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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. . . .


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.
    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.”



    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.



    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
    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...:

    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:

    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:

    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.


    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
    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.


    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!


    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.



    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.



    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.”


    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.


    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

    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.

    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
    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.



    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.”


    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”:

    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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