17/vat-to-rise-by-2/#comment-194614

60

cian 11.20.11 at 5:10 pm

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

P O'Neill 11.20.11 at 9:23 pm

A year ago this week, there was much more intrusive external interference in Irish economic policy taking place — and not from a EU member:

On Friday, November 26th, The Irish Times reported that losses for senior [bank] bondholders were under examination, which surprised certain members of the cabinet. Markets responded badly, with European banks under heavy pressure and yields for Irish, Greek, Portuguese, Spanish and Italian bonds rising to record levels. Another teleconference of G7 finance ministers was convened, at which Geithner argued strongly against any losses being imposed on senior bonds and a succession of European ministers rowed in behind him. It was only after that meeting, say two well-placed sources, that the IMF pulled back.

62

bob mcmanus 11.20.11 at 10:08 pm

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.

Comments on this entry are closed.