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The Berlin Recession

Himmler and Hitler: Technocrats, Advocates of Austerity

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

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

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

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

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

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

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

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

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

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

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

On the Way to the Third World

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

Discussion

42 comments for “The Berlin Recession”

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    end excerpt:

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

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

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

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

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

    Best,

    Dave

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

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

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

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

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

    Best,

    Dave

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Reuters
    Exclusive: Goldman’s European derivatives revenue soars

    By Lauren Tara LaCapra

    Tue Mar 27, 2012 8:19pm EDT

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

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

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

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

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

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

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

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

    Goldman spokesman Michael DuVally declined to comment on the figures.

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

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

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

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

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

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

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

    German Reforms

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

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

    ‘Turning Point’

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

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

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

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

    Rebalancing Process?

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

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

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

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

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

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

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

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

    Inflation vs. Deflation

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

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

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

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

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

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

    Isn’t living in bizarro-world fun?

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

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

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

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

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

    Thanks,
    Dave

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

    Regards to all,

    Steven. =)

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

    Have a good day.

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

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

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

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

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

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

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

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

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

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

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

    Fiscal Union

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    SELLING CHEAP

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

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

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

    @Steven: Thanks!

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

    Best.

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

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

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

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

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

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

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

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

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

    Best,

    Dave

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

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

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

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

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

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

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

    Spain to save 10 bln euros with health, education reform

    (AFP) – 4/10/2012

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Muenster Cathedral Address

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

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

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

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

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

    Thanks.

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

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

    Jens Weidmann is no longer his master’s voice.

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

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

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

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

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

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

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

    Political Pressure

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

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

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

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

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

    Weidmann said it fell short.

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

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

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

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

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

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

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

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

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

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

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

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

    Euro-style austerity at home? No thanks Germans say

    By Noah Barkin

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

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

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

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

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

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

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

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

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

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

    MaINI FINANCIAL CRISIS

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

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

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

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

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

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

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

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

    CARING MOTHER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    NY Times
    April 24, 2012, 12:21 pm
    Rogoff’s Bad Parable
    Paul Krugman

    For the umpteenth time, the key crisis countries did not have large deficits before the crisis struck. Taken as a group, the debt/GDP ratios of the GIPSIs were falling, not rising:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    GROWTH PACT

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

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

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

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

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

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

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

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

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

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

    El País Madrid 29 ABR 20

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    May 04, 2012

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

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

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

    Draghi would not discuss the politics of any specific country.

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

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

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

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

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

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

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

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

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

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

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

    Investment Grade

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Dombrovskis said the hard work paid off.

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

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

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

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

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

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

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

    Latvia on the other hand is still a developing economy.

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

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

    FELL OFF A CLIFF

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Stimulus hopes spur stock, commodities rally

    By Wanfeng Zhou

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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