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The Berlin Recession

Himm­ler and Hitler: Tech­nocrats, Advo­cates of Aus­ter­i­ty

COMMENT: Ger­man For­eign Pol­i­cy fur­ther devel­ops the sto­ry of the eco­nom­ic and social dev­as­ta­tion man­i­fest­ing in Europe as a direct result of the mea­sures dic­tat­ed to the Euro­pean Union by Ger­many.

Far from inspir­ing “growth through con­fi­dence,” as the Ger­mans and Amer­i­can GOP would have us believe result from “aus­ter­i­ty,” the mea­sures are dri­ving the coun­tries of South­ern Europe into seri­ous reces­sion.

In addi­tion to rav­aging Greece, the aus­ter­i­ty mea­sures being dic­tat­ed by Ger­many are also exac­er­bat­ing the prob­lems of Italy, Spain and Por­tu­gal. Greece is approach­ing Third World sta­tus.

As we have seen in sev­er­al posts, the EU/Germany installed a pro­vi­sion­al gov­ern­ment in Greece that includ­ed the Greek neo-Nazi LAOS par­ty, head­ed by a Holo­caust denier. The cit­i­zens of Greece–“the cra­dle of democ­ra­cy”–had no say what­so­ev­er in the incor­po­ra­tion of the Greek Nazi par­ty into the gov­ern­ment!

As not­ed by British Prime Min­is­ter David Cameron, the EU (read Ger­many) has “out­lawed Keyesni­an­ism.”

One can scarce­ly blame the Greek police­man’s union for advo­cat­ing the issu­ing of a war­rant for the arrest of the EU over­seers of Greece. When the med­i­cine for Greek recov­ery involves slash­ing of the min­i­mum wage by 25% (32% for the youth), what is to be expect­ed but eco­nom­ic dis­as­ter?

The set­tle­ment may well be sow­ing the seeds for a future polit­i­cal cri­sis in Europe, because Euro­pean Union tax­pay­ers will be respon­si­ble for the debt of the unfor­tu­nate South­ern Euro­pean nations.

In time, the export-depen­dent Ger­man econ­o­my may well fall vic­tim to the malaise as well, as not­ed in the arti­cle excerpt­ed below.

“Berlin’s Euro­pean Reces­sion”; german-foreign-policy.com; 3/16/2012.

EXCERPT: The aus­ter­i­ty dic­tate imposed by Berlin and Brus­sels is dri­ving near­ly all indebt­ed south­ern Euro­pean coun­tries deep­er into the reces­sion, as shown by new data on the eco­nom­ic devel­op­ments of Spain, Italy, Por­tu­gal and Greece. Accord­ing to this data Por­tu­gal’s econ­o­my, for exam­ple, declined by 1.3 per­cent in the last quar­ter of 2011 and could shrink by up to six per­cent this year. Indus­tri­al pro­duc­tion in Italy reg­is­tered a sharp decline. Retail sales in Spain — an indi­ca­tor of pri­vate con­sump­tion — declined by almost a quar­ter in com­par­i­son to 2007. Greece is approach­ing the eco­nom­ic lev­el of coun­tries in Latin Amer­i­ca or South­east Asia, which, up to now, had clear­ly lagged behind Euro­pean stan­dards. In the longer run, the reces­sion could have a back­lash on Ger­many because the mas­sive slump is also affect­ing Ger­man exports. This could have seri­ous reper­cus­sions.

“On the Right Path”
Ger­many is con­tin­u­ing to impose dis­as­trous eco­nom­ic aus­ter­i­ty mea­sures all over Europe. Top Ger­man politi­cians and offi­cials relent­less­ly plead for the con­tin­u­a­tion of the aus­ter­i­ty pol­i­cy, unde­terred by the erupt­ing reces­sion in areas of the Euro zone. The pol­i­cy became bind­ing for almost all EU mem­ber coun­tries through the sign­ing the Fis­cal Pact on March 2. As Ger­man Finance Min­ster Wolf­gang Schäu­ble declared March 6, by sign­ing the Fis­cal Pact, Europe is on the “right path.”[1] Indi­cat­ing the Czech Repub­lic and Great Britain, both of which refused to sign the treaty that will slow­ly erode nation­al sov­er­eign­ty, he added that he hoped all EU mem­bers would soon sign up for the Pact, which Berlin sub­stan­tial­ly for­mu­lat­ed. On March 13, Fed­er­al Bank Pres­i­dent Jens Wei­d­mann called for the south­ern Euro coun­tries, which are cur­rent­ly slip­ping into reces­sion, to apply “stiffer reforms” and addi­tion­al aus­ter­i­ty mea­sures. . . .

On the Way to the Third World

Where this aus­ter­i­ty pol­i­cy, imposed by the Ger­man gov­ern­ment on Europe, will lead, can be seen in Greece’s dra­mat­ic crash, which can lit­er­al­ly be char­ac­ter­ized as Greece sav­ing itself to death. Accord­ing to all pre­dic­tions, in 2012 the coun­try will remain in its fourth year of reces­sion and con­tin­ue to approach the eco­nom­ic lev­el of the third world. The Ger­man busi­ness press pre­dicts that if Greece’s eco­nom­ic con­trac­tion con­tin­ues, it will be bypassed by coun­tries such as Viet­nam or Peru. A deep­er reces­sion could even sad­dle Greece with a GNP, in terms of buy­ing pow­er, low­er than the GNP of Bangladesh. The Ger­man edi­tion of the Finan­cial Times speaks of a “his­tor­i­cal­ly excep­tion­al” eco­nom­ic col­lapse. “Some experts fear that the GNP for 2012 will again decline up to eight per­cent, after an approx. 6.5 per­cent drop in 2011. This is “the worst reces­sion that a west­ern coun­try has encoun­tered since the war,” explains Bar­ry Eichen­green, an eco­nom­ic his­to­ri­an at the Uni­ver­si­ty of Berke­ley. . . .

Discussion

42 comments for “The Berlin Recession”

  1. Yup, the plan is pro­ceed­ing accord­ing to... The Plan. Let’s just take the work­ing the­sis that Europe — or more pre­cise­ly Brand EU, its play-mon­ey, its play-pol­i­tics and play-poli­cies — is not meant to “suc­ceed” as such, but works as one of suc­ces­sive instru­ments to bring about longer term aims of the 0.1%. Sounds trite, but what else do we call it/them? A cen­tral­iz­ing force, dis­em­pow­er­ing pub­lic will, ren­der­ing quaint­ly passé the notion of nation­al sov­er­eign­ty (leav­ing it to a sub­si­dized and media-genic far-right to sort out)... noth­ing new here, except maybe the lev­el of dis­til­la­tion. As in the 20th cen­tu­ry, how­ev­er, the Reich itself is mere­ly an actor in this dra­ma, not the author. (And a real West­phalian ham, at that!) Main­stream politi­cos and jour­nal­ists are bit play­ers and extras, paid and unpaid, mak­ing the whole seem gen­uine for the audi­ence. Make no mis­take, here we find no con­spir­a­cy, but the con­tin­u­ous upward flow of wealth, and — in every sense of term — the cor­rup­tion inher­ent in that flow.

    Posted by Rob Coogan | March 24, 2012, 5:04 am
  2. @Rob Coogan: Well, I don’t know about the U.R. being ‘just’ an actor.....but I do think they’re cer­tain­ly not the only arm of the world crime net­work that needs to be dealt with.

    Posted by Steven L. | March 24, 2012, 9:54 am
  3. Based on the per­sis­tent unc­tu­ous­ness of Steven L’s com­ments, my sus­pi­cion is that he/she may be a troller, or a bit sim­ple, or both. But, against my bet­ter judg­ment, I’ll take the bait, if only to make a point.

    @Steven L.: No nation (sov­er­eign state, what­ev­er) or its peo­ple ben­e­fit from the hyper­bol­ic con­cen­tra­tion of wealth that marks our present age — not Ger­many, not Britain, and obvi­ous­ly not Greece.

    And while we’re on the sub­ject of nations not ben­e­fit­ting, hope­ful­ly the resources are at your dis­pos­al to con­clude that no nation (et al) ben­e­fits from war. Sure, some stra­ta increase their wealth and stature. (Just watch the US and Israeli war indus­tries’ stock indices close­ly when — not if — Israel attacks Iran. It’s com­ing after the next US elec­tions, and the next mas­sive down­ward spi­ral is com­ing for the rest of us after that.) Any pur­port­ed ben­e­fit to a nation’s peo­ple from war you’d have take exclu­sive­ly on faith, or dis­miss such claims as soporif­ic pablum.

    I can’t say if or when nations ever had mean­ing­ful exis­tence. I’ll defer to wikipedi­ans here — which means the point is moot. But cer­tain­ly the last cen­tu­ry of near apoc­a­lyp­tic wars has made the actu­al appa­ra­tus of so-called nations into vehi­cles of legit­i­ma­cy, expe­di­ents for elite inter­ests. Judi­cia­ries are polit­i­cal­ly stacked. Main­stream polit­i­cal par­ties and leg­is­la­tures are owned out­right — and by now these are not even con­tro­ver­sial state­ments! The Oval Office, No. 10, and all the rest are basi­cal­ly region­al sales offices for the war indus­try.

    My read­ing of Dav­e’s work tells me that he (right­ly, I think) sees the Kennedy assas­si­na­tion as only one step in this slo-mo elite pow­er grab. It’s the brazen­ness, the per­va­sive­ness, the grotesque­ness of the grab that is the stuff of these pages.

    My read­ing also tells me that Dav­e’s con­struct “The Under­ground Reich” is at its core an orga­nized and metic­u­lous­ly coor­di­nat­ed frag­ment or aspect of what I’ve called the 0.1%, i.e. the play­ers and ben­e­fi­cia­ries of upward con­cen­tra­tion of wealth.

    Steven L., if you are real, then please pay atten­tion close­ly: Nei­ther the UR or the 0.1% is a nation, there­fore nei­ther is “ ‘just’ [sic] an actor ....” These are instead terms used to denote the elite agents and ben­e­fi­cia­ries of this mas­sive upward con­cen­tra­tion of wealth.

    The Reich (Ger­many) and the dis­pos­able EU being my cur­rent top­ic of dis­cus­sion, I rec­om­mend that if you can unsus­pend your dis­be­lief, you might see the play as a play. Makes the news a lot eas­i­er to parse.

    Posted by Rob Coogan | March 24, 2012, 2:15 pm
  4. @ Rob Coogan: That’s a pret­ty sound analy­sis. Keep going.

    Posted by Claude | March 24, 2012, 7:52 pm
  5. @Rob: In all hon­esty, I do apol­o­gize for hav­ing mis­read your com­ment, I had just recent­ly wok­en up when I wrote that. I know there’s prob­a­bly been a fair share of stu­pid trolls who’ve come on here and spewed all sorts of crap(apparently, there were sev­er­al on a recent 9/11 relat­ed thread), but just so you know, I am nei­ther stu­pid nor a troll and am com­plete­ly genuine(honestly, if I had been either, I like­ly would have been banned from this site’s com­ments board a LONG time ago). Hope­ful­ly this clears things up a lit­tle. =)

    And I do agree with your sec­ond post as well, Rob. Hope­ful­ly, peo­ple can start wak­ing up soon.

    @Rob: Guess I mis­un­der­stood you, huh? Sor­ry. And don’t wor­ry, Rob, I can assure you that I’m 100% real. =)

    @Dave: Okay, Dave, thanks for let­ting me know. My apolo­gies. =)

    Posted by Steven L. | March 24, 2012, 8:03 pm
  6. It seems rel­e­vant, so I’m repost­ing some­thing I wrote for anoth­er site. Fas­cism is not so much a cre­at­ed ide­ol­o­gy, con­scious­ly cho­sen, as it is a self-per­pet­u­at­ing process that has been giv­en a label. As much as fas­cism osten­si­bly pro­motes per­son­al­i­ty, the real­i­ty is that it sup­press­es both per­son­al­i­ty and nation­al­i­ty. The con­cept of the nation state is tem­porar­i­ly use­ful for cre­at­ing wars but is oth­er­wise an obsta­cle. Like­wise the roots of fas­cism are in no coun­try but in all of them. My repost:

    The first install­ment of Rand’s Atlas Shrugged is on Net­flix. Her card­board char­ac­ter heroes are sure to delight a hard­line rightwinger and amuse or nau­se­ate the rest of us. Rand’s major hal­lu­ci­na­tion in her bare­ly read­able nov­el is that large cor­po­ra­tions are head­ed by bril­liant indi­vid­u­al­ists, inven­tors and inno­va­tors who strain to keep civ­i­liza­tion afloat against the efforts of use­less social­ist bureau­crats. The deci­sion to make this series now is indi­ca­tion that some­one thinks the time is right for her com­ic book ide­ol­o­gy to be test mar­ket­ed to a vot­ing pub­lic.
    excerpt:
    Ayn Rand’s ideas have become the Marx­ism of the new right.

    By George Mon­biot, pub­lished in the Guardian 6th March 2012.

    It has a fair claim to be the ugli­est phi­los­o­phy the post-war world has pro­duced. Self­ish­ness, it con­tends, is good, altru­ism evil, empa­thy and com­pas­sion are irra­tional and destruc­tive. The poor deserve to die; the rich deserve unmedi­at­ed pow­er. It has already been test­ed, and has failed spec­tac­u­lar­ly and cat­a­stroph­i­cal­ly. Yet the belief sys­tem con­struct­ed by Ayn Rand, who died 30 years ago today, has nev­er been more pop­u­lar or influ­en­tial.

    Rand was a Russ­ian from a pros­per­ous fam­i­ly who emi­grat­ed to the Unit­ed States. Through her nov­els (such as Atlas Shrugged) and her non-fic­tion (such as The Virtue of Selfishness(1)) she explained a phi­los­o­phy she called Objec­tivism. This holds that the only moral course is pure self-inter­est. We owe noth­ing, she insists, to any­one, even to mem­bers of our own fam­i­lies. She described the poor and weak as “refuse” and “par­a­sites”, and exco­ri­at­ed any­one seek­ing to assist them. Apart from the police, the courts and the armed forces, there should be no role for gov­ern­ment: no social secu­ri­ty, no pub­lic health or edu­ca­tion, no pub­lic infra­struc­ture or trans­port, no fire ser­vice, no reg­u­la­tions, no income tax.

    end excerpt:

    In Ayn Rand’s the­o­ret­i­cal par­adise, the role of gov­ern­ment is reduced to war mak­ing and the use of force to sup­press the Home­land com­mon folk. This is extreme free mar­ket ide­ol­o­gy in a nut­shell — socio­path­ic, fas­cist, Dar­win­ian. Rand’s white Russ­ian Nazi friends had a hand in the numer­ous polit­i­cal mur­ders of last cen­tu­ry. It’s a good thing, I think, that these ideas are being pre­sent­ed in the day­light, as it were, stripped of any pre­tense to com­pas­sion­ate con­ser­vatism. The bat­tle lines are being drawn.

    Posted by Dwight | March 25, 2012, 1:10 am
  7. @Steven–

    I’ve been com­bin­ing some of your com­ments on a par­tic­u­lar post in the inter­est of sav­ing space on the front page, where these com­ments track.

    When you are sim­ply agree­ing with some­one, valu­able space can be saved and your com­ment still reg­is­ters.

    Oth­er­wise, the front page will have much space tak­en up by “I agree, me too, etc.”

    Best,

    Dave

    Posted by Dave Emory | March 25, 2012, 7:09 am
  8. [...] The Berlin Reces­sion [...]

    Posted by Miscellaneous articles for – Articles divers pour 03-25-2012 | Lys-d'Or | March 25, 2012, 12:31 pm
  9. I’d just like to say that I find Steven L.‘s per­sis­tent opti­mism to be an uplift­ing voice of hope on a site that con­tains some of the most depress­ing con­tent on the inter­webs. So there. =P

    Posted by Pterrafractyl | March 25, 2012, 11:09 pm
  10. @Pterrafractyl–

    Steven is indeed opti­mistic. In my ’60’s, I very much wish I could sum­mon up some of Steven’s spir­it.

    Maybe that’s the dif­fer­ence between old and young. I’ve nev­er queried Steven about his age, but I sus­pect I’ve been on the air (33+ years) longer than he’s been alive.

    Best,

    Dave

    Posted by Dave Emory | March 25, 2012, 11:51 pm
  11. @Dwight: Krug­man’s lat­est col­umn col­umn includes some per­fect present day exam­ples of what you desribe....a soci­ety basi­cal­ly wag­ing war on its own peo­ple under the ban­ner of “free-mar­ket”, “lim­it­ed gov­ern­ment” ideals:

    NY Times
    Op-Ed Colum­nist
    Lob­by­ists, Guns and Mon­ey
    By PAUL KRUGMAN
    Pub­lished: March 25, 20

    Florida’s now-infa­mous Stand Your Ground law, which lets you shoot some­one you con­sid­er threat­en­ing with­out fac­ing arrest, let alone pros­e­cu­tion, sounds crazy — and it is. And it’s tempt­ing to dis­miss this law as the work of igno­rant yahoos. But sim­i­lar laws have been pushed across the nation, not by igno­rant yahoos but by big cor­po­ra­tions.

    Specif­i­cal­ly, lan­guage vir­tu­al­ly iden­ti­cal to Florida’s law is fea­tured in a tem­plate sup­plied to leg­is­la­tors in oth­er states by the Amer­i­can Leg­isla­tive Exchange Coun­cil, a cor­po­rate-backed orga­ni­za­tion that has man­aged to keep a low pro­file even as it exerts vast influ­ence (only recent­ly, thanks to yeo­man work by the Cen­ter for Media and Democ­ra­cy, has a clear pic­ture of ALEC’s activ­i­ties emerged). And if there is any sil­ver lin­ing to Trayvon Martin’s killing, it is that it might final­ly place a spot­light on what ALEC is doing to our soci­ety — and our democ­ra­cy.

    What is ALEC? Despite claims that it’s non­par­ti­san, it’s very much a move­ment-con­ser­v­a­tive orga­ni­za­tion, fund­ed by the usu­al sus­pects: the Kochs, Exxon Mobil, and so on. Unlike oth­er such groups, how­ev­er, it doesn’t just influ­ence laws, it lit­er­al­ly writes them, sup­ply­ing ful­ly draft­ed bills to state leg­is­la­tors. In Vir­ginia, for exam­ple, more than 50 ALEC-writ­ten bills have been intro­duced, many almost word for word. And these bills often become law.

    Many ALEC-draft­ed bills pur­sue stan­dard con­ser­v­a­tive goals: union-bust­ing, under­min­ing envi­ron­men­tal pro­tec­tion, tax breaks for cor­po­ra­tions and the wealthy. ALEC seems, how­ev­er, to have a spe­cial inter­est in pri­va­ti­za­tion — that is, on turn­ing the pro­vi­sion of pub­lic ser­vices, from schools to pris­ons, over to for-prof­it cor­po­ra­tions. And some of the most promi­nent ben­e­fi­cia­ries of pri­va­ti­za­tion, such as the online edu­ca­tion com­pa­ny K12 Inc. and the prison oper­a­tor Cor­rec­tions Cor­po­ra­tion of Amer­i­ca, are, not sur­pris­ing­ly, very much involved with the orga­ni­za­tion.

    What this tells us, in turn, is that ALEC’s claim to stand for lim­it­ed gov­ern­ment and free mar­kets is deeply mis­lead­ing. To a large extent the orga­ni­za­tion seeks not lim­it­ed gov­ern­ment but pri­va­tized gov­ern­ment, in which cor­po­ra­tions get their prof­its from tax­pay­er dol­lars, dol­lars steered their way by friend­ly politi­cians. In short, ALEC isn’t so much about pro­mot­ing free mar­kets as it is about expand­ing crony cap­i­tal­ism.

    ...

    But where does the encour­age­ment of vig­i­lante (in)justice fit into this pic­ture? In part it’s the same old sto­ry — the long-stand­ing exploita­tion of pub­lic fears, espe­cial­ly those asso­ci­at­ed with racial ten­sion, to pro­mote a pro-cor­po­rate, pro-wealthy agen­da. It’s nei­ther an acci­dent nor a sur­prise that the Nation­al Rifle Asso­ci­a­tion and ALEC have been close allies all along.

    And ALEC, even more than oth­er move­ment-con­ser­v­a­tive orga­ni­za­tions, is clear­ly play­ing a long game. Its leg­isla­tive tem­plates aren’t just about gen­er­at­ing imme­di­ate ben­e­fits to the organization’s cor­po­rate spon­sors; they’re about cre­at­ing a polit­i­cal cli­mate that will favor even more cor­po­ra­tion-friend­ly leg­is­la­tion in the future.

    Did I men­tion that ALEC has played a key role in pro­mot­ing bills that make it hard for the poor and eth­nic minori­ties to vote?

    Yet that’s not all; you have to think about the inter­ests of the penal-indus­tri­al com­plex — prison oper­a­tors, bail-bond com­pa­nies and more. (The Amer­i­can Bail Coali­tion has pub­licly described ALEC as its “life pre­serv­er.”) This com­plex has a finan­cial stake in any­thing that sends more peo­ple into the courts and the pris­ons, whether it’s exag­ger­at­ed fear of racial minori­ties or Arizona’s dra­con­ian immi­gra­tion law, a law that fol­lowed an ALEC tem­plate almost ver­ba­tim.

    Think about that: we seem to be turn­ing into a coun­try where crony cap­i­tal­ism doesn’t just waste tax­pay­er mon­ey but warps crim­i­nal jus­tice, in which grow­ing incar­cer­a­tion reflects not the need to pro­tect law-abid­ing cit­i­zens but the prof­its cor­po­ra­tions can reap from a larg­er prison pop­u­la­tion.

    ...

    Posted by Pterrafractyl | March 26, 2012, 10:10 am
  12. @Dave: Well, Dave, I’ll be hon­est with you here: I’m only 21.....but at least I’m one of those col­lege kids who’s been wak­ing up to real­i­ty. =)

    @Pterrafractyl: Thank you kind­ly, my friend. Much appre­ci­at­ed. =)

    Posted by Steven L. | March 26, 2012, 8:09 pm
  13. The head of the IMF’s mis­sion to Greece and fel­low trav­el­ers have some sup­port­ive com­ments for their patient: Keep up the great work on destroy­ing your economy...you still need to shave off anoth­er 6–7%. This should all be over in about a decade...:

    Bloomberg
    Greece May Have to Restruc­ture Again, S&P’s Krae­mer Says
    By Jen­nifer Ryan — Mar 29, 2012 2:22 AM CT

    Greece will prob­a­bly have to restruc­ture its debt again and this may involve bailout part­ners such as Euro­pean gov­ern­ments, said Moritz Krae­mer, head of sov­er­eign rat­ings at Stan­dard & Poor’s.

    There may be “down the road, I’m not pre­dict­ing today when, anoth­er restruc­tur­ing of the out­stand­ing debt,” he said at an event in Lon­don late yes­ter­day. “At that time maybe the offi­cial cred­i­tors need to come into the boat.”

    Speak­ing at the same event at the Lon­don School of Eco­nom­ics, Poul Thom­sen, the Inter­na­tion­al Mon­e­tary Fund mis­sion chief to Greece, said while Greece has made an “aggres­sive” fis­cal adjust­ment, it will take at least a decade to ful­ly com­plete the coun­try’s reforms.

    ...

    Thom­sen said that while Greece’s fis­cal adjust­ment has been “unprece­dent­ed, very impres­sive, and undoubt­ed­ly social­ly very painful,” a “major adjust­ment is still need­ed, of 6–7 per­cent of gross domes­tic prod­uct.”

    ...

    Krae­mer said that while mak­ing adjust­ments in a mon­e­tary union is “more dif­fi­cult,” it’s not an impos­si­ble task “if the polit­i­cal pre­con­di­tions and flex­i­bil­i­ty are there.”

    Euro­pean offi­cials said this week that Greece must step up efforts to tight­en the bud­get and over­haul the econ­o­my to pre­vent the sec­ond bailout from col­laps­ing.

    With­out a regime change in pol­i­cy imple­men­ta­tion and a much broad­er polit­i­cal con­sen­sus in favor of painful but nec­es­sary reforms, there is a high risk that the pro­gram derails,” ECB Exec­u­tive Board mem­ber Joerg Asmussen said. “Polit­i­cal courage is need­ed more than ever.”

    Asmussen’s com­ments were echoed by EU Eco­nom­ic and Mon­e­tary Affairs Com­mis­sion­er Olli Rehn, who said that “chal­lenges remain” as Greece seeks to cut its debt to around 116 per­cent of gross domes­tic prod­uct in 2020 from more than 160 per­cent of GDP last year.

    I found the com­ment at the end about the need for a “regime change in pol­i­cy imple­men­ta­tion” a lit­tle curi­ous. Has­n’t “regime change” sort of been the sig­na­ture pol­i­cy of the euro­zone cri­sis so far? Sil­ly me, try­ing to parse psy­cho-speak.

    Posted by Pterrafractyl | March 29, 2012, 7:15 pm
  14. The NY Times had an inter­est­ing piece recent­ly on the “Age of the Shad­ow Bank Run”. The gist of it is that mod­ern glob­al­ized finance, with its unprece­dent­ed shad­ow bank­ing sys­tem, has cre­at­ed new mech­a­nisms for what are essen­tial­ly bank run, except the “run­ning” is done more by finan­cial investors remov­ing short-term cred­it to finan­cial insti­tu­tions vs the bank runs of the past where savers sud­den­ly rush­ing to with­draw their mon­ey. The explo­sion of deriv­a­tives is also cit­ed as one of the big fac­tors in cre­at­ing this “new nor­mal”. The piece, writ­ten by the NY Times lib­er­tar­i­an econ­o­mist Tyler Cow­an, con­cludes that there’s noth­ing that can be done about it so suck it up plebs.

    For­tu­nate­ly, some enter­pris­ing entre­pre­neurs have just the solu­tion need­ed for these trou­bled times:

    Reuters
    Exclu­sive: Gold­man’s Euro­pean deriv­a­tives rev­enue soars

    By Lau­ren Tara LaCapra

    Tue Mar 27, 2012 8:19pm EDT

    (Reuters) — Gold­man Sachs Group Inc’s (GS.N) first-quar­ter earn­ings are expect­ed to ben­e­fit from the increased use of deriv­a­tives by Euro­pean clients seek­ing ways to hedge risk, accord­ing to an inter­nal report seen by Reuters.

    Rev­enue at Gold­man’s invest­ment bank in Europe increased by 8 per­cent from the year-ago peri­od to $476 mil­lion, the report said.

    A big dri­ver was deriv­a­tives that clients, cor­po­ra­tions and finan­cial insti­tu­tions used to hedge bets in the stock and fixed-income mar­kets.

    Over­all client-dri­ven deriv­a­tives rev­enue was up 142 per­cent year-to-date in Gold­man’s Europe divi­sion, help­ing to off­set declines in more tra­di­tion­al invest­ment bank­ing busi­ness­es, like merg­ers and acqui­si­tions.

    The fig­ures sug­gest that steps tak­en by Euro­pean reg­u­la­tors to sta­bi­lize cap­i­tal mar­kets have been effec­tive and have set the stage for stronger-than-expect­ed quar­ter­ly results for Wall Street invest­ment banks.

    The fig­ures also sug­gest that U.S. banks are ben­e­fit­ing from stress among Euro­pean com­peti­tors that have had to step back from the mar­ket and reduce risk-tak­ing in the midst of the sov­er­eign debt cri­sis.

    On a con­fer­ence call last week to dis­cuss quar­ter­ly results, Jef­feries Group Inc (JEF.N) Chief Exec­u­tive Richard Han­dler said “a num­ber of larg­er for­eign play­ers who have had ambi­tions of being glob­al are choos­ing to go back to their respec­tive coun­tries to basi­cal­ly sat­is­fy their reg­u­la­tors and the rat­ing agen­cies.” That is a sit­u­a­tion, he said, that “cre­ates an oppor­tu­ni­ty” for U.S. com­peti­tors to gain mar­ket share.

    Gold­man’s deriv­a­tives gains were dri­ven by clients adjust­ing their bal­ance sheets for coun­ter­par­ty cred­it risks, as well as Euro­pean finan­cial insti­tu­tions seek­ing cap­i­tal gains, said a source famil­iar with the results who spoke on con­di­tion of anonymi­ty because the fig­ures are not pub­lic.

    Gold­man spokesman Michael DuVal­ly declined to com­ment on the fig­ures.

    Gold­man does not break out its Euro­pean results indi­vid­u­al­ly in quar­ter­ly reports. Instead, it reports rev­enue for Europe, Mid­dle East and Asia, which deliv­ered $2.87 bil­lion of rev­enue and $1.09 bil­lion in pre-tax earn­ings for the first quar­ter of 2011.

    ...

    Posted by Pterrafractyl | March 30, 2012, 8:37 am
  15. So Ger­many’s pub­lic sec­tor work­ers are about to get a big pay increase and, right on cue, the head of the Bun­des­bank is warn­ing of ris­ing infla­tion and the need to cut back on stim­u­lus spend­ing and emer­gency lend­ing mea­sures (unless prices fall enough in the oth­er euro­zone mem­bers to off­set it). Great tim­ing:

    Bloomberg
    Draghi Test­ed as Ger­man Pay Deals Add to Euro Diver­gence
    By Jana Randow — Apr 4, 2012 4:37 AM CT

    Wage mod­er­a­tion in Ger­many may be com­ing to an end at pre­cise­ly the wrong time for Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi.

    As nations from Greece to Spain bat­tle reces­sions and record unem­ploy­ment, work­ers in Ger­many are win­ning some of the biggest pay increas­es in two decades, with pub­lic ser­vice staff set to gain 6.3 per­cent more by the end of next year. That’s widen­ing the gaps between Europe’s largest econ­o­my and its euro- area peers, mak­ing the ECB’s one-size-fits-all mon­e­tary pol­i­cy less effec­tive.

    “While the Ger­man wage deals are good news for work­ers, Draghi is unlike­ly to be pop­ping the cham­pagne corks,” said Carsten Brzes­ki, an econ­o­mist at ING Group in Brus­sels. “ECB pol­i­cy is inap­pro­pri­ate for each indi­vid­ual coun­try in the euro area; it’s too loose for Ger­many and too restric­tive for the periph­ery. It could end up mak­ing the diver­gences even big­ger.”

    Draghi is fac­ing the pos­si­bil­i­ty of price pres­sures build­ing in Ger­many just as they wane in nations that have been pushed into aus­ter­i­ty dri­ves by the sov­er­eign debt cri­sis. Only months after the ECB cut its bench­mark inter­est rate to a record low and pumped more than 1 tril­lion euros ($1.3 tril­lion) of cheap cash into Europe’s bank­ing sys­tem to stem the cri­sis, Draghi warned of “upside risks” to infla­tion and start­ed talk­ing about how to with­draw the emer­gency mea­sures.

    Ger­man Reforms

    ...

    Labor-mar­ket reforms last decade increased Germany’s com­pet­i­tive­ness, trans­form­ing the econ­o­my from the so-called “sick man of Europe” into the region’s loco­mo­tive. Ger­man nom­i­nal gross wages rose an aver­age 2 per­cent a year between 2000 and 2009, accord­ing to Euro­stat, less than half the 4.7 per­cent annu­al aver­age gain in Spain.

    Now, with unem­ploy­ment at a two-decade low and exports to coun­tries out­side the euro area par­tial­ly shield­ing the econ­o­my from the debt cri­sis, Ger­man work­ers are ask­ing for a big­ger slice of the pie.

    ‘Turn­ing Point’

    IG Met­all, Europe’s biggest labor union with about 3.6 mil­lion work­ers, is demand­ing 6.5 per­cent more pay.

    Germany’s 2 mil­lion pub­lic ser­vice work­ers are set for a 6.3 per­cent raise over two years under an agree­ment reached with the gov­ern­ment, the Ver.di union said on March 31. That would be the biggest increase nego­ti­at­ed by the union since 1992.

    “The agree­ment will like­ly mark a turn­ing point in wage devel­op­ments in Ger­many after years of wage restraint,” said Klaus Baad­er, an econ­o­mist at Soci­ete Gen­erale SA in Hong Kong. “Giv­en the robust­ness of Germany’s econ­o­my and the con­tin­ued decline in unem­ploy­ment, the fact that wage growth is ris­ing is not sur­pris­ing. If any­thing, it is sur­pris­ing it has tak­en so long.”

    Germany’s econ­o­my expand­ed 3.7 per­cent in 2010 and 3 per­cent in 2011 before the debt cri­sis applied a brake. The Euro­pean Com­mis­sion projects growth of 0.6 per­cent this year. That com­pares with its fore­cast for a 0.3 per­cent con­trac­tion in the euro-area econ­o­my as out­put declines in Italy, Spain, Bel­gium, Greece, Cyprus, the Nether­lands, Por­tu­gal and Slove­nia.

    Rebal­anc­ing Process?

    Some econ­o­mists say ris­ing Ger­man wages are part of a rebal­anc­ing that has to take place with­in the 17-nation euro zone. Ger­many, which has long relied on exports for growth, needs to spur house­hold spend­ing, while periph­er­al nations have to cut wages to improve com­pet­i­tive­ness and export per­for­mance.

    Greece has slashed its min­i­mum wage by 22 per­cent as part of efforts to make the econ­o­my com­pet­i­tive again.

    Still, “the ECB is in a dilem­ma,” said Hol­ger Sandte, chief econ­o­mist at West­LB Mel­lon Asset Man­age­ment in Dus­sel­dorf. “It’s not an opti­mal cur­ren­cy area. The econ­o­my is ter­ri­ble in some parts and okay in oth­ers, and prices are diverg­ing.”

    House prices in Spain plunged 11.2 per­cent last year; in Ger­many they rose 5.5 per­cent, the most since the country’s post-reuni­fi­ca­tion prop­er­ty boom in the ear­ly 1990s.
    Sig­nif­i­cant Risks

    Bun­des­bank Pres­i­dent Jens Wei­d­mann is among the ECB pol­i­cy mak­ers to have begun talk­ing of an even­tu­al exit from the cen­tral bank’s emer­gency lend­ing mea­sures, say­ing they entail sig­nif­i­cant risks.

    Draghi, in an inter­view with Germany’s mass tabloid Bild news­pa­per, said he shares Weidmann’s con­cerns and “all mem­bers of the Gov­ern­ing Coun­cil have tak­en to heart Germany’s sta­bil­i­ty cul­ture.”

    “Exit talks are in large part tar­get­ed at Ger­mans and oth­er infla­tion hawks con­cerned about ris­ing infla­tion and the emer­gence of asset-price bub­bles,” said Mar­co Val­li, chief euro-area econ­o­mist at Uni­Cred­it Glob­al Research in Milan. “They want to show they have the tools avail­able to tack­le infla­tion, but they’re nowhere close to a start­ing the exit.”

    While Draghi will prob­a­bly affirm his view that the euro- area econ­o­my has sta­bi­lized, con­tract­ing man­u­fac­tur­ing out­put sug­gests the recov­ery remains frag­ile.

    Infla­tion vs. Defla­tion

    At the same time, euro-area infla­tion, dri­ven by high­er oil prices and tax increas­es, will breach the ECB’s 2 per­cent lim­it for a sec­ond straight year in 2012.

    The ECB pre­dicts it will slow to 1.6 per­cent next year. Still, the days of count­ing on Ger­many to exert down­ward pres­sure on the rate may be com­ing to an end, said Juer­gen Michels, chief euro-area econ­o­mist at Cit­i­group in Lon­don.

    Weak domes­tic demand and aus­ter­i­ty mea­sures will prob­a­bly result in defla­tion in periph­ery coun­tries, giv­ing the ECB room to increase stim­u­lus, he said, yet in Ger­many price pres­sures are like­ly to remain ele­vat­ed.

    “As a con­se­quence, we expect that in con­trast to the peri­od since intro­duc­ing the euro, Ger­man infla­tion rates will be above the euro-area aver­age over the medi­um term,” Michels said.

    In oth­er news, Spain’s bor­row­ing costs rose as a result of tepid demand for Span­ish bonds. And in com­plete­ly unre­lat­ed news, Aus­tri­a’s cen­tral bank is join­ing with the Bun­des­bank in reject­ing the use of gov­ern­ment bonds as col­lat­er­al if that gov­ern­ment gets a bailout.

    Posted by Pterrafractyl | April 4, 2012, 11:16 am
  16. This sounds famil­iar

    Isn’t liv­ing in bizarro-world fun?

    Posted by Pterrafractyl | April 7, 2012, 7:43 pm
  17. Krug­man has a cou­ple of posts on a debate over the forces dri­ving the his­tor­i­cal­ly low inter­est rates on bonds. There’s spec­u­la­tion that this is due to a grow­ing “safe assets” short­age, where investors are so des­per­ate for bonds from the “safest” enti­ties (like US or Ger­man bonds) that they’ll accept his­tor­i­cal­ly low rates in exchange for per­ceived safe­ty.

    Regard­less of whether or not a per­ceived safe asset short­age is real­ly the cause of today’s ultra-low rates, the top­ic is an reminder of just how much real clout the P.I.I.G.S. have in the euro­zone cri­sis. Because if there’s a breakup of the euro­zone in the future there won’t be a debate over whether or not a safe asset cri­sis is at hand...a safe asset demand surge will be inevitable along with the result­ing cur­ren­cy appre­ci­a­tion that is cur­rent­ly mut­ed by the cur­ren­cy union. And those surg­ing cur­ren­cies won’t do good things for the com­pet­i­tive­ness of export-ori­ent­ed economies fac­ing a non-euro world. The “mutu­al­ly assured” nature of the destruc­tive poli­cies being imposed on the P.I.I.G.S. will become much more evi­dent should the Big Bad Wolf actu­al­ly suc­ceed in blow­ing their hous­es down. That’s some­thing the P.I.I.G.S. should keep mind the next time the Big Bad Wolf gets all huffy and puffy, near­ly blows the house down, and then demands the mort­gage as col­lat­er­al for the foun­da­tion-repair ser­vices.

    Posted by Pterrafractyl | April 12, 2012, 10:51 pm
  18. @Pterrafractyl–

    When updat­ing us on inves­ti­ga­tions like this, or PIMCO and­out MBS’s, Deutsche Bank offer­ing a way around Dodd/Frank, I’d like to request that you real­ly stretch out and take what might to you seem to be an inor­di­nate amount of time to explain the fine points to those of us who are not as flu­id and con­ver­sa­tion­al with the invest­ment world.

    I think it will prove very enlight­en­ing for those of us who fol­low your posts and will also help you to refine your analy­sis.

    Thanks,
    Dave

    Posted by Dave Emory | April 12, 2012, 11:16 pm
  19. @Dave: I too, find Pter­rafractyl to be a valu­able mem­ber of the (still small, but seem­ing­ly grow­ing) Spit­fireList com­mu­ni­ty. His(her?) insights have cer­tain­ly been very help­ful to me, per­son­al­ly, in ana­lyz­ing var­i­ous events.

    Regards to all,

    Steven. =)

    Posted by Steve L. | April 13, 2012, 2:42 am
  20. @Pterrafractyl: I agree with the above opin­ions. I find myself in this posi­tion too. My finan­cial and eco­nom­i­cal back­ground is mim­i­mal, so I need more expla­na­tions “for the lay­men” than the amount you use to con­tribute. The mate­r­i­al that you post is abvi­ous­ly ter­rif­ic and infor­ma­tive but unfor­tu­nate­ly I don’t have the back­ground to real­ly grasp it in all its sub­tleties. It is not crit­i­cism but rather a sug­ges­tion to enhance the expe­ri­ence.

    Have a good day.

    Posted by Claude | April 13, 2012, 10:14 am
  21. @Dave: Sure thing. For­tu­nate­ly, there’s a Bloomberg arti­cle that high­lights what I was elud­ing to in the above com­ment about the “safe assets” short­age. It dis­cuss­es the grow­ing vol­ume of cap­i­tal that is flow­ing from the dis­tressed euro­zone mem­bers (Spain and Italy) and into the banks in the Nether­lands, Lux­em­bourg, and Ger­many as part of the nor­mal cap­i­tal flows out of coun­tries deemed to be “unsafe” and into the “safe” coun­tries. There’s a great graph­ic in the arti­cle here. Now, under nor­mal cir­cum­stances, this kind of cap­i­tal flow would cause a depre­ci­a­tion in the val­ue of cur­ren­cies in the coun­tries where mon­ey is flow­ing out of (Italy, Spain, etc.) and an increase in the val­ue of the cur­ren­cies where the mon­ey is flow­ing into(Germany, Nether­lands, Lux­em­bourg). BUT, because we’re talk­ing about mon­ey flows in a mon­e­tary union in this instance we don’t see the euro itself ris­ing or falling from these cap­i­tal flows so each of the above coun­tries won’t see the expect­ed shift in their cur­ren­cy val­u­a­tions. That expect­ed shift in val­u­a­tions is just part of what it sup­posed to make the “mar­ket” a self-cor­rect­ing sys­tem but it’s been bro­ken by the impo­si­tion of a cur­ren­cy union and THAT type of dys­func­tion­al mar­ket mech­a­nism is a high­ly desire­able sit­u­a­tion for the recip­i­ents of these cap­i­tal flows (Ger­many, Nether­lands, Lux­em­bourg) because they get all the mon­ey with­out the cost of a high­er cur­ren­cy val­u­a­tion. It’s espe­cial­ly desir­able for Ger­many because of its intense reliance on exports.

    So what the P.I.I.G.S. (Por­tu­gal, Ire­land, Italy, Greece, and Spain) need to remem­ber while they’re being asked to destroy their human cap­i­tal base and futures to sal­vage the cur­ren­cy union is that the threat of leav­ing the euro­zone is a very real threat to Ger­many, the Nether­lands, and Lux­em­bourg (thie three biggest “safe havens” in the euro­zone). Those types of cap­i­tal flows out of “unsafe” coun­tries and into “safe” coun­tries will still take place with or with­out the euro­zone cur­ren­cy union, but they will be A LOT more painful to Ger­many, espe­cial­ly, in the absence of the euro­zone. Instead of hav­ing Ger­man banks receive all these bil­lions of of euros in cap­i­tal while still main­tain­ing a cheap export cur­ren­cy, the Ger­many banks will still receive all that cap­i­tal but with a result­ing surge in the val­ue of the Deutsche Mark (or what­ev­er post-euro cur­ren­cy gets imple­ment­ed). The P.I.I.G.S., while still los­ing that cap­i­tal, will at least have a shot at export­ing their way back to sta­bil­i­ty with they’re new­ly deval­ued cur­ren­cies.

    But there’s a big­ger shock that’s been set in place if the euro­zone unrav­els because not only will there be a return to pre-cur­ren­cy-union cur­ren­cy mar­ket dynam­ics (with the asso­ci­at­ed cur­ren­cy val­u­a­tions fluc­tu­a­tions), but this return to the “old nor­mal” will all be tak­ing place in the midst of a mas­sive­ly desta­bi­liz­ing glob­al cri­sis (the loss of the euro would send the glob­al econ­o­my into a tail­spain), and it’s when those glob­al crises take place that export-ori­ent­ed coun­tries like Ger­many have to REALLY wor­ry about mon­ey from around the globe flow­ing into the Ger­man econ­o­my and shoot­ing the Deutsche Mark through the roof. The Deutsche Mark is like a super-com­pressed spring just wait­ing to get the chance to decom­press. The only thing real­ly hold­ing it down right now is the exis­tence of the cur­ren­cy union and if that spring starts decom­press­ing (and spec­u­la­tive ani­mal spir­its kick in) it’s hard to say just how over­val­ued a new Deutsche Mark could become over a fair­ly short peri­od of time. This is not a triv­ial hypo­thet­i­cal threat either. It’s what non-euro­zone coun­tries with healthy economies deal with all the time.

    The final point is that, in the absence of a cur­ren­cy union, there are still plen­ty of mech­a­nisms that a coun­try like Ger­many can use to keep it’s cur­ren­cy at a sub­dued val­ue. Just look at what Chi­na or Switzer­land do. They main­tain cur­ren­cy “pegs” and just do con­tin­u­al inter­ven­tions in the cur­ren­cy mar­kets in order to make their cur­ren­cies arti­fi­cial­ly cheap. But this isn’t a cheap pol­i­cy to maintain...not by a long shot. Just take a look at Switzer­land right now...there’s so much hot mon­ey flow­ing into there right now in search of “safe­ty” that bond hold­ers are get­ting NEGATIVE inter­est rates. Investors are so desparate for “safe­ty” that they are pay­ing the Swiss to bor­row their mon­ey just so they have lia­bil­i­ties in Swiss Francs. That’s the “new nor­mal” for the non‑P.I.I.G.S. if the P.I.I.G.S. bolt and leave the cur­ren­cy union and it’s not some­thing the non‑P.I.I.G.S. should be look­ing for­ward to and their pol­i­cy-mak­ers cer­tain­ly rec­og­nize this unpleas­ant real­i­ty.

    Ooooh but there’s even more. Here’s an excerpt from that arti­cle, and note how there’s an extra lia­bil­i­ty on the non‑P.I.I.G.S. if the P.I.I.G.S. balk and leave the union: One of the mech­a­nisms used to enforce the cur­ren­cy union involves the cen­tral bank of a mem­ber nation that receives cap­i­tal flows being forced to lend that same amount of mon­ey to the cen­tral bank of the coun­try where the mon­ey came from. So if $100 bil­lion leaves Span­ish banks for Ger­man banks that’s $100 bil­lion that the Bun­des­bank has to lend to the Span­ish cen­tral bank. And if the Span­ish cen­tral bank is forced into insol­ven­cy (say, the bond mar­ket just stops buy­ing Span­ish bonds), that $100 bil­lion loan to the Span­ish cen­tral bank won’t be paid back to the Bun­des­bank and the Bun­des­bank just has to eat it. In oth­er words, these mas­sive cap­i­tal flows with­in the euro­zone are also lia­bil­i­ties for the big recip­i­ents. That’s just the way the sys­tem was set up:

    Europe’s Cap­i­tal Flight Betrays Currency’s Fragili­ty
    By the Edi­tors Apr 12, 2012 6:00 PM CT

    The euro area’s finan­cial trou­bles appear to be flar­ing up again, as this week’s gyra­tions in the Span­ish bond mar­ket show. In real­i­ty, they nev­er went away. And judg­ing from the flood of mon­ey mov­ing across bor­ders in the region, Euro­peans are increas­ing­ly los­ing faith that the cur­ren­cy union will hold togeth­er at all.

    In recent months, even as mar­kets seemed calm, sophis­ti­cat­ed investors and reg­u­lar depos­i­tors alike have been pulling euros out of strug­gling coun­tries and deposit­ing them in the banks of coun­tries deemed rel­a­tive­ly safe. Such moves indi­cate increas­ing con­cern that a finan­cial­ly strapped coun­try might dump the euro and leave depos­i­tors hold­ing deval­ued drach­ma, lira or pese­tas.

    The flows are tough to quan­ti­fy, but they can be esti­mat­ed by pars­ing the bal­ance sheets of euro-area cen­tral banks. When mon­ey moves from one coun­try to anoth­er, the cen­tral bank of the receiv­ing sov­er­eign must lend an off­set­ting amount to its coun­ter­part in the source coun­try — a mech­a­nism that keeps the cur­ren­cy union’s accounts in bal­ance. The Bank of Spain, for exam­ple, ends up owing the Bun­des­bank when Span­ish depos­i­tors move their euros to Ger­man banks. By look­ing at the changes in such cross-bor­der claims, we can fig­ure out how much mon­ey is leav­ing which euro nation and where it’s going.
    Cap­i­tal Flight

    This analy­sis sug­gests that cap­i­tal flight is hap­pen­ing on a scale unprece­dent­ed in the euro era — main­ly from Spain and Italy to Ger­many, the Nether­lands and Lux­em­bourg (see chart). In March alone, about 65 bil­lion euros left Spain for oth­er euro- zone coun­tries. In the sev­en months through Feb­ru­ary, the rel­e­vant debts of the cen­tral banks of Spain and Italy increased by 155 bil­lion euros and 180 bil­lion euros, respec­tive­ly. Over the same peri­od, the cen­tral banks of Ger­many, the Nether­lands and Lux­em­bourg saw their cor­re­spond­ing cred­its to oth­er euro- area cen­tral banks grow by about 360 bil­lion euros.

    The sev­en-month increase is about dou­ble the pre­vi­ous 17- month rise, and brings the three safe-haven coun­tries’ com­bined loans to oth­er cen­tral banks to 789 bil­lion euros, their high­est point on record. In essence, the cen­tral banks of the three coun­tries — and, by proxy, their tax­pay­ers — have agreed to make good on about 789 bil­lion euros that were once the respon­si­bil­i­ty of Italy, Spain, Greece and oth­ers.

    ...

    Fis­cal Union

    Aside from adopt­ing tougher fis­cal rules to get gov­ern­ment debts under con­trol, the euro area should also forge a clos­er fis­cal union to pro­vide some sup­port for strug­gling coun­tries, much as fed­er­al trans­fers in the U.S. cush­ion down­turns in indi­vid­ual states. This could help Greece, Por­tu­gal, Ire­land, Spain and Italy extract them­selves from the down­ward spi­ral of bud­get cuts and weak­en­ing economies.

    The idea that Europe’s cur­rent incre­men­tal approach has the advan­tage of sav­ing mon­ey is an illu­sion, and not just because the dis­in­te­gra­tion of the cur­ren­cy union could trig­ger a glob­al finan­cial melt­down. As the cap­i­tal flight fig­ures demon­strate, the strick­en nations of the euro area are bleed­ing pri­vate mon­ey and becom­ing increas­ing­ly depen­dent on tax­pay­ers. In all, the debts of strug­gling banks and sov­er­eigns to offi­cial cred­i­tors such as the EU, the ECB and nation­al cen­tral banks now exceed 2 tril­lion euros, much of which would be lost if the debtor nations dropped out of the cur­ren­cy union.

    Hope­ful­ly, Europe’s lead­ers will rec­og­nize that it would be a lot cheap­er to put up the mon­ey need­ed to restore con­fi­dence in the com­mon cur­ren­cy. If they wait too long, the cost of the cri­sis could prove to be more than their tax­pay­ers can bear.

    Hope­ful­ly this sort of clar­i­fies things. And hope­ful­ly the P.I.I.G.S. real­ize just how much clout they have in this sit­u­a­tion because a lot of pow­er­ful inter­ests seem to have aquired an appetite for pork:

    Exclu­sive-Euro­pean Rail­way Com­pa­nies Eye Greek Net­work Sale
    By REUTERS
    Pub­lished: April 13, 2012 at 5:52 AM ET

    BRUSSELS (Reuters) — Three Euro­pean rail­way com­pa­nies are inter­est­ed in buy­ing all or part of Greece’s rail­way busi­ness, as the debt-laden coun­try sells assets to sat­is­fy its lenders, peo­ple famil­iar with the dis­cus­sions told Reuters.

    Rus­sia is con­sid­er­ing buy­ing the entire Greek rail­way net­work and its oper­a­tor Train­ose, while Roma­ni­a’s largest pri­vate rail­way com­pa­ny, Grup Fer­oviar Roman (GFR), has expressed inter­est in the car­go busi­ness, two high-lev­el Greek offi­cials said.

    A Russ­ian Rail­ways offi­cial said it had dis­cussed buy­ing all or part of the net­work, while its head Vladimir Yakunin told Reuters, “We’re keep­ing in con­tact with the Greeks ... They haven’t decid­ed on the mod­el yet, so it’s too ear­ly to talk about our par­tic­i­pa­tion.”

    ...

    One of the Greek offi­cials said he had met sev­er­al times with a del­e­ga­tion from GFR, most recent­ly in Feb­ru­ary.

    Train­ose, which offi­cials hope will raise 200 mil­lion euros, and the Rail­way Orga­ni­za­tion of Greece (OSE), which owns the phys­i­cal rail­way infra­struc­ture, were one com­pa­ny before being split in 2008. Greece took over 10.7 bil­lion euros of their debts in late 2010, about 700 mil­lion euros of it from Train­ose.

    The suc­cess of a deal with the Euro­pean rail­way com­pa­nies hinges large­ly on the Greek state’s abil­i­ty to receive Euro­pean Union approval for the state inter­ven­tion. Athens is push­ing for the green light pri­or to going ahead with the pri­vati­sa­tion.

    Train­ose is among dozens of state-owned busi­ness­es put on the auc­tion block under Greece’s 130 bil­lion euro bailout pro­gramme with the so-called troi­ka of the Euro­pean Com­mis­sion, Euro­pean Cen­tral Bank and Inter­na­tion­al Mon­e­tary Fund.

    Under an EU timetable, the ten­der process for Train­ose will open in the fourth quar­ter of 2012, and its assets will be trans­ferred to the Greek pri­vati­sa­tion fund. The pro­ceeds from a sale, slat­ed to close in the spring of 2013, will con­tribute to the 19 bil­lion euro tar­get Greece aims to raise to cut debt.

    ...

    Chi­na has already seized on oppor­tu­ni­ties pre­sent­ed by Greece’s debt cri­sis, with Chi­na-based COSCO Pacif­ic last year tak­ing con­trol of Greece’s largest con­tain­er ter­mi­nal, Piraeus, nego­ti­at­ing a 35-year lease for almost $5 bil­lion.

    SELLING CHEAP

    Two Greek gov­ern­ment offi­cials in Brus­sels said they have been pres­sured by Euro­pean Com­mis­sion offi­cials to sell off the rail­ways soon­er than a pre­vi­ous­ly agreed timetable, which they argue will hurt the price.

    The key hur­dle to a sale is secur­ing approval from the Euro­pean Com­pe­ti­tion Com­mis­sion (ECC) for the aid to Train­ose and OSE, which is required under EU com­pe­ti­tion laws.

    It is in the inter­est of Greek offi­cials to sell at the high­est price, while the Euro­pean Com­mis­sion is eager to send a sig­nal that it wants to recov­er the bil­lions in Euro­pean tax­pay­ers’ mon­ey used to bail Greece out as swift­ly as pos­si­ble.

    ...

    @Steven: Thanks!

    Posted by Pterrafractyl | April 13, 2012, 10:28 am
  22. @Pterrafractyl: Great work. Thanks to you, we can see now that there is a flight cap­i­tal pro­gram inside the EU itself. And the most inter­est­ing is that it appears to involve nations that were part of the Axis dur­ing WWII, from Spain and Italy to Ger­many, the Nether­lands and Lux­em­bourg. Is this a coin­ci­dence? Well, we know that there is no such things as coin­ci­dences!

    Best.

    Posted by Claude | April 14, 2012, 3:48 pm
  23. @Pterrafractyl–

    First off, I want to echo Claude’s praise.

    Beyond that, I’d like to request that you flesh out your con­tri­bu­tion of some weeks ago that Deutsche Bank had imple­ment­ed a pro­gram per­mit­ting U.S. finan­cial insti­tu­tions to side­step Dodd/Frank.

    I’d also like you to fur­ther devel­op the “qui­et bank run” phe­nom­e­non you high­light­ed a short time ago.

    Last­ly, I’d like you to do a lengthy com­ment on PIMCO. Recent­ly, you post­ed an arti­cle in which an ana­lyst not­ed that PIMCO was already “too big to fail”, but was pur­su­ing fail­ure bound invest­ment poli­cies.

    Note that if it DOES fail and the feds have to bail it out, that will put still more impe­tus into the “aus­ter­i­ty” dog­ma being pushed by the Under­ground Reich and their satraps in the GOP and oth­er polit­i­cal right wings.

    I’d like to request that you real­ly stretch out on the top­ic of PIMCO, a whol­ly-owned sub­sidiary of Allianz, the Ger­man insur­ance giant and defen­dant in Holo­caust law suits by sur­vivors a decade and a half or so ago.

    Again, you under­stand many of these maneu­vers that the giant hous­es are imple­ment­ing. Most peo­ple, includ­ing Yours Tru­ly, don’t past a point.

    These gam­bits are meant to be opaque, not trans­par­ent, and the extent to which you can pull aside the veil of obfus­ca­tion for us will be most wel­come and use­ful.

    Best,

    Dave

    Posted by Dave Emory | April 14, 2012, 6:35 pm
  24. Just some facile spec­u­la­tion here: Pim­co man­ages assets on behalf of mil­lions of main­ly Amer­i­can retirees and pay­ers into pen­sion and retire­ment funds. These assets are large­ly in dol­lars.

    If Pim­co is head­ed for a designed crash and if Allianz is suf­fi­cient­ly shield­ed from poten­tial loss­es at Pim­co, we may be watch­ing an his­tor­i­cal­ly huge cur­ren­cy futures game. Pim­co’s sheer size and poten­tial fail­ure would cause the dol­lar to plum­met. In the deriv­a­tives mar­ket any­one who could con­trol the tim­ing of a large drop in the dol­lar could prof­it great­ly, espe­cial­ly if Pim­co was slat­ed for even­tu­al tax­pay­er res­cue.
    That’s all just a guess based on these char­ac­ters’ pre­vi­ous exer­cis­es in destruc­to-eco­nom­ics.

    Posted by Dwight | April 15, 2012, 2:17 pm
  25. @Dave: Lengthy response in progress (it’s lengthy, tak­ing too long, ugh)...

    @Claude: I can total­ly under­stand your con­fu­sion on this stuff. Not only are my descrip­tions of the sit­u­a­tion going to be unable to cap­ture the full scope of the awful­ness that is mod­ern finance (the finan­cial news gen­er­al­ly leaves me speech­less so it’s hard to put that into words), but one of the dirty lit­tle secrets of the mod­ern financial/economic sys­tem is that it does­n’t make sense. So no sto­ry about finance or eco­nom­ics from, say, the George W. Bush era onward real­ly ever made much sense. And it bare­ly made sense in the two decades before W. It start­ed get­ting real­ly loopy with Rea­gan in the 80’s and after Glass-Ste­gall was repealed in 1999 and the deriv­a­tives rev­o­lu­tion got tak­en to the next lev­el all it took was a glob­al hous­ing bub­ble to take down the whole glob­al econ­o­my. And two wars. And the gen­er­al crap­tac­u­lar­ness of things. You know what I mean. Things were real­ly messed up in the 90’s but the 00’s was a ride on the crazy train the whole way.

    So I would­n’t expect any descrip­tion of things to be com­pre­hen­si­ble. As Dave put it, these things are meant to be opaque. That includes log­i­cal­ly opaque. The kind of of insan­i­ty I’m allud­ing to is in the lat­est Krug­man Col­umn. Europe’s eco­nom­ic sui­cide. It’s nuts. It does­n’t make sense. And yet it is.

    Posted by Pterrafractyl | April 15, 2012, 11:29 pm
  26. @Pterrafractyl and dave, not hav­ing Dav­e’s remark­able mem­o­ry for details I’m not one for minute foren­sic analy­sis. One lit­tle dis­cussed facet of car­tel cap­i­tal­ism might shed some light on these broad eco­nom­ic events where it appears that cor­po­ra­tions or hedge funds or oth­er large aggre­ga­tions of cap­i­tal are not pur­su­ing what seems super­fi­cial­ly to their best advan­tage.
    After a cap­i­tal aggre­gate sur­pass­es a cer­tain crit­i­cal size and share in the mar­ket it no longer seeks a sim­ple max­i­mum return on cap­i­tal. Instead it seeks what could be called a max­i­mum ‘rel­a­tive’ return. If there is a sce­nario where oth­er com­pet­ing cap­i­tal actors can be dam­aged with zero dam­age to the insti­ga­tor, that result is seen as a pos­i­tive return. It is the ‘beg­gar thy neigh­bor’ strat­e­gy in its rawest form and is used against both pop­u­la­tions and com­pet­ing cap­i­tal net­works. It’s part of the inex­orable work­ing log­ic of large com­pet­ing cap­i­tal aggre­gates. The actu­al make­up of the cap­i­tal net­work involved in these destruc­tive maneu­vers often can’t be iden­ti­fied until after the fact by observ­ing what group or groups came out rel­a­tive­ly more pow­er­ful. I think we’re watch­ing the cli­mac­tic war of the titans as dif­fer­ent cap­i­tal groups some­times col­lide and some­times coop­er­ate in their strug­gle for glob­al pow­er. Being able to iden­ti­fy these sep­a­rate enti­ties, to the extent that they are sep­a­rate, would clar­i­fy the flow of events, but since bank­ing, cor­po­rate and gov­ern­ment struc­ture is designed to obfus­cate that iden­ti­fi­ca­tion, we fall back on nam­ing coun­tries as the pri­ma­ry active agents. I think that’s some­times valid and some­times off the mark.
    I think I’ve made the sit­u­a­tion more vague and con­fused than it was. My work here is done.

    Posted by Dwight | April 16, 2012, 8:34 am
  27. This is going to be a looong ride for Spain on the Crazy Train:

    Spain to save 10 bln euros with health, edu­ca­tion reform

    (AFP) — 4/10/2012

    MADRID — The Span­ish gov­ern­ment, which last month intro­duced a tough 2012 bud­get, said Mon­day it expects to save anoth­er 10 bil­lion euros ($13 bil­lion) by mak­ing pub­lic ser­vices like edu­ca­tion and health care run more effi­cient­ly.

    The sav­ings will be made by both the cen­tral gov­ern­ment and Spain’s 17 autonomous regions, a gov­ern­ment spokesman said fol­low­ing a meet­ing between Prime Min­is­ter Mar­i­ano Rajoy and the edu­ca­tion and health min­is­ters.

    ...

    Spain must reduce its deficit to 5.3 per­cent of gross domes­tic prod­uct this year and to the EU lim­it of 3 per­cent of GDP in 2013 from 8.5 per­cent last year in a peri­od of reces­sion and high unem­ploy­ment.

    To meet this goal the gov­ern­ment last month approved a 2012 bud­get that includes 27 bil­lion euros in spend­ing cuts and tax increas­es, the most aus­tere spend­ing plan in decades.

    The gov­ern­ment did not pro­vide details on how it intends to stream­line pub­lic ser­vices but said they would be out­lined dur­ing a meet­ing at the begin­ning of May between rep­re­sen­ta­tives of the cen­tral gov­ern­ment and the regions, which are most­ly gov­erned by the rul­ing con­ser­v­a­tive Pop­u­lar Par­ty.

    Bud­get Min­is­ter Cristo­bal Mon­toro said the gov­ern­ment planned to define in talks with the regions exact­ly what health, edu­ca­tion and social care ser­vices must be pro­vid­ed.

    ...

    As Rajoy says, they’re just get­ting start­ed. All aboard the Crazy Train! *toot* *toot*:

    Rajoy Says Spain Needs Aus­ter­i­ty for Fund­ing as Yields Climb
    By Ange­line Benoit — Apr 16, 2012 11:40 AM CT

    Prime Min­is­ter Mar­i­ano Rajoy said Spain must slash its bud­get deficit in order to main­tain access to financ­ing, as bond yields rose to the high­est lev­el since his gov­ern­ment came to pow­er four months ago.

    “The fun­da­men­tal objec­tive at the moment is to reduce the deficit,” Rajoy told a con­fer­ence in Madrid today. “If we don’t achieve this, the rest won’t mat­ter: we won’t be able to fund our debt, we won’t be able to meet our com­mit­ments.”

    Rajoy has raised the threat of a bailout to per­suade Spaniards to accept spend­ing cuts and tax increas­es even with the econ­o­my shrink­ing. Econ­o­my Min­is­ter Luis de Guin­dos was due to meet investors today in Paris as the 10-year bond yield surged to more than 6 per­cent.

    ...

    “No one, whether gov­ern­ments or insti­tu­tions, inside or out­side our coun­try, should doubt Spain’s com­mit­ment to the euro and Euro­pean polit­i­cal inte­gra­tion,” Rajoy said.

    Rajoy pledged more mea­sures as he defend­ed the tools the cen­tral gov­ern­ment has cre­at­ed to increase its grip on region­al gov­ern­ments. The Cab­i­net will approve mea­sures this month to help the regions reduce spend­ing in health and edu­ca­tion, which account for about 60 per­cent of their bud­gets.

    Edu­ca­tion Min­is­ter Jose Igna­cio Wert today told edu­ca­tion chiefs from the regions that the gov­ern­ment may increase by as much as 20 per­cent the num­ber of stu­dents per class and stop hir­ing tem­po­rary staff to replace teach­ers before the 10th day of absence, Efe newswire report­ed.

    A sim­i­lar meet­ing between the Health Min­istry and the regions’ health offi­cials will take place on April 18.

    “We have done a lot in four months but we are still at the begin­ning of a long reformist path,” Rajoy said.

    @Dwight: Yep, as more and more finan­cial wealth gets con­cen­trat­ed into the hands of the titans, the less valu­able “mon­ey” is to those actors rel­a­tive to oth­er stores of wealth. Pow­er comes in a lot oth­er forms; destroy­ing a com­peti­tors econ­o­my, a war that destabilizes/depopulates a region for some long-term objec­tive, big invest­ments in mon­ey-los­ing oper­a­tions that buy polit­i­cal patron­age, etc. And as we con­tin­ue down this path of ever-few­er “too big to fail” cor­po­rate mega giants that can move mar­kets at will, and with financial/economic death traps get­ting insti­tu­tion­al­ized into law (e.g. the band new euro­zone “fis­cal treaty” that’s a guar­an­tee for end­less “debt crises”/austerity in the future), there’s just going to be too temp­ta­tion for the eco­nom­ic elites to use dis­as­ter cap­i­tal­ism as the stan­dard tool in the tool­box. It’s too tempt­ing NOT to do it, espe­cial­ly when you’re talk­ing about finan­cial empires that ARE “The mar­ket” and already have more mon­ey than they know what to do with. Case in point.

    Posted by Pterrafractyl | April 16, 2012, 11:33 am
  28. Wow, that’s some real­ly com­pelling lead­er­ship com­ing from the Bun­des­bank: Stop whin­ing about cuts that will destroy your human cap­i­tal and future short-term growth con­cerns. The “mar­ket” will get upset oth­er­wise and jack up your bor­row­ing rates even more. That’s pret­ty much what they said:

    Bun­des­bank Says Euro Nations Must Set Aside Growth Con­cerns
    By Jeff Black — Apr 17, 2012 10:42 AM CT

    Germany’s Bun­des­bank urged trou­bled euro-area gov­ern­ments such as Spain to set aside short-term growth con­cerns and press ahead with bud­get cuts to win back investor con­fi­dence.

    “Putting too much weight on short-term, demand-side risks mis­judges the root cause of the cur­rent cri­sis, name­ly a pro­found loss of con­fi­dence in mar­kets,” Bun­des­bank board mem­ber Andreas Dom­bret said in a state­ment today. “Tak­ing con­sol­i­da­tion plans too light­ly might give some relief in the short term, but it also under­mines the cred­i­bil­i­ty of medi­um- term bud­get goals.”

    Span­ish unem­ploy­ment is approach­ing 24 per­cent as the econ­o­my, the fourth-largest in the 17-nation euro area, con­tracts under the weight of the government’s aus­ter­i­ty mea­sures. At the same time, Spain’s 10-year bor­row­ing costs have jumped more than 1 per­cent­age point since March 2, when Prime Min­is­ter Mar­i­ano Rajoy said the coun­try will miss a 2012 deficit goal set by the Euro­pean Union.

    “In the Bundesbank’s view, the lat­est rise in risk pre­mia for some euro coun­tries shows the ongo­ing fragili­ty of the sit­u­a­tion,” Dom­bret said. “This increase should there­fore be an incen­tive to dis­pel latent doubts in the mar­kets and cre­ate con­fi­dence through deci­sive imple­men­ta­tion of eco­nom­ic oblig­a­tions.”
    ‘Bal­anced Approach’

    Dom­bret cau­tioned against “calls for a fur­ther loos­en­ing of mon­e­tary and fis­cal poli­cies,” say­ing a “bal­anced approach” to the sit­u­a­tion is required.

    Turn­ing to the Ger­man econ­o­my, Europe’s largest, Dom­bret said it is in “remark­ably good shape,” and growth should gath­er pace as unem­ploy­ment at a two-decade low fuels domes­tic demand.

    Dom­bret was brief­ing reporters ahead of the Inter­na­tion­al Mon­e­tary Fund’s meet­ings in Wash­ing­ton this week. He re-stat­ed the Bundesbank’s readi­ness to raise Germany’s con­tri­bu­tion to the IMF’s resources to 41.5 bil­lion euros ($54.6 bil­lion), sub­ject to con­di­tions.

    Dom­bret said mem­bers’ con­tri­bu­tions should cre­ate a “fair shar­ing of the bur­den,” and that funds should not go into a spe­cial reserve for indebt­ed euro-area nations.

    Accord­ing to Merkel, when a num­ber of Ger­many’s fel­low euro­zone mem­bers have lost con­trol of their own des­tiny due to their debt crises. Also, she notes the world does­n’t real­ly under­stand what’s tak­ing place in Europe. Yep:

    Merkel Offers Spain No Respite as Debt Cuts Seen As Key
    By Tony Czucz­ka and Rain­er Buer­gin — Apr 17, 2012 10:04 AM CT

    Chan­cel­lor Angela Merkel opened her cam­paign to win back Germany’s most pop­u­lous state in May 13 elec­tions by appeal­ing to vot­ers to endorse her mes­sage of aus­ter­i­ty as the prime means to tack­le Europe’s debt cri­sis.

    It’s part­ly about still being able to shape our own future,” Merkel said late yes­ter­day at a ral­ly in the city of Muen­ster in North Rhine-West­phalia. Coun­tries in Europe that have run up debt “are so tight­ly in the hands of the finan­cial mar­kets that they can’t make inde­pen­dent deci­sions any­more. We have to watch out that high inter­est rates on our debt don’t lead to the point where we can’t decide and shape any­thing any­more” in Ger­many.

    Merkel’s com­ments under­score a focus on her government’s record of press­ing for deficit cuts as a core cam­paign theme for the state elec­tions next month even as investors and econ­o­mists call for Ger­many to step up its response to the debt cri­sis now maraud­ing Spain. The bal­lots will offer a snap­shot of pub­lic sup­port for her cri­sis han­dling as well as a fore­taste of vot­er sen­ti­ment before the next fed­er­al elec­tion due in 2013.

    Merkel’s mes­sage was rein­forced by Finance Min­is­ter Wolf­gang Schaeu­ble, who said sep­a­rate­ly that any amount of bailout funds and finan­cial fire­walls “won’t solve the prob­lem” with­out a com­mit­ment to reduce debt and raise com­pet­i­tive­ness, the root caus­es of the cri­sis.
    Debt-Cut Push

    That’s why the coun­tries with too high debt, Ger­many includ­ed, have to reduce debt,” Schaeu­ble said in an inter­view with SWR tele­vi­sion in Berlin as Merkel spoke in Muen­ster. “And the coun­tries with insuf­fi­cient com­pet­i­tive­ness have to become more com­pet­i­tive. Then you need a com­mon finance pol­i­cy in Europe — that’s the fis­cal pact. And if you need any­thing else, then you build the fire­wall. If you only build the fire­wall, you can take 10 tril­lion and it’s not going to solve the prob­lem.

    ...

    Span­ish Prime Min­is­ter Mar­i­ano Rajoy has the capac­i­ty to calm finan­cial-mar­ket jit­ters by “stick­ing to his word on bud­get sav­ings,” CDU deputy cau­cus chair­man Michael Meis­ter said in a sep­a­rate inter­view. Fur­ther spend­ing cuts may be nec­es­sary to meet bud­get tar­gets Ger­many because “we in Ger­many can accept one revi­sion only.”

    Ger­many faces crit­i­cism for its anti-cri­sis pol­i­cy of spend­ing cuts from econ­o­mists such as Nobel lau­re­ate Paul Krug­man. Spain needs a new rem­e­dy to its ills since its sto­ry “bears no resem­blance to the moral­i­ty tales so pop­u­lar among Euro­pean offi­cials, espe­cial­ly in Ger­many,” Krug­man said yes­ter­day in a New York Times arti­cle head­lined “Europe’s eco­nom­ic sui­cide.”
    Soros Con­cerns

    Bil­lion­aire investor George Soros told a con­fer­ence in Berlin last week that Europe’s Ger­man-inspired fis­cal com­pact to pro­mote bud­getary dis­ci­pline can’t work in its cur­rent for­mat and that the euro is “bro­ken and needs to be fixed.”

    “I know the con­cerns” of Soros, Schaeu­ble said in his inter­view. “I don’t share them.”

    “I think many haven’t real­ly under­stood what Euro­pean inte­gra­tion is,” he said. “It’s some­thing new and that’s some­thing they don’t real­ly under­stand. We’re cre­at­ing step by step a com­mon finan­cial pol­i­cy in addi­tion to the mon­e­tary pol­i­cy we already have. And the fact that we didn’t have this from the start is some­thing he couldn’t real­ly under­stand.”

    Muen­ster Cathe­dral Address

    Merkel may be pro­pelled by domes­tic elec­toral arith­metic to lis­ten to oppo­si­tion calls to do more to fight the cri­sis. With sup­port col­laps­ing for her Free Demo­c­ra­t­ic nation­al coali­tion part­ner, Merkel’s chances of win­ning a third term next year might hinge on her will­ing­ness to hook up with the Social Democ­rats in a rerun of her “grand coali­tion” of 2005–2009. The oppo­si­tion SPD backs joint euro-area bonds to stop what it calls the “down­ward spi­ral” of “eter­nal res­cues.”

    ...

    Polls sug­gest her par­ty is fac­ing an uphill strug­gle to win back the state. The Social Democ­rats lead by 40 per­cent to the CDU’s 29 per­cent, an Info poll for Wirtschaftswoche mag­a­zine showed on April 14. With the Greens at 10 per­cent and the Free Democ­rats at 3 per­cent, the SPD-Greens coali­tion gov­ern­ment that dis­placed her bloc in 2010 may be poised to resume pow­er. Info polled 1,005 vot­ers on April 4–7. No mar­gin of error was giv­en.

    ...

    It’s going to be very inter­est­ing to watch how the Ger­man elec­torate views this ongo­ing aus­ter­i­ty-only-and-for­ev­er pro­gram that’s become a cen­tral cam­paign plat­form for the CDU and FPD. Because one of the main excus­es that the politi­cians in Berlin have been able to use to jus­ti­fy their aus­ter­i­ty fetish was that they were pla­cat­ing their domes­tic vot­ers that don’t want to bail out their neigh­bors. But if the Ger­man pub­lic is now start­ing to sour on the auster­ty-only-and-for­ev­er poli­cies — maybe they real­ize that the Ger­man pub­lic is going to be sent to the slaugh­ter­house after it’s done with P.I.I.G.S. soon­er or lat­er — if that shift hap­pens, and we STILL see aus­ter­i­ty-only-and-for­ev­er being pushed by the CDU, that will at least put the rest one of the main excus­es used for this ongo­ing mad­ness and hope­ful­ly a few more folks will be able to see this whole thing for the rad­i­cal rev­o­lu­tion­ary finan­cial coup attempt that it is.

    Posted by Pterrafractyl | April 17, 2012, 11:30 am
  29. @Pterrafractyl: Going along with Dav­e’s sug­ges­tion of using your exper­tise in the domain of the econ­o­my, finance and relat­ed sub­jects, I would like to sug­gest to you the work of Kevin Free­man about the 2008 finan­cial cri­sis. In a nut­shell, he makes the case that the cri­sis was pro­voked through “Bear Raids” and oth­ers shenani­gans, volon­tar­i­ly set in motions to crash the sys­tem. “Attacks” accord­ing to him were orig­i­nat­ing from Rus­sia, Chi­na and Islam­ic finance milieus. Check my arti­cle here if you would, with the relat­ed links and pre­sen­ta­tions. Then, if you have any com­ments, obser­va­tions, sup­ple­ments to add, please feel free.

    http://lys-dor.com/2012/04/22/kevin-freeman-on-economic-and-financial-terrorism-second-installment-two-video-presentations/

    Thanks.

    Posted by Claude | April 22, 2012, 4:03 pm
  30. Jens Wei­d­mann, the head of the Bun­des­bank, is con­tin­u­ing to play the offi­cial “bad cop” to Merkel’s/Draghi’s “good cop” roles in the euro­zone cri­sis (When Merkels is the “good cop”, things are bad indeed). Note how Wei­d­mann isn’t forc­ing a lunatic aus­ter­i­ty-only solu­tion on the euro­zone. No, no. He’s just voic­ing “unpalat­able truths” and pro­mot­ing a “cul­ture of sta­bil­i­ty”:

    Bun­des­bank’s Wei­d­mann Says What No EU Politi­cian Wants to Hear
    By Jeff Black and Tony Czucz­ka — Apr 22, 2012 6:00 PM CT

    Jens Wei­d­mann is no longer his mas­ter’s voice.

    Almost a year into his new job as the head of Ger­many’s Bun­des­bank, Wei­d­mann, 44, has matured from Chan­cel­lor Angela Merkel’s dis­creet right-hand man at glob­al eco­nom­ic meet­ings into one of the few Euro­pean pol­i­cy mak­ers warn­ing that gov­ern­ments are fail­ing to do what’s need­ed to res­cue the euro.

    Wei­d­man­n’s pub­lic crit­i­cism of mea­sures such as the “fis­cal com­pact” — hailed by its archi­tects as the first step to eco­nom­ic union — has pit­ted him against Merkel and Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi as they strug­gle to hold the 17-nation euro region togeth­er. With Europe in reces­sion and ris­ing Span­ish bond yields threat­en­ing to reignite the debt cri­sis after a three-month lull, the Bun­des­bank’s youngest-ever pres­i­dent says greater fis­cal and mon­e­tary rec­ti­tude is the only way to win back investors’ trust.

    “When he was appoint­ed, the press pounced on him and cried ‘Merkel’s man’ because he had worked for her for a few years,” said Man­fred Neu­mann, the pro­fes­sor of inter­na­tion­al eco­nom­ics at Bonn Uni­ver­si­ty who super­vised Wei­d­man­n’s 1997 doc­tor­al the­sis and says he still talks with his for­mer stu­dent. “He has shown that he isn’t.”

    Wei­d­man­n’s arrival on the 12th floor of the Bun­des­bank’s land­mark build­ing in Frank­furt on May 1, 2011, may have been more of a home­com­ing than a depar­ture.
    ‘Cul­ture of Sta­bil­i­ty’

    From 2003 to 2006, he led the cen­tral bank’s mon­e­tary pol­i­cy and analy­sis divi­sion, serv­ing under pres­i­dents Ernst Wel­teke and Axel Weber, one of his for­mer pro­fes­sors and the man who rec­om­mend­ed Wei­d­mann to Merkel. He shared what he learned on his first day in charge, refer­ring to the his­toric Ger­man anx­i­ety about infla­tion that still stokes pub­lic mis­trust of the joint cur­ren­cy.

    “First of all, the Bun­des­bank stands for a cul­ture of sta­bil­i­ty,” Wei­d­mann said dur­ing his inau­gu­ra­tion speech. Wel­teke, accept­ing the same post 12 years ear­li­er in the infan­cy of the euro, said the Bun­des­bank’s job was to bring that cul­ture to the rest of Europe.

    For Wei­d­mann, that has often meant say­ing no. With Span­ish gov­ern­ment offi­cials and French pres­i­den­tial can­di­dates press­ing the ECB for addi­tion­al help as bor­row­ing costs increase, his stand may be test­ed.

    Polit­i­cal Pres­sure

    Fran­cois Hol­lande, who is lead­ing incum­bent French Pres­i­dent Nico­las Sarkozy in opin­ion polls before elec­tions that con­clude May 6, said April 20 that the ECB should cut inter­est rates and begin lend­ing direct­ly to gov­ern­ments to pro­mote growth. In Spain, where bond yields are soar­ing, offi­cials have start­ed to call for the ECB to resume its asset-pur­chase pro­gram.

    Gov­ern­ments have con­sis­tent­ly looked to the ECB to bat­tle the debt cri­sis and Wei­d­mann has con­sis­tent­ly been the man in the way. When the cri­sis spread last year to Italy and Spain, the euro area’s third- and fourth-largest economies, Wei­d­mann opposed the ECB’s deci­sion to inter­vene in bond mar­kets and pub­licly slammed a pro­pos­al to allow the region’s bailout fund to bor­row from the cen­tral bank.

    “The idea that the required mon­ey will be cre­at­ed through the print­ing press should final­ly be brushed aside,” he said in a speech in Berlin in Decem­ber. “Doing that would threat­en the most impor­tant foun­da­tion for a sta­ble cur­ren­cy: the inde­pen­dence of a price-sta­bil­i­ty focused cen­tral bank.”

    He has­n’t spared Draghi or Merkel, who has vowed to pre­vent a breakup of the cur­ren­cy union and put the most mon­ey on the line for bailouts and finan­cial back­stops.
    Fis­cal Com­pact

    When Euro­pean lead­ers agreed on the fis­cal com­pact cham­pi­oned by Merkel in late Jan­u­ary, Draghi said it was “the first step toward the fis­cal union” and would “strength­en con­fi­dence in the euro area.”

    Wei­d­mann said it fell short.

    “Obvi­ous­ly in the nego­ti­a­tions, as often in the past, things were watered down,” he said on Feb. 1. “It’s clear that the cor­ner­stone for a real fis­cal union has­n’t been laid here.”

    For Wei­d­mann, putting Europe’s mon­e­tary union on a sound foot­ing involves gov­ern­ments either giv­ing up some sov­er­eign­ty over nation­al bud­gets or set­ting stricter fis­cal rules and ensur­ing they’re enforced.

    Nei­ther has hap­pened yet, he said dur­ing a March 28 speech at Chatham House in Lon­don. While charm­ing his audi­ence with humor and a down-to-earth style, Wei­d­mann offered a sober­ing assess­ment.

    “The time has come to move from con­tain­ing the cri­sis to resolv­ing it,” he said. “If we have the will to make the right choic­es, we will be able to rebal­ance Europe and lay the foun­da­tion for a stronger, more sta­ble mon­e­tary union.”
    Skilled Nego­tia­tor

    A grad­u­ate of the 193-year-old Friedrich Wil­helm Uni­ver­si­ty in Bonn who spent time in France, Africa and at the Inter­na­tion­al Mon­e­tary Fund, Wei­d­mann was laud­ed for his “firm­ness and nego­ti­at­ing skills” by then French Ambas­sador Bernard de Mont­fer­rand when he was award­ed France’s Legion of Hon­or at a cer­e­mo­ny in Berlin in 2009.

    Yet his habit of serv­ing unpalat­able truths to for­mer polit­i­cal mas­ters and fel­low mon­e­tary pol­i­cy mak­ers isn’t win­ning him friends, said Nick Kou­nis, head of macro­eco­nom­ic research at ABN Amro in Ams­ter­dam.

    “I don’t real­ly think that fel­low pol­i­cy mak­ers are hap­py that he’s com­ing up with this,” said Kou­nis. “Dis­agree­ments on the Gov­ern­ing Coun­cil, espe­cial­ly between the Bun­des­bank and the pres­i­dent, can cre­ate a lot of uncer­tain­ty about the future course of pol­i­cy. It can also lead to cred­i­bil­i­ty issues for the cen­tral bank.”

    Crit­ics of Wei­d­man­n’s approach include bil­lion­aire investor George Soros, who said ris­ing ten­sions in finan­cial mar­kets reflect con­cern that the Bun­des­bank is prepar­ing for the end of the euro.
    ‘Self-Ful­fill­ing Prophe­cy’

    The Ger­man cen­tral bank is cam­paign­ing against “indef­i­nite expan­sion” of the mon­ey sup­ply and seek­ing to lim­it loss­es it would face if the euro splin­tered, Soros said in a speech in Berlin on April 12. “This is cre­at­ing a self-ful­fill­ing prophe­cy.”

    ...

    “In the short term, the Bun­des­bank can cre­ate enough fear of humil­i­a­tion with­in the ECB that it leaves the pres­sure on the gov­ern­ments,” he said. “But the cri­sis has reared its head again and even­tu­al­ly, that might force the hand of the ECB.”

    @Claude: Thanks! I’ll take a look at Free­man’s work. Part of what made the finan­cial sit­u­a­tion in ear­ly 2008 so grim­ly fas­ci­nat­ing is that it was just gener­i­cal­ly vul­ner­a­ble to attacks from...well...anyone. It’s not just the usu­al sus­pects — JPMorgan/Goldman Sachs/Deutsche Bank/Credit Suisse, etc — where it’s sort of an auto-immuno­log­i­cal attack by the finan­cial sys­tem on itself (The giant vam­pire squid needs to feed you know). But back in 2008, things were so out of whack that oth­er nation states that could­n’t nor­mal­ly car­ry off a suc­cess­ful finan­cial attack would have seen one of the best win­dows of oppor­tu­ni­ties in decades. So who knows how many dif­fer­ent play­ers were strate­gi­cal­ly “mov­ing pieces” around the glob­al finan­cial realm in the lead up to the melt­down....

    Posted by Pterrafractyl | April 23, 2012, 7:17 am
  31. And once again Europe is back in a sit­u­a­tion where economies are fal­ter­ing (Spain is offi­cial­ly in a reces­sion again), con­cerns about the future of the whole euro­zone project are back, and a grow­ing num­ber of voic­es are ques­tion­ing the wis­dom of the aus­ter­i­ty-only pol­i­cy solu­tion. But now, with elec­toral set­backs for the sup­port­ers of aus­ter­i­ty-only solu­tions in France and the Nether­lands, Merkel and the Bun­des­bank are going to have to have their work cut out for them if the aus­ter­i­ty-only poli­cies are to con­tin­ue because it’s look­ing more and more like the Ger­man pub­lic-sec­tor work­ers are about to find them­selves in the cross-hairs. And the vot­ers in the large indus­tri­al pow­er­house of North Rhine-West­phalia (NRW) appear to be par­tic­u­lar­ly irked by the grow­ing threats of aus­ter­i­ty at home. This is an impor­tant vot­ing demo­graph­ic in deter­min­ing the direc­tion of Merkel’s gov­ern­ment (and there­fore the Bun­des­bank, and there­fore the ECB). On top of the cur­rent dis­com­fort over aus­ter­i­ty-only lead­er­ship, it sounds like there’s even a grow­ing back­lash in the NRW over the Ger­man reuni­fi­ca­tion “sol­i­dar­i­ty-pact” that forced large-scale state sub­si­diza­tion of the for­mer East Ger­many. This is one of those sto­ries that’s a reminder of how the sit­u­a­tion in the euro­zone could change rapid­ly once the most influ­en­tial elec­torates (Ger­man, Dutch and French espe­cial­ly) begin reject­ing the cur­rent sta­tus quo. That does­n’t mean the sta­tus quo is going to go, but as the increas­ing­ly cri­sis-prone euro­zone limps along through anoth­er aus­ter­i­ty-induced mar­ket scare the forces fight­ing for aus­ter­i­ty might have to switch up their game:

    Euro-style aus­ter­i­ty at home? No thanks Ger­mans say

    By Noah Barkin

    GUETERSLOH, Ger­many (Reuters) — Two years ago vot­ers in this indus­tri­al city on the east­ern edge of North Rhine-West­phalia (NRW) nar­row­ly backed Ger­man Chan­cel­lor Angela Merkel’s con­ser­v­a­tives in a region­al elec­tion.

    But next month, vot­ers like Jochen Venker may vault the rival Social Democ­rats (SPD) into first, strength­en­ing the cen­tre-left party’s hold on Germany’s most pop­u­lous state and deal­ing Merkel a heavy blow before a fed­er­al vote in 2013.

    Venker, a 65-year-old retiree who came with his wife Brigitte to the cen­tral mar­ket square in Gueter­sloh last Thurs­day to hear region­al SPD leader Han­nelore Kraft speak, applaud­ed her mes­sage of mod­er­a­tion in cut­ting the state’s big debt moun­tain.

    “Sav­ing is fine but it shouldn’t be over­done. Just look at Greece — it’s proof that debt reduc­tion alone doesn’t work,” said Venker, a short man with glass­es and a bristly beard.

    “I wor­ry that if we push con­sol­i­da­tion too far, peo­ple will lose hope, they’ll rad­i­calise, there’ll be a move to the right. We saw that before in Ger­many and it was a dis­as­ter.”

    Vot­ers like Venker are Merkel’s worst night­mare, not only because they could give Kraft a deci­sive vic­to­ry over her con­ser­v­a­tive rival Nor­bert Roettgen in an elec­tion on May 13, but also because of the mes­sage that result would send to Germany’s strug­gling part­ners in the euro zone.

    Under Merkel, Ger­many has forced high-debt coun­tries like Greece, Ire­land and Por­tu­gal to accept painful aus­ter­i­ty as a con­di­tion for finan­cial aid. Spain and Italy are also mak­ing unprece­dent­ed bud­get cuts in a des­per­ate bid to avoid bailouts.

    But in NRW, a rust-belt state whose debt has swelled to a record 180 bil­lion euros ($237.74 bil­lion), the elec­torate is reject­ing Merkel’s mes­sage of fis­cal respon­si­bil­i­ty and embrac­ing the SPD’s go-slow­ly approach, which promis­es invest­ments in chil­dren, edu­ca­tion and NRW’s ail­ing cities.

    “If we want coun­tries like Greece and Por­tu­gal to take bud­get dis­ci­pline seri­ous­ly, then we need to take it seri­ous­ly in a big state like North Rhine-West­phalia,” said Juer­gen von Hagen, an eco­nom­ics pro­fes­sor at Bonn Uni­ver­si­ty.

    “Right now it isn’t being tak­en seri­ous­ly. Ger­many is impos­ing aus­ter­i­ty in oth­er coun­tries that is not being accept­ed at home.”

    MaI­NI FINANCIAL CRISIS

    With near­ly 18 mil­lion res­i­dents, NRW has a big­ger pop­u­la­tion than the Nether­lands, with which it shares a bor­der, and an econ­o­my almost as big.

    It is home to one-third of Germany’s blue chip com­pa­nies and four of the country’s nine biggest cities.

    In 2005, the state’s influ­ence on nation­al pol­i­tics was under­scored when a loss for the SPD here prompt­ed then-Chan­cel­lor Ger­hard Schroed­er to call an ear­ly fed­er­al elec­tion, which he end­ed up los­ing to Merkel.

    This time around, the SPD is hop­ing to return the favour, build­ing momen­tum it needs to deny Merkel a third term.

    ...

    The impact of the eco­nom­ic woes on local finances has been dev­as­tat­ing. On top of the 180 bil­lion euros in state debt, munic­i­pal­i­ties have amassed lia­bil­i­ties of near­ly 50 bil­lion.

    Only eight of the 396 local gov­ern­ments in NRW have bal­anced bud­gets, putting the state at the cen­tre of a mini-finan­cial cri­sis that has gone large­ly unno­ticed due to the over­all strength of Europe’s biggest econ­o­my and the health of finances at the fed­er­al lev­el.

    ...

    Last month, Wehling joined three of his coun­ter­parts in the Ruhr to demand an ear­ly end to the post-reuni­fi­ca­tion “sol­i­dar­i­ty pact”, under which state and local gov­ern­ments in the west pro­vide funds for rebuild­ing the for­mer-com­mu­nist east.

    “The eco­nom­ic sit­u­a­tion in parts of NRW is much worse than it is in many regions in the east,” Wehling said in a tele­phone inter­view.

    CARING MOTHER

    Strength­en­ing strick­en cities like Ober­hausen is one of Kraft’s main cam­paign promis­es, although it is unclear how she would find the funds to do this with­out fed­er­al help.

    The 50-year old daugh­ter of a tram-oper­a­tor who grew up in the heart of the Ruhr val­ley, Kraft has run a minor­i­ty gov­ern­ment with the Greens in NRW for the past two years, but was forced into an ear­ly elec­tion when she failed to get her 2012 bud­get through the state assem­bly in March.

    A sup­ple­men­tary bud­get intro­duced by her coali­tion after it took pow­er was ruled uncon­sti­tu­tion­al by a state court, open­ing her up to accu­sa­tions of fis­cal mis­man­age­ment.

    Von Hagen at Bonn Uni­ver­si­ty said if Kraft was re-elect­ed, NRW was unlike­ly to deliv­er on its promis­es under Germany’s “debt brake” law, set­ting a dan­ger­ous prece­dent for oth­er regions of Ger­many and Europe as a whole.

    ...

    The mes­sage from Kraft’s inti­mate cam­paign event stood in stark con­trast to the one sent at a ral­ly by her Chris­t­ian Demo­c­rat (CDU) chal­lenger Roettgen — who is also Merkel’s envi­ron­ment min­is­ter — sev­er­al days before.

    On the cen­tral Dom­platz square of the afflu­ent uni­ver­si­ty town of Muen­ster, the CDU erect­ed a huge inflat­able “debt moun­tain”, a phys­i­cal reminder of what it called the dan­gers of re-elect­ing Kraft.

    Promi­nent­ly dis­played on a makeshift stage were the words “Respon­si­bil­i­ty, Com­pe­tence, Sus­tain­abil­i­ty”. CDU cam­paign posters sur­round­ing the square laud­ed the virtues of “sol­id finances” and urged “debt brake now!”

    ...

    Adding to the com­pli­ca­tions for Merkel and her aus­ter­i­ty allies, France’s like­ly elec­tion of a cen­ter-left pres­i­dent is caus­ing con­ster­na­tion in Ger­many’s indus­tri­al sec­tor. The prospect of EU med­dling by a French cen­ter-left gov­ern­ment is viewed as an unwel­come threat against the Ger­man indus­tri­al sec­tor’s sov­er­eign­ty. The Ger­man trade group’s sug­gest­ed future is through greater trade and tech­nol­o­gy trans­fers with Chi­na:

    Ger­man indus­try body fears French inter­ven­tion­ism
    HANOVER, Ger­many | Sun Apr 22, 2012 2:01pm EDT

    (Reuters) — Ger­man indus­try group BDI said it feared the French gov­ern­ment would push for greater influ­ence in busi­ness after the elec­tions.

    “There’s a lot of signs indi­cat­ing that France is return­ing to a more inter­ven­tion­ist stance,” Hans-Peter Kei­t­el, head of the BDI said ahead of the open­ing of the annu­al Hanover Trade Fair.

    France vot­ed on Sun­day in the first round of a pres­i­den­tial bal­lot where the two rivals, incum­bent Nico­las Sarkozy and social­ist Fran­cois Hol­lande, have sparred furi­ous­ly over the econ­o­my.

    Kei­t­el said com­ments from both the main par­ties in the elec­tion indi­cat­ed that France believed eco­nom­ic growth could only be dri­ven by state inter­ven­tion.

    France has recent­ly come under fire from Berlin after its politi­cians called for the Euro­pean Cen­tral Bank to extend its role to sup­port growth in Europe.

    The BDI boss also said that trade ties should be expand­ed with Chi­na through the exchange of tech­nol­o­gy, although he also said there had to be a com­mon under­stand­ing of the prin­ci­ples involved.

    “We can only export tech­nol­o­gy when we know that it will be treat­ed prop­er­ly and in the cor­rect legal man­ner,” Kei­t­el said.

    Chi­na’s Pre­mier Wen Jiabao is due to open the fair on Sun­day evening with Ger­man Chan­cel­lor Angela Merkel, before vis­it­ing car­mak­er Volk­swa­gen (VOWG_p.DE) on Mon­day.

    Hanover is the world’s largest indus­tri­al trade fair, with around 5,000 com­pa­nies from 69 coun­tries reg­is­tered for this year’s event. Of that, around 500 exhibitors are from Chi­na, the part­ner coun­try of the fair.

    ...

    It sounds like Ger­many’s vast fam­i­ly-owned man­u­fac­tur­ing sec­tor that form the back bone of the econ­o­my is going to be increas­ing­ly open to direct com­pe­ti­tion by the high-tech, low-cost chi­nese labor mar­ket. This was an inevitabil­i­ty, but a blos­som­ing German/Chinese tech/investment alliance is the type of thing that’s going to unfold over the decade decade or so. The Ger­man labor mar­ket is about to get ham­mered by labor cost pres­sures dur­ing a peri­od when clos­ing the “com­pet­i­tive­ness” gap with Ger­man labor coun­ter­parts is now a require­ment for nation­al sur­vival across the con­ti­nent for years going for­ward. A trade rela­tion­ship that puts down­ward pres­sure on Ger­man wages is just too tempt­ing to pass up because the pres­sures on the Ger­man labor mar­kets are going to rever­ber­ate across the euro­zone labor mar­kets once the “fis­cal com­pact” comes into effect and fun things like “wage har­mo­niza­tion” get imple­ment­ed in some dystopi­an demo­c­ra­t­ic-ish euro­zone of tomor­row. If Ger­man man­u­fac­tur­ing wages can be kept down force­ful­ly that is going to impact the next decade of the euro­zone labor mar­ket in ways that would­n’t have tak­en place before so the German/Chinese man­u­fac­tur­ing trade rela­tion­ship will be some­thing worth watch­ing:

    NY Times
    trade unites and divides ger­many and chi­na
    by melis­sa eddy
    pub­lished: april 23, 2012

    HANOVER, GERMANY — It is not easy being part­ners and rivals at the same time. That much was evi­dent as the Chi­nese and Ger­man lead­ers talked trade on Mon­day, when they under­scored com­mon inter­ests but also gen­tly pressed one oth­er to cede ground on trick­i­er issues, like intel­lec­tu­al prop­er­ty rights and the export of tech­nol­o­gy to Chi­na.

    More than 5,000 Ger­man com­pa­nies are now active in Chi­na, many of them from this country’s machine-tool indus­try, which gath­ers annu­al­ly at the trade fair here in Hanover to show off the lat­est inno­va­tions in any range of prod­ucts: indus­tri­al-sized garage door-open­ers, detailed machine bits, devices for mon­i­tor­ing ener­gy use.

    The fair was for­mal­ly opened on Mon­day by Chan­cel­lor Angela Merkel and Wen Jiabao, the prime min­is­ter of Chi­na, this year’s fea­tured nation, with 500 exhibitors.

    Chi­na was last fea­tured at Hanover 25 years ago, when it was still con­sid­ered an emerg­ing econ­o­my. The coun­try has now grown into world’s sec­ond largest econ­o­my, after the Unit­ed States, and sur­passed the Unit­ed States to become the No. 1 for­eign investor in Ger­many.

    Trade between Chi­na and Ger­many, the world’s lead­ing exporters, grew by 400 per­cent in the past decade and last year it reached 144 bil­lion euro, or about $190 bil­lion. Ger­many accounts for a third of China’s trade with the Euro­pean Union, which has 27 mem­ber coun­tries.

    Mr. Wen told an eco­nom­ic forum on Mon­day that Chi­na remained very inter­est­ed in invest­ing in Ger­many and would con­tin­ue to focus on increas­ing its trade with Europe’s lead­ing econ­o­my over the next three years. “We want to reach a vol­ume of trade in 2015 of $280 bil­lion,” he said.

    Both coun­tries agree that an indus­tri­al base is required for their economies to main­tain pros­per­i­ty, as Ms. Merkel point­ed out, while Mr. Wen empha­sized the need for mutu­al trust. Yet dif­fer­ing approach­es to basic prin­ci­ples of how to con­duct inter­na­tion­al busi­ness have strained the part­ner­ship.

    The impor­tance of fair treat­ment for for­eign com­pa­nies that oper­ate legal­ly in one another’s coun­tries and an empha­sis on open mar­kets “must be the basis of our coop­er­a­tion,” Ms. Merkel said.

    Ice­land, which Mr. Wen toured on Fri­day, is the first West­ern Euro­pean coun­try to grant Chi­na mar­ket econ­o­my sta­tus. No E.U. mem­ber coun­try, nor the Unit­ed States, has done so, large­ly out of con­cern that China’s sub­si­dies for its exporters would leave them at a dis­ad­van­tage if it came to a trade dis­pute.

    Mr. Wen pledged to work to pro­tect intel­lec­tu­al rights, a con­stant sore spot with the Ger­mans who fear that the Chi­nese will be able to take their inno­va­tions and pro­duce them more cheap­ly. At the same time, he urged Ger­many for help in address­ing bar­ri­ers at the Euro­pean lev­el.

    “Chi­na is hap­py to import more from Ger­many, and also hopes the Ger­man side will move the E.U. toward a loos­en­ing of export restric­tions against Chi­na in the field of tech­nol­o­gy,” Mr. Wen said.

    The part­ner-com­peti­tor dual­i­ty of rela­tions between Ger­many and Chi­na can part­ly be explained through the fact that the Chi­nese com­pa­nies buy Ger­man machines and equip­ment that they use to pro­duce goods that are then sold back to Ger­many, said Ralph Wiech­ers, chief econ­o­mist of the Ger­man Engi­neer­ing Fed­er­a­tion.

    ...

    “We see that Chi­nese com­pa­nies are becom­ing increas­ing­ly inno­v­a­tive,” Ms. Merkel warned. “That should serve as an incen­tive for Ger­man com­pa­nies.”

    Posted by Pterrafractyl | April 24, 2012, 11:43 pm
  32. Paul Krug­man has been bang­ing his head against the wall quite a bit recent­ly over the medi­a’s non-stop abil­i­ty to reframe the euro­zone cri­sis as a bunch of unpro­duc­tive nations hooked on waste­ful gov­ern­ment social spend­ing and the loot­ing of the shared euro­zone cred­it line. Poor Paul. He’s total­ly head­ing for a con­cus­sion*:

    NY Times
    April 24, 2012, 12:21 pm
    Rogoff’s Bad Para­ble
    Paul Krug­man
    ...
    For the umpteenth time, the key cri­sis coun­tries did not have large deficits before the cri­sis struck. Tak­en as a group, the debt/GDP ratios of the GIP­SIs were falling, not ris­ing:

    What brought on the cri­sis were huge pri­vate cap­i­tal inflows. Don’t think run­away politi­cians; think Ger­man Lan­des­banken lend­ing mon­ey to Span­ish cajas, fuel­ing a real estate bub­ble.

    So what was the big prob­lem with the euro? Not so much that it pro­mot­ed these flows; it prob­a­bly did, but the GIP­SIs aren’t the first economies bond mar­kets have tem­porar­i­ly loved not wise­ly but too well. No, the key prob­lem is lack of a way to adjust when the music stopped.

    ...

    There’s anoth­er NY Times sto­ry today that con­tains a cou­ple of fun-facts that high­light just how exten­sive the hous­ing bub­ble was in Spain. Think of it as the “80/80 bub­ble”:

    NY Times
    Cost of Spain’s Hous­ing Bust Could Force a Bailout

    By LANDON THOMAS Jr. and RAPHAEL MINDER
    Pub­lished: April 24, 2012

    By any mea­sure, the Span­ish real estate boom was one of the head­i­est ever. Spurred by record-low inter­est rates, Spaniards piled into hol­i­day vil­las along the Cos­ta Blan­ca, gaudy apart­ments in Madrid and mil­lions of starter homes through­out the coun­try.

    But since the fren­zy drove Span­ish home prices to a peak in 2007, they have fall­en by at least one-fourth, and the bot­tom seems nowhere in sight. As Spain endures its sec­ond reces­sion in three years and unem­ploy­ment nears 25 per­cent, an increas­ing num­ber of debt-heavy Spaniards can no longer meet month­ly pay­ments on the mort­gages that their banks were all too eager to give.

    With a ris­ing por­tion of Spain’s 663 bil­lion euros, or $876 bil­lion, in home mort­gages at risk of default, many econ­o­mists say it is only a mat­ter of time before some of Spain’s biggest banks will need a bailout. And the Span­ish gov­ern­ment, stag­ger­ing under its own debt and bud­get deficit bur­dens, may not have the mon­ey to come to the res­cue.

    The impli­ca­tions of all this for the rest of Europe were a prime top­ic at last weekend’s meet­ings of the Inter­na­tion­al Mon­e­tary Fund and the World Bank in Wash­ing­ton. The big fear is that the Euro­pean Union will need to step in with a Span­ish bailout — one much big­ger than any of those already extend­ed to Ire­land, Greece and Por­tu­gal.

    “Retail mort­gages are set to become the Achilles’ heel of the Span­ish bank­ing sys­tem,” said Edward Hugh, a Barcelona-based econ­o­mist and blog­ger who has close­ly stud­ied the issue.

    Two years ago, when Ireland’s banks suc­cumbed to a real estate bust, the Irish government’s res­cue effort even­tu­al­ly forced it to take 80 bil­lion euros from the Euro­pean Union and I.M.F. Ana­lysts say that a sim­i­lar res­cue for Spain would cost at least 200 bil­lion euros, or $264 bil­lion — near­ly dou­ble the 110 bil­lion euros giv­en to Greece, whose debt tra­vails had long raised the ques­tion of which Euro­pean econ­o­my might be next to require a res­cue.

    Last week, the Span­ish cen­tral bank report­ed that the nation’s non­per­form­ing loans had hit the high­est lev­el since 1994. And while the government’s offi­cial esti­mate of mort­gages going unpaid is only 3 per­cent, Mr. Hugh and oth­er econ­o­mists say the actu­al num­bers are prob­a­bly much high­er — in dou­ble dig­its for some lenders.

    There is no doubt that the num­ber of new home mort­gages has fall­en off sharply in Spain. The num­ber of mort­gages signed in Feb­ru­ary was down by 46 per­cent from a year ear­li­er — the biggest drop since such fig­ures were first pub­lished in 2004, Spain’s nation­al sta­tis­tics insti­tute said Tues­day.

    The real estate boom, while it last­ed, gave Spain the world’s high­est rate of home­own­er­ship — with more than 8 of every 10 Span­ish house­holds own­ing the places they lived. But lenders are now depend­ing on peo­ple like Mar­ta Afuera Pons, who is jug­gling two mort­gages — one on her house, anoth­er on an invest­ment prop­er­ty that went sour — and is about 350,000 euros in debt.

    ...

    Many investors also see a warn­ing sig­nal in the dete­ri­o­rat­ing per­for­mance of Spain’s 100 bil­lion euro mort­gage-backed secu­ri­ties mar­ket.

    Much as their coun­ter­parts did in the Unit­ed States dur­ing the Amer­i­can hous­ing bub­ble, Span­ish banks sold off the mort­gages to finan­cial com­pa­nies, which repack­aged them into bun­dles of secu­ri­tized mort­gages — invest­ment vehi­cles that paid high yields and were bought by insur­ance com­pa­nies and Euro­pean pen­sion funds and oth­er insti­tu­tion­al investors.

    There was sup­posed to be a cru­cial dif­fer­ence, though. In the Unit­ed States, many of the mort­gages under­ly­ing the secu­ri­ties bun­dles that turned bad were sub­prime, mean­ing the home-buy­ing bor­row­ers had dubi­ous cred­it his­to­ries. In Spain, the mort­gages used as col­lat­er­al for the bun­dled secu­ri­ties were con­sid­ered to be prime — lent only to cred­it­wor­thy bor­row­ers.

    But with unem­ploy­ment near­ing 25 per­cent, the dis­tinc­tion between a prime and sub­prime bor­row­er can be hazy. Many of these mort­gages are now fail­ing, prompt­ing a wave of down­grades by rat­ings agen­cies like Stan­dard & Poor’s and Moody’s, which had giv­en the mort­gage-backed secu­ri­ties top-notch rat­ings dur­ing the boom, just as they did in the Unit­ed States.

    ...

    Because the typ­i­cal Spaniard has 80 per­cent of his or her assets tied up in real estate, a plunge in prices of this mag­ni­tude would be dev­as­tat­ing. “What we are see­ing,” he said, “is a mas­sive impov­er­ish­ment of a coun­try.”

    More than 8 out often Spaniards owned a home and had 80% of their assets tied up in real estate on aver­age. For a coun­try that’s appar­ent­ly crip­pled with mass depen­dence on Big Gov­ern­ment that sure was a high rate of ownership...one might even say Spain became George W. Bush’s “own­er­ship soci­ety”. One of the things about these “own­er­ship soci­eties” that isn’t nor­mal­ly men­tioned is that it starts out as a “mort­gage soci­ety” before it becomes a full-fledged “own­ship soci­ety”. So if the bub­ble bursts before the “mort­gage soci­ety” pays off the mort­gage on itself, it’s still going to become an “own­er­ship soci­ety”, it’s just not the pub­lic doing the own­ing. I’m sure this was all some­where in the fine print.

    *I think the phrase “head­ing for a con­cus­sion” might qual­i­fy as a pun in the head-bang­ing con­text. And for such a‑Paul-ing** pun­ning I must a‑Paul-olo­gize***.
    **My apolo­gies.
    ***Dit­to.

    Posted by Pterrafractyl | April 25, 2012, 11:39 am
  33. Head­line: “Ger­many Shifts Rhetoric to Growth Before French Runoff”.

    A more accu­rate head­line:“Ger­many Shifts Rhetoric to Growth Before French Runoff While Con­tin­u­ing To Insist On Aus­ter­i­ty-Only Pol­i­cy Solu­tions”:

    Ger­many Shifts Rhetoric to Growth Before French Runoff
    By REUTERS
    Pub­lished: April 27, 2012 at 9:28 AM ET

    (Reuters) — Ger­many expects the dilem­ma of boost­ing growth and employ­ment while cut­ting debt to dom­i­nate a sum­mit of EU lead­ers in June, a gov­ern­ment spokesman said, in a sign Berlin is relax­ing its focus on aus­ter­i­ty as the way out of the bloc’s cri­sis.

    Fran­cois Hol­lande, the Social­ist favoured to win a French pres­i­den­tial runoff on May 6, promis­es to shift the debate in Europe towards pro­mot­ing growth if he is elect­ed, crit­i­cis­ing Chan­cel­lor Angela Merkel’s empha­sis on eco­nom­ic reform and bud­get cuts.

    Merkel’s spokesman played down their dif­fer­ences and stressed that Berlin had been push­ing mea­sures for months to bol­ster growth in reces­sion-hit coun­tries like Greece and Spain.

    “For some time now, growth has been the sec­ond pil­lar of Ger­many’s cri­sis-fight­ing pol­i­cy,” Stef­fen Seib­ert told a news con­fer­ence on Fri­day.

    “Growth was the sub­ject of the Euro­pean Coun­cil in Jan­u­ary, in March, and the top­ic of boost­ing growth and employ­ment will play a mas­sive role at the June sum­mit. Ger­many will be active, as it has been in recent months, in look­ing for the right mea­sures with its part­ners,” he said.

    Merkel, who had thrown her sup­port behind con­ser­v­a­tive incum­bent Nico­las Sarkozy in the French vote and refused to meet Hol­lande, firm­ly rejects the Social­ist’s sug­ges­tion that a “fis­cal com­pact” on bud­get dis­ci­pline agreed by 25 EU lead­ers in Decem­ber should be rene­go­ti­at­ed to include a growth com­po­nent.

    ...

    GROWTH PACT

    Even Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi is now call­ing for a “growth com­pact” to com­ple­ment new rules on bud­get dis­ci­pline, although specifics have been scarce.

    A com­pro­mise between Merkel and Hol­lande along these lines seems pos­si­ble if the left­ist chal­lenger defeats Sarkozy next month.

    When asked whether Merkel was open to such a pact, Seib­ert did not answer direct­ly, but said: “The Ger­man gov­ern­ment has pushed mas­sive­ly in recent months so that Europe talks about con­crete mea­sures to boost growth. “It will con­tin­ue push for this.”

    Hol­lande has said he will trav­el to Berlin for talks with Merkel if he wins and the top­ic of a “growth pact” could be the focus of their dis­cus­sions.

    The French Social­ist list­ed four steps this week that he would like Europe to pur­sue. These include com­mon Euro­pean “project bonds” to fund infra­struc­ture, a more robust financ­ing role for the Euro­pean Invest­ment Bank, a finan­cial trans­ac­tions tax and more effi­cient use of EU funds.

    Ger­man gov­ern­ment offi­cials have told Reuters that Berlin sup­ports all of these mea­sures except project bonds because it doubts whether infra­struc­ture invest­ment would help turn weak south­ern economies around. But even these bonds do not appear to be taboo for Ger­many.

    Merkel has empha­sised struc­tur­al reforms, along the lines of labour mar­ket poli­cies that Ger­many intro­duced under her pre­de­ces­sor Ger­hard Schroed­er, as the key to fos­ter­ing growth and employ­ment.

    In the news con­fer­ence, Seib­ert also voiced sup­port for the Span­ish gov­ern­men­t’s poli­cies. Stan­dard & Poor’s cut its sov­er­eign cred­it rat­ing for Spain on Thurs­day by two notch­es to BBB-plus, cit­ing an expect­ed dete­ri­o­ra­tion in the coun­try’s bud­get deficit because of eco­nom­ic weak­ness.

    ...

    Posted by Pterrafractyl | April 27, 2012, 9:12 am
  34. Wow, Spain just fig­ured out how to make Fri­days suck:

    Defi­ant Rajoy warns he will push ahead with reforms “every Fri­day”
    Com­ments coin­cide with protest against spend­ing cuts
    Oppo­si­tion leader calls PM “last of the Mohi­cans” of aus­ter­i­ty

    El País Madrid 29 ABR 20

    As tens of thou­sands of peo­ple across Spain took to the streets on Sun­day to protest against the government’s edu­ca­tion and health care spend­ing cuts, Prime Min­is­ter Mar­i­ano Rajoy issued a defi­ant state­ment say­ing he would con­tin­ue with his reform agen­da.

    Speak­ing at the Pop­u­lar Party’s Madrid region­al con­gress, Rajoy told del­e­gates: “There will be reforms announced this Fri­day, and every Fri­day after that, and they will be major reforms.”

    He con­tin­ued: “I under­stand per­fect­ly. A lot of peo­ple can­not under­stand the deci­sions that I am tak­ing at the moment. But the prob­lem is the cri­sis, unem­ploy­ment, the reces­sion, and dis­or­dered pub­lic finances. We have to make struc­tur­al changes and to take root and branch mea­sures.”

    The Rajoy gov­ern­ment has intro­duced sting­ing aus­ter­i­ty mea­sures in its first three months in office. Unem­ploy­ment has con­tin­ued to rise in Spain, and is at a euro-zone high of 24.4 per­cent. More than half of Spaniards under 25 years old are job­less. On Fri­day Rajoy announced a new set of tax hikes to come into effect next year, say­ing he had “no alter­na­tive.”

    I know that tax ris­es were not part of our elec­toral pro­gram, and we will try to avoid this in the future,” Rajoy said. “We have done our best to make sure that the biggest bur­den falls to those who are best off.” His com­ments came after region­al pre­mier Esper­an­za Aguirre was re-elect­ed pres­i­dent of the Madrid divi­sion of the PP by 97 per­cent of the vote. She was the only can­di­date.

    Pro­tes­tors in Madrid, Barcelona, Bil­bao, Valen­cia and many oth­er region­al cap­i­tals car­ried ban­ners urg­ing Rajoy not to “mess around with health and edu­ca­tion.”

    Speak­ing at a demon­stra­tion in Madrid, Cayo Lara, a mem­ber of Con­gress for the Unit­ed Left par­ty, accused the gov­ern­ment of using the finan­cial cri­sis as an excuse to sell off essen­tial pub­lic ser­vices to the pri­vate sec­tor.

    ...

    Posted by Pterrafractyl | May 1, 2012, 7:44 am
  35. This is one of those ‘a pic­ture speaks a thou­sand words’ posts from Krug­man. They might not be very pleas­ant words, mind you, giv­en the sto­ry being told in those two pics.

    Posted by Pterrafractyl | May 1, 2012, 2:41 pm
  36. This was real­ly just a mat­ter of time:

    Merkel Advis­er Calls for Changes in Ger­man Strike Rights
    By Annette Weis­bach — May 2, 2012 3:04 AM GMT-0500

    Wolf­gang Franz, who heads Ger­man Chan­cel­lor Angela Merkel’s coun­cil of eco­nom­ic advis­ers, called for an over­haul of Ger­man strike rights to make the wage nego­ti­a­tion process more effi­cient, accord­ing to an arti­cle he wrote in Han­dels­blatt.

    Sym­pa­thy strikes must be banned and warn­ing strikes restrict­ed, Franz said in the arti­cle pub­lished today. Ger­many needs a manda­to­ry con­cil­i­a­tion process with a bind­ing “peace peri­od” that pre­vents work­ers from strik­ing dur­ing wage nego­ti­a­tions, he wrote.

    With the waves of unem­ployed work­ers from around the euro­zone poised to flood into Ger­many after the aus­ter­i­ty-induced destruc­tion of its neigh­bor­ing nations the Ger­man unions appear to be about to taught a time­ly les­son in REALLY in charge. No more walk­ing down easy street for the euro­zone labor­ers:

    Euro bank chief warns against tax hikes
    By Jack Ewing and Raphael Min­der
    | New york Times .

    May 04, 2012

    BARCELONA — Ahead of cru­cial elec­tions in France and Greece, Mario Draghi, pres­i­dent of the Euro­pean Cen­tral Bank, warned gov­ern­ments Thurs­day that opt­ing for the “eas­i­er road” of rais­ing tax­es to fill pub­lic cof­fers would not solve Europe’s prob­lems.

    Draghi said it was under­stand­able that gov­ern­ments would be tempt­ed to raise tax­es “under extreme urgency.”

    But he empha­sized that “past the urgency, this should be cor­rect­ed,” espe­cial­ly in a Euro­pean envi­ron­ment with “a high lev­el of tax­a­tion.”

    Draghi would not dis­cuss the pol­i­tics of any spe­cif­ic coun­try.

    His com­ments came after a meet­ing of the ECB’s gov­ern­ing coun­cil on Thurs­day dur­ing which the cen­tral bank left its bench­mark inter­est rate unchanged, at 1 per­cent, choos­ing not to react imme­di­ate­ly to signs the euro­zone econ­o­my was con­tin­u­ing to dete­ri­o­rate. The deci­sion had been expect­ed by ana­lysts.

    While under­lin­ing that the out­look “con­tin­ues to be sub­ject to down­side risks,” Draghi said the bank still expect­ed the eurozone’s econ­o­my to “recov­er grad­u­al­ly in the course of the year.”

    The gov­ern­ing coun­cil met in Spain, the new cen­ter of the Euro­pean debt cri­sis. At over 24 per­cent, Span­ish unem­ploy­ment is the high­est in the euro­zone.

    ...

    High unem­ploy­ment and low work­er pay? That’s just the nor­mal, rea­son­able sac­ri­fice that any mem­ber of the pub­lic should be hap­py to make. But rais­ing tax­es? Unthink­able. Now get back to work pro­les.

    Posted by Pterrafractyl | May 3, 2012, 9:15 pm
  37. With anti-aus­ter­i­ty sen­ti­ments spread­ing across the euro­zone, Latvia has emerged as the new pro-aus­ter­i­ty poster-child (Ire­land used to be that poster child but that has­n’t real­ly worked out ). Latvi­a’s pres­i­dent is pub­licly brag­ging over his coun­try’s eco­nom­ic per­for­mance as evi­dence that coun­try’s should not just imple­ment aus­ter­i­ty mea­sures but aggres­sive­ly front load the aus­ter­i­ty while the reces­sion is just get­ting under­way. Latvi­a’s mirac­u­lous expe­ri­ence was an 18% drop in 2009 fol­lowed by a 5% bounce back in 2010. The won­der­ful trade­off for the 13% drop in the econ­o­my over a two-year peri­od was a drop in Latvi­a’s bud­get deficit from 9% to 3.3%. So for every 2% in lost eco­nom­ic activ­i­ty Latvia got a 1% cut in it’s decit. These are our mod­ern lessons:

    Euro Area Must Take Aus­ter­i­ty Pain Now, Dom­brovskis Says
    By Kim McLaugh­lin — May 7, 2012 5:01 PM CT

    Europe’s most indebt­ed nations shouldn’t use their reces­sions as an excuse to avoid com­mit­ting to aus­ter­i­ty plans if the region is ever to emerge from its debt cri­sis, Lat­vian Prime Min­is­ter Vald­is Dom­brovskis said.

    “It’s impor­tant to do the adjust­ment, if you see that adjust­ment is need­ed, to do it quick­ly, to front­load it and do the bulk already dur­ing the cri­sis,” Dom­brovskis said yes­ter­day in an inter­view in Stock­holm.

    Latvia’s econ­o­my con­tract­ed 18 per­cent in 2009, more than any oth­er nation in the Euro­pean Union, after Dom­brovskis’ gov­ern­ment hung on to pow­er to push through aus­ter­i­ty mea­sures man­dat­ed by an Inter­na­tion­al Mon­e­tary Fund-led bailout. Yet the pro­gram proved suc­cess­ful and the Baltic country’s econ­o­my rebound­ed in 2010 to achieve growth in excess of 5 per­cent last year. Latvia’s bud­get deficit will nar­row to 3.3 per­cent of the econ­o­my this year, from 9.7 per­cent in 2009, the Euro­pean Com­mis­sion esti­mates.

    Deficit reduc­tion goals inside the euro region suf­fered a set­back this week as May 6 elec­tions in France and Greece saw vot­ers embrace anti-aus­ter­i­ty can­di­dates. In Greece, the weekend’s elec­tion out­come raised spec­u­la­tion Europe’s most indebt­ed nation may exit the cur­ren­cy bloc as anti-bailout par­ties stole the agen­da. In France, Fran­cois Hol­lande told vot­ers “aus­ter­i­ty isn’t inevitable” after he defeat­ed Nico­las Sarkozy to become the first Social­ist to win the pres­i­den­cy in 17 years.

    ...

    Coun­tries that have tried to post­pone sav­ings and relied on deficits to finance spend­ing will send their economies into even deep­er reces­sions, Dom­brovskis said.

    ...

    Invest­ment Grade

    Latvia’s econ­o­my con­tract­ed about 25 per­cent in total in 2008 and 2009, then the deep­est reces­sion in the world, after a lend­ing-fueled real-estate boom turned to bust and inter­na­tion­al cred­it mar­kets froze. The econ­o­my is grow­ing at a “good pace” again and expand­ed 5.7 per­cent in the fourth quar­ter, Dom­brovskis said.

    Growth in the first quar­ter will be on the same lev­el, he said, adding he expects expan­sion this year to “sub­stan­tial­ly” exceed the government’s offi­cial fore­cast for 2 per­cent.

    Stan­dard & Poor’s on May 2 raised Latvia’s cred­it rat­ing to BBB‑, restor­ing its invest­ment grade for the first time since 2009. Five-year cred­it-default swaps on Lat­vian debt eased to 245 basis points this week from 365 at the end of last year. The country’s default swaps peaked at 1,193 basis points in March 2009.

    ...

    For a coun­try that’s seen its econ­o­my dec­i­mat­ed as a result of a bank lending/housing bub­ble, the Lat­vian’s are tak­ing the dis­man­tling of their soci­ety with a remark­able qui­et sto­cism. Accord­ing to this arti­cle from last Sep­tem­ber, that’s most­ly due to the fact that the Lat­vian’s have been see­ing the econ­o­my destroyed and loot­ed so many times, espe­cial­ly in the 90’s, that they’s sim­ply become inured to eco­nom­ic hard­ship:

    Latvia teach­es aus­ter­i­ty pain and gain to Greece
    By Ner­i­jus Ado­maitis and Mia Shan­ley

    RIGA | Fri Sep 23, 2011 3:13pm EDT

    (Reuters) — Latvi­a’s les­son for Greece is that harsh aus­ter­i­ty is unavoid­able to rem­e­dy years of over-indul­gence but the vast social dif­fer­ences between the two coun­tries sug­gest it may be lost on ordi­nary Greeks.

    Lat­vians, hav­ing suf­fered two years of a strict diet under IMF/EU orders, can attest to plen­ty of pain which was large­ly accept­ed with sto­icism. With peo­ple start­ing to see the econ­o­my being brought back to health, they can now see the gain too.

    In Greece, out­rage among a pub­lic more used to the good life is already at fever pitch, test­ing the gov­ern­men­t’s abil­i­ty to push through the strin­gent mea­sures it needs to cut a moun­tain­ous debt and avoid default.

    Although a par­ty back­ing more social spend­ing was the biggest win­ner in Latvi­a’s gen­er­al elec­tion on Sep­tem­ber 17, the coun­try is unlike­ly to stray far off the path of aus­ter­i­ty as the two cen­ter-right par­ties with which it aims to work will have more seats in par­lia­ment and say in the coali­tion.

    “Cur­rent­ly, it seems that all par­ties have agreed to the prin­ci­ple that Latvi­a’s eco­nom­ic sta­bi­liza­tion pro­gramme should be con­tin­ued and the inter­na­tion­al loan pro­gramme should be fin­ished,” cur­rent Prime Min­is­ter Vald­is Dom­brovskis told Reuters dur­ing coali­tion talks after the elec­tion.

    Latvia suf­fered the deep­est reces­sion in the Euro­pean Union in 2009, when the econ­o­my nose-dived 18 per­cent. The gov­ern­ment had to take a hatch­et to the bud­get in return for a 7.5 bil­lion euro bailout from the Inter­na­tion­al Mon­e­tary Fund and EU.

    Polit­i­cal hag­gling to form a new gov­ern­ment will con­tin­ue but the bud­get job still be done, find­ing about 100 mil­lion Lat­vian lats ($190 mil­lion) of fur­ther sav­ings, is small com­pared to the work already com­plet­ed.

    Over two years of aus­ter­i­ty under Dom­brovskis, Latvia lopped more than $2 bil­lion off the bud­get deficit in pub­lic sec­tor pay cuts, spend­ing reduc­tions and tax hikes equal to more than 10 per­cent of gross domes­tic prod­uct (GDP).

    The way the IMF and EU see it, Greek lead­ers have tried to evade such harsh aus­ter­i­ty cuts, which include reduc­ing a bloat­ed civ­il ser­vice by 150,000 by 2015 and sell­ing 50 bil­lion euros of state assets.

    Dom­brovskis said the hard work paid off.

    ...

    Though Latvia is a poster child of aus­ter­i­ty for Greece, the two coun­tries are very dif­fer­ent places, in terms of his­to­ry and polit­i­cal cul­ture.

    Despite some of the harsh­est pub­lic sec­tor pay cuts enact­ed in Europe, Latvia had one riot, in Jan­u­ary 2009, and some peace­ful demon­stra­tions.

    In Greece, unions have fought the aus­ter­i­ty mea­sures tooth and nail, politi­cians have been assault­ed and it has seen near dai­ly demon­stra­tions. Pro­test­ers were camped in a square out­side the shut­tered par­lia­ment build­ing for months.

    The rel­a­tive­ly pas­sive pub­lic reac­tion in Latvia could be part­ly attrib­ut­able to the mem­o­ry of the bleak years of Sovi­et rule and the mas­sive post-Sovi­et dis­lo­ca­tion and, pos­si­bly, a more sto­ic north­ern Euro­pean atti­tude.

    Greece has been used to a steadi­ly ris­ing stan­dard of liv­ing since World War Two, although the coun­try remains one of the euro zone’s poor­est.

    Until the mid-1970s Greece post­ed healthy growth on its own. After 1981, when the coun­try joined the then-Euro­pean Com­mu­ni­ty, growth was sup­port­ed by bil­lions of euros of EU aid, com­pound­ed by a cred­it-fueled boom since it joined the euro zone.

    Greeks are going through their longest post-war reces­sion, with GDP expect­ed to shrink for a fourth con­sec­u­tive year in 2012, which is hard for peo­ple to stom­ach giv­en that the cut­ting back has only just begun.

    Latvia on the oth­er hand is still a devel­op­ing econ­o­my.

    “Lat­vians have lived through much worse, 1000 per­cent infla­tion in 1991, ’92, ’93, the ear­ly years of tran­si­tion,” Said Dau­nis Auers, a polit­i­cal sci­ence pro­fes­sor at the Uni­ver­si­ty of Latvia.

    “Then in ’95-’96 peo­ple lost their sav­ings and there was the ’98 rou­ble col­lapse. The 1990s were a pret­ty tough time and peo­ple remem­ber that. That’s why peo­ple haven’t tak­en to the streets.”

    FELL OFF A CLIFF

    A drop in wages and prices after the 2008 crash led to Latvia becom­ing more com­pet­i­tive and pro­vid­ed the foun­da­tion for the export growth tak­en as evi­dence of an eco­nom­ic recov­ery.

    Gross domes­tic prod­uct expand­ed 5.6 per­cent in the sec­ond quar­ter of 2011, much bet­ter than the EU’s total 1.7 per­cent growth. Unem­ploy­ment has fall­en to 16.2 per­cent from 20.5 per­cent in the first quar­ter of 2010.

    But would it work the same way in Greece, giv­en the dif­fer­ences in the two coun­tries’ economies?

    ...

    The plunge into greater pover­ty in Latvia was all the harsh­er as it came from the peak of a boom after the coun­try entered the Euro­pean Union in 2004.

    Swedish banks pumped cheap cred­it into the econ­o­my, near­ly every­one had a job and wages were rock­et­ing.

    “In mid-2000 it was like it was mid­night at a par­ty where every­one is booz­ing freely,” said Auers.

    “Then the build­ing work stopped, the lawyers had no more deals to work on and invest­ments froze ... Now we have to deal with the hang­over — the mess,” he said.

    “Latvia had the biggest cred­it boom in Europe, pos­si­bly even the biggest in the world,” added Hansen. “With a lot of peo­ple employed, the gov­ern­ment had a huge wind­fall of tax rev­enues, but they still man­aged to have bud­get deficits. Then, the tax rev­enue fell off the cliff.”

    ...

    A recent Eston­ian Human Devel­op­ment report, which dealt with issues in the whole Baltic, was bleak: “Latvia will be one of the most quick­ly shrink­ing pop­u­la­tions in Europe.” ($1 = 0.527 Lat­vian Lats)

    So Latvia joined the EU in 2004, got flood­ed with cash from Swedish banks, and expe­ri­enced the largets cred­it boom in Europe, and saw its hous­ing mar­ket blow up with the rest of the glob­al econ­o­my in 2008. And the response by the IMF and EU to the expect­ed bud­get cri­sis was to force imme­di­ate tax hikes, spend­ing cuts, and pub­lic work­er pay cuts equal to 10% of Latvi­a’s GDP over 2 years. This was when the econ­o­my was in a free fall, con­tract­ing 25% from 2008–2009. So now that the econ­o­my is pro­ject­ed to grow 2% this year and the unem­ploy­ment rate has dropped from 20% to 16% the coun­try is declared a wild suc­cess and the poster-child for aus­ter­i­ty. Latvia does indeed seem to be a poster-child, although not exact­ly for some­thing pos­i­tive.

    Posted by Pterrafractyl | May 10, 2012, 1:41 pm
  38. At least a gen­er­a­tion”:

    Bloomberg
    As Euro­pean Aus­ter­i­ty Ends, So Could the Euro
    By Peter Boone and Simon John­son May 13, 2012 5:00 PM CT

    The euro cur­ren­cy is a mal­a­dy that con­demns at least a gen­er­a­tion of Greeks, Ital­ians, Spaniards, Por­tuguese and Irish to the eco­nom­ic infir­mary.

    In these nations, unem­ploy­ment rates are now at their high­est lev­els in recent decades, and there are few prospects for recov­ery in sight. The econ­o­mists and politi­cians who cre­at­ed the sys­tem still pro­claim it can sur­vive. Their time would be bet­ter spent rec­og­niz­ing they made a bad mis­take and prepar­ing for an order­ly dis­man­tling of the euro before the dam­age spreads and fur­ther under­mines Euro­pean uni­ty.

    The prob­lem isn’t just the region’s lack of com­pet­i­tive­ness or its bud­get deficits or the high stock of exist­ing gov­ern­ment debt, which the Inter­na­tion­al Mon­e­tary Fund now puts at 90 per­cent of the euro area’s gross domes­tic prod­uct (see Table 5 in this report). It is all of the above, com­pound­ed by five years of com­plete polit­i­cal denial.

    For three years, cap­i­tal has been flee­ing Europe’s periph­ery for Ger­many. That country’s liq­uid banks, com­pet­i­tive labor mar­kets and sound fis­cal poli­cies have made it the ide­al loca­tion in Europe for invest­ment. The periphery’s illiq­uid banks are sharply con­tract­ing cred­it to the pro­duc­tive sec­tor, even as their gov­ern­ments are cut­ting back and polit­i­cal protests are mount­ing. Wages are too slow to adjust to dent these pow­er­ful forces: Ger­many looks ever more attrac­tive for investors, fur­ther exac­er­bat­ing the imbal­ances that brought us to this point.

    ...

    Posted by Pterrafractyl | May 14, 2012, 9:02 am
  39. http://www.bbc.co.uk/news/world-europe-18078845

    Hol­lan­de’s plane gets a mes­sage; “may have been” struck by light­ning; Berlin pow­ers not hap­py about Hol­lande

    ” ... New­ly sworn-in French Pres­i­dent Fran­cois Hol­lande has arrived in Berlin for key talks with Ger­man Chan­cel­lor Angela Merkel, after his plane was appar­ent­ly hit by light­ning.

    “... The plane was forced to turn back to Paris ...

    “... Describ­ing the inci­dent with the first plane, Mr Hol­lan­de’s spokesman said that the air­craft “could have been hit by light­ning”, the AFP news agency reports.

    “... “For secu­ri­ty rea­sons, it turned back,” he said, adding that no-one was hurt.

    “... BBC’s Europe edi­tor Gavin Hewitt says “In Berlin there is sus­pi­cion of Mr Hol­lande. They do not like the fact that dur­ing the cam­paign he raised the stan­dard against aus­ter­i­ty and cham­pi­oned growth. Many (Ger­man elite) saw that as a bid to reclaim French lead­er­ship in Europe ...”

    Com­ment: Hol­lande may be get­ting elec­tri­fy­ing mes­sages to remind him who’s dic­tat­ing, but he also appears to be an awful lot like our cur­rent Amer­i­can Tony Blair.

    Posted by R. Wilson | May 20, 2012, 7:28 pm
  40. @R. Wil­son: How is Oba­ma exact­ly an Amer­i­can Tony Blair? I’m sor­ry if this ends up being out of line but that’s as ridicu­lous as some­body say­ing that Occu­py Wall Street was born as a CIA op or John F. Kennedy was done in by the Mossad......(sorry if I just offend­ed you, Bob, but Oba­ma is far from being Tony Blair and I only brought up those two oth­er things because they’re two oth­er exam­ples of tru­ly ridicu­lous claims......both, btw, are being trum­pet­ed by some the so-called ‘Truthers’ and ‘Patri­ots’, espe­cial­ly the for­mer these days.)

    Posted by Steven L. | May 21, 2012, 12:44 am
  41. But, but, but I was told that “the mar­ket” want­ed aus­ter­i­ty at any cost. “The mar­ket”, it appears, is a much less com­pli­cat­ed sociopath than the aus­te­ri­ons would have us. It just wants as much mon­ey as pos­si­ble as quick­ly as pos­si­ble:

    Stim­u­lus hopes spur stock, com­modi­ties ral­ly

    By Wan­feng Zhou

    NEW YORK | Wed Jun 6, 2012 11:22am EDT

    (Reuters) — U.S. and Europe shares ral­lied more than 1 per­cent and the euro gained on Wednes­day as Euro­pean offi­cials urgent­ly explored ways to res­cue Spain’s debt-laden banks and expec­ta­tions grew major cen­tral banks would act to bol­ster a slow­ing glob­al econ­o­my.

    Brent crude jumped above $100 a bar­rel, while gold hit a one-month high, lead­ing a broad ral­ly in the com­modi­ties sec­tor. Sil­ver soared 4 per­cent and cop­per gained 2 per­cent.

    But com­ments from Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi dent­ed some of the opti­mism after he dashed hopes for more long-term, cheap loans, say­ing it was not up to the ECB to make up for oth­er insti­tu­tions’ lack of action.

    The ECB resist­ed pres­sure to pro­vide more sup­port for the euro zone’s ail­ing econ­o­my at its reg­u­lar month­ly pol­i­cy meet­ing by hold­ing its main inter­est rate steady at 1 per­cent.

    But investors held out hopes after Atlanta Fed Pres­i­dent Den­nis Lock­hart said the Fed­er­al Reserve may need to con­sid­er addi­tion­al mon­e­tary eas­ing if a wob­bly U.S. econ­o­my fal­ters or Europe’s trou­bles gen­er­ate a broad­er finan­cial shock.

    Fed Chair­man Ben Bernanke tes­ti­fies before the U.S. con­gres­sion­al Joint Eco­nom­ic Com­mit­tee on Thurs­day and could pro­vide hints on the pos­si­bil­i­ty of fur­ther mon­e­tary eas­ing. The Group of 20 economies is sched­uled to meet lat­er this month.

    “Mar­kets again look to cen­tral bankers like dogs to pieces of meat. Will the dog get the meat and will it taste as good?” said Peter Boock­var, equi­ty strate­gist at Miller Tabak in New York.

    “Draghi did­n’t bring the meat the mar­ket dogs were hop­ing for as he seems to be stand­ing pat for now, like­ly wait­ing for more stress to devel­op before announc­ing some­thing new of sub­stance.”

    ...

    I’d agree with the arti­cle that our qua­si-hid­den over­lords in “the mar­ket” appear to demon­strate the col­lec­tive fore­sight of a pack of hun­gry dogs, and that’s cer­tain­ly noth­ing to cel­e­brate. But in the con­text of a glob­al debate over “aus­ter­i­ty”, and whether strip-min­ing the mid­dle class and divest­ing in human cap­i­tal is the best path for­ward, the hun­gry dog men­tal­i­ty of “the mar­ket” is a salient fact when we’re repeat­ed­ly told that “the mar­ket” hungers only for “aus­ter­i­ty”. The “mar­ket” is just a hun­gry dog. It needs to feed. And bite (It’s kind of rabid too). But “the mar­ket” isn’t Cer­berus guard­ing the gates of hell. That role is played by oth­ers in this mess.

    Well, ok, some ass­holes in “the mar­ket” can, indeed, claim to be Cer­berus.

    Posted by Pterrafractyl | June 6, 2012, 8:58 am
  42. Lol, ok, I guess I mis­judged what “the mar­kets”. It turns out that “the pub­lic and mar­kets have been led to believe in short-­term mea­sures for far too long. And they know there is too much moral haz­ard already.” Yes, the same “mar­ket” that expe­ri­ences love at first same with every trashy bailout that cross­es its bath is now con­cerned about all the ‘moral haz­ard’ out there. And the pub­lic, I guess, LOVES aus­ter­i­ty. So says the Direc­tor Gen­er­al of the Ger­man Min­istry of Finance. The whole post is a good read but the final com­men­tary by Mar­tin Wolf is real­ly worth repeat­ing:

    ...

    Com­ment: I fear that aus­ter­i­ty with­out end will bring about a return to the unsta­ble pop­ulist pol­i­tics the Euro­pean Union was designed to pre­vent. That could shat­ter the euro­zone and, with it, the EU, there­by end­ing the most suc­cess­ful attempt to build peace and pros­per­i­ty in Europe since the fall of the Roman Empire.

    More­over, it is clear — and has long been so — that the respon­si­bil­i­ty for pre­vent­ing that out­come rests on Ger­many, Europe’s cen­tral pow­er, in every sense. As Charles Kindle­berg­er argued, in a pan­ic, the cred­it­wor­thy coun­try has to lend freely if a fixed exchange rate sys­tem (or in this case a cur­ren­cy union) is to sur­vive.

    It is often for­got­ten, not least in Ger­many, that the rise of Adolf Hitler to pow­er was pre­ced­ed not by the great infla­tion, which occurred a decade before, but by the great depres­sion and the aus­ter­i­ty of Hein­rich Brün­ing, in response. Thus, votes for the Nazi par­ty jumped from a rel­a­tive­ly insignif­i­cant 810,000 in 1928, to 6.4m in 1930, and 13.7m in July 1932. Deep eco­nom­ic col­laps­es are dan­ger­ous.

    Deep eco­nom­ic col­laps­es are very dan­ger­ous. Mr Schuknecht, with his empha­sis on the long term, com­plete­ly ignores these dan­gers. If try­ing to avoid such a dire out­come is “short-ter­mism”, so be it. I think of it as try­ing to find a prac­ti­cal exit from the cur­rent trap. With­out it, the euro­zone may nev­er reach the long term.

    Fiat justi­tia, et pereat mundus (let jus­tice be done, even if the world per­ish­es) is a dan­ger­ous mot­to.

    I wish I could believe that last lit­tle his­to­ry les­son was actu­al­ly for­got­ten.

    Posted by Pterrafractyl | June 8, 2012, 1:15 pm

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