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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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