This is a novel approach to getting the Greeks to do what the international lenders (aka the Troika) want: tell them that not only can they not choose their own prime minister, but if they don’t get their policies right, the eurozone will put their own commissioner in charge of making the decisions. Or else they won’t get the next tranche of their bail-out money.
What is this about? Naturally it’s caused Greek public opinion to explode in fury. The sober-minded middle classes can put up with with a bit of external intervention to break domestic political log-jams. And while the ‘technocratic’ government is trying hard to do what is asked of them, it’s found it difficult to fix the faulty revenue system and to make hard spending cut choices for an economy that is already contracting horribly sharply. But the historical and political insensitivity of the proposal leaves me astonished. Sebastian Dellepiane has reminded me that economists seem to find it all too easy to dispatch politics into the rubbish bin when they are convinced they have the right technical answers – see this amazing piece of finger-wagging to Argentina in 2002.
It seems so obvious both from economic theory and from empirical evidence that what Europe badly needs right now is a policy mix that will generate economic growth and facilitate job creation. The forthcoming EU summit is at least going to talk about this (though I’m not holding my breath). So why the heavy warnings?
Some commentators seem to think it is not really a warning shot to Greece at all, and not the start of a campaign to force them out of the eurozone, since this is still officially anathema. Rather it’s a warning of a particularly unsubtle kind (‘Germany doesn’t do “subtle” very well’) to other heavily indebted countries (Ireland, Portugal, Spain) not to think about going after a similar kind of PSI (private sector involvement) deal. All creditors in future are going to be repaid in full for everything. Now. Or else.
It’s hard not to be really dispirited by all this. Everyone except the top decision-makers in the EU seem to agree that it is damaging to require heavily indebted countries to undertake further crushing fiscal contractions in the middle of a recession, and indeed that trying to do intensive deleveraging without any growth might even itself trigger a debt explosion. The President of the World Bank thinks it is German’s responsibility to show decisive leadership in stimulating the European economy and generating growth. But with Merket beset by government colleagues criticizing her for ‘watering down’ the so-called fiscal pact, how likely is this?
{ 225 comments }
Barry 01.30.12 at 6:18 pm
“But the historical and political insensitivity of the proposal leaves me astonished.”
One can’t have sensitivity without feedback. These people loot, trash, and repeat, while hurting everybody else. They will not learn until they are taught.
SamChevre 01.30.12 at 6:23 pm
economists seem to find it all too easy to dispatch politics into the rubbish bin when they are convinced they have the right technical answers
I think this is a widespread feature of technocrats, not a specific feature of economists. See also: global warming–appropriate responses to.
Chris Bertram 01.30.12 at 6:27 pm
Seems there’s a general issue here and the Greece-specific one. The general one being German policy towards the periphery, its dreadful consequences and the moralizing story the Germans tell themselves, the specific one being that the Greeks really are more to blame for their predicament than the other countries. Where people are in a jam through structural problems that are no fault of their own then debt-forgiveness (and haircuts for the lenders) seems right. But where the political class has blown a ton of other people’s money on patronage and indulged decades of tax avoidance, it is hard to blame those other people for being reluctant to hand over even more money without some guarantees, and that inevitably implies loss of political autonomy. Of course the Greeks could just tell everyone else to sod off and maintain their political autonomy, but then what would they eat?
Steve LaBonne 01.30.12 at 6:28 pm
This would be bad enough if they were right, but it’s even harder to swallow when they’re not only wrong, but abysmally ignorant (as Krugman keeps reminding us) of crucially important past work in their own field, and of real-world data that refute their views decisively. Speaking of religions…
shah8 01.30.12 at 6:46 pm
The issue is class unity, and the use of credit expansion as a means of buying that loyalty from disparate elite classes. Now that further expansion is pushing the string, the socio-economics is melting down. The studied fecklessness we’re seeing is about fatalism without panic as of yet, because no icons are being thrown down, and no elites are being lined up and shot. This happens before every major geopolitical crisis, it seems, because such people are overly confident in alternative means of situational control (and besides, bad things *can’t* happen to them).
Since the 70’s, control of the credit markets (instead of gold, gunboats, ideology) was the key means of elite control of society, and absolute supremacy of the creditor viewpoint was the rock upon which such control is based. At the end of the day, though, economies still must be managed, and credit cannot be infinitely expanded. Sometimes, it even must shrink, and debt be jubilee’d away. However, if credit shrinks, the number of people who wields high power shrinks (as what we’re seeing in the peripheral European countries losing power to Brussels.) As it shrinks, every person on the periphery fights against his or her own loss of control, and calls on all the allies necessary to achieve that. Therefore, the process will be slow and drawn out, in the beginning of the process. Private credit holders of Greek debt against the ECB, for example. Thing is, something will happen, something will always happen (like the tsunami drastically aggravating Japan’s budget, trade, and tax issues), and people will need to wield power, thus society starts changing in a faster way. Trade barriers starts going up, tax subsidies start going away, and a much smaller pool of thought-to-be most necessary organizations will maintain themselves in a much smaller world, using some other currency-of-power-du-jour.
Geoffrey de Ste. Croix 01.30.12 at 6:58 pm
“Money! Nothing worse
In our lives, so current, rampant, so corrupting.
Money – you demolish cities, root men from their homes,
You train and twist good minds and set them on
To the most atrocious schemes. No limit,
You make them adept at every kind of outrage,
Every godless crime – money!”
– Sophocles, Antigone
The Raven 01.30.12 at 7:00 pm
Based on what we are seeing, Germany, I think, is not competent to lead the European banking and financial system, yet they are the ones currently in control.
Now what?
dsquared 01.30.12 at 7:03 pm
The thing is, this is what happens in a fiscal union. A lot of peripheral countries seem to be very keen on the concept of fiscal union when we’re talking about it representing permanent fiscal transfers rather than debts, but as soon as the implications for control of fiscal policy start being discussed, it’s all “sovereignty and independence”.
What we’re seeing here is Germany (and to a lesser extent France) beginning to recognise that the Greek loans are never going to be paid back, and therefore represent fiscal transfers, and trying to arrange some mechanism whereby the other half of the fiscal bargain can be kept. And as Chris says, after the forty year failure story of Greek politics, it isn’t obvious that fiscal independence has been a benefit worth having.
It is all very well talking in the abstract about the dangers of austerity, but Greece is, actually, running a large budget deficit which is being financed by the troika. Like an unpopular IMF program, the troika deal for Greece is making the adjustment problem better, not worse. If we’re going to be taking politics seriously, then I think anyone who wants to make that economic argument has to come up with a political argument about how it might be possible to transfer even more of German GDP to peripheral Europe, particularly if they are saying that this should be transferred in return for nothing at all in terms of political influence.
Steve LaBonne 01.30.12 at 7:11 pm
Well, you know, maybe both the central and peripheral countries should have thought of that before pushing the bizarre idea of fiscal union without political union.
Keith 01.30.12 at 7:13 pm
“Of course the Greeks could just tell everyone else to sod off and maintain their political autonomy, but then what would they eat?”
Ans: you can eat what you can grow or catch in the sea or import for barter if you have no money. Money is a social construct and it is only useful if it allows you to get richer which is the aim of political economy. see J.S. Mill 1848. Monetary systems like political ones may have to be junked and replaced by new ones, if they are failing to make the people subject to them richer or happier.
dsquared 01.30.12 at 7:14 pm
Yes. Although now that they haven’t and it’s ten years later, it seems strange to me for people to presume that the solution to that problem is simply more transfer payments from Germany to everywhere else, and that any such political union can’t involve any loss of independence on the part of the peripheral states. (And also that only peripheral countries have “politics” and that Angela Merkel’s fragile coalition government can do whatever it wants and only fails to do so because it’s being awkward).
NBarnes 01.30.12 at 7:26 pm
Is there a real reason to believe that absent domestic politics, Merkel would be more sensible? If that’s the case, then one of the core problems here is not German political elites but wanna-be German political elites and the German voter blocs that support them.
dsquared 01.30.12 at 7:28 pm
But if we’re going to “absent domestic politics”, surely it would make more sense to magic away the domestic politics of Greece?
Thomas Jørgensen 01.30.12 at 7:31 pm
Greece is a distraction. It is tiny, has problems not duplicated elsewhere and is therefore fairly irrelevant to the broader european economy. The problem is the rest of the periphery, and what they need from Germany is not more transfers, but more demand. In other words, what europe needs from germany is for germany to pay its cashiers, cleaningladies and hairdressers (the german service sector pays remarkably poorly, which is where the demand shortfall comes from) more so that they can drink vine with dinner, and knock off on holiday once a year. How, exactly, is this a difficult political sell?
Comrades, we must eat better cheeses! Drink finer wines, drive nicer cars, and party harder! This should not be politically troublesome change for the german government to institute.
of course, admitting that a decade of wage supressing politics was a mistake is embarrasing, but the alternative is rather a fracking lot worse than mere embarrasment.
Keith 01.30.12 at 7:40 pm
re: 14 That sounds good to me! More wine and party! But that misses the point “Comrade” the ruling class do not want poor German workers or British ones or American ones to enjoy life but to maximise exploitation. Austerity fits with a political view of people as commodities to exploit who must be cowed by fear and ignorance. The possibility that life might be about enjoying fine food or wine from other nations who could gain from trade is far too civilised. Next you will be calling for the eight hour day and paid holidays and welfare states and free health care etc. Quite out of the question.
otto 01.30.12 at 7:40 pm
“But where the political class has blown a ton of other people’s money on patronage and indulged decades of tax avoidance, it is hard to blame those other people for being reluctant to hand over even more money without some guarantees, and that inevitably implies loss of political autonomy.”
And there we have the 19th century imperialists’ justification for the Ottoman debt commission, European control of Chinese customs duties, and similar, which are the best parallels for the German demand that the Greeks constitutionally install this proposed European Commissioner for the Greek budget.
“loss of political autonomy”, “nothing at all in terms of political influence”
Er, I think Germany’s current situation vis-a-vis Greece does not amount to “nothing at all in terms of political influence”. Greece has already suffered enormous “loss of political autonomy”. The question is how far that should be taken.
Look, there are a variety of different aspects here. Some – indeed very large – loss of autonomy is the price of a bailout programme, no doubt. But the “loss of autonomy” concept should not be used to launder “colonial subjugation”, which is what the most recent German proposals approximate. They come from a right-chauvinist streak in German policy-making, rather than the functional demands of international lending per se.
Note that common views of leadership in international economics, often under the title of Hegemonic Stability or Embedded Liberalism, assume that the leading / lending states have incentives to accept a certain amount of losses and ‘non-compliant’ protectionist/defaulting autonomy by borrowing/developing countries. That was in many ways the US method post 1950 and is the standard to which Germany should be held.
MPAVictoria 01.30.12 at 7:46 pm
“Comrades, we must eat better cheeses! Drink finer wines, drive nicer cars, and party harder!”
I would like to take this moment to nominate Thomas Jørgensen for president of the EU on the “Drink finer wines, drive nicer cars, and party harder!” platform.
MPAVictoria 01.30.12 at 7:52 pm
dsquared aren’t most of the Greek debts in the form of private loans to banks and other such institutions? I presume that these banks charged a risk premium and were not lending out of the goodness of their hearts? If such is the case the Greek government should do what Atrios has been suggesting; namely refuse to pay. Offer the first debt holder to agree to terms 90 cents on the dollar, the next 50 cents and everyone after nothing. Problem solved.
marcel 01.30.12 at 8:04 pm
A couple of comments and questions for D^2:
1) A lot of peripheral countries seem to be very keen on the concept of fiscal union. I may have my history wrong, but I think you are here employing synechdoche, or rather its opposite. Rather than using a part to refer to the whole, I think you are using the whole (peripheral country) to refer to a part (its ruling elite).
Or, perhaps (and I am not intentionally being snarky here) you are here engaging in classic English understatement, and this is your point. If this is the case, my apologies for being a stereotypically obtuse Yankee blockhead.
2) But if we’re going to “absent domestic politicsâ€, surely it would make more sense to magic away the domestic politics of Greece? Again, I’ve been paying less attention that perhaps I should have been if I am going to comment here, but isn’t that what the EU is aiming for, first by insisting on replacing the last government, the one that reported the bookkeeping “problems” of the previous one, with the current technocratic government, and now with the attempt to impose an EU commissioner “for making the decisions”, in Niamh’s felicitous wording.
marcel 01.30.12 at 8:07 pm
The last couple of sentences in my previous comment disappeared when I clicked on Submit. They were:
Or, perhaps (and I am not intentionally being snarky here) this is your point and you are engaging in classic British understatement. If so, then I hope you will accept my apologies for being a stereotypically obtuse Yankee blockhead.
dsquared 01.30.12 at 8:26 pm
dsquared aren’t most of the Greek debts in the form of private loans to banks and other such institutions?
No not really, they’re the GGBs (Greek Government Bonds, not very poetically). And your suggested “take it or leave it” offer is unfortunately significantly more generous than the actual current offer to the banks.
genauer 01.30.12 at 8:38 pm
I think the German taxpayer has made it very clear, that he wants the exact opposite of what all these habitual slanderers like Niahm or Auerback are saying.
We do not want “Anschluss”, we want “Ausschluss”, we want to get rid of the giant vampire squid PIGS countries, sucking the poor German tax payers dry. Live your own life, what ever way you choose, but not from my money.
If you dont like the Maastricht treaty, get out, but stop stealing and lying.
There is always the point when people have to realize that they have to cut of the gangrene / diabetes limb. It is not easy, but it has to be done, and usually it should have been done earlier.
MPAVictoria 01.30.12 at 8:41 pm
“No not really, they’re the GGBs (Greek Government Bonds, not very poetically).”
But isn’t most of the debt held by private institutions not the German/French Governments?
The Raven 01.30.12 at 8:45 pm
There’s no question that the Greeks have a problem. But exactly how is wrecking their economy going to solve it? Is beating up the Greeks going to exorcise the demon of fiscal irresponsibility?
Other European nations also have a problem, which is that Germany wants to maintain a permanent positive balance of payments with them. That’s not going to fly at all.
Money. Makes hominids stupid. Krawk-k-k-k.
Stephen 01.30.12 at 9:20 pm
For an insular perspective, see: http://storyful.com/stories/1000019603
Particularly relevant to the Icelandic approach to the problem.
William Timberman 01.30.12 at 9:26 pm
Mmm…lest we run the risk of seeming unserious, someone must be beaten up. Since we can’t, without some inconvenience, beat up on Italy or Spain, we shall beat up on Ireland and Greece instead.
The logic of what Germany ought to do to Greece seems to me to be uncannily similar to the lately-debated logic of what NATO did to Serbia and Libya (and which of course, couldn’t be done to Bahrain, let alone to the Chinese in Tibet, or the U.S. in Guantánamo.)
As SamChevre and Steve Labonne have already pointed out above, even when technocrats are right, they tend to be insufferably self-righteous, and judged by the piles of corpses left lying around after even their most successful interventions, one could argue that they’re wrong often enough to warrant at least some concern from the less well situated.
politicalfootball 01.30.12 at 9:27 pm
But if we’re going to “absent domestic politicsâ€, surely it would make more sense to magic away the domestic politics of Greece?
Quite so, but can you actually magic away – or, more accurately, muscle away – Greek politics? What will happen when the German irresistible force meets the seemingly immovable Greek object?
Or does the Greek polity a.) really have no choice and b.) understand that fact.
dsquared 01.30.12 at 9:39 pm
Mmm…lest we run the risk of seeming unserious, someone must be beaten up. Since we can’t, without some inconvenience, beat up on Italy or Spain, we shall beat up on Ireland and Greece instead.
No, this is a really stupid way of thinking about it. Why are people assuming that the German government could provide literally unlimited transfers if it wanted to, and the only reason it isn’t underwriting the whole Greek budget deficit, at whatever level of spending Greece deems appropriate, is that it’s being awkward or wants to beat someone up?
This isn’t about that. There’s a finite amount of resources available to the German state. There’s a serious question of political legitimacy in Germany bailing out Greece, because German voters really don’t see the upside. Meanwhile, the Greek government doesn’t help its case by concentrating all the cuts on the most vulnerable in society, rather than, say, cutting the size of its army, or making more of an effort to collect taxes. And the Greek polity won’t even accept a moderate property tax. Meanwhile, everyone thinks that if they shout loudly enough about “bankers”, the problem can all be made to go away.
EWI 01.30.12 at 9:39 pm
“It seems so obvious both from economic theory and from empirical evidence that what Europe badly needs right now is a policy mix that will generate economic growth and facilitate job creation. “
War of Germany (or France) Versus Everyone Else usually works.
And there’d be enthusiasm for it right now.
otto 01.30.12 at 9:46 pm
“Why are people assuming that the German government could provide literally unlimited transfers if it wanted to?”
Who said that? And nb you have not really attempted to justify the central novelty of the last day or two, which is the German attempt to impose, 19th century imperial-style, a constitutionally privileged European budget controller on the Greek political system. Just saying Greece must lose some autonomy doesn’t get close to justifying such a monstrosity.
William Timberman 01.30.12 at 9:52 pm
dsquared, I suspect that we’re each of us overstating our case for a similar reason — to make visible an otherwise ill-defined object lesson in how not to think about these matters. For reasons of your own, you want to blame the stupidity of politics rather than the cupidity of international financiers. For reasons of my own, I’d like to point out the bad behavior you seem to blame equally on Greek rentiers, demagogues and lily-livered politicians was encouraged by the very virtuous German financiers — and yes, bankers — who were perfectly happy to let the Greeks be Greeks, as long as the interest payments kept rolling in. I’d say that there’s plenty of blame to go around, and that it’s far from stupid to assert that taking an attitude of if you’re not cop, you’re little people, isn’t going to help either the Greeks or the Germans in the long run.
Salient 01.30.12 at 10:00 pm
Money. Makes hominids stupid.
Not at all. The smartest thief masquerades as an incompetent butler.
niamh 01.30.12 at 10:03 pm
I really don’t mean this post to be a form of Germany-bashing. Or Greek-blaming.
There are excellent reasons for wanting assurances that loans are going to be well used.
I have two concerns though, about the current Eurozone priorities.
The first is that when a country has set itself on fire, presumably first you call in the fire brigade, and only then the police and the prosecutors.
The second is the wider issue about where the growth is going to come from to enable everyone to get past the risk of spontaneous combustion.
Seruko 01.30.12 at 10:11 pm
dont you see?
We must starve our trading partners, else how will they ever have the power to repay us?
Thomas Jørgensen 01.30.12 at 10:13 pm
DSquared: Again, Greece is beside the point. Greece is not the crisis. The crisis is the fact that the internal trade balances of europe make no sense because Germany exports so much more than it imports. This cannot be sustained, and there are two ways to end that imbalance – Either Germany can start actually buying things from the rest of europe, or Rest of europe can stop buying things from Germany. The second of those options would clearly be extremely destructive to german industry. The first option simply requires Germany to increase the living standard of the german people.
Which in no way can be considered an unreasonable imposition on Germany. There is no transfers asked, there is no desire to shut down german factories or even mildly cool off the german export machine, but quite simply a request that germany buy things, and germans go on vacation.
Or to put it in the most rude form possible: Germany: Stop suppressing fracking wage growth! you cannot have a wealthier nation without having wealther workers because a nation is its workforce, and what you have been doing for the past decade is flat out economic idiocy.
Keith 01.30.12 at 10:21 pm
re 34 I agree with your approach. But what if Germans were to spend more on imports from china if demand was increased in Germany? Rather than Sherry from Spain? If Spain still had its own currency and monetary policy it could make sherry and farm houses in Spain more attractive to all potential buyers of goods and services all over the world but cannot if in a euro zone system. The EURO only makes sense if policy takes in to account the economic interest of all members and if transfers take place between states and regions.
FromGreece 01.30.12 at 10:36 pm
“What we’re seeing here is Germany (and to a lesser extent France) beginning to recognise that the Greek loans are never going to be paid back, and therefore represent fiscal transfers, ”
In the meantime, Germany borrows at 1% and lends to Greece at 5%. And Greece hasn’t missed a payment yet, while we’re talking about Greek loans that are never going to be paid back. In fact, this latest salvo supposedly is to guarantee exactly that: payment of loans to the official sector.
You can’t have it both ways. If a fiscal union means loss of independence, let’s have a fiscal union. Loans are a different manner, and trying to put a country in receivership won’t work very smoothly.
Greece has a myriad problems, many of its own making, but there is a real issue of trade imbalances here. The government borrowed money that was showered on them by obtuse european bankers.
geo 01.30.12 at 10:40 pm
dsquared @8: Like an unpopular IMF program, the troika deal for Greece is making the adjustment problem better, not worse.
Does this mean to imply that IMF structural adjustment programs have generally made things better for the countries on which they’ve been imposed? I had the impression they didn’t, but that’s just an impression. Knowledgeable response?
stostosto 01.30.12 at 10:43 pm
The Germans are replaying Versailles in reverse. This time also a tragedy.
FromGreece 01.30.12 at 10:44 pm
Also, re: “There’s a finite amount of resources available to the German state. ” Germany controls the Euro printing presses. For all the talk about the independence of the ECB, a change of heart by Germany would make them more amenable to set a higher inflation target for instance, even without a change in their constitution.
Thomas Jørgensen 01.30.12 at 10:47 pm
Transfers would not help. The problem is that Germany is living beneath its means, and the mismatch between consumption and production this produces is supressing employment both inside and outside Germany, as well as making the budgetary problems worse everywhere.
Incomes have to go up in tandem with productivity, or you wind up in a situation where the Luddites of the eighteenth century are finally vindicated and increased productivity creates a world of unemployment and poverty. Industrial strength rests of on a foundation of earnings distributed widely to create the demand for the cornucupia of wealth it produces, and by supressing wages, the politics of the last decade have been shoveling sand into the beating heart of industrial capitalism itself by mistaking the logic of a single company with the logic of a nation.
JW Mason 01.30.12 at 11:13 pm
Thomas Jorgenson is exactly right, I think. “Finite resources available to the German state” gets things backward, since reduced public expenditure in Germany would make the problem worse not better. Similarly, if the Greek budget is balanced by (debt-financed) transfers from the German state, German incomes would be expected to rise, while if it’s balanced by austerity in Greece, German incomes would fall. What’s puzzling here is why d^2, who is certainly familiar with Keynes, thinks the problem here is real resource constraints.
christian_h 01.30.12 at 11:17 pm
Some semi-uninformed contributions:
1. Saying that Greece should just default seems – to me – to completely ignore the consequences of such a default. Everyone who is pointing out how great Argentina has been doing has not talked to people who actually live there, and lived through the post-default years. It wasn’t pretty, and still isn’t. And Argentina did well compared to other nations that did default.
2. Those pointing out (like Thomas) that one fundamental underlying problem is that German bosses created their competitive advantage in part by suppressing wages in Germany are right. Unfortunately, even were the balance of class forces in Germany to decisively change today and all wages be increased by a large amount tomorrow, this would be presumably too late to impact the current crisis. Which isn’t to say that I don’t fervently hope this does occur!
3. I feel dsquared is a bit defensive about the role of international financial capital, but I do agree that the reduction of everything to “the banks did it” is a way to let other capitalists (or often the same ones, in different roles) off the hook. For example, it wasn’t banks that forced real wages down in Germany; it was a joint effort by all the capitalists taking advantage on neol-liberal globalization.
4. Both IMF adjustment programs and, I’d bet, the hastily suggested commissar of Greek finances are not about actually adjusting fiscal balances. The demands being imposed rather tend to be demands to “open up” economies (often leading to even worse imbalances and complete dependency). For example, liberalizing Greek trucking – meaning, allowing major international logistics companies to drive Greek self-employed truckers out of business – surely cannot be expected to help reduce the Greek deficit, quite the opposite.
5. Along the same lines, the IMF (or Troika) impositions are manifestly not about reducing the Greek military (which obviously should be reduced), or taxing the rich. They are aimed (at least co-aimed) at using the crisis as a lever to force open the public sector (which may well be bloated) to private profit (equally as bloated, but with fewer beneficiaries).
6. Finally I believe Krugman et al. have a stunted understanding of what an independent currency is. Indonesia had its very own currency, and it didn’t help them one bit – because they did not have real control over it. Leaving the Euro and then devaluating, for Greece, might well lead to misery for the majority while the rich – whose wealth is often stashed abroad – get to use the hard currency they’ll be left with to enrich themselves even more.
gordon 01.30.12 at 11:20 pm
In the US, when many assets held by banks are discovered to be valueless, the Govt. bails out the banks. In the EU, when many assets held by (mostly French and German) banks are discovered to be valueless, the EC and the German and French Govts. seek to enslave the debtors.
Of course, in both places it would be (have been) technically possible to let the banks go under. I remember all those arguments people had on blogs and so on about “good banks” and “bad banks” and temporary nationalisations and so forth. It’s interesting that those issues are not being revisited in the context of the French and German banks.
And I wonder if the unpopularity of bank bailouts in the US has any impact on the different strategy being adopted in the EU.
John Quiggin 01.30.12 at 11:35 pm
What are the implications of Sarkozy’s (apparently) imminent election loss in all this? It seems to me that it will be much harder for Merkel to push a hard line if she doesn’t have backing from the French government – will a Socialist win change things?
I’d be interested in thoughts from those closer to the scene/
gordon 01.30.12 at 11:42 pm
And just on the topic of Govt. fiscal rectitude and punishment for transgression, we might remember that there was a time when the German and French Govts. were breaking the rules themselves, and did so without consequences:
http://www.bbc.co.uk/news/world-europe-16761087
I don’t remember the Greeks screaming that the Germans and French should have been fined back then.
JW Mason 01.30.12 at 11:42 pm
I also largely agree with Christian_h, altho I have a more positive impression of the Argentine default than he does. (And yes, I know people who live there.) Point 6 is especially important. We’ve all been taught that in trade absolute advantage doesn’t matter, only comparative advantage, but that’s only true given the assumption (tacit or explicit) that relative prices adjust to convert the former into the latter. History should makes us doubt that this reliably happens under *any* exchange rate regime. In the short run, fiscal transfers are a much more reliable solution. In the long run faster demand growth in Germany will help, but if Europe is going to remain economically integrated there will have to be large financial flows from Germany to the periphery for decades, just as there were from the US to Europe during much of the 20th century. And history shows that official flows are much mire stable than private flows. There is no genuine cost to Germany from this – as long as German savings tend to outrun German investment, transfers to the periphery are a way to maintain full employment in Germany.
JW Mason 01.31.12 at 12:20 am
Fun fact: Germany was in violation of the SGP deficit limits for 4.5 years in the decade 1999-2008. Italy and Greece, 3. Spain, 0. So maybe everyone should just shut up about how the problem is thrifty Germans being forced to subsidize the wasteful southern public sectors, now?
Shay Begorrah 01.31.12 at 12:34 am
It is worth remembering that when we speak about the actions of Germany, or France, in Europe we speak of the ruling political parties and their constituencies in those countries. Both Germany and France have their most right wing governments in several decades and this obviously affects their ideas about the future of Europe and their commitment to a common good.
The move towards a more intergovernmental EU (and not the community method) that came about in Europe after the Lisbon treaty has also translated often small national right wing majorities into an almost entirely right wing EU governing class. One of the reasons the EU response to its share of the GFC has been so awful is the simple bad luck of having a Teutonic Thatcher as head of its largest state and no significant counterbalancing block on the left.
On that note Merkel’s CDU has committed itself to supporting (and canvasing for) Sarkozy in the French presidential election and the secretary of the CDU Hermann Grohe was in Paris today addressing a meeting of the UMP. He told them that France needed the strong leadership of a man like Sarkozy and that socialist challenger Hollande represented a return to the “failed policies of redistribution”. Clear enough for everyone I hope? We have a very right wing European political elite right now so naturally the poor are suffering, the banks are protected and the powerful feel free to make common cause against the weak. It is just the conservative mind – someone should write about that.
Watson Ladd 01.31.12 at 12:55 am
There’s a lot of bad economics floating around here. Germany is worse off because it exports more then it imports: imagine dumping bricks in the ocean and you get the point. Fiscal transfers to address this situation aren’t actually helping Germany: they are just making sure that the bricks don’t come back. Not bailing out Greece is probably the best thing for Germany: the consequent appreciation of the Euro will increase German domestic demand, while Greece will produce more stuff as its domestic prices fall. There is no solution that doesn’t address the artificial nature of the prices between Germany and Greece.
Barry 01.31.12 at 1:13 am
My comment is simply – dsquared, read Krugman on this before spouting off.
Sebastian 01.31.12 at 1:23 am
Greece isn’t the point, Italy is (and Spain). In the last thread on this topic d^2 said something along the lines of: If Italy can get 2% growth and keep the debt rollover rate at 6% it should be fine. That appears wildly optimistic on inspection since Italy averaged about 1% or less for most of the last 20 years, and the rollover rate is flirting with 7-8% again, isn’t Italy right on the verge only a few months later?
Italy runs at or near a primary surplus.
Italy could default and continue paying its bills.
What are you going to do about Italy? Ram more austerity through?
Are you sticking to what you said about Italy?
Sebastian 01.31.12 at 1:32 am
I found the more accurate quote from dsquared here:
I had said: “I assume that Spain and Italy are going to have serious problems staying with the euro unless they have fairly large growth (more than 3% per year for a decade or two) or unless the ECB adopts noticeably looser monetary policy (target of maybe 4%). Do you disagree that at least one of those two things needs to happen? Do you forsee either or those things happening?”
his reply was:
“No, I don’t see that. If you can get the Italian government bond yield down to 4% (through some combination of quantitative easing and shortening the average term, which is very long), then 2% real growth, 2% inflation and 1% primary balance (a not wholly ludicrous combination) gets the debt balance down pretty quickly. ”
My response to that was at 116, but it essentially boils down to the fact that even pre-recession, Italy hasn’t hit 2% in decades, rarely hit 1.5%, and averaged (again pre-recession) about 1%.
Its yield is well over 6%.
So Italy seems truly screwed without a default, and it has been doing the austerity measures demanded of Greece for years already.
G. Mcthornbody 01.31.12 at 1:47 am
@3 I think this is probably the most succinct description I’ve heard in a while about the difficulty in coming to an agreement on Greece. I’m almost of the opinion that having a foreign commission could work, even though it’s an affront to state sovereignty and Greeks hate it. It sucks to be Greece either way. If they had only spent this much effort on making their citizens pay their taxes…
snuh 01.31.12 at 1:50 am
Meanwhile, the Greek government doesn’t help its case by concentrating all the cuts on the most vulnerable in society, rather than, say, cutting the size of its army, or making more of an effort to collect taxes.
greece has a highly politicised military and a history of military coups and rule. but yeah, why don’t we just flippantly reduce the size of the greek army in what is already a climate of mass unrest, and see what happens.
christian_h 01.31.12 at 2:55 am
Barry (51.): you may agree with dsquared or not, but he does know what he is talking about – probably better than Krugman in this instance who judges the situation from the vantage point of US academia.
Peter T 01.31.12 at 4:48 am
I’m just an amazed bystander. I mean, I realise economics as a discipline is largely enamoured of classic 19th century liberalism but, as a discipline, it does not seem to have read a history book since about 1910. We have been here before – as noted, in China, Turkey, Egypt, Iran and, yes, Greece (see Don Pacifico), in Central America and elsewhere. And yet people with some background in economics are arguing about what the options are, as if 100 years of experience did not count. Not noticing that all these ended in regime change, repudiation of foreign control, drastic internal re-ordering, mostly at the expense of the rich, and a surly attitude to the ex foreign controllers for the next several decades. Can we take the outcome of trying to impose a debt commissioner on Greece as read?
Ditto the consequences of running large current account surpluses – you have to put the money abroad, and then you have to ensure collection, and then you end up as popular as the local payday lender. See Britain 1850-1930, France 1890-1930, US 1950-c1980.
Why do we keep going in circles?
The Raven 01.31.12 at 6:34 am
And I return to my original point, which can be extended well beyond Europe: “Germany, I think, is not competent to lead the European banking and financial system, yet they are the ones currently in control.”
Why are the wrong people in charge almost everywhere?
What are we going to do about it?
eddie 01.31.12 at 6:54 am
It used to be said that astrology was a real discipline, and world leaders relied on what their astrologers said (or at least used what they said to justify their actions to the masses and each other)…
dsquared 01.31.12 at 7:07 am
Does this mean to imply that IMF structural adjustment programs have generally made things better for the countries on which they’ve been imposed?
Some did, some didn’t. All of them were probably better than trying to do the same thing without an IMF loan (need to distinguish here between the loan and the SAP, which are two different things). As it turned out, the actual IMF ended up being constitutionally unable to dispense money without a whole load of ideologically driven conditionality which had nothing to do with correcting the underlying current account imbalance, but it didn’t have to be that way.
Commenters in general (particularly the one who advised me to “read Krugman”!): get real.
1. The first problem here is that Niamh is absolutely right to say that you can’t ignore politics in this. So your first constraint has to be – is this draft solution of mine politically possible in Germany? There is no groundswell of Keynesian popular opinion in Germany that wants to make large transfers to Greece. There reallyisn’t. So you are left with either trying to understand the limits of what might be politically sold to the German people as a quid pro quo, or taking the easier option of just scolding Germany, making insulting remarks about Versailles (and worse), and then handing out the same treatment to anyone who reminds you of the political constraint.
2. Germany doesn’t run a structural current account surplus; it ran a deficit for most of the 1990s. It ran increasing surpluses in the 00s because while Germany was in recession during that period, many of its trading partners (including the peripheral European countries) were booming. The German surpluses didn’t cause the peripheral deficits – it looks much more reasonable to say that the causation was the other way round, and that the peripheral European countries had a monetary equivalent of Dutch Disease. This is certainly more plausible than telling a story about wage restraint that has an inflection point in 2001 for some reason (and of course, if stagnant real wage growth led deterministically to trade surpluses, the USA would look very different). It also recognises that the peripheral countries didn’t just have a bilateral deficit with respect to Germany – they had a general current account deficit. Look at Greek automobile imports – are we really saying that this was all driven because wages were just too low at Volkswagen?
3. In any case, trying to make the internal current accounts of a currency union balance through real wage differentials is a silly project – it’s just as silly to demand “internal revaluation” from Germany as it is to ask for “internal devaluation” from Ireland. In general, trying to balance the internal current accounts of a single currency area is an intrinsically screwed project. How high would wages have to go in the City of London, if we wanted to bring North Wales into current account balance with the rest of the UK?
4. The way that you balance a single currency area is by fiscal transfers. This was known from Day One in EMU, and the fact that everyone seems to want to act in denial about what a fiscal union means is neither my fault nor Angela Merkel’s. So we arrive back at my initial point – the problem here is that EMU was an intrinsically broken framework, which everyone is now trying to mend by turning it into a proper fiscal union. You can either analyse that, or you can curse the Germans and bankers for not immediately coming up with the magic solution in your pocket. But if you are going to take politics seriously in Greece, you have to take them seriously in Germany as well.
There are lots of problematic things about both the German government’s negotiating position and the general Euroland policy framework. You lot have identified none of them. And apparently the “German wage growth” magic solution is the new equivalent of the “screw the bondholders” magic solution; I would be interested to know which think tank is pushing this one.
Sebastian at #53: I still think this is possible in the right monetary policy environment (which nobody appears to be talking about). But I think that in the thread where we were discussing it, I noted that some form of wealth tax in Italy was going to be the eventual solution and I still do.
dsquared 01.31.12 at 7:18 am
One thing I should add is that although it is IMO pretty ridiculous to say that German wage restraint caused the Greek borrowing boom (the USA had very similar wage restraint, so at the very least you would have to say that it was the combination of high wage restraint and high domestic savings rates), that doesn’t necessarily mean that a policy of increasing German wages and consumption couldn’t work (or at least, that it couldn’t help – it is also IMO pretty odd to assume that, with fixed exchange rates, German workers could be made to consume an extra $200bn of imports in order to bring the current account into balance). But there is no support domestically in Germany for this plan either. Germany does actually have a very high savings rate. Its political culture is actually very opposed to inflationary policy. We can complain about these things (and I have done, in the past, in writing, before it was either popular or profitable to do so). But maybe at the moment, while there is an actual crisis on, we ought to focus on reality.
shah8 01.31.12 at 8:09 am
*dsquared*, I think the FIRE aspects, in general, and world-wide, was the Dutch-disease. The wage repression occured as a strategy to prevent industrial hollowing out, as Eastern Europe boomed with investments cash. However, much of that investment turned out to be unproductive, even for Germany’s own FIRE industries, and when the cash receded, Hungary, Latvia, etc, turned out to be naked. Cheap labor conservatism turned out to be ill-matched to modern economies. I think that in part, it’s about excessively empowered people who don’t actually have to be profitable that caused it (as with what happened with US mortgages recently). It’s more a change in mindset among the elite that would have to happen, in the sense that outsourcing becomes strongly discouraged. Only then would it be actually safe to let wages rise, because otherwise, businesses would try to outsource to the near abroad again. Only when wages rise at a reasonable rate, will German consumers take trips to Greece.
Otherwise, I think really the only alternative is to forcibly install better institutions and remove grandfathered fascist elements, such that Greek workers become more productive and command better salaries.
Guido Nius 01.31.12 at 8:25 am
“Everyone except the top decision-makers in the EU seem to agree that it is damaging to require heavily indebted countries to undertake further crushing fiscal contractions in the middle of a recession, and indeed that trying to do intensive deleveraging without any growth might even itself trigger a debt explosion.”
Everyone minus one that is and given the recent election results ‘one’ might be something of an understatement. Also, I don’t know what it is for a people to explode in fury but it is apparently a rather silent explosion. The last actual Greek I heard was asking for a troïka take-over given that the politicians which caused all this are still in power (minus the prime minister) and are day-by-day proving incapable of getting the taxes they should have been getting the last decades (thereby keeping the traditional Greek status quo of the rich not paying taxes and the not-rich having to cough up all of the difference as soon as external financing runs dry).
Daniel 01.31.12 at 8:36 am
@33
Neither Greece nor Italy nor Spain can grow their way out of the mess they are in. For decades now they have maintained birthrates below population replacement levels. There simply are not enough working Southern Europeans now – and there will be even less in the coming decades – to pay off these debts. One way or another default is inevitable.
No big deal, really. The Mediterranean countries will simply revert to the sleepy, dusty norm of history. That is really not that bad. For one thing, it will be a helluva lot cheaper to buy a house or apartment, albeit poorly maintained.
dsquared 01.31.12 at 8:44 am
I think the FIRE aspects, in general, and world-wide, was the Dutch-disease.
I don’t see this – surely the Dutch-disease aspects came from a sudden liberation of the capital account constraint post EMU? If we look at Ireland, the country went from a monetary regime and central bank policy which was basically entirely driven by the IR£/STG exchange rate, to one in which that constraint melted away.
I do agree that a large part of the problem in the USA was that private sector debt growth substituted for and covered up real income stagnation, and that this was a largely intentional result of policies carried out by US elites. In Europe it’s a bit more complicated and EMU itself is a huge part of the original cause – plus Greece is very different from anywhere else (Spain and Ireland are about private debt, not public, and Italy’s public debt problem is driven by the stock of debt taken out in the pre-EMU, pre-Berlusconi era).
Greece is also different from Ireland when we’re talking about “austerity” because in Greece but not in Ireland, the problem is structural rather than cyclical – it’s not an adjustment problem, it’s what they’re adjusting to.
Tim Worstall 01.31.12 at 8:55 am
Stephanie Flanders at the BBC seems to think Greece is in primary surplus for the last 6 months of 2011.
No idea whether that’s true but if it is doesn’t it rather change their negotiating power?
Latro 01.31.12 at 8:56 am
As a Southern European (Spaniard) , can I send you to the sleepy dusty norm of history instead? Of course I would also like to send the Germans to some other place where their illusions of virtue dont screw my already very screwed country , but that would also mean sending my political class to … well they can go to hell, as they seem to be absolutely dedicated to serving everybody but ourselves.
I was very much pro Union. I was under the impression Union meant to have policies that would help us all. Seems I was mistaken on that regard.
Zamfir 01.31.12 at 9:05 am
German wages and consumption couldn’t work (or at least, that it couldn’t help – it is also IMO pretty odd to assume that, with fixed exchange rates, German workers could be made to consume an extra $200bn of imports in order to bring the current account into balance). But there is no support domestically in Germany for this plan either. Germany does actually have a very high savings rate. Its political culture is actually very opposed to inflationary policy.
If there’s no support in Germany, it’s surely because their strategy seems to have worked. People explicitly promised the Germans lower unemployment and a strong economy based on exports, if they were willing to keep wage demands limited. Throughout the recession, German unmployment has been low. And while growth isn’t great, the country is clearly in a position of economic power, instead of at the mercy of international squabbling.
This might well be completely coincidental, but it makes it harder to sell an increased-consumption strategy to the Germans. It’s basically asking them, don’t trust your lying eyes, trust economic theory. This economic theory, not that of those others who can’t be trusted.
x.trapnel 01.31.12 at 9:32 am
So you are left with either trying to understand the limits of what might be politically sold to the German people as a quid pro quo
I was under the impression that Merkel is pushing up against the limits of what might be politically possible within her party and coalition, but that the opposition would have somewhat more flexibility here. (And that all the main parties are somewhat more pro-Europe than public opinion more generally.) Is this not true?
Guido Nius 01.31.12 at 9:43 am
All the parties in power are rather pro-Europe and all the parties not in power are more anti-Europe. This is true independently of which parties are in power and not in power. The result is that big money can continue playing its game with the European mice – big money needs to play this game in Europe because unlike the US and the UK, it isn’t that easy to just buy yourself a party or a candidate.
So – yes – by all means, the most democratic way forward for Europe is ignoring the fact that the money Greece needs will be put up unconditionally by countries whose voters are overwhelmingly in favor of expansionary politics (cfr. Spain).
Alex 01.31.12 at 9:52 am
And apparently the “German wage growth†magic solution is the new equivalent of the “screw the bondholders†magic solution; I would be interested to know which think tank is pushing this one.
Well, me, for a start, since the spring of 2010 at the latest.
As someone said, if we did adopt a naive policy of shouting “Fight the cuts!”, it would actually be the right policy and would work…one of the alternative Daniel Davieses in the list on your blog perchance?
Also, this:
How Economists Kill People from back in the 2005, by a CT contributor known only as “Daniel”. Another alt.dan?
Alex 01.31.12 at 10:02 am
This is a classic, too:
Alex 01.31.12 at 10:04 am
Alex 01.31.12 at 10:06 am
To be honest, looking back, D^2’s IMF (and World Bank) bashing posts were pretty great.
dsquared 01.31.12 at 10:07 am
Yes I know – I thought it seemed too good to be true at the time but couldn’t work out why (and as I note in #61, it could actually help, it’s obviously not a counterproductive policy), and it’s taken me this long to see what the problem is. Which is that it exactly doesn’t have the property that makes “Fight the cuts” a good slogan – if you’re trying to make German wage levels do the work, then you’re trying to achieve current account balance between the regions of a currency union, which is basically a goal that’s impossible to achieve other than by passing chance, because there isn’t an exchange rate to act as a price signal. This isn’t how we deal with depressed regions of the UK like Wales and it doesn’t work.
With respect to “How Economists Kill People”, as you know Bob, Peter Griffiths’ book was about a badly-planned market liberalisation initiative carried out by the World Bank, not the IMF. The difference matters because the IMF provides (or at least, is meant to provide) short term current account financing; it was a bad day when it got into the business of “structural adjustment”. Current account financing is different – you don’t make someone worse off by lending them money when they need it, any more than you make them worse off by selling them cheap food.
I don’t see the analogy to Greece at all – in as far as the troika is pushing shock-treatment deregulation then this is bad, but this isn’t what people in this thread are complaining about – they’re complaining about the actual numbers for the fiscal transfers and debt repayments. Greece isn’t an example of seeking long-term solutions to short term problems, and it’s not in a meaningfully similar state to Sierra Leone; in all honesty, Greece has a number of governance issues that are uncomfortably close to those that cause half the problems in the developing world, but it’s not there yet.
I’m really despairing of this polarisation here, as exemplified by the assumption that because I thought the IMF was doing harm for most of the 80s and 90s, I must therefore think that the troika is doing harm now. It matters that Greece is a developed economy. It matters that the Euro is a currency union. It matters that Greece has already been provided with financing an order of magnitude greater than the IMF ever would (or could) have done. It matters that the source of the Greek budget deficit is completely different from the source of the UK budget deficit and that it does actually need to be cut because it can’t be financed. This really isn’t a matter of picking the side that has the fewest neoliberals on it and cheering.
Z 01.31.12 at 10:10 am
the problem here is that EMU was an intrinsically broken framework, which everyone is now trying to mend by turning it into a proper fiscal union.
I can follow your analysis of the situation up to here, but is it really true that everyone is now trying to create a proper fiscal union?
But there is no support domestically in Germany for this plan either.
Probably true, but then, if I followed the logic correctly, we are screwed: without higher inflation target, the peripheral countries of the Eurozone will go under, and Germany does not want higher inflation target so… For a country aging as quickly as Germany, this does not seem exceedingly smart a strategy to become Europe most hated state.
What are the implications of Sarkozy’s (apparently) imminent election loss in all this?
Hard to say. As noted above, the CDU and UMP are hand in hand in pushing hard for Sarkozy’s re-election. It is commonly reported as a media conventional wisdom that an intensification of the Eurozone crisis would help Sarkozy, but seen from the ground, it seems dubious and true only insofar as it could become a self-fulfilling prophecy. Also, even taking into account the very real detestation of Sarkozy, it is hard to believe that the final result will be much closer than the current polls.
A Socialist win will change something, a double win for the PS in France and the SPD in Germany in 2013 probably even more so, but you are not going to be able to extract anything concrete from the Socialist candidate before he is in the Élysée (the best you can find now is that the newly elected socialist President will push hard for eurobonds, but it seems hard to me to believe that they can overcome Merkel’s resistance a year before her bid to re-election).
Z 01.31.12 at 10:15 am
it is hard not to believe that the final results will be much closer than the current polls.
Chris Bertram 01.31.12 at 10:23 am
_unlike the US and the UK, it isn’t that easy to just buy yourself a party or a candidate._
I’m really struggling with the idea that British parties politicians are any easier to buy than (some) French, Italian, Greek, Irish (Haughey) or Belgian ones, to name but a few. I suppose Berlusconi didn’t buy anyone else, he just bought the office, but I don’t suppose that’s what you meant. (Oh, and just looking at Bernard Tapie’s Wiki page.)
Pete 01.31.12 at 10:28 am
Agreed, the historical dsquared is brilliant on banking crises while the present day one has got bogged down in counterattacking banker-bashing.
I think it’s worth looking for comparison at the history of depressed regions within countries – that is, a situation where there’s already a political and economic union between the area and the rest of a larger country. Detroit and Liverpool might be examples of this. The problems have largely not been solved over a period of decades, but there isn’t unrest, just high crime. What does happen is that people try to get out.
Given that the EU has free movement of goods and capital, it’s inevitable that some countries are going to suffer this sort of capital influx then flight. The remedy is to use the third pillar: free movement of persons. Inasmuch as there was a plan for the EU, this is how unemployment rates are supposed to balance between countries. Germany’s unemployment rate should be being driven up by an influx of recently-redundant workers from other EU countries. Why is this not happening?
Alex 01.31.12 at 10:30 am
Also, I don’t think it’s actually true that the peripheral countries wanted fiscal union before the crisis – they were getting quite a bit of money via the structural fund, and beyond that doing rather nicely, thanks.
Germany, France, and the EU Commission were keen. But I suspect the fiscal union they were keen on was *precisely the one they actually delivered*, i.e. the deflation-only balanced-budget-amendments-all-round version. Because, when they got the opportunity to do it, that’s what they did, and it accords with their expressed beliefs and past practice. I strongly suspect that had someone proposed this in 2005, they would have been howled down.
We’re just having to get our heads round the fact that the Euro is, in fact, what the shouty man at the end of the table with the funny hat said – a hardcore 80s neoliberal structural adjustment project, but with a lot of guff and hot air about solidarity. This is obviously going to be emotionally painful for a lot of people, especially those of us who spent the first Blair government arguing for the UK to join, like me, but there you are. At least nobody was tortured as a result of my being wrong.
Latro 01.31.12 at 10:33 am
Language is a big barrier. I dont speak German, or French. I could move to the UK – but the inmense numbers of unemployed speak only their language.
That didnt stop Spaniards from emigrating in the past, but in the present the demand for unskilled labor is both lower and filled by some other inmigrants.
Alex 01.31.12 at 10:36 am
I’m really struggling with the idea that British parties politicians are any easier to buy than (some) French, Italian, Greek, Irish (Haughey) or Belgian ones, to name but a few.
Or German ones. I pointed out to Duncan Weldon yesterday that it’s not that surprising for the German chancellor to go stumping for the French president’s re-election, given that it wasn’t so long ago that a French president was secretly funding a German chancellor’s re-election campaign out of Elf’s accounts and also from the Elysee official slush-fund, and the German politician who arranged this is now the federal minister of finance!
(Which is also why he’s not chancellor and Angela Merkel is, but that’s by the by.)
Henri Vieuxtemps 01.31.12 at 10:37 am
You should be able to pick up enough French within a couple of months, no?
Neville Morley 01.31.12 at 10:40 am
Die Zeit‘s analysis a week or so ago of the German political situation re the Eurozone was that Merkel’s policy is pretty well unchallenged in the Bundestag: not only is the CDU behind her, the CSU in a shambles and the FDP in complete meltdown, but the SPD is broadly signed up to the same policies – the paper described it a verging on an informal Grand Coalition comparable with 2005-9. The major political factors are partly theoretical-ideological (no Keynesian ideas here), partly historical (fear of inflation, reluctance to take on role of European hegemon even if it’s more or less being demanded by others) and partly, perhaps most importantly, a strong sense that the consensus of the political class at the centre is very definitely out of step with prevailing views of Laender and local politics and in the country at large, hence need to tread very carefully.
Z 01.31.12 at 10:57 am
I strongly suspect that had someone proposed this in 2005, they would have been howled down.
Ah the irony! This was proposed in 2005, in the guise of the Constitutional treaty, and it was howled down. But then…
dsquared 01.31.12 at 11:04 am
We’re just having to get our heads round the fact that the Euro is, in fact, what the shouty man at the end of the table with the funny hat said – a hardcore 80s neoliberal structural adjustment project, but with a lot of guff and hot air about solidarity.
I’m not sure I agree. IMO, the Euro is a proper currency union, with a half-baked constitution which reflects the fact that its timetable was accelerated way beyond the political reality, basically as a means of tying the newly reunified Germany into the general European project. So it’s got what looks like a “stability and growth permanent austerity clause”, but is actually a “never put Germany in the situation of having to bail you out clause”, it’s got no lender of last resort and it’s got no mechanism for fiscal transfers. And a deflationary bias to the central bank monetary target, as a compromise between Bundesbank monetarism and reality. Because there wasn’t really the political support for these when it was being set up.
The measures that have been put in place since can, IMO, only be seen as transitional arrangements to a proper fiscal union, because their purpose is to make sure that anyone who is requiring fiscal support from France and Germany is put in the position of a criminal, in order to give some pretext for the kind of political checks and balances that ought to have been written into the currency union to begin with, alongside automatic fiscal transfers. The issue here is that there are regions like Greece (but not Ireland) that are Wales-like, in that they are always going to need structural fiscal transfers from the centre. If we are going to set up the currency union on that basis, then the paying regions need to have some control over the receiving region’s ability to generate internal current account balances. But that is currently politically impossible (see main post) and so everyone has to pretend that Greece’s imbalances might be temporary.
If I thought this was a long term solution, I’d say it was fucked up. But because it’s so fucked up, I don’t believe it’s even intended to be a long term solution. It’s a pro tem move aimed at jerry-rigging together the neccesary conditions of a currency union – structural transfers and structural controls – until a proper treaty version of the same thing can be agreed.
Chris Bertram 01.31.12 at 11:32 am
Come back Bryan Gould, all is forgiven …. I seem to remember him saying that one reason EMU wouldn’t work was that it required persuading some peoples to make continuous transfer payments to other peoples and that, in the absence of a sense of national solidarity, this wasn’t going to happen. Dsquared has raised the Welsh case within the UK, but note that one source of the current Anglo-Scottish tension is the perception (by both sides once you bring the oil into it) that one side is subsidizing the other. (Cf also the resentment of the Flemings towards the Walloons given the absence of a sense of pan-Belgian solidarity; the Northern League in Italy … etc)
roger 01.31.12 at 11:38 am
The identification of Germany and Merkel in this discussion is interesting. Merkel’s austerity plan in Germany, far from being popular, has been unpopular for a year. The combination of the SPD and the Green totals in polls – you can see for yourself in Spiegel – has not budged much, and it comes to 47 percent. (http://www.spiegel.de/flash/0,5532,21034,00.html) Between them, the collapsing FDP and CDU garner 39 percent. And it is from the FDP – that 3 percent – that the fanatics of austerity come from. There’s good reason for the unpopularity. The neo-liberal “reforms” of Schroeder and Merkel’s tilt to the rich government has produced a great increase in poverty in Germany, and has continued to widen the gap – one of the greatest in Europe – between the rich and the rest. The greens have introduced the idea of a capital levy on wealth to bring down the debt, and this could become a serious issue in the next election. It is not realized, in the States, that the concentration of wealth in Germany was even higher than in the U.S. until the 80s. The disparities are still enormous. The politics of Merkel are driven by impulses in the upper class – it is not driven by some popular sense, among the Germans, that the Southern European economies have to be punished. Rather, the popular German opinion seems to be that the German elite should be punished for having acted like the real pigs over the past two decades.
ajay 01.31.12 at 11:45 am
You should be able to pick up enough French within a couple of months, no?
No. Maybe enough to be able to work as a waiter or a cleaner in France, but two months of learning French won’t make you able to work as – say- a medical doctor, or a quantity surveyor, or a telecoms engineer, or a social worker. Language is a big barrier.
Random Lurker 01.31.12 at 12:01 pm
NM 84: “reluctance to take on role of European hegemon even if it’s more or less being demanded by others”
OP: “and not the start of a campaign to force them out of the eurozone, since this is still officially anathema.”
I think that these two quotes summarize two wrong ideas that I see in the discourse:
The first is the idea that everyone agrees that Germans have to be the “bosses” of the EU. I don’t think people in other parts of the EU really think that Germans should “count more” than others in the EU, hence the perceived injustice of the ECB praticing a German-friendly – instead than a PIIGS-friendly – policy.
The second is that Germans have the winning hand and can (and want to) bully other countries “or else”. This is exemplified by Merkel telling the Greeks that if they don’t agree to austerity they will be kicked out of the EU. But in reality Germany has no real way to “kick out” Greece from the EU: for pratical purpose, Greece is already using a foreign currency (the Euro), and there is no way that Germans can force the greeks not to use a foreign currency (on the other hand, the Greeks could choose to use “New Drachmas”, but this would be a Greek choice, not a German choice). Obviously Germany could force out Greece from the “common market” but this would be the EU setting tariffs against Greece and Greece setting tariffs against the EU, and since Greece is a net importer this would be a worse problem for the EU than for Greece (expecially if other PIIS realize that a protectionist Greece has a better economy than a open Greece, at least on the short run).
In facts Germany has not the power to force policies on other european countries, and if said other european countries choose bankruptcy and/or exit from currency pegs/open markets Germany will lose big time. The real reason PIIGS don’t want bankruptcy is that there are lots of middle class people in the PIIGS whose wealth is, directly or indirectly, tied to government debt, so that the “bankruptcy” idea is not forced on PIIGS by Germany but is forced by middle class creditors over other middle class (and increasingly working class, because of the austerity policies) people.
I would add that, since this is basically a conflict between “creditors” and “workers” (since also German workers are losing in the current depressionary situation), monetization of debt by the ECB would be a much better choice than the disgregation of the EU, and would substitute “fiscal transfer” in the short to medium terms (in reality we have not idea of what will happen on the long term, maybe Greek productivity will skyrocket and Germans will drown in debt).
dsquared 01.31.12 at 12:03 pm
Now that two other people have posted and I therefore look less of a loon, I’d note that I’m not actually defending “bankers” in this context – there is very little involvement from bankers in the Greek situation, other than to take their medicine in terms of having their debt written down (which they are currently negotiating, painfully slowly).
The people I have been pushed into the position of defending are the “Euroland Permanent Government” – the civil servants and policy staff who, having got into this disastrous situation via a fundamentally misdesigned currency union, have got the job of making it work.
I don’t necessarily feel at all comfortable in this, as I was very much against EMU in 1999, specifically because it was horribly misdesigned (Bryan Gould was, as Chris notes, right about this). And I think there is a massive shortfall in democratic accountability here (although it is not really as if taking the European policy structure away and handing the whole ball of wax over to the “bond market vigilantes” would be much of an improvement). But, in many ways as with the bankers, so much of the criticism is ill-informed and unfair that I find myself defending them. Yes, even up to Angela Merkel.
The basic issue here is – everyone is criticising the EU authorities, from both a left- and a right- wing position, for not having everything sorted out yesterday. But look at what they’ve achieved! Both the Irish and Greek programmes were roughly three times the size of the largest ever previously disbursed IMF loan package. Proportionately to GDP, the EFSF/M is definitely equivalent in size to the Marshall Plan. Huge amounts of resources have already been made available; France in particular has put its own credit rating at risk for the sake of European solidarity.
And the progress that has been made on the political side is also quite impressive if one judges it compared to the pace of European integration over the last twenty years, rather than to the perfect hypothetical solutions that get published every third day in the Financial Times. We are still a long way from a fiscal union, but we are much closer to Euro-bonds than would have been imaginable two years ago.
Most of the criticism of the EU authorities seems to be based on
a) their not being able to pour a gallon out of a two-pint jug in terms of the size of adjustment programs (this basically encompasses nearly all the ink that has been spilled in decrying “austerity”, practically none of which seems to recognise how big a primary deficit the peripheral countries are running, or who is financing it).
b) their unwillingness to let peripheral countries use pensioners and hospital patients as hostages rather than take on difficult targets from the point of view of domestic politics (compare the reaction of the UK, which imposed a 50% higher rate of income tax and a surcharge on financial sector bonuses, to Ireland which has done neither and remains one of the lowest tax economies in Europe)
c) subsidiary to b), their unwillingness to provide either fiscal support or loans which have a strong chance of being converted into fiscal support on a no-strings basis.
d) criticisms of the ECB’s policy couched as criticisms of “Germany” or “elites”, which ignore the constitutional relationship between the ECB and the political side (this includes potentially valid criticisms of the ECB itself, although there are also plenty of criticisms of the ECB which basically amount to “why, oh why, don’t you do something which is explicitly prohibited by your founding Treaty?”
e) belief that there is some pot of gold out there in “the private sector” and that disorderly defaults on all manner of securities can be carried out without causing as many problems as they solve – belief that the only reason anyone might not want to follow the “Argentinean miracle” is because they are in the pocket of bankers. Generally, assumption that a developed EU economy in the single currency zone faces the same policy tradeoff as Malaysia in 1997. Specifically in the case of Ireland, the belief that there is something inherently disreputable or mean-spirited about wanting to avoid a generalised Euroland banking crisis.
IMO the valid criticisms of the EU policy structure would be something like
f) their continued insistence on “structural” measures which have basically nothing to do with the problems they are meant to solve and which can only be explained as holdover neoliberalism
g) their apparent state of denial over the need for a proper rewrite of the ECB treaty and the fundamental legal basis of EMU (although I am actually never sure how much denial they are actually in here)
h) the constant iteration of completely unrealistic forecasts. In general, wasting time for the first two years of the crisis on confidence-fairy reasoning.
i) As Niamh correctly notes, regular bouts of complete political tone-deafness in the handling of the difficult and sensitive matter of transferring fiscal independence.
Anton 01.31.12 at 12:19 pm
Language is a big barrier
Don’t worry . If the French have their way , that won’t be an issue anymore:
Pete 01.31.12 at 12:23 pm
I’ve just realised that this whole business is strongly analogous to what Derek Hatton et al were doing with Liverpool council in the ratecapping rebellion. They set a deficit budget in contravention of central government rules, and effectively demanded subsidy or they would bankrupt the council and lay off the entire staff. In that case the central Thatcher government refused to blink and got the situation under control. The aftermath of this is poverty and resentment in Liverpool, but not dissent or any kind of organised opposition.
@86 / @87 dsquared/Bertram: this is basically the discussion, isn’t it? Resentment about inter-region subsidies. Is it sufficient to drive a political breakup? I’m not sure, I think the answer is “not yet”. But what about Hungary? Not in the Euro, nor yet in serious risk of default, but it looks like the right-wing government is entrenching there.
dsquared 01.31.12 at 12:31 pm
Pete: that’s a brilliant analogy. Although of course Thatcher had basically created this situation on purpose out of ideological opposition to local democracy, and I don’t think that the EU really wanted to cause the Euroland crisis.
Chris Williams 01.31.12 at 12:37 pm
I could really really do with hearing a conversation between Paul Mason, Bryan Gould and the ghost of Maurice Stonefrost about this. Failing that, has Gould had anything to say about the situation recently, or has he merely retired to some hillside bungalow called ‘Aetoalduaso’?
Pete 01.31.12 at 12:41 pm
The EU _does_ have an ideological opposition to nationalism, and a desire for greater “harmonisation” (ie making decisions in the Euro institutions). And, like anyone else, won’t let a good crisis go to waste.
Henri Vieuxtemps 01.31.12 at 1:00 pm
Ajay, 89, what I meant was that you should be able to pick up enough French within a couple of months, if you are a Spaniard (or Italian). Anyway, never mind, this is not important.
Alex 01.31.12 at 1:21 pm
…and the European Commission is, in fact, a pretty neoliberal institution that likes handing out bollockings about not being neoliberal enough.
P O'Neill 01.31.12 at 1:28 pm
dsquared, aren’t the points (a) and (h) somewhat inconsistent, specifically that the discretionary austerity put into the programs to make them add up the limited financing available had the oft-cited “underestimated effects on growth” due to non-appearance of the confidence fairy which was the way of making the programs counteract the assumed effect of the added austerity? In addition, to say that the 1st two years of the programs were wasted on confidence fairy stuff: since an IMF program lasts 3 years, if it goes according to plan, that’s like saying that the Costa Concordia passengers had a great time once they got to land at Gilgio Island.
politicalfootball 01.31.12 at 1:42 pm
And the progress that has been made on the political side is also quite impressive if one judges it compared to the pace of European integration over the last twenty years, rather than to the perfect hypothetical solutions that get published every third day in the Financial Times.
Agreed, it would be an error to measure the progress of the Europoean politicians and bureaucrats based on whether they’ve met an unrealistic FT ideal, but it’s also an error to measure success based on whether they’ve accomplished more than could be reasonably expected.
There’s a task here that exists independently of any standard we’d like to impose, and success is going to be properly measured by whether Europe can get that job done. Can the monetary union be held together? Can GIIPS defaults be avoided? I haven’t seen a persuasive case made that Europe is up to the task.
dsquared 01.31.12 at 1:43 pm
I don’t think so. “Discretionary austerity” between 2008 and 2010 was certainly based on confidence fairy reasoning and certainly stupid, but how can this be blamed on the EU rather than the national governments? The damage being done now was written into the script by the measures that Ireland and Greece carried out on their own initiative while they were pretending that there was no solvency problem and they didn’t need a bailout. Beyond that, we were already into the period when there was a limited amount of financing available – if the program has to be made to add up to an external financing constraint (which I agree is what happened), then the austerity isn’t really “discretionary”).
Peter Whiteford 01.31.12 at 1:49 pm
While I have had some disagreements with him in the past – not that he has any reason to recall them – I largely agree with d squared on this.
As an Australian I live in a fiscal union. Now for the past 100 years or more the rest of the fiscal union has been transferring money to Tasmania – and this is never likely to change unless the Tasmanians discover unobtanium under the beautiful (non floating) mountains they have.
The fiscal transfers we have involve explicit fiscal transfers – the Australian Grants Commission seeks to equalise service provision in different parts of the country and we also have large implicit transfers since we have a Commonwealth level social security system and a common tax system, and Tasmanians have greater than average benefit payments per head and lower per capita average tax payments.
Now part of the fiscal union means that the Tasmanians don’t have a separate foreign policy or defence policy, and probably more importantly they don’t have separate tax and social security systems.
I’m happy enough with these fiscal transfers, but I doubt I would be if the Tasmanians adopted a social security system that was more generous to higher income groups than the rest of the county and they failed to collect taxes from higher income groups.
This is less complex than Europe because this is how we set up the system. But I certainly think that if you want transfers from other people you should recognise that they can apply conditions to those transfers.
So what we have is two separate sets of problems (at least) – one is that Europe tried to integrate without thinking through the necessary conditions; the other is that Greece appears not to have resolved their underling social conflicts.
Guido Nius 01.31.12 at 2:13 pm
78 Рtouch̩ but we agree on the US. In general I think the Anglo-Saxon tradition is one in which Rupert Murdoch & City/Wall Street style of permanent influencing is entrenched. To tackle Europe one has a more varied picture ranging from old style corruption on the south towards a better system in the North. Effectively the way Rupert Murdoch and ilk are controlling Europe (without either wasting money on local corruption or risking real litigation) is by keeping Europe politically separate in the style of divide and conquer. All this neoliberalism one complains of in the case of the EU was maybe invented in Europe, but its practice was an import from the US/UK.
Chris Bertram 01.31.12 at 2:17 pm
Pete: just as a historical note: poverty and resentment in Liverpool rather antedates Derek Hatton (as did the Thatcher government’s contemplating abandoning the city after the Toxteth riots of 1981), so it is hardly _a result of_ Hatton’s policy of 1985 which was, in fact, the dissent and organized opposition of which you write. (See also _Boys from the Blackstuff_ which is 1982 and depicts (totally justified) pre-Hatton poverty and resentment.)
Chris Bertram 01.31.12 at 2:18 pm
The resentment justified, that is, not the poverty.
ajay 01.31.12 at 2:25 pm
In general I think the Anglo-Saxon tradition is one in which Rupert Murdoch & City/Wall Street style of permanent influencing is entrenched.
Can we not use phrases like “Anglo-Saxon” unless we are either a) talking about the pre-Norman British culture that had scramasaxes and wapentakes and so on or b) pretending to be de Gaulle? If you mean “UK and US” just say so and save the pixels, rather than implying that (say) New Zealand, the least corrupt country in the world, has entrenched permanent political corruption.
dsquared 01.31.12 at 2:28 pm
I for one look forward to a wholesale economic reform of the Pictish-Mercian model of finance capitalism.
Pete 01.31.12 at 2:32 pm
Chris: yeah, I think I had that the wrong way round. Having looked at the history, Liverpool seems to be doing OK these days and you’re right that Hatton’s tactics were a result of the poverty. So, when do we see the Greek Hatton?
Alex 01.31.12 at 2:46 pm
It’s especially amusing that “Anglo-Saxon” is taken to not include Germany, the country with several million actual Saxons in not one but two federal states of that name.
Steve LaBonne 01.31.12 at 2:50 pm
Shouldn’t they get the Danes in on the deal so there can be an Anglo-Saxon-Jute
invasioneconomic policy?Chris Bertram 01.31.12 at 2:51 pm
Don’t pick on the Anglo-Saxons: it was the Danes who invented these wretched fiscal transfers by forcing the Danegeld out of the A-S.
dsquared 01.31.12 at 3:07 pm
In this context, I will trail a joke from my forthcoming essay on David Graeber’s book – while he does note that the first use of a word translated as “freedom” appears in a Sumerian king’s proclamation of a debt jubilee, it should also be noted that this seem debt amnesty specifically excludes the commercial debts of merchants – in other words, the concept of “too big to fail” appears to be at least as old as debt itself.
Barry 01.31.12 at 3:10 pm
christian_h 01.31.12 at 2:55 am
” Barry (51.): you may agree with dsquared or not, but he does know what he is talking about – probably better than Krugman in this instance who judges the situation from the vantage point of US academia.”
My point was that much of this has been covered by Krugman.
And Krugman’s viewpoint is the man who’s been right far more than all but a few.
MPAVictoria 01.31.12 at 3:15 pm
Just would like to point out that whatever the people in charge are doing it is not working:
“Unemployment in the 17-nation eurozone ended 2011 at 10.4 per cent, a new record high for the single currency since its launch at the start of 1999, official figures showed today.”
Holders of Greek bonds were paid a risk premium in the form of interest. No one held a gun to their heads and made them loan the moneyy. The Greeks should default and let the Germans worry about their own banks.
dsquared 01.31.12 at 3:18 pm
The Greeks should default and let the Germans worry about their own banks.
Are you 100% sure that you have thought through the consequences of this policy, Minister? German bank holdings of Greek debt are pretty small these days and have largely been written down. There is a country whose banking system holds enough Greek government debt to bankrupt it though – it begins with a G but it isn’t Germany.
MPAVictoria 01.31.12 at 3:24 pm
dsquared:
“Greece has total debts of €346.4bn. About a third of this debt is in public hands (34.8% is attributable to the IMF, ECB and European governments), roughly another third is in Greek hands (28.8%, essentially for banks) with the remainder (36.4%) held by non-Greek private investors.”
http://economistonline.muogao.com/2011/10/who-owns-greek-debt.html
Mrs Tilton 01.31.12 at 3:27 pm
Ajay @105,
Can we not use phrases like “Anglo-Saxon†[to] mean “UK and USâ€
That “Saxon” bit might not find huge resonance in some parts of the UK…
Alex @108,
Germany, the country with several million actual Saxons in not one but two federal states of that name
I’m trying to puzzle out here which of Saxony, Lower Saxony and Saxony-Anhalt it is for which you have no love.
dsquared 01.31.12 at 3:27 pm
I am aware of the distribution of the ownership of Greek debt, thanks. That EUR100bn owned by the banks is a multiple of their capital. Meanwhile, defaulting on the IMF and ECB would immediately cut off Greece’s only source of deficit finance. What is the big benefit that you plan to gain from an immediate, disorderly default, given that it is highly likely that the debt in general will end up being restructured on an orderly, negotiated basis anyway? Minister?
MPAVictoria 01.31.12 at 3:35 pm
dsquared the Greeks simply cannot pay. Default IS the only alternative. As such the Greeks hold all the cards if creditors want to get anything back on their loans. Have you heard the old saying that if you owe the bank a thousand dollars and you can’t pay it back you are in trouble but if you owe the bank a million dollars and can pay it back it is the bank who is in trouble?
The Greek government should do what Atrios has been suggesting for months. Offer the first creditor to agree to terms 90 cents on the dollar and decrease drastically from there. If they are worried about their own banks they can offer better terms to greek holders of greek debt.
Greece becoming a colony of Germany is not an acceptable solution to this problem.
MPAVictoria 01.31.12 at 3:41 pm
And I didn’t mean to offend you dsquared by posting the info on the compisition of Greek debt.
ajay 01.31.12 at 3:41 pm
Wait a minute, MPAVictoria, are you under the impression that as things stand the troika is trying to make Greece pay all its debts in full? If that’s what you think then I can see why you’re getting angry. But you’ve got the wrong end of the stick. Read this, for example:
http://www.reuters.com/article/2012/01/23/us-eurozone-ministers-idUSTRE80L10520120123
The creditors have already resigned themselves to getting a nominal 50 cents on the dollar, and that only in the form of newly issued replacement bonds with a longer maturity – in real terms the deal’s going to be more like 30 to 35 cents on the dollar. The debate is over the terms of these replacement bonds.
SamChevre 01.31.12 at 3:41 pm
Oh, I’d say the Greeks CAN pay–they may not want to, but that’s a rather different question. How much do you suppose Turkey would give for the Aegean Islands?
dsquared 01.31.12 at 3:43 pm
MPAVictoria, are you aware of the stage which the Greek negotiations on agreeing a writedown on the debt held by their private sector creditors have reached? You are not really giving me much confidence in your ability to keep current with the news by making suggestions for your own unilateral offer at 90% when the current state of negotiations involves a 50% writedown. I am sorry to be so blunt about this, but I really don’t think it helps you, me or the readers if we carry on this discussion at the level of old sayings and hypotheticals.
If they are worried about their own banks they can offer better terms to greek holders of greek debt.
This would most likely be inconsistent with the Treaty of Rome. Again, you don’t seem to be aware of how aggressive and counterproductive your policy suggestions would be in the current environment; there is no big benefit to be gained from scrapping the whole process a few minutes before it is finished and declaring a disorderly default.
MPAVictoria 01.31.12 at 3:48 pm
Thanks ajay. I had missed those talks.
/Learned something new today and am now planning on reading more and posting less in this thread.
dsquared 01.31.12 at 3:52 pm
SamChevre raises (implicitly) another question which is that in this case “ability” to pay means “political sustainability of a particular schedule of payments”. I think that nobody with a breath of sanity (even the editors of Bild) would think it reasonable to insist that Greece imposes bread rationing in order to pay its external official sector creditors. But of course, that is what the UK did between 1946 and 1949 – and our debts were mainly war loans extended by allies!
A lot of the whole problem in Greece is that the political institutions are very weak and the overall level of consensus in Greek society is pretty low; that’s a lot of the reason why tax compliance is poor, and why successive governments have tried to buy social peace through the military budget, state employment and the benefit system. The real question which Niamh is correct to note that nobody appears to be analysing is how much stress can be put on the Greek national political compromise before it breaks – because if the answer is a smaller amount than can be provided with political legitimacy from the rest of Euroland, we have a problem.
ajay 01.31.12 at 3:55 pm
That “Saxon†bit might not find huge resonance in some parts of the UK…
Another reason to avoid it!
Genetically speaking there’s very little Anglo-Saxon in most Brits anyway, and still less Norman or Dane. As a nation, we’re still very much Ancient Britons.
http://www.prospectmagazine.co.uk/2006/10/mythsofbritishancestry/
dsquared 01.31.12 at 3:55 pm
(further to #124 and to the tiny subthread which represents my immense frustration at the habit of peripheral European country governments to use children and pensioners as hostages, while putting through all sorts of small-state neoliberal bullshit and blaming it on Germany – note that during the “austerity” period, the UK actually set up the National Health Service! People used to have a sensible view of tax in those days. Actually, when it comes to Greece, I think quite a lot of the distribution of the burden between taxes and spending has been driven by the IMF rather than by domestic politicians, but in the case of Ireland, the refusal to even consider meaningful income tax rises is just incomprehensible to me).
Dirk 01.31.12 at 3:55 pm
@108: Actually, there are three saxon Länder: Sachsen, Sachsen-Anhalt, and Niedersachsen. (They form a corridor from center-east to north-west.)
One thing that I would like to stress in the euro troubles is the fact that Germany generates more savings than investments, and that this is where the trouble starts. Why do Germans save more than they invest? They then need to invest abroad, fuelling consumption and investment elsewhere. With the euro, EMU member became more attractive. It always takes two to tango.
Also, German real wages have been falling for 10 years by now. Of course, domestic demand was slow. Not much was invested into new production for domestic consumption. Banks don’t like to lend to households with shrinking incomes. Nevertheless, someone was saving. Perhaps the rise in income inequality is a factor. Here is some data on real wages in Germany:
http://econintersect.com/wordpress/?p=15509
That is why so many Germans are opposed to paying for anything now – most of them have seen their real wages fall for ten years already. Private firms (exporters) and capital owners have benefitted hugely from the euro. I think these are constituting the road block in German politics of today. A possible change of president in France wouldn’t change a thing.
ajay 01.31.12 at 3:57 pm
A lot of the whole problem in Greece is that the political institutions are very weak and the overall level of consensus in Greek society is pretty low; that’s a lot of the reason why tax compliance is poor, and why successive governments have tried to buy social peace through the military budget, state employment and the benefit system.
Yes. The problem is not “what is Greece going to do about its existing debt?” Restructuring debt is something that’s been done for centuries, and in this case a solution is close. The problem is “what is Greece going to do about its national finances?” and the hope here is that Greece has not got to the point where the country can only be politically sustainable through being fiscally unsustainable.
dsquared 01.31.12 at 4:05 pm
#127: I think there’s a lot to what you say, but IMO, Germans save more than they invest for the same largely demographic reasons that Japan does. As we can see from the USA, there’s nothing intrinsic about stagnant real wages that makes you a saver[1].
Also, I’d be really interested in your expanding on this:
Private firms (exporters) and capital owners have benefitted hugely from the euro. I think these are constituting the road block in German politics of today.
Why would exporters and capital owners, who I agree have benefited hugely from the euro, be forming the roadblock toward saving the euro? Surely it’s the business lobby in Germany (broadly speaking, the readers of Spiegel) who are in favour of German leadership in Euroland and the EFSF, while it’s the generality of the skilled working class (broadly speaking, the readers of Bild) who are against?
#128 the hope here is that Greece has not got to the point where the country can only be politically sustainable through being fiscally unsustainable.
Or, if you’re me, the hope is that Greece can find a new kind of political sustainability through being part of a fiscal union with the rest of Euroland.
[1] And of course this also links up with my other current piece of hobby-horsing – a lot of people, not necessarily me, would argue that a large part of the reason why stagnant real wages had such different effects in Germany and in the USA has to do with differences in domestic financial sector behaviour and regulation. But as we can see from the natural experiment of Germany, it is not at all necessarily the case that a USA which did not use borrowing and housing wealth to maintain consumption growth between 1999 and 2007 would have had such a great outcome.
Guido Nius 01.31.12 at 4:07 pm
OK, US/UK it is but I see you all got how continental Europeans are using “Anglo-Saxon” in non-medieval contexts. Anyway, to judge from the current debate, Rumsfeld was right all along: the problem is with Old Europe. Maybe over time we will have the best of both worlds: a more European model in the US/UK and offload the US/UK model to all these bloody boring Europeans who love their red tape.
Sebastian 01.31.12 at 4:09 pm
“Probably true, but then, if I followed the logic correctly, we are screwed: without higher inflation target, the peripheral countries of the Eurozone will go under, and Germany does not want higher inflation target so…”
This is the crux of the problem. For all the talk about political constraints I see two important ones that d-squared seems to be passing over.
1. The inflation target. How are Spain and Italy ever going to have enough growth without a more realistic inflation target? But Germany has no political situation that I can see where they will allow the inflation target to get to 3% much less the 4% that is probably needed. Italy is never going to make it with an overvalued currency, low growth and tightwad inflation tactics. It has already had the fiscal tightening that is demanded of Greece. It has been doing that for the last ten years. Its growth hasn’t even flirted with the 2% that you think would be strictly necessary to get anywhere.
2. Transfers. You insist that they are necessary, and you are right. But you suggest that because it is so obvious that they are necessary, that must be what everyone is working toward? Ridiculous. Why in the world should we believe that the highly insulated technocrats are working toward that? The political constraints around the transfers are *even bigger than those around the inflation target*. Do you see much evidence that the inflation target is going to be 4%? Even 3% for about 5 years? Didn’t think so. So why do you think that they’re working against the really hard political constraint when they will barely touch the easier one?
dsquared 01.31.12 at 4:21 pm
Sebastian:
1: I don’t agree that an inflation target of that sort is needed. Italy can solve its problems with a wealth tax, or with financial repression on its domestic pension fund industry. Spain doesn’t even have a sovereign debt problem once it has worked out its banking sector contingent liability.
2: I think that the highly insulated technocrats are working toward that because, as far as I can see, they are. Specifically in the case of Greece, it’s now openly being discussed that there should be a mechanism for the ECB (potentially via the EFSF) to tender its bonds into the PSI voluntary exchange. That’s a fiscal transfer (arguably, it’s even a monetised fiscal transfer!). I also don’t agree that, in a transfer union which has included the Common Agricultural Policy for fifty years and the Regional and Social Funds for twenty, there is some sort of taboo on fiscal transfer payments.
Charrua 01.31.12 at 4:23 pm
“The way that you balance a single currency area is by fiscal transfers. ”
Sorry, Dsquared, but I don’t see it.
You could say that you balance government budgets in a single currency area by fiscal transfers, but that’s sort of a tautology, right?
But you can’t say that you balance income level, unemployment, etc. in a single currency area by fiscal transfers; fiscal transfers aren’t big enough to have more than a marginal effect. You balance income level, unemployment, etc. by labor mobility.
For example, the reason Detroit hasn’t morphed into a giant favela is not whatever federal money they receive, it’s that a lot of people has left the city for greener pastures.
That’s what you see in really large, geographically diverse countries ; income levels even out because people leaves the poor regions and moves to the rich regions.
Fiscal transfers smooth out the process, but nothing else. There might be a subsidy here or there, but if the regional economy does badly enough, the whole area is gradually depopulated and that’s that.
Oh, and regarding Germany and the current account surplus, I remember reading about some reforms in labor markets, unemployment insurance, etc. in the early 2000s that amounted to an internal devaluation. ¿Am I wrong?.
dsquared 01.31.12 at 4:28 pm
If you’re talking about the Hartz reforms, they were 2003, with the really quantitatively important one, “Hartz 4” not really taking effect until 2004. I don’t think they match up too well in time and don’t think in any case that they amount to an internal devaluation.
Dirk 01.31.12 at 4:36 pm
#129
I meant to say that savings were higher than investment even though real wages were falling. Demography certainly plays a role.
I think the problem is what you mean by “saving the euro”. If it’s “hiding all non-performing loans/bonds forever” then, yes, EFSF is your choice if you are pro-business and intellectually challenged. But: you are saving the tax payers from huge losses by, well, transferring more resources from tax payers to capital owners (bond holders) which, over time, generates the same amount of losses. Also, the economic problem is still the same: the price levels in the euro zone today are “wrong”. Germany exports too much, the PIIGS import too much. Budget contraints set by the financial sector helped to create this situation. The price levels need to move in the right direction, and this is not helped by postponing adjustment again and again. The European economy is unsustainable as it is.
By the way: the social-democrats and the greens are slowly coming around to understand the problem. Recent opinion polls show that they would have a majority in the next elections in 2013. When these come into view, Merkel might be pushed into a different trajectory as election day nears and her policy mess perhaps unravels.
Random Lurker 01.31.12 at 4:37 pm
@dsquared 132
“Italy can solve its problems with a wealth tax, or with financial repression on its domestic pension fund industry.”
I’m not sure that I understand what you mean, but it seems to me that this would need capital controls of some sort.
Italy is writing down public pensions since at least 10 years, but if by “domestic pension fund industry” you mean private pension funds, why shouldn’t I, as an Italian, buy a German or Japanese private pension instead of an Italian one, if the Italian one is financially repressed?
Chris Bertram 01.31.12 at 4:40 pm
dsquared:
bq. A lot of the whole problem in Greece is that the political institutions are very weak and the overall level of consensus in Greek society is pretty low; that’s a lot of the reason why tax compliance is poor, and why successive governments have tried to buy social peace through the military budget, state employment and the benefit system.
On which, the “anti-social punishment” section of a recent paper by Sam Bowles is relevant (see circa pp.66-8). Liberal societies punish non-contributors who then shape up and improve; Greeks (among others) engage in retaliatory punishment against those who try to get them to contribute to the production of public goods … more like non-liberal societies.
http://tuvalu.santafe.edu/~bowles/LiberalSociety.pdf
ajay 01.31.12 at 4:54 pm
Fascinating link, CB.
dsquared 01.31.12 at 5:01 pm
Yanis Varoufakis. I don’t agree with him about French and German banking sector solvency, but he is admirably clear-eyed on the political realities.
marcel 01.31.12 at 5:03 pm
Long ago, though not so far away, D^2 wrote:
there is very little involvement from bankers in the Greek situation, other than to take their medicine in terms of having their debt written down (which they are currently negotiating, painfully slowly).
My understanding is that Goldman Sachs showed the Greek government what to do in order to hide the debt it was taking on, that w/o GS’s shenanigans (which were apparently highly profitable to the firm at the time), Greece would not have been able to incur much/most of its debt because it would have been obvious to all AT THE TIME that repayment was impossible. Seems like a fairly important bit of involvement to me. Is my understanding wrong in important ways?
dsquared 01.31.12 at 5:14 pm
Not really, except that this one really was hidden in plain sight – Eurostat complained about it at the time and were told to shut up because they were putting obstacles in the way of Economic and Monetary Union. Greece would have been (and indeed because the scam was known to all, was) able to borrow every single centime that it did borrow, because people presumed, up until really quite recently, that having successfully qualified for EMU meant that Greece was effectively guaranteed by Germany. In actual fact, if Greece’s debt burden had been frozen as % of GDP at the level it was at post the Goldman Sachs wheeze, there would be no problem today – it’s the debt that it continued to take on during the following ten years that has put it where it is today.
#136: I’m not sure that I understand what you mean, but it seems to me that this would need capital controls of some sort.
Only the normal, tax-base preserving kind – you just declare a tax and make the people pay it.
ajay 01.31.12 at 5:17 pm
marcel: this is true, but only for some of the debt. See here http://www.risk.net/risk-magazine/news/1591633/greek-woes-revive-seven-goldman-swap-story for the full details.
Also, the amount involved was far too small to make a difference to people’s estimation of Greece’s ability to repay; critically, the deal was designed to hide debt, not deficit. The point was to keep the debt load under the EC’s thresholds, not to conceal Greece’s imminent insolvency.
In other words, “that w/o GS’s shenanigans, Greece would not have been able to incur much/most of its debt because it would have been obvious to all AT THE TIME that repayment was impossible” – isn’t correct.
christian_h 01.31.12 at 5:30 pm
dsquared, first it’s not a good idea to confuse what BILD writes with what its readers believe – any more than taking what the SUN writes as a stand-in for UK popular opinion. It does seem true, however, that skilled workers in Germany are resistant to the EMU rescue operation as currently envisioned. the reason seems quite clear: they perceive, correctly, that it won’t be the German capitalists who end up paying, but them through higher taxes on earned income.
Henri Vieuxtemps 01.31.12 at 6:12 pm
the reason seems quite clear: they perceive, correctly, that it won’t be the German capitalists who end up paying, but them through higher taxes on earned income
Suppose there are no capitalists, suppose Volkswagen is a coop. Would workers then not be resistant to send part of their income to the Greek government, government that can’t (or won’t) govern? I don’t think so.
Barry 01.31.12 at 6:13 pm
dsquared
” Now that two other people have posted and I therefore look less of a loon, I’d note that I’m not actually defending “bankers†in this context – there is very little involvement from bankers in the Greek situation, ”
At this point I call liar; are you really trying to say that the Greek government and private sector borrowed all that money from the UK/French/German banks, without them having a clue?
dsquared 01.31.12 at 6:20 pm
Well, if you’re going to call “liar”, then you presumably aren’t expecting much in the way of a civilised reply, so it won’t surprise you very much when you don’t get one.
geo 01.31.12 at 6:43 pm
dsquared @111: my forthcoming essay on David Graeber’s book
Must see this. Where and when will it appear?
Chris Williams 01.31.12 at 7:27 pm
Given D2’s distinctive record in converting highly-trailed ‘forthcoming’ items to ‘extant’ ones, I will not be holding my breath.
Chris Bertram 01.31.12 at 7:29 pm
We are having a CT symposium on Graeber’s Debt in a couple of weeks – it will be part of that.
dsquared 01.31.12 at 7:31 pm
a couple of weeks? shit. Better start writing it.
Chris Williams 01.31.12 at 7:33 pm
Oooh, look, Bryan Gould has a website: http://www.bryangould.net/id196.html
Substance McGravitas 01.31.12 at 7:36 pm
Thank you!
Bill Benzon 01.31.12 at 7:55 pm
Ditto McGravitas on the Graeber symposium. Looking forward to it.
niamh 01.31.12 at 8:21 pm
George Soros has a nice essay in the current NY Review of Books (13 Feb), where he calls for:
…a delicate two-phase maneuver, similar to the one that got us out of the crash of 2008… you must first impose strict fiscal discipline on the deficit countries and encourage structural reforms; but then you must find some stimulus to get you out of the deflationary vicious circle—because structural reforms alone will not do it. The stimulus will have to come from the European Union and it will have to be guaranteed jointly and severally. It is likely to involve eurobonds in one guise or another.
Dsquared, on Ireland and taxation:
It is not true that Irish governments have not increased taxes, and indeed the Universal Social Charge, and other indirect taxes that are new to Ireland but common elsewhere (on utilities, and a start on housing taxes), are much resented. The fiscal adjustment mix has involved spending cuts and tax increases at a pretty steady ratio of 2:1. This contrasts with, say, Spain, where the fiscal adjustment measures have involved about 60% reliance on tax increases and 40% on spending cuts.
The explanation of variation in policy choice across countries is complex and involves consideration of economic structure and the prior policy mix, as well as partisanship and the taken-for-grantedness of a certain interpretation or set of ideas about how the economy works. Among other things, Irish policy-makers are persuaded that in a very fragile labour market, many forms of tax increase could make unemployment a lot worse; and that a business-friendly approach is most suited to future growth prospects in the Irish economy. The stance on corporate tax remains constant for the same reasons: it is a policy mix that has proven successful in an FDI-led industrial policy, and without the exporting capacity of this sector, the Irish economy would be very much worse off at the moment.
dsquared 01.31.12 at 8:31 pm
But they’ve increased largely regressive and indirect taxes – Ireland still has a top rate of income tax at 40% compared to 50% in the UK (and the UK one was explicitly raised as a deficit-reducing measure). I don’t think that Irish politicians ought to be allowed to get away with the claim that a top rate income tax rise (or for that matter, a land tax) would have negative effects on jobs growth compared to the spending cuts that are apparently “necessary”. I think this is all about partisanship and, as you say, take-for-grantedness, and when this involves taking it for granted that developers’ landbanks can’t be taxed, but disabled children’s education is up for grabs, then I think it is fair enough for more or less anyone to say that this is not a good set of priorities, and that the negative social consequences of austerity have to be blamed more than a little on the political class that still, after everything, wants to play the “business friendly, foreign investment” game at the expense of their most vulnerable people.
politicalfootball 01.31.12 at 9:03 pm
Joining others in keen anticipation of the Graeber discussion.
john c. halasz 01.31.12 at 11:20 pm
Re: German wages:
http://www.nakedcapitalism.com/2011/12/class-war-low-wages-and-beggar-thy-neighbor.html
Dan Hardie 01.31.12 at 11:22 pm
I strongly second Dsquared’s point at 156, especially this: ‘ I think this is all about partisanship and, as you say, take-for-grantedness, and when this involves taking it for granted that developers’ landbanks can’t be taxed, but disabled children’s education is up for grabs, then I think it is fair enough for more or less anyone to say that this is not a good set of priorities.’
One of the big problems in the general political discussion- and, let’s be honest, in one or two recent Crooked Timber threads- is that there is way too much readiness to pretend that European governments and/or electorates are all powerless in the face of a recession caused by bankers. This is tantamount to opening your front door and hanging up a big notice saying ‘Burglars welcome here’.
Governments faced with that kind of attitude can and will impose deeply questionable, regressive policies on their electorates- and the Irish government has done so, big time- probably worse than even the dishonest Cameron-Clegg crew. You know you are in trouble when your centre-left coalition government is introducing more regressive fiscal policies than a bunch of Italian technocrats.
Similarly, flapping our hands in the air and saying ‘the banksters/Angela Merkel have/has ruined poor Greece’ is simply an invitation to the Greek oligarchs and middle classes to continue paying as little tax as they choose.
The Greek middle classes have agency and they have used that agency to construct and benefit from a dishonest and regressive fiscal environment. The Irish government has agency, and it has used that agency to – as Dsquared points out- grind the faces of the poor whilst not significantly raising taxes on all those brilliant Irish entrepeneurs and landowners without whom…well, without whom Ireland might not have blown quite such a big property bubble.
otto 01.31.12 at 11:43 pm
“Ireland still has a top rate of income tax at 40% compared to 50% in the UK (and the UK one was explicitly raised as a deficit-reducing measure).”
On Irish income taxes, if i have it correct, Irish income tax, all included (i.e. Universal Social Charge etc etc), when compared to UK (including NI etc), is especially lower at the bottom, rather than the top, end. Irish taxpayers earning €100,000 pay significantly more income tax than UK taxpayers. See here:
http://www.kearon.ie/wp-content/uploads/2011/12/IRL-UK-tax-comparison-2012-rates.pdf
otto 02.01.12 at 12:41 am
More generally, Ireland has some elements of the US situation where *both* the country raises too little tax in general *and* there is relatively little income tax on the average worker. Not an easy situation from which to exit.
LFC 02.01.12 at 5:34 am
dsquared @61:
it is also IMO pretty odd to assume that, with fixed exchange rates, German workers could be made to consume an extra $200bn of imports in order to bring the current account into balance)
This is probably a dumb question, but I don’t understand the reference to fixed exchange rates. The euro and dollar are on a floating rate, yes? And as between one euro country and another, there is no exchange rate at all since it’s the same currency. Is there a fixed exchange rate between the euro and (e.g.) the pound, a hangover from the pre-Euro EMS? (I don’t think so but…?)
dsquared 02.01.12 at 6:52 am
Otto – by stopping at EUR100,000/UK£80,000 that table kind of ignores the 50% tax rate in the UK on incomes above £150,000. But you’re right that a lot of the problem is wildly over-generous allowances.
LFC: yes the point I was making is that there are plenty of people who want to use German wage inflation to bring the bilateral current accounts between Germany and every other Eurozone country into balance and this is basically impossible.
Torquil Macneil 02.01.12 at 10:12 am
“(See also Boys from the Blackstuff which is 1982 and depicts (totally justified) pre-Hatton poverty and resentment.)”
More pre-Hatton than first appears since it was written in 1978 and is about life under Callaghan.
Pete 02.01.12 at 10:56 am
Further clarification to @162: there was a fixed £/E exchange rate in the ERM, that fell apart before the Euro was actually launched and was never reinstated. I believe that the “$200bn” was a number plucked from the air to convey approximate magnitude and not actually a quantity denominated in $. And the reference to “fixed exchange rate” refers to the common use of the Euro between different countries.
Random Lurker 02.01.12 at 11:14 am
@HV 145
“Suppose there are no capitalists, suppose Volkswagen is a coop. Would workers then not be resistant to send part of their income to the Greek government, government that can’t (or won’t) govern? I don’t think so.”
Ok, but is the German worker actually paying more taxes to resecue Greece? As pointed out above, German government is borrowing at 1% and lending at 6% to Greece, so the German taxpayer is actually paying nothing. GT will be on the hook when Greece actually defaults, but since Greek default has been mainly caused by policies imposed by the ECB and apparently asked for by Germany, it seems to me that the German taxpayer shouldn’t really blame “Greek government” (that is actually just doing what German government asked).
Note to D^2: Here in Italy, the ECB actually issued a letter telling to the Italian government what it had to do, so that it is not so obvious that the “anti-poor-people” choices are fault of the Italian government. In my opinion the whole point of “austerity” is that since Italian, Greek etc. productivity is too low, and nobody knows how to rise it, wages have to fall. Thus forcing down wages is an integral part of the policies asked by the ECB, and to push down “real” wages you cut services and crush unions, you don’t rise taxes on neurosurgeons because that would be beside the point.
dsquared 02.01.12 at 11:25 am
Here in Italy, the ECB actually issued a letter telling to the Italian government what it had to do
Good point. Although in the case of Italy, I actually think they have much more right to blame their problems on other people, because the debt that is causing the trouble in Italy was actually taken on in the 1980s, by a political class that was actually (massively and famously) rejected by the people of Italy. In so far as people are trying to make intra-EMU current accounts balance by “internal devaluation”, they’re doing something silly IMO – I mentioned this above but perhaps didn’t make enough of it. But the wage repression folly is a bit tangential to the points about “austerity” (which I think is a misnomer – in the cases of Ireland and Greece it isn’t a policy of austerity – it’s simply a response to an actual hard-currency funding constraint).
dsquared 02.01.12 at 11:26 am
since Greek default has been mainly caused by policies imposed by the ECB and apparently asked for by Germany
Not really no. Greek default is caused by Greece taking on too much debt for the last twenty years. This isn’t a case of a basically sound economy being pushed into default by a poorly handled cyclical recession.
Chris Bertram 02.01.12 at 11:41 am
#164 – true. “Thatcherism” basically started with Callaghan’s conference speech of 1976, but wasn’t called that then. Hence: “Labour isn’t working”.
Alex 02.01.12 at 11:44 am
productivity is too low, and nobody knows how to rise it
This is a really good point.
Random Lurker 02.01.12 at 11:56 am
@D^2 168
There are, IMHO, three different aspects to this problem:
1) Greek economy was based on the government borrowing ever more;
2) When the problem become apparent, the ECB choose not to help in various ways;
3) “Europe” as a whole asked some policies from the Greek government, that caused Greek GDP to fall (thus increasing Greek debt/GDP ratio).
Aspect 1 is for sure a long term Greek problem, aspect 2 is debatable (but I think that the ECB had the actual duty to help Greece more), aspect 3 is clearly the fault of “Europe”, in which German government appeared to “dictate” terms (but I think that in reality governments of “Gipsi” countries mostly agreed and just blamed the policies on “Germany”).
dsquared 02.01.12 at 12:14 pm
Thing is that aspects 2 and 3 are simply a practical reflection of aspect 1. There was no set of sustainable policies that Greece could have followed that wouldn’t have caused GDP to fall – that just follows from the national income identity; if Y=C+I+G+X, then if G is too high to meet a financing constraint, then Y has to be lower (and of course the multiplier then operates, so C and I will also fall). It wasn’t just a government debt problem – there was a material part of the Greek economy that represented goods and services that were being bought with the proceeds of the EMU financing windfall.
Pete 02.01.12 at 12:14 pm
“productivity is too low, and nobody knows how to [increase] it”
This is quite an astonishing indictment of the entire field of scientific management, surely? Or perhaps of the metric of productivity used here. Find some people and organisations with greater productivity and copy them? Where’s Deming when you need him?
Chris Williams 02.01.12 at 12:17 pm
Random lurker’s acrynom at 171 above is a little more than unfortunate. Personally, I don’t want to see it again here. Am I over-reacting?
Chris Williams 02.01.12 at 12:19 pm
Pete: labour, no matter how systematically managed, doesn’t necessarily create value, and highly efficient and productive rent-seeking is still rent-seeking.
Henri Vieuxtemps 02.01.12 at 12:42 pm
I don’t understand the “low productivity” point. The economy is common for the whole eurozone, it’s some of the governments that are in trouble. It’s like saying that the productivity in Jersey City is lower than in Manhattan. I suppose it is, but something seems to be missing in the analysis.
P O'Neill 02.01.12 at 12:51 pm
#174, welcome to the world of headline-chasing economic research shops at investment banks and brokerage houses. PIGS stopped being “funny” so they had to come with a new one. The Davos wannabees bite every time.
dsquared 02.01.12 at 1:05 pm
Actually, the “PIIGS” acronym was immediately banned from publications at most brokerage houses because it was so obviously insulting and unpleasant (there were one or two who did keep using it and I really did and do think less of them for it). “GIPSI” is currently on Paul Krugman’s website – I tend to agree with Chris that it isn’t much of an improvement, and although “Gypsy” is an approved ethnic term rather than an epithet, the problems of peripheral Europe don’t have much to do with Gypsies and so (although I’m not going to legislate here) I would rather not see it again on CT.
If we’re going to have an acronym, I would suggest ISIGP, which simply lists the problem countries in order of size.
ajay 02.01.12 at 1:23 pm
GIIPS is Citi’s preferred alternative. The FT’s still happy using PIIGS – I didn’t realised there had been widespread banning. I’ve never come across GIPSI before, and am fairly startled that Krugman’s using it – is he quoting it?
politicalfootball 02.01.12 at 1:32 pm
“GIPSI†is currently on Paul Krugman’s website
Well, I’m glad you’re taking Barry’s advice and reading Krugman.*
*I’m kidding!
LFC 02.01.12 at 2:14 pm
Pete @165
thanks for the clarification
Random Lurker 02.01.12 at 2:19 pm
@ HV 176
To follow your example: People in Jersey City are quite umproductive but, to keep with “middle class” lifestyle, borrow a lot against their houses, thus keeping the economy rolling, until the bubble pops.
Here in Europe we are more statalist so people in “periphery” are umproductive but their states borrow for them, praticing “soft keynesianism”, thus keeping european economy rolling, until the bubble pops. Big difference.
Torquil Macneil 02.01.12 at 2:20 pm
I didn’t realise there was a PIIGS controversy. I didn’t spot the problem with ‘GIPSI’ unprompted either, I read it as ‘Gip-see’ but that might be naive. GIIPS seems inoffensive and is an acronym which ISIGP isn’t (in English at any rate).
stostosto 02.01.12 at 2:20 pm
(We clearly need to include Austria in the trouble zone in order to form more palatable acronyms).
otto 02.01.12 at 2:21 pm
Re. Irish income tax, having plugged the numbers into the tables used by the calculation above, Irish taxes on income are noticeably higher than UK taxes on income at the €250,000 (£208,000) income level too. The total income tax take in Ireland at that level is about 47% of gross income, and therefore the marginal rate (including USC etc) at the top end must be well above 40%. So I think D^2’s statement “But they’ve increased largely regressive and indirect taxes – Ireland still has a top rate of income tax at 40% compared to 50% in the UK (and the UK one was explicitly raised as a deficit-reducing measure)” should really be considered quite misleading.
As stated, the income group facing *much* less tax in Ireland than in the UK (and everywhere else) is *average* earners. It is not (or not just) the tax aversion of high-income groups but the tax aversion of average earners which underlies the Irish government’s fiscal problems. That doesn’t really fit the Irish governments-are-only-taking-regressive-policies line, but there it is.
dsquared 02.01.12 at 2:55 pm
I agree with Otto that it’s average earners in Ireland who are undertaxed, but this table (from 2011, and AFAICS ignoring the UK bonus surcharge) has the UK slightly higher at the highest marginal rate rather than marginally lower. And the facts of the two countries post-crisis budgets are what they are – the UK raised the top rate of income tax and put a surcharge on bonuses, Ireland raised VAT and introduced a flat rate land tax.
So I think “really quite misleading” is a bit harsh. But I had underestimated the extent to which UK top rate taxes are still much too lenient compared to Ireland, for which I apologise.
I still maintain my view on the big picture though – the ratio of 2:1 spending to tax is just wrong in terms of sharing the pain, and what Ronan Lyons calls the “MC Hammer” approach (with respect to corporation tax, income tax allowances and land value tax, you can’t touch this) is also really unserious. Quite apart from anything, the French and German governments really can’t be expected to take the “FDI-driven strategy” (ie, asking them to subsidise destructive tax competition against themselves) very seriously.
Random Lurker 02.01.12 at 3:19 pm
Other two points:
Regarding the OP, the problem is not just that “Europe” wants to dictate policy on SIIGP (like the despair-sounding acronym?) countries, but that people in SIIGP countries might perceive that “Europe” uses two different approaches (it’s OK to dictate austerity to Greece, it’s not OK to ask for stimulus from Germany), and that “Europe” really represents the interest of some, and not all, Europeans (altough as I said in reality this is just a creditors VS workers problem, but it looks like a Germans VS Greeks problem).
Regarding “productivity”, the reason that nobody knows how to imcrease productivity is that really productivity is just a number obtained dividing GDP by hours worked, and as such has small explanatory power.
There are various possible explanations for low productivity in Italy (as an example), and depending on what is the correct explanation “Italy” should really follow different policies. The possible explanations that I can think of are:
1) Italians are lazy and/or inefficient;
2) Italians are lazy and/or inefficient because of unions or excessive pro-worker legislation;
3) There are lots of umproductive people (eg. government paper-pushers) that are paid by subtracting from wages of productive workers, so that gross wages in Italy become excessive and companies flee Italy (although I think that taxation in Italy and Germany are very similar);
4) Italy specialized in the wrong fields (EG: Italy specialized in textiles while Germany specialized in cars, so when the Chinese start to produce textiles but not cars, the “added value” of Italian products falls, while German doesn’t);
5) Italian industry is undercapitalized and uses crappier equipment (might be related to point 3 as some fields might be less capital intensive than others);
6) There is a natural geographic specialization in common markets, so that when the EU became very interdependent many “productive” jobs went in the same geographic locations (say, cars in eastern Europe-Germany), so that workers in other areas have either to migrate (but it is a problem because of the language barrier) or to agree to crappier wages. This is, I think, Krugman’s theory.
I think that “austerity” makes sense only if the correct explanation is 2 or 3, while it is actually counterproductive if the explanation is 4 or 5, and if the explanation is 6 SIIGP should just leave the EU immediately and become very protectionistic.
rf 02.01.12 at 3:29 pm
Agreed on the “MC Hammer” approach being unserious, but in relation to corporation taxes( “asking them to subsidise destructive tax competition against themselves”) it seems a bit much when the reality of rates across the EU is taken into consideration.
http://www.irishtimes.com/newspaper/finance/2011/0211/1224289521508.html
“In Germany the actual rate paid is 22.9 per cent and in the UK it is 23.2 per cent. President Nicolas Sarkozy has made clear his dislike of Ireland’s low corporation tax rate but his country’s effective tax rate for corporates is an amazingly low 8.2 per cent – below the Irish level. Earlier this month, an unnamed Irish official said that “based on our information, 25 per cent of all French companies did not pay any corporate tax in 2009â€.
Alex 02.01.12 at 3:42 pm
re productivity: it’s worth noting that Italians, Greeks and others actually put in as many or more hours as Germans. My own take is that these countries are actually characterised by uneven development, with some industrial sectors and factors being pretty great and others unusually dreadful. Or perhaps it’s just the case that a lot of southern European managers are better at avoiding income tax than at their official jobs?
otto 02.01.12 at 3:47 pm
The table you link to describes the situation in 2009, based on 2008 budgets I suppose. Most post-crisis budgeting occurs after that. I think perhaps that your confusion may derive from the fact that lots of Ireland’s efforts to increase income taxes have not involved changing “income tax” but a plethora of charges and levies on incomes under other titles. The 2011 budget increased income taxation for 2012 very considerably, including for upper income earnings (including, for example, the removal of the PSRI (basically NI) upper earnings ceiling, and a 7% universal social charge (basically a mutation of an earlier post-crisis income levy) on income above €16,000). One might add lots of other elements like the tax treatment of pension contributions. The facts are what they are: Ireland has, post-crisis, significantly increased taxes on upper income earners, who pay significantly more income taxes than in the UK, both at the €100,000 and €250,000 level.
On the VAT rises, I think fundamentally that the Irish government is resorting to these in order to increase taxes on average earners. You may say that is cowardly, and income taxes would be better, but if you agree that average earners are notably undertaxed, the target is acceptable. On the “a flat rate land tax”, I hope you understand that this is a one-year interim charge, designed to get the system up and running, in a country where organized tax resistance / non-payment campaigns against local charges (again, by the population in general, not upper income groups) has been very substantial even in recent years. Rome was not built in a day, certainly – to conjure a bizarre image – not in Dublin, and suggesting that the “flat rate land tax” of 2012 is a regressive measure is rather odd. It is the tip of the spear for a substantial and differentiated property tax to come.
On the “big picture”, perhaps there is less disagreement. They do need to raise more taxes. But once we agree that in substantial part the problem is “income tax allowances” and their impact on income taxes on average earners, Ireland’s problem cannot be reduced to the Irish government’s concentration on regressive measures. The ‘taken for grantedness’ problem in Ireland is not the one you described it as (although you may be right re. corporation tax).
Sev 02.01.12 at 3:47 pm
Re acronyms: come on now, let’s not be killjoys. This is a blog, isn’t it? Perhaps I’m just feeling my caffeine.
How about: Hungary Austria Greece Spain?
France Italy Greece Spain?
Spain Portugal Italy Greece Turkey?
Ok, sorry. On the fundamentals, yes, it just seems that the ECB easing will alleviate pressures at the top, leaving the lower orders to take much of the pain- until, as Barry says, there is some serious pushback. Yes, Greece is tiny, but is it tiny like the fuse to a bomb? Or perhaps a dud, leaving the UXB in the ground. It is hard to see how the Greeks can stay in the eurozone long term, except as euro-peons. Perhaps they could exit, offering their bondholders payment in drachmas and hotel/restaurant/cruise vouchers to soften the pain, juice the tourist economy.
dsquared 02.01.12 at 3:51 pm
suggesting that the “flat rate land tax†of 2012 is a regressive measure is rather odd
It’s a flat rate tax which doesn’t vary with income, so I don’t think it’s very odd to describe it as a regressive measure. And the “differentiated” land tax has already been put back two years …
Random Lurker 02.01.12 at 4:12 pm
@rf188
Googling the web, a table of effective corporate tax rates from a serious looking site: http://www.iiea.com/blogosphere/effective-eu-corporate-tax-rates
otto 02.01.12 at 4:14 pm
Er, how to explain? Imagine a country with a well developed, differentiated property tax, people with large houses pay more etc, which then moved to a low-flat-rate property tax. Then imagine another country with no property tax at all that moved to a low-flat-rate property tax on its way to having a differentiated property tax, by setting up administrative procedures, records of properties and owners, inducing habits of payment, etc all of which are necessary for successful tax collection of more ambitious sums. One way to think about it – yours, it seems – is that these two countries are doing the same thing – in the year in question they both have a low-flat-rate property tax. Regressive! But it seems to me that the second situation is rather different from the first, being as it is the necessary preliminary for the differentiated taxation of property by value in some form or other. Tip of the spear, etc.
As for when the differentiated element will come in, let us see. I agree that the sooner the better and there are pressures in that direction too. Even if it is delayed, I do not think that it could be introduced without the interim phase we are now going through. Again the problem is not really as you describe it – the Irish government’s apparent preference for regressive taxation – but the potential for mass resistance / non-payment by average homeowners.
NB – in case you do not know – the Irish property tax only falls on property owners, unlike e.g. Council Tax in the UK.
Shay Begorrah 02.01.12 at 4:18 pm
dsquared@186
I still maintain my view on the big picture though – the ratio of 2:1 spending to tax is just wrong in terms of sharing the pain, and what Ronan Lyons calls the “MC Hammer†approach (with respect to corporation tax, income tax allowances and land value tax, you can’t touch this) is also really unserious.
Unseriousness should be unsought.
Ronan, god bless his little Austrian socks, is not too sold on the idea of progressive taxation or equality, so his preference for increasing taxes on the lower paid is not a terrible surprise – but you Daniel – well I am surprised.
Ireland’s taxation policy choices make much more sense when viewed through the lens of our crack FDI habit. Until we discover oil or magic up an industrial base (4.5m population in the Republic makes that hard) the governments economic focus remains almost exclusively in maintaining a slight cost advantage over our European “partners” to win multinational investment. Hence the preference for service cuts over taxation.
On the property tax front it is worth remembering that the state unfortunately now has a very substantial investment in property (47 billion) through the NAMA bank bailout mechanism. We are about thirty billion Euro down on our investment already and the advantage we might get through a land value tax has to be offset against the need to try and keep the property market alive.
Ireland’s real problem in escaping the European component of the global financial crisis remains the Euro/ECB policy mandate and the cost of the banking bailout.
P O'Neill 02.01.12 at 4:28 pm
As currently structured, that “flat rate land tax” is actually a poll tax.
otto 02.01.12 at 4:32 pm
The countries which are most equal in Europe do not attempt to do so by largely exempting average earners from income taxation, as Ireland does. I do not think Irish people in general or the cause of equality in Ireland have benefitted from the resulting instability in revenues (because the substitute income was stamp duty on house sales).
otto 02.01.12 at 4:36 pm
Er, no, a flat rate land or property tax is not a poll tax. The UK poll tax was (as poll taxes are) a per individual charge, paid for by individuals, which required knowing where every individual lived and making them as individuals pay, including many who were entirely otherwise outside the tax net and who had relatively few incentives to remain in good standing with the tax authorities (such as transients and students, and others with little income or assets). A flat rate property charge is paid only by property owners, does not require any knowledge about who is living where, and property owners are a) much fewer in number and b) have much greater incentives to stay on the right side of tax authorities, than those the UK poll tax attempted to levy.
Tim Wilkinson 02.01.12 at 4:38 pm
Chris Bertram @169 &c:
FWIW, BFTBS underwent significant further development between conception in 1978 and capturing the public mood in 1982, at a time of economic recession and anxiety about unemployment.
According that is to http://www.museum.tv/eotvsection.php?entrycode=boysfromthe , which continues:
Bleasdale…originally conceived Boys From The Blackstuff in 1978 during filming for The Black Stuff (D. J. Goddard), his single play introducing the Boys as a tarmac gang (hence the title) and culminating in their sacking for “doing a foreigner” (non-contract job). But whilst technically a sequel, Boys From The Blackstuff was a deeper and darker investigation of character and circumstance consisting of five linked plays of varying lengths (from 55 to 70 minutes). As such it proved difficult to fit into the production and budgetary system of English Regions Drama. However the delay to the production which this caused contributed significantly to the strength and originality of the final work as well as providing a timely conjunction between its transmission and the apex of British unemployment…
The delay in production also benefitted the series in enabling the script to develop through ruthless changes initiated by producer Michael Wearing. In the most extreme case, lamenting the absence of female and domestic perspectives on unemployment, Wearing returned the original episode 3 with an instruction to “write Angie”. In the rewrite, Angie (Julie Walters), Chrissie’s wife, emerged as a further pivotal character and in an emotionally-charged performance uttered the lines which seemed to sum up the series’ message about Liverpool and the dole:
“It’s not funny, it’s not friggin’ funny. I’ve had enough of that ‘if you don’t laugh you’ll cry’. I’ve heard it for years. This stupid soddin’ city’s full of it… Why don’t you fight back, you bastard. Fight back.”
SamChevre 02.01.12 at 4:40 pm
Re: flat rate land tax
I’m used to modeling real estate taxes as wealth taxes (which I think of as more progressive than income taxes)–is this scheme somehow different from a standard real estate tax?
Shay Begorrah 02.01.12 at 4:57 pm
otto@197
The countries which are most equal in Europe do not attempt to do so by largely exempting average earners from income taxation, as Ireland does.
No disagreement there, though Irelands GINI index has improved since the start of the global financial crisis (2009 figures).
Sebastian 02.01.12 at 5:04 pm
“Although in the case of Italy, I actually think they have much more right to blame their problems on other people, because the debt that is causing the trouble in Italy was actually taken on in the 1980s, by a political class that was actually (massively and famously) rejected by the people of Italy. In so far as people are trying to make intra-EMU current accounts balance by “internal devaluationâ€, they’re doing something silly IMO – I mentioned this above but perhaps didn’t make enough of it.”
Ok, but then I guess the problem I have is that it seems to me that a lot of the institutional handwringing about Greece isn’t just about Greece, but rather teeing up against Italy. I think that because Greece is a tiny country in the scheme of things and ultimately could be dealt with almost indefinitely with transfers. But Italy is being treated like Greece already (see above), is a much larger economy, doesn’t run a budget deficit (so could default if pushed), and has already done all the things Greece is supposed to do (for at least ten years). If the EU’s methods on Greece are meant to be applied to Italy, that is going to be a disaster. And it seems to me that all the signs are there, including the fact that Italy is already being talked about ‘like Greece’ in terms of laziness or whatever, already had the EU push out the government like Greece, and is already having terms dictated to it, like Greece.
If the ECB/EU structures intend to use Greece as precedent for Italy, there is going to be a big problem.
Do you think that they don’t intend that?
P O'Neill 02.01.12 at 5:48 pm
#200, here’s a decent description of the “land tax.” Otto is correct re my earlier analogy to the poll tax, but it is a very strange animal by conventional tax structures.
On dsquared’s point about why Irish adjustment took the form it did, I think one important factor was that Fianna Fail still thought they had a path back to power with just one election loss right up until the collapse of the government this time last year i.e. accept an inevitable loss in 2010 or 2011, but leave a few timebombs that would hurt the presumed coalition alternative, and then sweep back to victory with the Irish Independent screaming about “payback time” in 2015 just in time for the 1916 centenary. Hence the softpedaling on income tax, the peculiar transition arrangements for public sector pensions relative to public sector pay cuts (so that pensions got linked to all the pay increases but exempt from the pay cuts), this household charge transitioning to a property tax in 2-3 years, the phase-in of water charges etc. All delightful stuff to agree with the IMF and then have FG/Lab implement it. Their miscalculation being the extent of their defeat last year, which makes the comeback scenario all the more difficult (I think it was delusional even at the time).
SamChevre 02.01.12 at 5:55 pm
Thank you P O’Neill
By American standards, that’s a very low tax. (For example, when I owned a house, it was worth–house and land–about $130,000; the taxes were about $700/year, in a very low-tax jurisdiction.)
Henri Vieuxtemps 02.01.12 at 6:06 pm
RL, Jersey City is a special case, because people live there and work in NYC. But what about something like Gary, Indiana? Someone upthread said that people migrate from depressed communities to thriving ones, and sure enough, that’s what’s happened there: the size of population dropped from 180K in 1960 to 80K today (wikipedia).
I think, maybe, what ECB (or some other European bureaucracy) needs to do is to create some incentives, like subsidies or something, to direct capital, industrial capital, to the depressed areas. Because attracting capital by depressing wages is not going to work: they would have to suppress it down to the levels of China, India, Mexico.
otto 02.01.12 at 7:04 pm
“By American standards, that’s a very low tax.”
That is because it is not the real tax. It is the administrative dry-run for the much higher real tax, coming soon to a theatre near you.
MPAVictoria 02.01.12 at 7:30 pm
“Because attracting capital by depressing wages is not going to work: they would have to suppress it down to the levels of China, India, Mexico.”
Henri for neo-liberals, conservatives, investment bankers and capitalists that is a feature not a bug. Time for the lower orders to relearn their place.
john c. halasz 02.01.12 at 7:55 pm
Re: unit labor costs and CA imbalances:
Why not sharply cut VAT in Germany et alia (and compensate for lost revenues with wealth taxes, if need be), while sharply raising VAT in the GIIPS, (while compensating workers with cuts in other taxes)?
P O'Neill 02.01.12 at 8:01 pm
#206
Already showing in cinemas in Northern Ireland.
http://www.irishtimes.com/newspaper/ireland/2012/0124/1224310672338.html
otto 02.01.12 at 8:09 pm
Exactly. Something like €1000/year for the average property may well be where we end up in the Republic, ideally through a process of slow but inexorable increases without offering any/too many exemptions or discounts (i.e. pensioners, workers on average earnings, 2004-2008 purchasers etc should pay the full tax).
Henri Vieuxtemps 02.01.12 at 8:42 pm
Henri for neo-liberals, conservatives, investment bankers and capitalists that is a feature not a bug. Time for the lower orders to relearn their place.
I understand, but it’s just not going to happen in Europe. At the same time, the idea that factories are going to move to Palermo because the cost of labor is low there is not very convincing: why not skip Palermo and move right to Ciudad Juarez or Shanghai? And Germany is going to de-industrialize too, eventually, and that’s going to end their bad behavior. So, protectionism is probably the solution, for the EU as a whole, and for their regional imbalances.
MPAVictoria 02.01.12 at 9:17 pm
“I understand, but it’s just not going to happen in Europe.”
Henri I really, really hope you are right.
Alex 02.01.12 at 11:25 pm
GDP in Shanghai is now about the level it is in Lisbon, so perhaps the thinking of the 80s is even less relevant than it was already.
Paddy Matthews 02.01.12 at 11:27 pm
@PO’Neill
On dsquared’s point about why Irish adjustment took the form it did, I think one important factor was that Fianna Fail still thought they had a path back to power with just one election loss right up until the collapse of the government this time last year i.e. accept an inevitable loss in 2010 or 2011, but leave a few timebombs that would hurt the presumed coalition alternative, and then sweep back to victory with the Irish Independent screaming about “payback time†in 2015 just in time for the 1916 centenary. Hence the softpedaling on income tax, the peculiar transition arrangements for public sector pensions relative to public sector pay cuts (so that pensions got linked to all the pay increases but exempt from the pay cuts), this household charge transitioning to a property tax in 2-3 years, the phase-in of water charges etc. All delightful stuff to agree with the IMF and then have FG/Lab implement it. Their miscalculation being the extent of their defeat last year, which makes the comeback scenario all the more difficult (I think it was delusional even at the time).
One slight caveat to this picture is that Fine Gael are even keener on shifting the taxation/cuts ratio towards cuts (their original proposal in the 2011 election was a 3:1 cuts ratio before Labour managed to shift the ratio back to 3:2) and that no increases to income tax (whether rates or bands) was a sine qua non on their part for the coalition agreement.
And given that Fine Gael have a 2:1 advantage in seats (and are only a few seats short of a majority on their own) it’s a bit of a stretch to call this a “centre-left” government. Even “centrist” would be pushing it.
Henri Vieuxtemps 02.02.12 at 1:52 pm
@213, are you saying that Foxconn wages are anywhere near to what you would have to pay to factory workers in Portugal?
Are Foxconn wages times ten anywhere near to what you would have to pay to factory workers in Portugal?
FromGreece 02.02.12 at 2:34 pm
“GDP in Shanghai is now about the level it is in Lisbon, so perhaps the thinking of the 80s is even less relevant than it was already.” You mean, per capita?
Henri, Foxconn wages are around 600 dollars per month. So, 3-4 times Portugal.
MPAVictoria 02.02.12 at 2:43 pm
“Henri, Foxconn wages are around 600 dollars per month. So, 3-4 times Portugal.”
Are the Portuguese going to agree to be locked up in dorms and made to work 14+ hour days?
ajay 02.02.12 at 2:49 pm
215:
GDP per capita in Portugal: $23,000.
GDP per capita in Shanghai: $22,983.
(both PPP)
The Foxconn factory that assembles Apple products: not in Shanghai.
It’s in Wuhan, in Hubei province, where the per capita GDP is RMB 60,612. That works out as $9,620.
Henri Vieuxtemps 02.02.12 at 3:29 pm
Shanghai-shmangai. You know what I mean. If what you’re after is cheap labor, you’re not going to Portugal, Italy, or Greece, no matter how low (realistically) it can get there. And not even to Hungary or Bulgaria.
VASILIS PIPERIAS 02.02.12 at 8:51 pm
Its human not forget we are humans.
At the time about 25000 citizens of Athens are homeless.
Some are ex-middle class self-employed which were inforced to leave their business because there is not money in the market.Some are young couples with a baby who lost their job.
Every day about 250000 citizens take a meal from the orthodox church,some more thousands take a meal from municipalities.
In some schools it will begin a programm to offer small meals to students,after there was an increasing number of faints because of lack of food.
Day after day we notice new taxes(vat 23% for the majority of goods,the most expensive oil in europe,taxes for every space with a roof which if you dont pay they cut the electricity ,new taxable exhibits) which mainly push to poventry people with income 10000-20000 euro per year.At the same time to salaries or pensions 500-600 euro per month we have cuts 100-150 euro per month.
The unemployment, month after month, climbs, while last october officially was 19.2%.
For people between 18-25 years old,the unemployment is between 40-50%,depending from the place.
Greece is a boiler without a safety valve.The more possible situation is the ignition during 2012.I AM NOT SURE WE DESERVE SUCH A PUNISHMENT FROM FRAU MERKEL…
christian_h 02.04.12 at 3:53 pm
So I read in the NYT that the Troika now demands that private sector wages in Greece be slashed. What does that have to do with austerity?
Random Lurker 02.05.12 at 10:42 am
@221
Apparently history repeats both as a tragedy and as a farce at the same time.
dsquared 02.05.12 at 11:13 am
It’s this same dumb idea of trying to achieve internal current account balance between regions of a currency union (“internal devaluation”). It’s stupid. This is the real scandal and as you correctly note, it’s got nothing much to do with “austerity”.
Guido Nius 02.05.12 at 11:53 am
It is the same stupid idea as the pressure to cut the automatic compensation if inflation in Belgian wages. It’s being put on the agenda by vultures who take advantage of the current mess to further increase the stupidities that led to the first crisis. I guess it’s something on which some subcommittee in Davos agreed on. Anything that prevents increasing the tax rates on higher incomes and decrease them on lower incomes is a good idea by the liberal standard.
Andrew F. 02.05.12 at 4:56 pm
Might not lowering the minimum wage, reducing a holiday allowance, and reducing some supplementary pensions have a salutary effect on employment, public finances, and firm finances? And before anyone bites my head off, I mean that as an actual question.
My read on Greece is that we’re in the end stages of a long game of political brinksmanship. Each side has made full use of their internal constraints (actual and otherwise) to drive the best bargain for their respective interests – but at the end of the day everyone absolutely needs a deal to happen. But what about Portugal?
Comments on this entry are closed.