The ECB’s New Role

by Henry on December 6, 2012

I’ve a review in the new issue of The Nation of Harold James’ history of the euro (Powells, Amazon) which does the usual annoying-reviewer-trick of taking a book and using it to talk about things that the reviewer rather than the book’s author wants to talk about. I think this works better than it sometimes does, since the book has lots of juicy (for administrative history values of ‘juicy’) details about the arguments behind the creation of Economic and Monetary Union, which have obvious implications for politics today. Anyway, judge for yourselves if you’re interested …

In September, the European Central Bank announced that it had taken decisions on a “number of technical features regarding the Eurosystem’s outright transactions in secondary sovereign bond markets.” The ECB did all it could to make these decisions sound like a nonevent. It claimed that the new policy measures—which it gave the incomprehensible-seeming label Outright Monetary Transactions—had the dull but laudable aim of safeguarding “appropriate monetary policy transmission and the singleness of the monetary policy.” As it turns out, Outright Monetary Transactions are anything but simple “technical features.” They have scant relevance to monetary transmission or to conventional monetary policy. Instead, they allow the ECB to do something that it is not supposed to do: intervene in the market for government debt.

{ 156 comments }

1

Hidari 12.06.12 at 5:19 pm

I read the whole article linked to. What it made me think was:

The Eurozone is no longer, in any meaningful sense, a democracy. Discuss.

2

Kevin Donoghue 12.06.12 at 5:44 pm

All too depressingly true. In 1993 I had a brief chat with an official involved in picking up the pieces after the ERM debacle which left Norman Lamont singing in his bath. I thought the single currency project was dead. He assured me that it wasn’t: “you cannot stop a bureaucracy.” If you could phrase that a bit more poetically it might make a good epitaph for European democracy.

3

Niall McAuley 12.06.12 at 5:51 pm

The ECB’s new role is to be a Central Bank for Europe. How did things go so badly wrong?

4

dsquared 12.06.12 at 9:22 pm

tbh, the OMTs are actually pretty dry and technical operations stuff, and intervening in the market for government debt is not really a Rubicon (that was what the SMP was for, after all). The real watershed, as you can tell by looking at a chart of Spanish bond yields, or equity indices or any risk-on measure, was the Draghi “bumblebee speech” in July. That was the point at which he declared that he was prepared to do “whatever it takes” and marks the birth of an ECB determined to use the more or less completely arbitrary power that was always implicit in its founding treaty.

5

Henry 12.06.12 at 9:34 pm

I dunno – I think there are two questions tangled up here. One is the question of when the ECB lost what it claimed to be its political virginity, which you could plausibly date back even further to the original bond purchases. The other is the question of when the ECB moved from informally acting the heavy on government spending etc to formally assuming a much more explicit political role (i.e. when the bond purchases became formally linked to programs and conditions, rather than informally tied to mystery letters). The latter development is what I’m really interested in in the article, which is less about ‘when did the ECB start buying government debt’ (although the first para is admittedly confusing on this, it does get clarified later in the text) than ‘how did the ECB turn from a purportedly apolitical entity hovering above it all, into a politicized actor telling governments how they needed to reform their labour markets if they wanted help.’

6

Trader Joe 12.06.12 at 10:24 pm

We could probably look up specific dates – but in my view the ECB moved to fill a leadership vacuum that was created when variously the French and German governments (sometimes Merkel and Sarkozy, sometimes others) variously made comments suggesting the litany of things they “wouldn’t” allow or the terms they demanded to allow X or Y to occur.

When these iterations of foot dragging were introduced into the process of scheduled debt refundings, or releasing different tranches of debt facility the ECB was left in the position of either not acting, or acting without full authorization, but in a manner that might plausibly have been allowed by their mandates.

Like lying and potato chips – the first time was hard, the second time less so and so on…

Eventually, the ECB actions reached the perfect political tipping point particularly for Germany (which face it, is the only one that matters) – if the actions were sucessful Germany could be viewed as supportive, if they failed, the ECB could be strung from the highest rafters as being outside their remit….

A leadership vacuum leading to acts of fiscal necessity rather than political will – where else have I seen this???

7

dsquared 12.07.12 at 12:02 am

But the OMT “conditionality” is a bit of a dead letter. Everyone knows that the “program” for the Spanish government is identical to their last budget; see also the troika “program” Spain is currently drawing down for the bank recaps which has no macroeconomic conditionality at all. I don’t really see this enthusiasm on the part from the ECB for micro-managing people’s economies, only that (as wasn’t the case in the special situations of Ireland and Greece), the domestic policies have to be broadly consistent with the survival of the euro as a whole. As far as I can see, the ECB is at least as much acting in self-defence of its currency and only really demanding the powers that it needs to protect itself.

8

bert 12.07.12 at 12:51 am

Dan, think for a moment how the cuts program we’re all enjoying here in the UK would go over if it was under the direction of officials from Brussels/Frankfurt. The ongoing refusal of the Spanish government to request assistance would be hard to explain if it was no big deal. At the very least we can say that there is an alternative view of where eurozone imbalances come from and how adjustment to them ought to take place. Right now that view is being shut out of the discussions. The rulebook is being written so as to place the burden of adjustment on economies stuck with financing difficulties. It was the same story with the fiscal pact: very German-friendly.

9

MPAVictoria 12.07.12 at 1:20 am

“Dan, think for a moment how the cuts program we’re all enjoying here in the UK would go over if it was under the direction of officials from Brussels/Frankfurt. The ongoing refusal of the Spanish government to request assistance would be hard to explain if it was no big deal. At the very least we can say that there is an alternative view of where eurozone imbalances come from and how adjustment to them ought to take place. Right now that view is being shut out of the discussions. The rulebook is being written so as to place the burden of adjustment on economies stuck with financing difficulties. It was the same story with the fiscal pact: very German-friendly.”

100% right.
0% wrong.

10

nnyhav 12.07.12 at 1:55 am

In the last graf, “In principle, it’s hard to see how this is sustainable over the long term.” made me giggle.

(Not just the amount of sustainability in fin/econ press, but vis-a-vis the separability of monetary and fiscal policy.)

11

rf 12.07.12 at 2:02 am

This might be a foolish question, but does this:

“The ECB has become more powerful than the Fed, but with even less democratic oversight.”

Mean more powerful within Europe than the Fed is in the US? Or more powerful in the global economy?
And related, how important was the Feds emergency funding to Euro banks and firms at the start of the crisis in preventing a Euro meltdown initially? (The questions get even more basic from here on, so I’ll stop at that)

12

Henry 12.07.12 at 4:14 am

I don’t really see this enthusiasm on the part from the ECB for micro-managing people’s economies, only that (as wasn’t the case in the special situations of Ireland and Greece), the domestic policies have to be broadly consistent with the survival of the euro as a whole.

dsquared – still not buying. Look at the letter to Italy. The relevance of demands to increase Italian labour market flexibility and open up public procurement to “the survival of the euro as a whole” seems to me to be pretty well non-existent. Now, you can surely argue that Italian labour markets are crap – but that’s not the point I don’t think. And from interviewing ECB officials and others, I can say with a strong degree of confidence that they are very sincerely committed to the austerity agenda in ways that go far above and beyond preserving the minimal stability of the eurozone. You may turn out to be right that there will be no austerity for Spain when it finally signs up that it wouldn’t be looking for itself, but that’s not the way that I’d be betting meself.

13

Henry 12.07.12 at 4:15 am

More powerful in Europe than the Fed in the US. I don’t know nearly enough about the Fed’s help to Europe to say anything intelligent.

14

Henry 12.07.12 at 4:17 am

And am stuck doing dull call-of-duty stuff tomorrow, so will likely be bowing out for a bit …

15

Bruce Wilder 12.07.12 at 6:04 am

dsq: “. . . only really demanding the powers that it needs to protect itself.”

for some reason, I just flashed on the Kaiser’s armies crossing Belgium, headed for Paris.

16

christian_h 12.07.12 at 9:15 am

So how are demands for labor market reforms in Italy subsumed under “the Krauts did it”. Of course German capitalism is the strongest capitalism in Europe and therefore has to come in for a lot of the blame in this ongoing assault on workers’ rights and the social wage across the Euro area, but anyone who thinks the poor Italian or Spanish bosses are being forced by the modern equivalent of the imperial German army to do so are really deluded. This is part of a worldwide offensive by ruling classes. Making it into an issue of nationalism isn’t going to cut it if we want to fight back.

17

Random Lurker 12.07.12 at 9:17 am

@Hidari 1

“The Eurozone is no longer, in any meaningful sense, a democracy. Discuss.”

The EZ is not a state, and as a consequence it cannot be a democracy: in order to be a democracy it should have much more political power vs. his members than it has now.
For example the EU (ok not really the same thing as the EZ) has a parliament that is democratically elected but it is quite powerless. As a consequence most power rest in the hands of single countries’s governments, that then legitimize their choices at an EU level through the various EU minister’s councils.
In other words, more democracy in the EU implies more accentration of power in the hands of the supposed sovereign (the EU) at the expense of the current ones (EU nation-states).
This accentration is necessarious for “more democracy” but is also obviously not sufficient, since it could lead to a non-democratic EU, but the alternative (dissolution of EZ and subsequently of the EU) is also a big democratic problem IMHO.
Speaking of the ECB: it seems to me that the simple way out of the crisis is for the ECB to print as hell, and to ask for inflationary policies in all member states. This policy would create many losers, and so has many opponents. But how could this be solved in a more “democratic” way? Can the Greeks democratically choose that the Germans have tho give them money?
Plus, the whole idea of an indipendent central bank is BS. Would you like an indipendent army? an indipendent police? The only reason we speak of indipendent central banks is that, since we live in a capitalist society, the correct functioning of financial markets is the only thing that is supposed to be above democratic government. However the idea that the central bank is indipendent is common to all countries that I know of. How is the ECB more independent than the fed? Or than the Banca d’Italia? Draghi was proposed by Berlusconi.
It is true that the ECB is acting beyond its scope when it sends “letters” to countries asking for this or that policy, but it is doing so only filling a power vacuum, that is caused by the unexistence of a real “european government”, that could be democratically elected (in facts, it would be cool to democratically elect the ECB itself).

18

Random Lurker 12.07.12 at 9:20 am

Also, I strongly agree with christian_h @16.

19

Ciaran 12.07.12 at 9:28 am

From what I’ve read Rajoy is basically preempting the trioka’s economic plan so that when they do arrive he can say “they aren’t telling us what to do.”

20

bert 12.07.12 at 10:48 am

Christian_h makes a worthwhile point. Keynes was proved right on a bunch of stuff, the first being that it’s counterproductive to be beastly to the hun. Germany is an important market for the periphery, and if we want to boost growth and reduce eurozone imbalances there’s a case for putting money in the pocket of the German worker. But when Krugman calls for several years of above-average inflation in Germany he’s not merely challenging a blinkered orthodoxy. As a practical matter he’s also calling for the Germans to price themselves out of work, at least at the margin. Given the current state of the eurozone, there might be a limit to how keen should we be to weaken German export competitiveness in global markets.
Christian’s point about social solidarity is also worth taking on board: if pain is being handed out it ought to be distributed fairly. Again though, if you refocus from a eurozone to a global perspective, you can see that in the rich world we’re trying to shore up a high standard of living. The Chinese are going to cross that picket line. And if you’ve done any Christmas shopping it’s likely you’ve crossed it too.
If these weren’t tricky questions there would be nice straightforward answers.

21

christian_h 12.07.12 at 12:43 pm

Just to be clear, I completely agree that given a currency union and the imbalances within it – imbalances that are to some extent inevitable (they exist within any nationa economy) – there have to be monetary tranfers from richer areas to poorer ones. I also agree that insofar the debt crisis was caused by German banks financing an unsustainable building boom in Spain (say) the absolutely last solution to the resulting problems that could possibly be called just is for Spanish workers to pay for this – it should be the bankers, and the real estate moguls, and the building bosses who profited. What is not useful to achieving this is however when we twist this into a nationalist frame, create some alternate history in which Germany forced all the other coutries to join the Euro to bleed them dry or achieve by means of the ECB what it couldn’t be force of arms.

22

rf 12.07.12 at 1:08 pm

“create some alternate history in which Germany forced all the other coutries to join the Euro to bleed them dry or achieve by means of the ECB what it couldn’t be force of arms.”

No one really argues this is in any of the peripheral countries. Overwhelmingly hostility is directed domestically

23

christian_h 12.07.12 at 1:13 pm

I wasn’t talking about arguments being made in Greece or Spain, rf. More about Bruce’s comment here (although I may have well misunderstood what he was getting at, I admit upon reconsidering the context of his remark) and other stuff I have read on (mostly American) blogs.

24

rf 12.07.12 at 1:33 pm

Ah okay, sorry about the misreading.

25

Andy W 12.07.12 at 3:58 pm

bert @ 20:
“But when Krugman calls for several years of above-average inflation in Germany he’s not merely challenging a blinkered orthodoxy. As a practical matter he’s also calling for the Germans to price themselves out of work, at least at the margin. Given the current state of the eurozone, there might be a limit to how keen should we be to weaken German export competitiveness in global markets.”
But surely the inflation Krugman’s advocating would depress the euro, increasing peripheral EZ competitiveness in the process? I would have expected the overall effect on EZ exports to be a wash.

26

bert 12.07.12 at 4:38 pm

But surely the inflation Krugman’s advocating would depress the euro …

When Krugman talks about inflation as a means of adjustment in this case he’s talking about a reflationary boost within Germany, involving wage inflation relative to Germany’s peripheral eurozone partners/competitors. I don’t think anyone’s predicting how that would work itself out in the external exchange rate, and I wouldn’t have much confidence if anyone did have such a prediction. There’s too many other factors feeding in.

27

JW Mason 12.07.12 at 4:40 pm

But when Krugman calls for several years of above-average inflation in Germany he’s not merely challenging a blinkered orthodoxy. As a practical matter he’s also calling for the Germans to price themselves out of work

Krugman’s emphasis on inflation is unhelpful and wrong. German current account surpluses are the result of slower income growth, not more competitive prices. (Also here.) So there is no reason to think higher German inflation is needed to move Europe toward current account balance, or that it would even help. (Econometric estimates raise doubts about whether the Marshall-Lerner condition is satisfied for Germany; if it is not, higher inflation there would actually increase Germany’s surplus.) The necessary and sufficient condition for a movement toward current account balance in Europe is higher income and expenditure in Germany. Relative prices have nothing to do with it.

28

JW Mason 12.07.12 at 4:44 pm

nd jsut to spell out the oint, it follows that a movement toward current account balance would be associated with higher employment in Germany and the other surplus countries, not lower. Krugman’s explicit assumption that the surplus countries are already at full employment is without empirical support and a serious obstacle to his arguments being accepted in Germany.

There is no question he is performing a tremendously positive role in this debate, but he would be more effective if he were not wedded to so many of the same orthodoxies as his opponents.

29

christian_h 12.07.12 at 4:44 pm

Thanks JW, exactly. Luckily unions in Germany have lately recovered a bit from their late-nineties defeats (which were an effect of reunification combined with globalization). Still there is a LOT of catching up to do and it won’t solve the very real short-term problems of the Euro zone.

30

Andy W 12.07.12 at 5:09 pm

bert @ 26:
“When Krugman talks about inflation as a means of adjustment in this case he’s talking about a reflationary boost within Germany, involving wage inflation relative to Germany’s peripheral eurozone partners/competitors.”
Clearly, but it’s hard to see how inflation in Germany isn’t going to make the currency depreciate relative to what it would have done otherwise. Germans buy more American goods, Americans buy less from Germany: supply and demand, surely?

31

Bruce Wilder 12.07.12 at 5:16 pm

My earlier remark was an impulsive response to dsquared’s usual minimizing.

christian_h: “This is part of a worldwide offensive by ruling classes. Making it into an issue of nationalism isn’t going to cut it if we want to fight back.”

Yes, it is a “worldwide offensive” by the “ruling classes” or Uber-Rich plus CEO-class.

Or, to put it another way, we are just beyond the end of the long-cycle that began at the end of the Second World War, watching the breakdown of the institutional order and vision put into motion, then. At the end of WWII, felt political solidarity was at a high, in a number of European countries traumatized by war and great and desperate national efforts; this felt solidarity was applied to the creation of social welfare states and “mixed economies” and foreign policies that married Wilsonian internationalist ideals to some resurrected and refurbished ideas of European Union.

That sense of solidarity has gradually faded away, although unevenly. The social contract is very much intact in Germany, renewed, perhaps, by the effort at reunification — I don’t know. In countries like Greece and Spain and Ireland, with their histories of civil war in the 20th century, solidarity was never all that strong, to begin with, and the social welfare state was weaker, or came with a fascist, corrupt authoritarian cast. The EU was popular, precisely because it promised a kind of relief from the most visible and embarassing short-comings of national government, in rational regulation, modernity and guarantees of civil rights, and the Euro just extended that promise. For Ireland, European integration was the foundation of the American corporate invasion that brought about national prosperity. For Spain, it was the bridge away from Franco. Etc. As I recall, Italy went to the Euro in a heady popular stampede, abandoning the lire as soon as it was legally permissable, and sometimes a few days sooner. The periodic inflations, which had been a safety valve for political impasse in Italy (and Greece), and which had left scars in the ridiculously low unit value of the lire, were forgotten.

People in the peripheral countries are fiercely hostile to the national politicians trying to negotiate a way out with the Troika. The sense of political solidarity, which would bind politicians to the interests of the mass of people, and create the trust necessary to the radical exercise of power, is missing. If you go to Germany, you hear just the opposite: people think that they have sacrificed a few months on the retirement age, on their pensions, for the sake of Europe, and it may be a long, hard slog, but institutions will be reformed in the South for the better.

Do you remember dsquared’s classic “Fifty Ways to Leave Your Lover Euro” post? Every regular, technical (and complex) path led to a dark, dead-end alley in The City, with a gang of banksters, ready to extract blood and a pound of flesh with dull pen-knives.

Solving the problems of the Euro in any finite period of time in favor of the mass of people requires the swinging of the sharp, long sword of raw political power on their behalf. I don’t see any model for organizing that kind of political power, other than nationalism.

From the mass suffering, particularly of the young, desperate to start lives and careers, we’re going to get some kind of eruption of political solidarity — probably a eruption of competing solidarities, as more and more people are pressed by their frightening experiences and prospects toward the political psychology of authoritarianism. They will be open to demagoguery, built on hostility to some out-group, and the promise of benefits from being part of an in-group, and an end to a politics of impotence amid impossible to understand technical complexity, born of the rank corruption and incompetence of the eurocrats.

32

Bruce Wilder 12.07.12 at 5:34 pm

“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.”

This is one of those internet quotes, with no genuinely known author, but it seems to me to apply to the strange case of the Euro. I appreciate what JW Mason has to say, about Krugman’s orthodoxy, and how its representation of responsible “left” opinion limits popular understanding, as well as the available alternative policy options. Part of Krugman’s rhetorical frame is the insistence on identifying those in charge as imbeciles, while largely ignoring the smart people sneaking out the back with bags of money.

On a sidenote, I don’t know that global resource limits would really permit higher German incomes, if that required higher German production and economic activity. It seems to me that the smart people have been navigating with a clear view of the implications of global resource limits. And, that worries me.

33

William Timberman 12.07.12 at 7:14 pm

No, this can’t end well. As Henry suggests, though, it may not end for quite a long while yet, depending on how the rest of the world’s economies — principally those of China and the U.S. — approach their own difficulties.

It certainly is painful to watch, though. It reminds me of the Peanuts comic strip episode in which Snoopy complains that everyone on Thanksgiving is getting turkey for dinner except him, then concludes that it could be worse — he could have come into the world as a turkey rather than a dog. Muddling through for the few has always been cold comfort for the many, and in times of crisis, not even that.

34

rf 12.07.12 at 7:22 pm

““For Ireland, European integration was the foundation of the American corporate invasion that brought about national prosperity.””

What options are really available to a small country on the western edge of Europe? Tie ourselves to Europe or tie ourselves to Britain? Become Andalucia or become Liverpool? Aren’t even Iceland trying to join the EU at the moment?
On the Irish Civil War, afaict, the only long term consequence was the institutionalisation of a particularly idiotic political class.

Also our economy was booming pre Euro:

“The Irish economy had failed to grow at all between 1980 and 1986; then, spurred on by well-executed currency devaluations, a booming UK economy, a successful tax amnesty, and the beginnings of social partnership, in the following decade it would grow by more than five per cent annually” (Cormac O Grada, 5 Crises)

Not wanting to be monocausal, but it was all the Euro and the inflows of capital it encouraged. Of that there can be no doubt. I’ve never once heard an explanation of how the meltdown could have been avoided post Euro.

35

dsquared 12.07.12 at 10:37 pm

Look at the letter to Italy.

But (again, as widely known and reported in Italy at the time), the underlying message of that letter, the only one anyone cared about was “Time To Go, Silvio”. Which I agree with you was way outside the ECB’s mandate and profoundly antidemocratic, but when I said this at the time, everyone (even Phil Edwards who is my touchstone on this one) pointed out that “Procedural Democrats For Berlusconi” was likely to be a small club.

Bottom line here is that the European technostructure is a real thing, but the alternative is something like US legislative deadlock.

36

JW Mason 12.07.12 at 10:51 pm

But (again, as widely known and reported in Italy at the time), the underlying message of that letter, the only one anyone cared about was “Time To Go, Silvio”.

The full text of the letter can be found here.

When the ECB calls for “full liberalisation of local public services and of professional services is needed. This should apply particularly to the provision of local services through large scale privatizations,” it seems reasonable to think they are saying that public services should be privatized.

When the ECB says, “There is also a need to further reform the collective wage bargaining system allowing firm-level agreements to tailor wages and working conditions to firms’ specific needs,” it seems reasonable to think they are talking about weakening the power of unions.

When the ECB says, “A thorough review of the rules regulating the hiring and dismissal of employees should be adopted,” it seems reasonable to think they are looking for rules that make it easier to fire people.

Why should we interpret all this as just being code for “Time To Go, Silvio”?

I have a long blog post on this subject, if anyone is interested.

37

JW Mason 12.07.12 at 11:09 pm

anyone who thinks the poor Italian or Spanish bosses are being forced by the modern equivalent of the imperial German army to do so are really deluded. This is part of a worldwide offensive by ruling classes. Making it into an issue of nationalism isn’t going to cut it if we want to fight back.

I agree with this. But it’s tricky. Because in fact, both democratic institutions and the capacity for solidarity and mass mobilization, seem to exist much more at the national than the European level. So while you’re completely right that this is not an issue of clashing national interests, I do think that there is a reason the ruling classes of Europe (and elsewhere, tho it hasn’t gone as far) have wanted to shift authority to supranational bodies, and that popular resistance will be strengthened to the extent authority shifts back toward national governments. In that sense, I think that nationalism can have progressive content.

Of course these are very old arguments…

38

rootless (@root_e) 12.07.12 at 11:18 pm

@36 JW Mason 12.07.12 at 10:51 pm

Your post is reasonable, but note that US bank failures regularly involve tearing up both shares and bonds, which does not seem to be permitted in The ECB Dominion.

39

christian_h 12.08.12 at 8:06 am

JW (37.), I do agree with that. The EU as it actually is at this point in time is a ruling class construct, among other things an instrument to help national capitals impose neoliberal reform in their economies (Sweden is a good example, to get away from Southern Europe for a moment, of a country that had no need of any kind to join the EU but did so fairly clearly to overcome its domestic resistance to neoliberal reform). So I would argue to abolish the whole thing if the Euro had not made that a likely disastrous decision. What I am saying is merely that this is a joint project of the ruling classes of Europe, so resistance to it will also have to be europe-wide.

40

dsquared 12.08.12 at 8:28 am

Why should we interpret all this as just being code for “Time To Go, Silvio”?

Because all of these things were already Italian government policy at the time.

41

Bruce Wilder 12.08.12 at 8:36 am

“What I am saying is merely that this is a joint project of the ruling classes of Europe, so resistance to it will also have to be europe-wide.”

There may be a kind rhetorical resonance there — Europe-wide ying meeting Europe-wide yang — but there’s no logical necessity.

How is this resistance to be organized? What will bind leaders to the led? And, what will bind the led to the leaders? Through what institutions will anyone act in resistance? In pursuit of what alternative? How will that alternative be conceived and advocated?

42

Zamfir 12.08.12 at 9:07 am

Dd, for all I know you are right that the ecb people didn’t want this power. But now that its there, it will surely fill up with people who do want such powers. If that process is not already going on.

43

Hidari 12.08.12 at 9:20 am

The “Procedural Democrats For David Cameron” is likely to be an even smaller club and yet I doubt that I doubt that the British would be sanguine about their Govt being overthrown by an unelected bureacracy.

I know plenty of Italians who adore Berlusconi incıdentally. It’s not true that the Italians were cryıng “oh pleace ECB overthrow our Government’! Install a Eurocrat who will haveexactly the same policies except with fewer sex parties!!”

44

dsquared 12.08.12 at 10:12 am

note that US bank failures regularly involve tearing up both shares and bonds, which does not seem to be permitted in The ECB Dominion

You’re 180 degrees wrong on that point. The ECB is pushing hard for a “resolution mechanism” to allow exactly this. It’s national law in every European country except the UK, Germany (since 2009) and Denmark which makes it so incredibly difficult to execute the necessary bank restructurings.

EXTRA CREDIT QUIZ QUESTION: Can you name two world-historical events of the last 100 years which might account for the fact that most European legal systems have constitutional arrangements which make it very difficult for government-appointed bodies to issue orders which have the effect of confiscating the financial assets of private citizens?

45

dsquared 12.08.12 at 10:15 am

for all I know you are right that the ecb people didn’t want this power

Well, everyone wants power – it’s fun to have power! But I think Henry is wrong to locate this centralising and anti-democratic impulse a) in the ECB specifically and b) as having all that much to do with neoliberalism specifically. The EU has always been an anti-democratic project, aimed at establishing a central United States of Europe that most of the population doesn’t want, on the basis of technocratic rule with minimal accountability. None of the people who have been its architects have ever made any effort to keep this secret.

46

Kevin Donoghue 12.08.12 at 10:37 am

dsquared,
I don’t recall the ECB showing much enthusiasm for resolution mechanisms when Trichet was president. Maybe he was all for them in principle, for introduction at some less turbulent time etc.; cf. St Augustine and chastity. Once Ireland woke up to the disastrous implications of the bank guarantees there was no lack of willingness to change the law. The IMF was also well disposed. The pushback came from the ECB.

Granted, Draghi seems quite different in some respects.

47

dsquared 12.08.12 at 12:14 pm

Yes, Draghi-ECB is a totally different beast from Trichet-ECB which I think is Henry’s point.

On the other hand, your “Augustinian” joke is actually quite serious – Irish bankruptcy law is 100% broken from top to bottom, but it was the law of Ireland, and as a result of that, any attempt to write down the bondholders in 2010 would have had absolutely disastrous consequences. I don’t agree that there was willingness to change the law and even if there had been, an overnight change of the law specifically aimed at expropriating bondholders would have been straight off to the ECHR. I’m not saying it couldn’t have been done but the legal issues were serious (and the reason that the IMF was in favour was, AFAICT that they were simply ignorant of the law and thought everywhere worked just like the FDIC in America).

48

Random Lurler 12.08.12 at 12:22 pm

While it is true that the “war on labor” was already Italian policy at the time of the famous letter, it strengthened the hamd of the government vs the unions.
Also many italians including me believed at the time, and still believe, that Berlusconi wasn’t forced out of government bit choose to step down so that someone else was going to take the blame for umpopular tax rises etc.
Importantly Berlusconi’s party was asked to join Monti’s government bit refused,still maintaining enough power in tje parliament to send Monti home at any time (something they did two days ago)

49

Ciaran 12.08.12 at 12:33 pm

Straight off to the ECHR = disasterous consequences . (??)

50

Kevin Donoghue 12.08.12 at 12:35 pm

dsquared,
You’d have been following this more closely than I was, but AFAICR the Irish plan was to screw Anglo’s senior bondholders once the depositors had been paid off. Wouldn’t that, on the face of it, have been a straightforward liquidation? Now maybe the bondholders would have gone to the ECHR, but they might not have got a very sympathetic hearing. If you buy bonds in an institution as crappy as Anglo and lose your shirt, the fact that the depositors got better treatment than you did, and better than they deserved, is hardly a human rights violation.

But I must admit my memory of all that is quite hazy so I may just shut up and let Karl Whelan argue with you if he’s so inclined.

51

dsquared 12.08.12 at 4:00 pm

AFAICR the Irish plan was to screw Anglo’s senior bondholders once the depositors had been paid off. Wouldn’t that, on the face of it, have been a straightforward liquidation?

Not really. The whole purpose of bankruptcy law is to prevent these kind of squirrelly deals whereby you pay off one class of creditors and leave another class twisting in the wind. Some countries have an exception in their bankruptcy code for compulsory restructurings of regulated financial institutions, but Ireland didn’t – the bonds, deposits and interbank obligations (including those to AIB and BoI) were all pari passu legally. There was nothing illegal about screwing the Anglo bondholders as long as you were prepared to screw the Irish banking system creditors too, but Ireland wasn’t for obvious reasons.

52

rootless (@root_e) 12.08.12 at 4:38 pm

Depositors are not standard creditors. The EU 1994 deposit guaranty directive clearly creates a US FDIC type legal regime. Ireland chose to bail out bond investors – disastrously. If they had acted in accord with the 1994 directive and bailed out only depositors of up to the limit set – which I believe was 20,000 Euros, senior bondholders would have been welcome to take what was left over.

In any case, the simple fact is that US bank bondholders have lost money when they lent to poorly structured banks that collapsed and as far as I know ECB Dominion bank bondholders have all been bailed out. Referring to ECB proposals is not a refutation.

53

P O'Neill 12.08.12 at 4:40 pm

The Irish case has of course been painfully argued on various fora but I think our goose was cooked by the deservedly infamous September 2008 guarantee rather than bankruptcy law. Bankruptcy laws and pari passu clauses don’t preclude restructuring offers outside of bankruptcy; what you can get creditors to agree to is another question but Ireland never even tried. It didn’t help that the government had muddled objectives at the start (it seems likely that in September 2008, they thought they were saving Allied Irish rather than Anglo).

As for the ECB actions since the crisis, I don’t think it started out as the banking orthodoxy ogre that it is now. Instead, the ECB and a segment of the Brussels elite saw banking integration and the single currency as deep achievements of the EU which were under threat and thus became The Precious of the entire project for them. Pesky little countries seen as undermining cross-border financial flows therefore became part of the problem in their mind.

54

rootless (@root_e) 12.08.12 at 4:49 pm

Not really. The whole purpose of bankruptcy law is to prevent these kind of squirrelly deals whereby you pay off one class of creditors and leave another class twisting in the wind.

Nonsense.

55

Kevin Donoghue 12.08.12 at 4:54 pm

dsquared,
I get the pari-passu stuff, but I can’t see that a setup in which bondholders do no worse than they would in a liquidation, while depositors get a sweetheart deal of sorts, give the bondholders any legal comeback. Now I’m not certain that the scam Ireland was planning fits that description, but I understood that was the general idea.

Aside from the specifics of the Irish case, I can’t see that being in favour of bankruptcy reform, but only of a kind which injures no existing creditor, is very far from the Augustinian approach to chastity.

56

dsquared 12.08.12 at 6:07 pm

The problem wasn’t so much the retail depositors (who were few in number, and frankly a lot of them were at least as deserving of the loss as the bondholders) as the interbank creditors. The purpose of the bailout was to avoid setting off a domino toppling act which could have brought down a load of non-Irish banks (as we’ve discussed in the past, there is a certain element in the Irish commenteriat which regards the preservation of the French and German banking system to be a weaselly, immoral goal for the ECB, which ought to have been run wholly in the interests of Ireland).

Ireland, btw, is the destruction test case for the neoliberalism part of the thesis – it’s obvious that the Europeans want to get a lot more control over Irish economic policy, but equally obvious that they don’t want it in order to pursue a neoliberal agenda (even though there is actually a lot you could ask of Ireland if you were a real neoliberal ideologue of the union-busting kind).

57

dsquared 12.08.12 at 6:09 pm

If they had acted in accord with the 1994 directive and bailed out only depositors of up to the limit set – which I believe was 20,000 Euros, senior bondholders would have been welcome to take what was left over.

If you don’t understand that banks have plenty of creditors who are not bondholders and not depositors, nor who those creditors might be, you might want to wind your neck in for a bit.

58

dsquared 12.08.12 at 6:13 pm

Bankruptcy laws and pari passu clauses don’t preclude restructuring offers outside of bankruptcy; what you can get creditors to agree to is another question but Ireland never even tried.

this chicken-game you’re proposing would have had disastrous results. You’re forgetting that AIB and BoI were banks, not industrials. They had to roll over huge amounts of funding every single day. As soon as you start messing around like this, you cause a run by the wholesale creditors, and you end up creating a much, much bigger problem. The banking system liability in the Irish state debt is huge, but it could easily have been made three or four times as big by the kind of policies that people are suggesting.

59

rf 12.08.12 at 6:22 pm

“(as we’ve discussed in the past, there is a certain element in the Irish commenteriat which regards the preservation of the French and German banking system to be a weaselly, immoral goal for the ECB, which ought to have been run wholly in the interests of Ireland)”

This is fair if you’re taking the Sunday Independent as the personification of the ‘Irish commenteriat’, if not then it’s a complete strawman. And I’m not saying that as someone challenging any of your expertise on this specific topic, but when it comes to Ireland you can have quite a blinkered position. (Is a lot of this hostility a reaction to being ‘right’, but relatively ignored, on the Irish economy throughout the 00s?)

60

rootless (@root_e) 12.08.12 at 6:51 pm

“The problem wasn’t so much the retail depositors (who were few in number, and frankly a lot of them were at least as deserving of the loss as the bondholders) as the interbank creditors. The purpose of the bailout was to avoid setting off a domino toppling act which could have brought down a load of non-Irish banks (as we’ve discussed in the past, there is a certain element in the Irish commenteriat which regards the preservation of the French and German banking system to be a weaselly, immoral goal for the ECB, which ought to have been run wholly in the interests of Ireland).”

That was a problem for Irish taxpayers in what way? The original point of dispute was that you objected to my observation that while the EU is nominally more labor friendly than the USA, EU tender consideration for bank creditors is far greater than US government consideration. EU workers, especially in Ireland are directly paying for the bad investment decisions of the investing class.

61

rootless (@root_e) 12.08.12 at 6:53 pm

“If you don’t understand that banks have plenty of creditors who are not bondholders and not depositors, nor who those creditors might be, you might want to wind your neck in for a bit.”

My original observation was that the EU had, as a ECB policy decision, protected bank bondholders from their poor investment decisions.

62

rootless (@root_e) 12.08.12 at 6:58 pm

“this chicken-game you’re proposing would have had disastrous results. You’re forgetting that AIB and BoI were banks, not industrials. They had to roll over huge amounts of funding every single day. As soon as you start messing around like this, you cause a run by the wholesale creditors, and you end up creating a much, much bigger problem. The banking system liability in the Irish state debt is huge, but it could easily have been made three or four times as big by the kind of policies that people are suggesting.”

There may have been a bigger liability, but it would not have been one for Irish workers.

63

rootless (@root_e) 12.08.12 at 7:02 pm

I should point out that “the chicken game” that D-squared finds so alarming is exactly what the US government did with US autos – with great success, to the chagrin of the bondholders who originally insisted on 100% payout. Fortunately, US policy was not run by hapless Irish politicians or Hayekian ECB bureaucrats.

64

Cranky Observer 12.08.12 at 7:06 pm

Wall Street, the City, the Bourse: they are all operated by Masters of the Universe ™ who are always right, even when their actions appear to create disaster in the eyes of uninformed simpletons whose intelligence does not begin to approach that of the Krell, oops, I meant financiers who run the trading houses.

We who labor in the factories churning out the BMWs we will never be able to buy and and in the fields growing the delicacies we couldn’t afford to feed our children must never question the actions of, and certainly not match our puny minds against the brilliance of, the Financiers.

Cranky

“Masters of the Universe” trademarked by Thomas Wolfe Jr.

65

christian_h 12.08.12 at 7:25 pm

rootless, if you would actually read the comments of dsquared you are pretending to address you might have saved yourself a couple comments.

Here is dsquared: “You’re forgetting that AIB and BoI were banks, not industrials.”

And you: “blah blah autos blah blah”

And also you: “EU workers, especially in Ireland are directly paying for the bad investment decisions of the investing class.”

Have you talked to UAW lately? No? Maybe you want to find out what happened to their contracts when your hero in DC bailed out Detroit. Hint: they were forced to accept cuts in total compensation worse than what has been imposed by the Troika on Greek workers. Your irrational love for the Obama administration really leads you to make absolutely absurd claims lately.

I completely agree it is outrageous that Irish workers were made to pay for the crisis that Irish and international banks, real estate speculators and investors had created. The same applies however for the policies of the US, that also made workers pay for this crisis that was created by the bosses, and certain bankers and investors.

66

P O'Neill 12.08.12 at 7:28 pm

You’re forgetting that AIB and BoI were banks, not industrials. They had to roll over huge amounts of funding every single day. As soon as you start messing around like this, you cause a run by the wholesale creditors, and you end up creating a much, much bigger problem.

Two ways this could have been handled (acknowledging risks of hindsight/cherry picking etc).

1. Have the 2008 guarantee apply to new bank debt only, so that AIB and B of I could still fund at ECB window with new government guaranteed debt
2. Use Central Bank of Ireland emergency liquidity assistance to fund the balance sheets of these two banks.

With this backstop, then the game with the bondholders could have been — we can still fund our banks, here’s our best offer, otherwise see you in court. Ireland ended up having to ELA anyway, except for a dead bank — Anglo. In short, we ended using all the tools for a game of chicken, except we had pre-emptively driven off the cliff at the start.

67

rootless (@root_e) 12.08.12 at 7:38 pm

Here is dsquared: “You’re forgetting that AIB and BoI were banks, not industrials.”

I’m not forgetting it, I’m ignoring an attempt at misdirection. WAMU and Wachovia were also banks. So were Lehman and Bear Stearns. There is nothing about the character of Irish banks that merited ECB’s stance that bondholder value was a holy fucking sacrament. And if we need to get into it, the ECB theory that all peripheral nations need to sacrifice to protect the banks of EU core states from the consequences of their risk avidity is really indefensible.

“Have you talked to UAW lately? No? Maybe you want to find out what happened to their contracts when your hero in DC bailed out Detroit. “

“The bankruptcy restructuring General Motors and Chrysler in 2009 through the creation of new companies formed with assets purchased from those troubled companies was highly successful. Today GM and Chrysler are profitable, investing in America and creating jobs.

President Obama’s decision to act to save GM and Chrysler prevented an economic catastrophe that would have thrown the nation into a full-blown depression and resulted in dozens of additional bankruptcies in the auto industry and across industrial America. Instead, the auto industry today accounts for an outsized share of economic growth and is helping lead our nation’s economic recovery.”
Bob King

And because this obvious point is somehow elusive for so many, a critique of the ECB craven fealty to bond investors contrasted with the far superior US approach is not the same thing as a 100% endorsement of the US approach. The US was too generous to bondholders and did not require the union to take an active management role- although that is perhaps an unavoidable result of the crappy state of the union. Similarly for US bank resolution – not great even though much better than EU policy. But I do note that while the US has since strengthened laws for resolving illiquid financial firms in ways that make bondholders pay, the EU has just talked at cross purposes.

68

christian_h 12.08.12 at 7:53 pm

Yeah sorry, I should have said “auto workers” to avoid the obvious Obot comeback citing union bureaucrats. Supposing this particular one is right of course all it means is that cutting salaries will improve profitability – duh. How this is a good thing for those whose salaries were cut and pensions stolen is unclear, however.

By the way how much value did Goldman Sachs etc get on AIG CDS’s? Was it market value, whatever that was at th time? There seems to be one major difference between the US and Europe: the Fed just printed money (or purchased bad assets, same diff) while the ECB for reasons not quite clear to me (not allowed to?) stupidly failed/was unable to do so. But bank creditors in general seem to not have been treated very differently either side of the pond.

69

rootless (@root_e) 12.08.12 at 8:08 pm

Well whatever it seems to you and whatever other issues you may want to bring up: in response to the financial crisis, US government has been far more willing to make bondholders pay than the ECB has. That’s simple fact, no matter how ideologically inconvenient or puzzling it may be.

70

Bruce Wilder 12.08.12 at 8:52 pm

A financial sector is dealing imaginatively with an uncertain future. Left to its own devices, absent regulatory constraints and considerable financial repression, a financial sector will generate sui generis risk, to profit from insuring against that synthesized risk, and then contrive to avoid paying out, when the failure of basically fraudulent deals inevitably emerges in a financial crisis.

The general principles, which ought to be obvious, are ex ante financial repression, to constrain the creation, particularly, of extortionary situations (such as putting the payments system at risk, TBTF, etc), and ex post, institutions, such as bankruptcy, which resolve deals gone bad, by re-writing the deals and re-valuing the claims, according to principles of equity.

Capture of the state by the global financial sector, and the use of state and supranational institutions by the global financial sector, as predatory mechanisms, is a serious problem in the U.S., the U.K. and the Eurozone.

Now, what can be done about it?

71

rootless (@root_e) 12.08.12 at 9:22 pm

There are two levels of response. The first is state action – and I have to admit that I am surprised by how weak EU anti-finance popular pressure has been. Nationalism wins again in Europe beating class solidarity for the 100000000th time: German workers are apparently still happy to be ripped off if they can be persuaded that it is in the cause of making lazy Greeks suffer. The second is the construction of alternate credit networks outside the bank/multi-national sphere. I am particularly thinking of credit institutions tied to the kind of coop/institution network that Alperovitz advocates.

72

William Timberman 12.08.12 at 9:51 pm

Bruce Wilder @ 70

Well, what can’t be done about it is Obama, is Merkel, is Xi Jinping, is Berlusconi Redux. And, I’m sorry to say, is the ghost of Joe Hill. Perhaps we’ll have to wait for the Rapture (the secular humanist one that the Enlightenment, in one of the signal ironies of human history, claimed to portend.)

73

Bruce Wilder 12.08.12 at 10:04 pm

“German workers are apparently still happy to be ripped off if they can be persuaded that it is in the cause of making lazy Greeks suffer.”

The considerable propaganda resources given over to these kinds of morality tales, “explaining” the origins of crisis, play a large part. I don’t sense that the Germans want the Greeks to suffer, particularly, but the flattering tale of German moral superiority, evidenced in economic performance of some vague kind, does seem to serve to make the German public blindly self-satisfied. As other commenters observed, previously, there’s no symmetry of national animosities; many Greeks and Italians share the German admiration for the Germans.

Market liberalism had a preachy moralism about it, in Turgot’s day, as well, and Necker flattered France and himself, claiming that he had run a surplus, while borrowing heavily. They still managed to stumble their way to the French Revolution.

74

dsquared 12.09.12 at 2:14 am

I see that my advice to wind one’s neck in when one doesn’t know what one’s talking about fell on stony ground.

There may have been a bigger liability, but it would not have been one for Irish workers.

Let me whisper it – “Irish workers”, “Irish savers”, “Irish taxpayers” and “Irish homeowners” are different names for the same bunch of people. I’m really not interested in having a discussion with this guy.

With this backstop, then the game with the bondholders could have been — we can still fund our banks, here’s our best offer, otherwise see you in court.

But the court in question would have been an Irish bankruptcy court. The ECB can’t fund bankrupt companies (or at least, you would have been hard pressed to get a majority on the Governing Council to support such a policy), and an Irish company which isn’t paying its Irish bondholders in respect of Irish bonds issued in Ireland, is bankrupt. Also, what collateral are the Irish banks pledging against their ELA in your scenario? All the assets on their balance sheet are under control of the administrator appointed by the Irish bankruptcy court.

These legal issues are the things that everyone tries to brush aside while talking about the perfect resolution mechanism that exists in their head, but actually this was the law of Ireland, and anyone whose argument is aiming at a goal of establishing a conclusion that the ECB shouldn’t be allowed to exercise a jot of influence over the democratic government of Ireland really has to take it seriously and isn’t able to blame the ECB for not demanding an immediate and total rewrite of Irish company law over a weekend.

75

dsquared 12.09.12 at 2:15 am

German workers are apparently still happy to be ripped off if they can be persuaded that it is in the cause of making lazy Greeks suffer.

Twat.

76

rootless (@root_e) 12.09.12 at 5:27 am

“Let me whisper it – “Irish workers”, “Irish savers”, “Irish taxpayers” and “Irish homeowners” are different names for the same bunch of people. I’m really not interested in having a discussion with this guy.”

Hilarious. The people rescued by the Irish bank bailout are the Irish working class. Of course you are not interested in a discussion, you have no ability to say anything coherent.

77

rootless (@root_e) 12.09.12 at 5:29 am

“As other commenters observed, previously, there’s no symmetry of national animosities; many Greeks and Italians share the German admiration for the Germans. “

Popular Greek joke
Schaeuble arrives at the airport in Athens
Passport officer looks at his passport and asks: Occupation?
Schauble: No, just a short visit.

78

rf 12.09.12 at 6:10 am

Well dsquared said at 35:

“Bottom line here is that the European technostructure is a real thing, but the alternative is something like US legislative deadlock.”

and Rootless said at 60:

“Well whatever it seems to you and whatever other issues you may want to bring up: in response to the financial crisis, US government has been far more willing to make bondholders pay than the ECB has. That’s simple fact, no matter how ideologically inconvenient or puzzling it may be.”

So who’s right. Give me US legislative deadlock, surely? Wasnt the US response far, far superior, especially the bank bailout.

Also, surely these

“Let me whisper it – “Irish workers”, “Irish savers”, “Irish taxpayers” and “Irish homeowners” are different names for the same bunch of people.

Are not the same bunch of people. (Look at whos property (commercial) overwhelmingly caused the crash etc)

79

rf 12.09.12 at 6:24 am

Btw, I got myself on ‘police camera action’ tonight in Camden as a bystander chatting about racist policing with a bald copper – (applause) – although I feel that no one here bar MPA Vic will be amused by this

80

christian_h 12.09.12 at 10:20 am

Well rf this is very easy: rootless is wrong, as usual. Bank creditors in the US did not have to take more of a haircut than bank creditors in Europe.

81

christian_h 12.09.12 at 11:56 am

I should say btw that the general policies of dealing with the crisis have been handled considerably better in the US than in Europe, in my opinion. The difference just is not a function of how banks were bailed out or who had to take losses, as far as I can tell – rather it seems mostly a function of the austerity policies imposed in Europe (of course it is true that one mechanism by which austerity was imposed is by forcing each country to bail out their own banks withough inter-community monetary transfers to make this possible), that were not imposed to anything like the same degree in the US (and yes, Obama does deserve credit for this).

And now I’ll shut up after apologizing to Henry, I feel I contributed to derailing this thread.

82

rf 12.09.12 at 2:15 pm

Well fair enough, not having the ability to judge the situation I’m willing to accept that rootless is wrong on this. Haircuts or not, to my untrained eye, the Fed appears to have done a better job in this crisis, so I don’t know how this works as an example of the superiority of the ‘European technocracy’. Anyway that’s neither here nor there, and I don’t know what I’m talking about so Ill bow out as well.

83

Charles Butler 12.09.12 at 3:09 pm

Imagine what American policy would have looked like had this all taken place in 1812, in which year they couldn’t organize themselves to wage a victorious war against the miniscule remainder of British North America.

Using the US as a counterpoint to the EU looks a tad irrelevant.

84

Shay Begorrah 12.09.12 at 3:57 pm

@rf

Well fair enough, not having the ability to judge the situation I’m willing to accept that rootless is wrong on this.

dsquared’s beef with Ireland on the European component of the global financial crisis is passionate but it is a minority position outside the banking fraternity, the giveaway for membership of the Brotherhood of Mammon would be the use of the words ‘parri passu’ as if that explained why when the crisis hit sovereign governments were not able to legislate in a way that losses were distributed in an equitable way. Irish law could have been changed, a deal more favourable to the Irish state could have been forced, but the ECB firmly took the position of the European financial sector against individual nation states (well, ones that did not border Germany) and continues to use its powers to that end. As J W Mason has it, a central banker is still a banker and they really are bastards,

On Ireland specifically though the ECB did not cause the Irish banking collapse they certainly did as much as they could to make sure that it was treated (and paid for) as a local crisis rather than one of the Eurozone financial sector, which it obviously was. It is understandable (the class interests and stakeholders of the ECB are what they are) but most people on the left would agree with Henry that a situation where an international financial institution with no accountability and some pretty extreme political positions exercises such power is a problem for the European project of a moral as well as practical nature.

85

rootless (@root_e) 12.09.12 at 4:00 pm

Fascinating! Good news for Lehman, Bear-Stearns, Wamu, bondholders.

And compare to: “Not a single formal German bank insolvency during crisis (compare to
FDIC count)”

http://www.ceps.eu/system/files/Duebel1Pres.pdf
And the German bank regulator slowly begins to accept the advanced policies of Franklin Roosevelt
http://www.eurointelligence.com/eurointelligence-news/archive/single-view/article/germanys-painfully-slow-acceptance-of-bank-resolution.html
By 2010 they even passed a resolution law
http://www.efinancialnews.com/story/2010-12-13/haircuts-europe-bondholders

But EU generosity to bank investors continues

“European taxpayers are helping foot the bill for saving junior bondholders of Spain’s nationalized banks from being wiped out, an official at the country’s central bank said.”
http://www.bloomberg.com/news/2012-11-29/spanish-bank-junior-bondholders-rescued-by-taxpayer-cash-pledge.html

ECB policy has ben that bank bondholders must be paid in full – so it was shocking news last summer when they started to weaken this stance

http://www.bloomberg.com/news/2012-07-16/ecb-said-to-no-longer-oppose-imposing-losses-on-bank-bondholders.html

But, I know, all this must be false because (a) DD insists that bankruptcy law forbids deposit insurance and resolution and (b) Obama sucks.

86

dsquared 12.09.12 at 4:22 pm

I’d add (to my discussion with Henry) that an underappreciated positive point about the ECB in this crisis is that, unlike so many other European arrangements, it hasn’t collapsed. It’s actually been antifragile – with every single shock of the crisis, the ECB has become a more functional institution. This shouldn’t be dismissed – there were so many ways in which things could have gone a lot worse. And indeed, although seemingly most Irish commentators would rather drink a pint of gall than admit it, however good or bad the deal the ECB was offering to Ireland in the crisis, they did not in fact have loads of really attractive alternative offers, and trying to manage the same property crash with an “independent”[1] currency would have been ten times as bad a mess.

[1] Anyone who thinks the IR£ had a wholly independent monetary policy is kidding themselves. It was sterling, plus or minus.

87

Shay Begorrah 12.09.12 at 5:38 pm

@dsquared

I’d add (to my discussion with Henry) that an underappreciated positive point about the ECB in this crisis is that, unlike so many other European arrangements, it hasn’t collapsed.

An under appreciated positive point about Stalin’s dictatorship is that unlike a lot of other arrangements in Soviet Russia it actually worked. This should not be dismissed.

And indeed, although seemingly most Irish commentators would rather drink a pint of gall than admit it, however good or bad the deal the ECB was offering to Ireland in the crisis, they did not in fact have loads of really attractive alternative offers, and trying to manage the same property crash with an “independent”[1] currency would have been ten times as bad a mess.

On the first point I think most people would agree that the initial “offer”” Ireland got from the ECB was more on the lines of an “order” and that it was indeed exceedingly bad (terms have obviously improved since). That is what I thought this thread was about in general? The ECB’s assumption of political power.

On the second point of it being easier to deal with a banking crisis when the state engaging in the bailout is effectively borrowing in the currency of another country I think I heard the sound of a thousand coughed ‘bullsh*t’s.

88

rootless (@root_e) 12.09.12 at 5:56 pm

My comment pointing to press and research coverage of the EU failures on banking resolution is pending moderation. Perhaps I need to upgrade my comment quality by calling someone a twat.

89

dsquared 12.09.12 at 8:13 pm

On the first point I think most people would agree that the initial “offer”” Ireland got from the ECB was more on the lines of an “order” and that it was indeed exceedingly bad

Well not really, no. What do you think should have been done? Should the EU really have offered one of the richest countries in the Union a EUR100bn present, just for being so lovely? One of the very biggest problems with respect to Ireland’s relations with the rest of the EU is the seemingly complete inability to accept any responsibility for their own crisis (which as you tell it was all about German banks lending to commercial property in Letmetellyouaboutthatlaterland), and the consistent demand that the French and German governments ought to subsidise tax competition against themselves.

90

Kevin Donoghue 12.09.12 at 8:18 pm

dsquared,
Much of what you say is true, but this (while also true as far as it goes) is seriously misleading: “trying to manage the [Irish] property crash with an ‘independent’ currency would have been ten times as bad a mess.”

If Ireland hadn’t joined the Eurozone, Anglo-Irish Bank would not have become such a shambles. Lenders would have seen at once that lending Euros to an outfit like that was asking for trouble. The Central Bank would have freaked out at the threat posed to its exchange-rate policy by volatile capital flows. Willie Slattery would not have been a voice in the wilderness. It was joining the Euro that caused all balance-of-payments and bank supervision worries to vanish in a somebody-else’s-problem field.

91

Kevin Donoghue 12.09.12 at 8:26 pm

PS: In fact I’m not sure dsquared’s statement is true, even as far as it goes. If Irish house prices were denominated in IEP, most likely the ‘crash’ would have taken the form of a house worth IEP1m staying at that price, while the IEP crashed out of sight against the Euro. So the problem would be one of managing inflation (rather than a collapsed banking system). We’ve had lots of experience with that.

92

dsquared 12.09.12 at 8:34 pm

If Ireland hadn’t joined the Eurozone, Anglo-Irish Bank would not have become such a shambles.

Careful now. It’s pretty hard to argue that, on balance, Ireland did badly out of the whole period of Euro membership. You could have avoided the banking crisis, but still been a backwater rather than one of Europe’s richest countries.

We’ve had lots of experience with that.

It would have been hellish nasty. Ireland is a big energy importer. Fuel rationing would certainly have been on the cards. People talking about “austerity” really don’t seem to have much concept of what might have happened.

93

John Quiggin 12.09.12 at 8:51 pm

I’m coming in way late, and I haven’t read all the comments, but I’m with Niall @3. The import of this change is that the ECB is now a ‘normal’ central bank with unlimited capacity to intervene in bond markets. That was inevitable once it became clear that austerity wasn’t working.

The fact that the ECB is now like a normal central bank brings into sharper focus those aspects of the EU that are abnormal, in particular, the absence of a central government in general. Obviously the Parliament is irrelevant, but it’s far from clear whether actual power resides with the bureaucracy, the Council, the Commission or the dominant powers, formerly France-Germany and now it seems just Germany.

On the whole, the normalization of the ECB strengthens the position of national governments in the fight with the EU central structure over austerity, since it reduces the credibility of any ECB threat to let a national banking system go under.

94

Shay Begorrah 12.09.12 at 10:17 pm

@dsquared

Careful now. It’s pretty hard to argue that, on balance, Ireland did badly out of the whole period of Euro membership. You could have avoided the banking crisis, but still been a backwater rather than one of Europe’s richest countries.

Growth in Irish GDP was at it highest before Ireland joined the Euro and dropped considerably thereafter.

http://www.indexmundi.com/ireland/gdp_real_growth_rate.html

Ireland has done very well indeed out of European Union membership and at less than 2% of the Eurozone population we are an insignificant backwater (and maybe a ruiner of threads) but EMU has been a disaster for us.

95

Bruce Wilder 12.09.12 at 10:35 pm

A ‘normal’ central bank manages the marketable national debt, eliminating liquidity risk. For a central state, with a reasonably efficient fiscal capacity, this arrangement also effectively eliminates default risk, and the marketed securities of the state become a zer0-risk reference and general-purpose hedge security for the banking and financial system. From this foundation, the central bank can evolve its capacity as a lender-of-last-resort and supervisor of the banking and financial system.

The absence of a centralized fiscal capacity corresponding to the ECB is a glaring abnormality, and one with critically important consequences. A central state’s fiscal capacity is unaffected by the dynamics of internal financial flows. The Eurozone, as we have seen, runs aground on persistent imbalances of financial flows. And, the reason for this running aground: the individual states, and their marketed national debt, is, as a consequence, subject to default risk. The debts of Greece, or Ireland, or Spain, or France, or Italy are not zero-risk instruments, in the way that U.S. or U.K. sovereign debt is. These securities are not suitable as the foundation for a banking and financial system.

So, now the ECB, to try to make the national debts of various countries with varying prospects, into something like zero-risk bonds, suitable for the foundation of a banking system, has to leverage its discretion in funding national debt issuance in ways that, somehow, limits default risk (which arise from the combination of persistent financial flow imbalances and the vagaries of institutional fiscal capacity across nation-states), and doesn’t magnify liquidity risk.

Is that task do-able, even in theory, any theory?

I don’t think it is a question of negotiating a 3-way modus vivendi among the ECB, national governments, and the Eurozone financial sector. There are inherent contradictions and fracture lines that cut across those relationships.

96

Bruce Wilder 12.09.12 at 10:44 pm

John Quiggin @ 93: “the credibility of any ECB threat to let a national banking system go under.”

[Putting the questions to those informed on Irish developments -] In the Irish case, didn’t the ECB ended up insisting that the Irish government continue its ill-advised guarantee? How is that improving the position of the national government?

97

William Timberman 12.09.12 at 10:50 pm

Eurozone economic theory and practice:

If you just put out the cart, a horse will show up. We guarantee it.

Tick…tick…tick….

Well, okay, the cart’s been out there for a couple of years. How’re we doing?

Not so bad, really — as well as could be expected, I suppose.

Which means?

Well, so far, we’ve got an elephant, a giraffe, three tortoises, two hares, a sheep in wolf’s clothing, and a half-dozen weasels. Just give us a little more time, okay? I mean, what’s the hurry, anyway?

98

rf 12.09.12 at 11:02 pm

“Growth in Irish GDP was at it highest before Ireland joined the Euro”

This is the thing though, isn’t it? Can anybody offer a plausible alternative history of Ireland joining the Euro and the property bubble not occurring? (I accept the responsibility of domestic policies, lack of regulation etc. – but these are surely symptoms not causes?)

“In the Irish case, didn’t the ECB ended up insisting that the Irish government continue its ill-advised guarantee?”

I’m not particularly well informed, but yeah that’s my understanding of it

99

rf 12.09.12 at 11:21 pm

“One of the very biggest problems with respect to Ireland’s relations with the rest of the EU is the seemingly complete inability to accept any responsibility for their own crisis (which as you tell it was all about German banks lending to commercial property in Letmetellyouaboutthatlaterland), and the consistent demand that the French and German governments ought to subsidise tax competition against themselves.”

This seems completely over the top. Anyone who has lived in Ireland for the past 4 years knows that the we have overwhelmingly ‘taken responsibility’ for the crisis, and the vast majority of criticsm has been directed at domestic actors. But if the crisis has EU wide beginnings, then it can only be resolved at that level.

Also on corporate tax rates, this was my understanding of the situation:

http://www.iiea.com/blogosphere/effective-eu-corporate-tax-rates

Right bang in the middle of EU averages on effective rates, above France. But once again, what’s an ‘insignificant backwater’ gonna do. Play the martyr..

100

rootless (@root_e) 12.09.12 at 11:54 pm

One does not need a plausible alternative theory of Irish history pre-crash to note that the failure of a number of for-profit badly operated private enterprises was not required by divine or even human law to result in the Irish state offering to pay back the foolhardy investors.

The inept haplessness of Irish governments and the brutal Hayekian ideology of the ECB’s unelected managers produced a massive transfer of wealth from the public to what Adam Smith would have labeled “projectors”. Now, having distributed the debt for that transfer between Irish and ECB books, the parties squabble over how much to reward second level speculators who bought bonds AFTER the banks became illiquid. This modest proposal, round 2, is amazing because it goes way beyond what even Hank Paulson proposed in the USA.

The peculiarity is that the EU is in many ways “to the left” of the USA in terms of developed social democracies, but it seems to to be even more in thrall to financial interests. I suspect this results from the greater cohesiveness of core EU capital interests who have both a unifying ideology (Social Pinochetism) and centralized organizations both corporate and bureaucratic, compared to the fractured and lost EU “left”.

101

Antoni Jaume 12.10.12 at 1:59 am

rf 12.09.12 at 11:21 pm
you said «[....]

Also on corporate tax rates, this was my understanding of the situation:

http://www.iiea.com/blogosphere/effective-eu-corporate-tax-rates

Right bang in the middle of EU averages on effective rates, above France. But once again, what’s an ‘insignificant backwater’ gonna do. Play the martyr..»

So I looked at the link, and found the following commentary:

«Mike C, Belfast says: 31 May 2011 18:10

Very interesting data but I feel your map is highly misleading. Using your own data on ‘total tax rate as % profit’ (i.e. including labour and other taxes too) presents a very different ‘EU tax landscape’. For example: Ireland 26.5% UK 37.3% Germany 48.2% France 65.8% Italy 68.6% UK & Ireland among the ‘best’ locations in Europe and also very competitive against United States (46.8%), Japan (48.6%), etc.»

102

rf 12.10.12 at 2:14 am

Yeah fair enough. Its above my paygrade tbh, so couldn’t offer anything coherent one way or the other. Still think using corporate tax rates in this particular argument is a bit of a strawman though

103

rf 12.10.12 at 2:24 am

Or maybe its more of a red herring….?

104

Antoni Jaume 12.10.12 at 6:19 am

rf, I don’t know, I’m not a tax expert to be sure. However nowadays corporations move most of the money, so their taxation is quite relevant to the budget of countries.

105

Sebastian H 12.10.12 at 2:46 pm

Is today’s collapse of the Italian government (engineered by the man the ECB kicked out) an important data point for something?

106

Henry 12.10.12 at 3:42 pm

Responding to the various bits from dsquared:

But (again, as widely known and reported in Italy at the time), the underlying message of that letter, the only one anyone cared about was “Time To Go, Silvio”.

I don’t think so, from my reading of the Italian press around the time. Certainly, that was a big part of it, but far from the whole of it. More generally, when a collective body (a) nearly entirely consists of convinced ordoliberals who detest various forms of bargaining rights in labour markets etc and (b) is led by officials, who regularly talk on the record and issue reports about the need to get rid of same, I think it’s entirely reasonable to infer (c ) that they are again revealing their actual preferences when they make threats about these kinds of institutions in private. In fact, I think that you’d really have an _extremely_ strong case, with solid evidence to make a good case to the contrary.

Well, everyone wants power – it’s fun to have power! But I think Henry is wrong to locate this centralising and anti-democratic impulse a) in the ECB specifically and b) as having all that much to do with neoliberalism specifically. The EU has always been an anti-democratic project, aimed at establishing a central United States of Europe that most of the population doesn’t want, on the basis of technocratic rule with minimal accountability. None of the people who have been its architects have ever made any effort to keep this secret.

This broader set of issues was the topic of me previous contribution to the Nation. I do think that the ECB’s core ideology springs from an only tangentially-linked set of policy stresses and ideas in the 1980s. The idea that fully independent central banks are teh awesome was a product of neo-liberalism, mostly independent of the EU (and as far as I can recall, really got its big start in policy debates outside the EU core zone). You can reasonably depict (as the new piece suggests) the form of the ECB being an unanticipated compromise between the mid-period Hayekianism of European central bankers, and the integrating urges of Delors and company. But saying that this is just more EU technocracy isn’t a good historical explanation imo. It doesn’t tell you nearly everything you need to know about the coalitions that brought the beast into being.

If you want to look at the _public response_ to all of this, rather than the actual origins, you could make a better case imo. As I’ve been framing it since at least 2005 the development of the EU since the mid-1990s has been about pretending that a set of fundamentally political decisions were technical ones, and hence it was OK to take them out of the reach of voters. This sort-of-worked politically, as long as voters weren’t really aware of what was going on, although it caused heebie-geebies among political elites, mostly-ineffectual efforts to remedy the ‘democratic deficit’ and so on. But now that voters have figured out that this _is_ all political, and that they don’t like it very much, all bets are off. Either we get a kind of economic-politics-by-force-majeure without even the thin patina of passive consent that earlier forms of integration had, a more democratic process of integration, or collapse. My preferences are for the middle option – but it’s obviously the hardest to figure out how to accomplish. From this perspective, he ECB seems particularly egregious – not because (as you seem to be arguing if I don’t mistake you), it is merely doing what is necessary to preserve the eurozone, but because it carries large amounts of intellectual baggage along with it, which are likely to lead to it construing ‘saving the eurozone’ as involving quite a lot of hacking away at social protections that it believes impede the happy flow of free markets &c.

I’d add (to my discussion with Henry) that an underappreciated positive point about the ECB in this crisis is that, unlike so many other European arrangements, it hasn’t collapsed. It’s actually been antifragile – with every single shock of the crisis, the ECB has become a more functional institution.

Agreed – but this is surely a glass-mostly-full gloss on my suggestion that the ECB has been going from strength to strength, and that this is a bit of a problem? To put it more generally, if I am getting your underlying position right (and I may be completely wrong here, in which case correct away), you are basically in favor of what the ECB has been doing, because you perceiver the choice as being between between someone actually getting the shit that needs to be done done and deadlock. But this could equally fairly be framed as a choice between dictatorship (in the original sense of the term) and democracy. Perhaps you can make a case from the left that the emergency justifies anti-democratic means, given the alternative of collapse, but given all of the problems associated with this position, you’d want to be _very_ careful about figuring out the limits of your argument, to avoid succumbing to the inexorable gravitational pull of the Carl Schmitt warphole. And more generally, given that the ECB _is_ self-evidently dominated by a set of economic ideas that sit extremely uneasily with leftist notions of how economies should work, you’d presumably want to think about the long term implications of the ECB’s antifragility too. There’s a lot of work being done by the word ‘functional’ in your last sentence above. I presume you mean functional in the sense of ‘preserving the eurozone.’ But there might be a wide variety of different ways in which the eurozone could be preserved, and handing over authority to an actor with one particular set of ideas about how to do this over the longer run seems to me to be at best tricky.

107

Alex 12.10.12 at 4:08 pm

The ECB is antifragile in the sense that anything with more effective power than effective responsibility is antifragile. If you have power, and don’t really answer to anyone, you’ll tend to enlarge your power in a situation when there is a power vacuum.

This isn’t necessarily a good thing, though.

108

Random Lurker 12.10.12 at 4:45 pm

@Sebastian H 105

Actually Berlusconi’s party (which is in a really bad shape and in the last election in sicily lost 75%(!!) of his voters) just made a simbolic move, but later Monti’s step-down was requested by the center left party:

In Italy the premier can call the “fiducia” (trust) on a particolar law to force the hand of the parliament on it. If the law is not passed as it is, the government falls. Recent governments used the “fiducia” procedure a lot to force the parliament to not amend laws. On this particular law, Berlusconi’s party “abstained” from voting the “fiducia”, but explicitly made sure that there were enough votes in the parliament to pass the law without taking down the government.
This was a blatant move to leave the responsibility of umpopular laws on the center left party, who clearly understood the move and refused to go on, asking for Monti’s step-down.

Please note that this is not the first “fiducia” called by Monti, and that Berlusconi’s party actually voted all of them up to now.
In Italian law, the parliament is much more powerful than the government (often the govrnment can fall and be changed without new elections, if the parliament wants) and Berlusconi always kept the mayority in parliament.

That is to say that this idea that the ECB forced Berlusconi down is BS, Berlusconi chose to put Monti up to deflect the blame for umpopular policies he alsa wanted, and that’s all.

109

rf 12.10.12 at 4:47 pm

“However nowadays corporations move most of the money, so their taxation is quite relevant to the budget of countries.”

Ah yeah of course, I’m not disagreeing and not a huge fan of the low tax rate, just don’t think it’s relevant to this case specifically (ie not a factor in the European response or an excuse for not dealing with the crisis. In fact it’s so irrelevant it can only be a diversion)

Kevin O Rourke makes the point that I was trying to get at earlier more clearly in the comments section of Irish economy.ie:

“I’m writing here as a European, and the policy implications are European. A failure to think systemically (i.e. a tendency to view this crisis as a series of country-specific crises, rather than as a Eurozone crisis, which is what it is) has been one of the key mistakes made by policy makers since 2008. Unless the eurozone gets its act together, then the sorts of drastic scenarios you mention are eventually going to get onto the agenda in lots of countries, including our own.”

It all seems very parochial, and pointless, to focus on things like Italian labour law, the Irish tax rate/culpability etc when the problems are, apparently, systemic

110

ciaran 12.10.12 at 7:22 pm

111

dsquared 12.10.12 at 7:57 pm

Perhaps you can make a case from the left that the emergency justifies anti-democratic means, given the alternative of collapse, but given all of the problems associated with this position, you’d want to be _very_ careful about figuring out the limits of your argument, to avoid succumbing to the inexorable gravitational pull of the Carl Schmitt warphole.

Yes, this is exactly the case I would make, and I don’t think that the gravitational pull is all that strong. I think this crisis is a genuine crisis, and the definition of a crisis is a time when you countenance things being done that you’d really rather didn’t happen, because all the alternatives are worse. Given the state of European institutions in 2005/6 (and I broadly agree with you on the development and the democratic deficit), it is much better that someone took hold of the reins than if nobody had.

I also think that people talking about the antidemocratic nature of the European institutions need to put up a little bit more in terms of what they actually want to see, because really quite often (this is a disagreement that I have with Niamh too), the concept of “democracy” seems to be couched in purely national terms; it’s antidemocratic for the Irish or Greek governments to be told what to do, democracy demands that large transfer payments be made by German voters, whether they want to or not. Any form of functional European federalism is going to involve a) a lot of power accruing at the federal level and b) large, populous and economically strong states having a lot more of a voice than small and structural-deficit states. If people are opposed to that then fair enough, but I think there is then an obligation to explain how this differs from what your average Eurosceptic believes.

(a subsidiary point I make in some contexts but not others is that there are cases where the ECB and ordoliberals are actually right. A lot of things that are advertised as “social protections” in Greece, in particular, are actually ye good old fashioned crony socialism and need to be got rid of).

112

Random Lurker 12.10.12 at 8:30 pm

dsquared
“a subsidiary point I make in some contexts but not others is that there are cases where the ECB and ordoliberals are actually right. A lot of things that are advertised as “social protections” in Greece, in particular, are actually ye good old fashioned crony socialism and need to be got rid of”

I suppose that by “crony socialism” you mean policies that give purchasing power to people who do not produce useful stuff, and increase in general the wage level above productivity.
However we see that there are various nations that produce more than they consume, and in a market economy what is produced has to be consumed, or excess production will cause a crisis.
In other words the european economy as we know it could work in the good times only because someone’s consumption was subsidized by increased debt levels.
So the question is, if not the Greeks, who is supposed to consume the “excess” production?
Or to put it differently, I suspect that when subsidized consumption goes away, the Germans and other surplus countries will simpli be forced to produce less or at lower prices (usually by lowering wages).
In this sense, it is not at all obvious to me that “crony socialism” was really such a negative thing overall in the EU, although it might prove to be very negative to the Greeks today that they have to pay the piper.

113

rootless (@root_e) 12.10.12 at 8:51 pm

(a subsidiary point I make in some contexts but not others is that there are cases where the ECB and ordoliberals are actually right. A lot of things that are advertised as “social protections” in Greece, in particular, are actually ye good old fashioned crony socialism and need to be got rid of).

We are all impressed by the effort that the Troika has put into combating corruption and tax avoidance in Greece and reducing the complexity of the bureaucratic system. Or actually the effort they will no doubt be exhibiting once they have completed the more urgent work of cutting salaries for nurses, seeing what hospitals do without drugs, and preventing the wild looting behavior of pensioners who earn princely sums rising into thousands of euros a year to support their lives of luxury.

114

rf 12.10.12 at 8:53 pm

Whatever happened to remembering our Keynes?

“Macroeconomic events have macroeconomic explanations, not micro ones”

http://crookedtimber.org/2008/10/17/those-stupid-bankers-and-their-stupid-stupidity/

So surely ‘crony socialism’ and democratic deficits should be unimportant at this moment. Resolve the crisis then you can start resolving the nonsense

115

rootless (@root_e) 12.10.12 at 9:01 pm

“democracy demands that large transfer payments be made by German voters, whether they want to or not. “

Actually that is correct: as long as the exporting nations of Europe want free access to the markets of the importing nations, arithmetic suggests they need transfer payments. of some kind. For example, it’s quite clear that if the German government had imposed a tax policy/wages policy that would have increased the wealth of German workers so they would have consumed more ( perhaps some more Spanish wine and more vacations in Greece and Portugal), that all EU nations would have benefited. However as this would have reduced the capital concentrations needed for Hypobank to speculate on Irish real-estate, DB to become the largest US issuer of bad mortgages, and IBK to make brilliant CDO deals with Goldman-Sachs, the economic flourishing due to right wing economics would have been missed and Europe would never have entered this Golden Age of Hayekian Prosperity.

116

dsquared 12.10.12 at 9:20 pm

So surely ‘crony socialism’ and democratic deficits should be unimportant at this moment.

Crony socialism is very important in Greece (and crony capitalism in Ireland, still, apparently) because it affects the incidence of the adjustment. Despite what people say, the troika haven’t actually mandated cuts to nurses’ salaries and withdrawal of insulin from hospitals. It’s just that hospitals and nurses aren’t a politically powerful and protected constituency, so in an overall environment of less money, they get disproportionately squeezed in order to protect the Army, Port of Piraeus workers, regional police forces etc etc.

117

rf 12.10.12 at 9:38 pm

“Crony socialism is very important in Greece (and crony capitalism in Ireland, still, apparently)”

I agree, but crony capitalism in Ireland is really just a long term annoyance that we’re never going to do anything about. Without access to endless streams of cheap money there’s only so much damage our delinquent class can do.
(Or shorter, as Dani Rodrik said on twitter – where I get all my economic ideas – As an empirical matter, corruption/cronyism in failures (e.g. Greece) is overdone. Almost any rapidly growing economy exhibits as much.)

118

rootless (@root_e) 12.10.12 at 10:44 pm

” Despite what people say, the troika haven’t actually mandated cuts to nurses’ salaries and withdrawal of insulin from hospitals. It’s just that hospitals and nurses aren’t a politically powerful and protected constituency, so in an overall environment of less money, they get disproportionately squeezed in order to protect the Army, Port of Piraeus workers, regional police forces etc etc.”

Golly, those Greeks really suck. It’s not as if the Troika had any influence on what Greece targets for cuts, is it? They can’t look at a proposed budget that cuts old age pensions and adds punitive taxes for heat and demand that there be cuts in the military budget instead because, well, they just cannot. They just disinterestedly look at the balances and tut-tut about the irresponsibility of those lazy levantines.

Greece’s deputy prime minister, Theodore Pangalos, said during an Athens visit in May by Turkish Prime Minister Recep Tayyip Erdogan that he felt “forced to buy weapons we do not need,” and that the deals made him feel “national shame.”

Other European officials have charged France and Germany with making their military dealings with Greece a condition of their participation in the country’s huge financial rescue. French and German officials deny the accusations.

A spokesman for German Chancellor Merkel says the submarine transaction was the culmination of an old contract signed long before Greece’s debt crisis. In May, France’s defense ministry said Greek authorities have confirmed their willingness to pursue talks on several arm-procurement deals.
http://online.wsj.com/article/SB10001424052748703636404575352991108208712.html

Wasn’t the Melian Dialog referenced here recently?

119

dsquared 12.10.12 at 11:07 pm

Also just to be clear:

Just to be clear, I completely agree that given a currency union and the imbalances within it – imbalances that are to some extent inevitable (they exist within any nationa economy) – there have to be monetary tranfers from richer areas to poorer ones.

Ireland, Spain and Italy are richer countries, not poorer ones within the EU. Even Greece is really quite close to the median; even after the crisis, it’s got higher average income than all of the former Communist states except Slovenia.

120

rf 12.11.12 at 1:01 am

Though it’s not about Ireland, Spain and Italy being wealthy countries (all EU countries are by any reasonable standard) it’s about the EU authorities being able to respond to crises in a timely and competent manner, (like the FED and US government were)

121

Mao Cheng Ji 12.11.12 at 8:43 am

“Or to put it differently, I suspect that when subsidized consumption goes away, the Germans and other surplus countries will simpli be forced to produce less or at lower prices (usually by lowering wages).”

Germany is the locality in EU that has found an innovative way to deal with crises: by cutting working hours, rather than individual employment. In this respect, and leaving aside monetary issues for the moment, the suggestion that Germany is benefiting from subsidizing others to be able to produce more, amounts to the view that German workers would benefit from working longer hours, to produce more gadgets, to send them, free of charge, to Greece. That sounds like a view that is going to be difficult to popularize among the workers in question; Germans or any other nationality.

122

Latro 12.11.12 at 9:50 am

Oh yea Spain is so rich. Very rich.

For 3/4 of the population. The ~ 25% unemployed that seems not only not to be a reason to do anything but in fact the whole point of this crisis, those may have a different perspective about what is to live in a “rich” country in the Eurozone without a salary and with their benefits being systematically cut by the same people that tell them, to the face, things like “If you have been 1 year unemployed I’d not hire you as you will have gotten into bad habits”, said by the Secretary General of the OECD.

123

Shay Begorrah 12.11.12 at 1:07 pm

@dsquared

I completely agree that given a currency union and the imbalances within it – imbalances that are to some extent inevitable (they exist within any national economy) – there have to be monetary transfers from richer areas to poorer ones.

Ireland, Spain and Italy are richer countries, not poorer ones within the EU

It does seem that the financial transfers at the moment are from rich countries to richer ones and large investors though:

Countries Listed by GNI

Anyway I suppose these debtor countries do deserve the neoliberal hawk treatment for being on the wrong end of Eurozone capital flows. Perhaps they will even thank Germany and the ECB for freeing them from the dictatorship of crony capitalism someday?

It is odd that the most enthusiastic proponents of the ECB approach in Ireland are the rich and the chronically rightist. They have long harboured a desire for “difficult decisions” to be made on Ireland’s unusually compassionate social welfare system, a la Gerhard Schröder’s beloved Hartz “reforms” and also a deep enthusiasm for the kind of privatization efforts the ECB and European Commission favour. Ironically it seems that it is the crony capitalists are most enthusiastic about the Troika program intended to save Ireland from their influence! Little do they know, eh?

There are obviously poorer countries in the EU than those currently enjoying the purgative benefits of Troika programs but that is not a justification for the actions or philosophy of the ECB. This is an institution whose interests are basically congruent with the malefactors of great wealth and whose anti-historical support for collective austerity has turned the European component of the global financial crisis from one of those occasional but manageable crises of capitalism into a threat to the democratic, political and economic stability of several European countries.

I suspect that “maintaining price stability” will come to be seen as the “making the trains run on time” of the European project.

124

Random Lurker 12.11.12 at 1:40 pm

@Mao Cheng Ji

“the suggestion that Germany is benefiting from subsidizing others to be able to produce more, amounts to the view that German workers would benefit from working longer hours, to produce more gadgets, to send them, free of charge, to Greece.”

This is true as long as you speak of German workers, but it’s not equally correct when you speak of “System Germany”, that includes German capital.
If German buniness pays the same wages, but produces and sells less stuff, profits have to fall.
Now, I could live with that, but I that German unions are really so strong that they will be able to keep wages safe AND to force businesses to employ new people while sales remain at depressed levels forever (since if Greeks et al are supposed not to run deficits anymore but to run surpluses, demand for German goods will be constrained permanently and not just during the financial crisis).

125

rf 12.11.12 at 1:48 pm

dsquared
I’m really still not getting this hostility to the periphery. From your, what I thought reasonable enough, defence of bankers, you made these points:

“First, as I said three years ago, macroeconomic events have macroeconomic causes, not microeconomic ones….
…..There’s also an economic version of the same argument. The answer to the question “Hospitals, or bank bailouts?” is “deficit spending, you ass!”. Money for the banking sector bailouts hasn’t come out of the mouths of babes and Sure Start centres; the austerity measures were a specific and separable decision, made by people who ought to be held accountable for it……
…..So my basic message here is that economics isn’t a morality play, even in the face of a depression.”

But when it comes to Ireland it most certainly is a morality play, austerity has to be endured and those implementing it pitied for the difficult job they have to do (in good faith), and macroeconomic events don’t have macroeconomic causes but can, apparently, be blamed on small time Irish property hustlers.

This idea that the citizens in the periphery are primarily culpable seems to simplistic. As you highlighted in your review of Fintan O Tooles book people in the City were well aware they were selling overpriced rubbish to idiots, and that it would all end badly:

“For another, though, there was never any real threat to us from the Vikings. Broadly speaking, the financial community knew what they were up to. They were a bunch of foreigners with seemingly no clue what they were doing, more or less unlimited amounts of money borrowed from their local banks, a burning ambition to pick up iconic and prestigious business assets, and seemingly no concept at all of a fair or even reasonable valuation. People like that, one finds, are generally well liked in Throgmorton Street; you might have to put up with the odd economics lecture, but usually they’ll make it worth your while to hang on. Generations of such ambitious foreigners have breezed through the City, usually leaving with armfuls of previously unshiftable dogs and sans wallet. Come one come all, as long as you pay cash etc.”

So sure, macroeconomic events have macroeconomic causes, there’s a lot of blame go around, economics isn’t a morality tale so on and so forth. But if we have to pay, then so does everyone else. Simple as.

126

politicalfootball 12.11.12 at 1:56 pm

Shay B@123: Sure, the ECB et al have “turned the European component of the global financial crisis from one of those occasional but manageable crises of capitalism into a threat to the democratic, political and economic stability of several European countries.” But so far, it’s only been a threat.

If we take it as given that the structure of the Eurozone contains fatal contradictions, and further assume that the German polity and the Euro elites are going to drive the region into recession, you have to give the ECB credit for having averted a complete financial meltdown (so far). It’s all in how you view the base case.

127

Random Lurker 12.11.12 at 2:13 pm

(segue from 124)

Just to be clear, it’s not that I like parasitic or crooked behaviours (socialistic or not), but those situations are just the flip side of the coin of the existence of “structural surplus” economies somewhere else.
If, for whathever the reason, Germany “has” to export more than it imports, somewhere else this surplus has to be recycled, though political cronysm, asset bubbles, whatever.
The problem is, “why does Germany (or other surplus nation) need to be a surplus economy?”, not “why does Greece (or other debtor economy) have umproductive sectors that eat more than they produce?” because the second point is just a consequence of the first.
On the first question, I would point to this very interesting paper that shows that in the whole EZ (excluding Greece) the labor share of income has been falling for 30 years.
Unit Labor Costs in the Eurozone: The Competitiveness Debate Again (2011)
http://www.google.it/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDYQFjAA&url=http%3A%2F%2Fwww.levyinstitute.org%2Fpubs%2Fwp_651.pdf&ei=-j3HUK-nGInLsgb5xoC4BA&usg=AFQjCNF17fClc3qO7zyPrUpK34KJftsgBQ&cad=rja

(I realize this is very OT but I think it is very interesting).

128

Mao Cheng Ji 12.11.12 at 2:23 pm

“since if Greeks et al are supposed not to run deficits anymore but to run surpluses, demand for German goods will be constrained permanently and not just during the financial crisis”

The Greek government is not supposed to run high deficits anymore. Which, long term, may, or may not suppress demand for German goods. What if this, somehow, leads to a new vibrant high-wage Greek economy with even higher demand for German goods?

“If German business pays the same wages, but produces and sells less stuff, profits have to fall.”

Absolute value of profits has to fall, but not necessary the rate of return. So, German workers will work fewer hours, and a part of the capital now invested in Germany will have to move elsewhere; maybe even to Greece, who knows.

129

Mao Cheng Ji 12.11.12 at 2:41 pm

Incidentally, why call this ‘socialistic’? I see all this as a crisis of capitalist welfare state. Real socialist government would simply move industrial production from Germany to Greece and Spain, executed a few hundred tax cheats, declared every able-bodied citizen unemployed for more than 6 months a criminal. Austerity, big fucking deal.

130

rootless (@root_e) 12.11.12 at 2:43 pm

“The Greek government is not supposed to run high deficits anymore. Which, long term, may, or may not suppress demand for German goods. What if this, somehow, leads to a new vibrant high-wage Greek economy with even higher demand for German goods?”

Nobody has ever made a shred of a plausible argument that such an outcome is possible. All we have is free-market magic bunny arguments in which the economic collapse aggravated by austerity will surely go away if the patient is bled more. If only the Greeks had some more free market risk takers like EADS which, untethered to loathsome government spending, generate the cornucopia of economic benefits doctrine says must come from the free market.

131

Latro 12.11.12 at 2:56 pm

The “capitalistic welfare state” we had in Spain, with all his defects (which are mostly localized in the inept, venal and corrupt political class) was working more or less well, with for example a healthcare public system that was much cheaper AND had higher rates of satisfaction than other countries.

And that we are in the process of dismantling it because public deficit is verboten except for propping up zombie banks. And because the politicans dismantling it are either pals, or in fact actual partners, of firms that will make money out of its privatization.

So yes, the plan it is working wonders all in all in creating greating demand of goods. Like, private insurance where you didnt need one before.

132

Random Lurker 12.11.12 at 3:11 pm

“Incidentally, why call this ‘socialistic’?”
I was just citing from Dsquared @111.
I do not know exactly what he means, but I suppose he means a situation where political players dole out economic advantages to their preferred constituencies, that then have no reason to change job and get a more productive one, thus mantaining inefficiencies and the causes of their basic poverty.
This process is known as “clientelarismo” in Italy (from the latin “clientes”) and it is seen as a negative byproduct of the statalistic policies of the postwar years up to the seventies.
Since during the eighties the True Truth of the Free Markets was discovered, such abominations were supposed to disappear (hence “socialist” as in “statalist, non free market”).
What I’m trying to argue is that this kind of inefficiencies do not happen “against” the free market, but “because” the free market create some permanent umbalances (in this case, German “saving glut” permits and to some degree pushes cronysm in Greece, since if the Greeks didn’t go into debt, they had to face a very nasty underconsumption crisis).
So on the whole I suppose I agrree whith you.

133

Josh G. 12.11.12 at 3:13 pm

dsquared @ 111: “Any form of functional European federalism is going to involve a) a lot of power accruing at the federal level and b) large, populous and economically strong states having a lot more of a voice than small and structural-deficit states. If people are opposed to that then fair enough, but I think there is then an obligation to explain how this differs from what your average Eurosceptic believes.

I don’t see how this is even an open question, from a progressive point of view. Of course the Euroskeptics were right. The EU has become a deadly enemy of the welfare state. And it has carried out this war on progressive civilization through the grossly undemocratic mechanism of an “independent” central bank.

134

Sebastian H 12.11.12 at 3:59 pm

D-squared, if you’re going to make the evil but necessary argument, it would be nice to know when the necessary bit stops. Do you see the need for the ECB to keep/keep growing its new powers until…. Spanish youth unemployment gets below 20% so they have a hope of sustainable recovery? Greece gets trade surpluses? What specific recovery markers would cause you to believe that it is time to back down? Or on the flip side, how long does the ECB get to operate in emergency mode before you begin to suspect failure? At what point does the collateral damage (to democracy, to youth workers, to non german economies, become too big?)

135

MPAVictoria 12.11.12 at 4:29 pm

“D-squared, if you’re going to make the evil but necessary argument, it would be nice to know when the necessary bit stops. Do you see the need for the ECB to keep/keep growing its new powers until…. Spanish youth unemployment gets below 20% so they have a hope of sustainable recovery? Greece gets trade surpluses? What specific recovery markers would cause you to believe that it is time to back down? Or on the flip side, how long does the ECB get to operate in emergency mode before you begin to suspect failure? At what point does the collateral damage (to democracy, to youth workers, to non german economies, become too big?)”

Quite. It has been four years since the start of the Great Recession. How long do we wait? Is this like the War on Terror that never ends?

136

Niall McAuley 12.11.12 at 4:31 pm

An “evil but necessary” ECB will have to keep intervening until the Government of the European Union shows up and takes over. Hopefully it will be a democratically elected Government.

137

Shay Begorrah 12.11.12 at 4:38 pm

politicalfootball@126

The deal seems to me to have to sacrifice (well, make illegal) European social democracy and nationalize the losses of the international financial sector to save the current flavour of EMU which, as you say, has inherent contradictions.

I understand that this is one of at least two evils but given that the developed world outside the Eurozone appears to be coping better with the aftermath of the global financial crisis it is not easy to argue it is the lesser one.

138

Random Lurler 12.11.12 at 5:43 pm

I strongly agree with Niall McAuley @136

139

Bruce Wilder 12.11.12 at 7:52 pm

Something will show up, from sustaining this painful mess indefinitely, but it seems unlikely to be a democratically elected government.

140

Bruce Wilder 12.11.12 at 8:13 pm

political football @ 126: “. . . you have to give the ECB credit for having averted a complete financial meltdown (so far). It’s all in how you view the base case.”

Of course, if you think, as I do, that financialization is, itself, the political and economic equivalent of a cancer, keeping the disease alive while using using chemotherapy and radiation to destroy healthy tissue, is not a good thing.

The basic wisdom that ought to apply to formulating “the base case” is the insight that only pain, which can be escaped in this life, is the pain attendant on trying to avoid unavoidable pain. Part of the financial sector — a large part, evidently — failed, and should have been dismantled, not sustained. Sensible policy would have aimed at minimizing the knock-on effects of such destruction on employment and the payments system (demand deposits at banks and the equivalent), equitable means of managing the wave of foreclosures and bankruptcies, etc. Instead, the painful knock-on effects are exaggerated and used as levers and means of preserving a dysfunctional financial system.

dsquared has his own reasons for wandering around on the other side of the looking glass, but there’s no reason for sane people to follow him into a wonderland, where any of this sadism is anything but a form of insanity.

141

John Quiggin 12.11.12 at 8:36 pm

@Josh G: The problem with this analysis is that the war on the welfare state has been at least as vigorous in the UK as anywhere else in Europe. Obviously that’s not the ECB. And the UK has repeatedly sought to avoid EU mandates so it can have lower social protections.

142

Random Lurler 12.12.12 at 12:12 am

The whole point imho is what do we mean with “democracy”.
In my opinion democracy means that if we have an eu wide financial crisis all citizens of the Eu sit down and vote to choose their preferred solution.
This implies that the solution could be wrong.
In this sense a dissolution of the Eu would not be in any sense a democratic solution.

143

Bruce Wilder 12.12.12 at 1:33 am

If I were to use the term, “democracy” without prejudging the particularities of a constitution or the content of an ideological spectrum, I would mean a government, which was responsive to the felt, experienced concerns and common problems of the governed, because of the political dependence of the governors on the governed.

The present policy of torturing a nation-state, until it coughs up the desired “reforms”, while holding the continent hostage to the uncertainty of an outcome that recedes with the horizon, doesn’t seem very democratic, and that’s not a statement about institutional form. It may be a statement akin to christian_h’s assertion @ 16: This is part of a worldwide offensive by ruling classes. Certainly, it’s a view that is easier to reconcile with Quiggin’s observation that the UK is carrying on a parallel war on the welfare state.

Contra Josh G. @133, it is not the institution of a central bank, which is per se antidemocratic, but the front of rank incompetence presented by economists and the Media. Just consider the IMF’s record of forecasts on the effect of policy on the Greek economy.
http://www.marctomarket.com/2012/11/great-graphic-imf-forecasts-of-greek.html
These are people, who simply do not know what they are doing. And, yet, they are the “experts”, whose solemn and earnest pronouncements we are expected to accept, as there is no “responsible” or “serious” alternative. And, the popular narrative blames the Greeks in a moral analysis completely untethered to the economic dynamics.

The age-old question — are they evil? or, are they stupid? — is just an argument for stupid as an effective front for evil.

144

ragweed 12.12.12 at 6:42 pm

I am late to the party as usual with these, but this has to be pointed out:

JWM: Why should we interpret all this as just being code for “Time To Go, Silvio”?

DD: Because all of these things were already Italian government policy at the time.

So the letter said “Time To Go, Silvio – and to those who are already dismantling the public sector and screwing the unions – we got your back.”

145

dsquared 12.12.12 at 6:55 pm

But when it comes to Ireland it most certainly is a morality play

No, I’ve never said that. The reasons why Ireland shouldn’t have been allowed to blow up the European financial system are technical, not moral. My critique is entirely that the people pushing magic bullet solutions whereby “bondholders” paid for all of Ireland’s problems are in cloud cuckoo land, and their proposed policy wouldn’t have worked and would have caused massive and disastrous side-effects.

D-squared, if you’re going to make the evil but necessary argument, it would be nice to know when the necessary bit stops. Do you see the need for the ECB to keep/keep growing its new powers until…. Spanish youth unemployment gets below 20% so they have a hope of sustainable recovery? Greece gets trade surpluses? What specific recovery markers would cause you to believe that it is time to back down? Or on the flip side, how long does the ECB get to operate in emergency mode before you begin to suspect failure?

There is actually a roadmap document, written by Barroso, Van Rompuy and Juncker (and Draghi, but he got his name taken off the final draft). The ECB is the only game in town pending a proper fiscal union (with proper governance). There’s a straightforward agenda and set of proposals here, so I’ll judge progress against that.

146

dsquared 12.12.12 at 7:06 pm

The present policy of torturing a nation-state

Give over. What policy could the troika adopt with respect to Greece that would not constitute “torturing it” under your analysis? Kicking it out of the euro? Any policy which keeps Greece in the euro involves either Greece making widespread and painful adjustments, or Greece getting absolutely massive unconditional transfer payments.

As it happens, significant technical mistakes have been made across the program over the last couple of years (although many of them had to do with maintaining political viability in Germany, which is a democracy too). Things could have been handled better. But they couldn’t have been handled on any basis that didn’t involve massive spending cuts and/or tax increases in Greece.

147

Walt 12.12.12 at 7:42 pm

Sure they could. By general euro-zone inflation.

148

dsquared 12.12.12 at 8:40 pm

If your solution is “Make the Euro into something completely different from what it actually is” you’re not really helping

149

Sebastian H 12.12.12 at 8:40 pm

“The ECB is the only game in town pending a proper fiscal union (with proper governance). There’s a straightforward agenda and set of proposals here, so I’ll judge progress against that.”

Pending proper fiscal union OR dissolution of part or all of the euro monetary unit?

But even barring that, how are they doing? How many sort-of-milestones get missed before it counts as a failure worth reconsidering? You *seem* to be acting as if the euro/increased fiscal union is the important end in and of itself. But that can’t be right. The euro has a purpose with something like stabilizing and facilitating growth. It isn’t super clear that it is fulfilling that purpose (or with comments upthread, some people are suspecting that its stated purpose is at odd with the purpose being transacted).

I also wonder about your comments about anti-fragility. They seem similar to discussions about the ‘great moderation’. It is beginning to look like the ‘great moderation’ let things get bigger and bigger until a truly awful depression busted out, rather than representing a real change in financial/economic understanding. The ECB moves strike me as much more in that vein, rather than real reductions in systemic fragility.

150

rf 12.12.12 at 9:29 pm

“No, I’ve never said that. The reasons why Ireland shouldn’t have been allowed to blow up the European financial system are technical, not moral. My critique is entirely that the people pushing magic bullet solutions whereby “bondholders” paid for all of Ireland’s problems are in cloud cuckoo land, and their proposed policy wouldn’t have worked and would have caused massive and disastrous side-effects.”

Okay, maybe I’ve misread your position, although I’m not sure how seriously entertained an idea that was. (I remember it being suggested as a ‘negotiating tactic’ in certain quarters but was quickly dismissed as ridiculous)
Also, just reading a Sydney C. Ludvigson et al paper on ‘International Capital Flows and House Prices’, so perhaps I’m overstating that point. Still think the problem was more systemic than domestic though.

151

Phil 12.12.12 at 9:47 pm

everyone (even Phil Edwards who is my touchstone on this one) pointed out that “Procedural Democrats For Berlusconi” was likely to be a small club

Slap my face and call me orientalist, but I do there’s a real clannishness about the Berlusconi circle (such as it is these days). If you hear somebody expressing doubts about blanket condemnations of Berlusconi or denials of due process or whatever – with however much much-as-it-pains-me throat-clearing – you can generally write them off at once and forever (or at least until they break with him). B & his circle want allies who raise points of principle, but they don’t want allies on points of principle.

152

Shay Begorrah 12.13.12 at 12:19 am

@dsquared

If your solution is “Make the Euro into something completely different from what it actually is” you’re not really helping

So, despite EMU having had dubious benefits up to the beginning of the European component of the global financial crisis and disastrous consequences thereafter, despite the accepted consensus that the ECB are neoliberal boot boys with a worse record than any other central bank in dealing with the GFC, people who are arguing that EMU needs to change radically are “not really helping”?

We should just obediently “Stay the course” as Olli Rehn, another of the big thinkers fronting an EU institution, has recently announced in the FT?

If the ECB (on its current German leash) is left to its own devices the Eurozone and the EU may recover and flourish despite the baked in Romantic Gothic approach to economic and monetary policy but that is a hell of a chance to take. Anyone with even slightly progressive tendencies should be looking for a significant change in how the ECB formulates policy because the evidence so far is that they are more strongly determined than socially useful.

153

Sebastian H 12.13.12 at 12:41 am

Compare to today’s Fed statement. The willingness to allow 2.5% is probably still too tight, but it *finally* admits that a good monetary policy can’t just let unemployment hover at ridiculously high rates. The ECB doesn’t seem willing to admit that Spanish unemployment above 25% and youth unemployment over 50% is a problem that the ECB has anything to do with.

154

rootless (@root_e) 12.13.12 at 2:39 am

Note also that the US is now ranking Germany as a greater currency abuser than China. Unlike Greece, the US does have the ability to respond to German export subsidy.

155

Walt 12.13.12 at 8:28 am

How would inflation make the euro radically different than it actually is? “Oops, our inflation target should have been 3% all along to best support price stability. Now we have to catch up,” is a smaller deviation from existing practice than “Let’s dictate terms for when we’ll bailout member governments.”

Anyway, there were many steps that the ECB could have taken short of that. They could have cut rates faster. They could have not raised rates in response to a short-term commodity price spike. They could have announced that their inflation target was symmetric, and if they undershot they would deliberately overshoot later.

This isn’t a politically realistic outcome, but that’s because policy makers decided that Greece had to suffer. It was a political question, and it had a political answer. Not a technocratic result of impersonal forces. I think you can even make a good case that Greece didn’t deserve much sympathy (you make a good case for Ireland, for example). But if you took determined technocrats, and gave them the job of minimizing the suffering of Greece within the existing treaty obligations, and promised them the necessary political cover, they certainly could do much more than they have.

156

politicalfootball 12.13.12 at 3:36 pm

Determined technocrats with a desire to minimize suffering simply don’t exist – indeed, they can’t exist. You might as well ask for a German polity that doesn’t want to induce zone-wide recession. These things are not possible without making the Euro completely different from what it is. We live in the best of all possible Eurozones.

Comments on this entry are closed.