Slugger O'Toole

Conversation, politics and stray insights

A primer on the Eurozone crisis & thread for recommended reading

Mon 19 September 2011, 4:14am

(This will likely remain the most important story in the news this week. So here’s a bit of a primer for anyone feeling a bit lost, and hopefully people can leave interesting links and insights below the line. Over the course of the week, I’ll try to start a few threads examining different aspects of the problem: the limits of austerity, bailouts and moral hazard, and ideas for future wholesale reform.)

This week, we may finally see the beginning of an epochal economic catastrophe, beginning in the Eurozone and spreading rapidly. World leaders stopped a banking meltdown in 2008, but left the global, apparently intractable problems of colossal private and public indebtedness more or less unresolved. A stream of expensive, piecemeal measures in the US and Europe have simply ‘kicked the can down the road.’ Populations and markets are losing faith in the ability of leaders, officials and institutions to end an underlying, authentic crisis of global commerce. Moreover, the solutions these actors advocate increasingly clash with popular expectation and democratic norms. We can clearly see the can is being kicked, albeit with less and less enthusiasm, down the path to Beachy Head.

That’s the general picture. In the Eurozone, Greece is essentially insolvent. To avoid default, it requires regular funds from previously agreed bailout packages, just to keep its state functional. The evidence suggests the conditions attached to these releases are making Greece more, not less insolvent. Little progress is being made in tackling mass tax evasion. Drastic austerity measures have deepened the Greek recession, depressing tax receipts, increasing welfare payments and destroying any possibility of a quick return to balanced budgets or new borrowing from private investors. The bailouts are only supposed to tide countries over until structural reforms enable them to balance budgets and return to much lower, solely private borrowing. It’s now obvious this isn’t working as intended.

Inspectors appointed by Greece’s bailout creditors now say they have not satisfied their borrowing conditions. New austerity measures announced by Greece are expected to do very little to change this. If Greece fails to meet the conditions (almost certain at this stage) by next month, only two scenarios can play out. Either the funds are released anyway (in which case Ireland and Portugal will feel their imposed austerity is senseless), or there is a default. A default could be ‘orderly’, or ‘disorderly’.

The intervention of several large central banks last week has been interpreted as ‘stocking up’ ahead of a Greek default. European, particularly Greek, French and German banks, have lent large amounts to the Greek state. The fear is that even an orderly default could create a crisis of confidence among the banks. In 2008, when banks couldn’t trust the health of other banks, inter-bank lending (vital for day-to-day cashflow) dried up and the system came close to collapse. The central banks’ decision to provide large amounts of liquidity for European banks has eased fears of such a problem. This scenario, however, presumes a Greek default that is slow, efficiently managed, and immune from markets’ long-proven tendency to panic. Official talk of an orderly default seems eerily reminiscent of the hoped-for ‘soft landing’ in the Irish property market before the bust.

The greater fear is that default, or a sudden and final collapse of confidence in the bond markets, would precipitate a disorderly default. In this case, investors would lose everything they’ve loaned to Greece, and a much greater shock would ripple through the murky worlds of casino banking. The impact of enormous, compromised hedge fund bets and derivative trades on Greek debt can only be guessed at. Markets, seeing the culmination of the Greek fiasco, would likely dump Irish and Portuguese bonds, having lost faith in the bailout/austerity mix promoted by the powers-that-be. At this point, the markets would be expected to turn on Spain and Italy, also burdened with budget problems and suffering from the structural maladies of the Eurozone periphery. If Spain and Italy fell, the general European bailout mechanisms would be overwhelmed, and the entire Eurozone would enter into entirely unknowable depths.

(I apologise to Pete Baker for encroaching on one of his favoured topics. I’d begun by describing the Eurozone reaching a ‘confidence event horizon’, but I thought that would look like deliberate provocation. I’ll post some articles I’ve found useful below.)

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Comments (29)

  1. Lorcan Mullen (profile) says:

    A breakdown of where Greek, Irish and Portuguese debt is held:
    http://liswires.com/archives/148

    Here’s a nice succinct BBC summary of the main dilemmas for the leaders:
    http://www.bbc.co.uk/news/business-14934728

    Info on Merkel’s dodgy position at home: http://www.independent.co.uk/news/world/europe/merkel-coalition-fears-collapse-after-election-humiliation-2356861.html

    http://www.zerohedge.com/contributed/bailout-rebellion-germany-heats

    A short and sweet insight into the Bavarian CSU’s thoughts on Greece: http://www.tweetdeck.com/twitter/zerohedge/~6rH3u
    (Merkel is struggling to keep her CDU’s sister party on board)

    A decent general report from the Economist:
    http://www.economist.com/node/21529049

    A slightly out of date Paul Mason blog on Eurozone break-up:
    http://www.bbc.co.uk/news/world-europe-14934430

    (I think Mason’s the best big-picture reporter on this, and his Twitter is well worth following.)

    Longer reads:

    George Soros on potential solutions (NY Review of Books):
    http://www.bbc.co.uk/news/world-europe-14934430

    Paul De Grauwe on the EZ’s inherent structural/governance problems: http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Discussion_papers/Governance-fragile-eurozone_s.pdf

    And of course, the last Slugger essay on the subject, chock-full of interesting links: http://sluggerotoole.com/2011/09/14/euro-crisis-it-is-a-debt-crisis-but-a-crisis-too-of-legitimacy/

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  2. Lorcan Mullen (profile) says:

    Wolfgang Munchau in the FT on the legal obstacles to a bigger, more permanent bailout mechanism / Eurobonds: http://www.ft.com/cms/s/0/e39dcac6-dae9-11e0-a58b-00144feabdc0.html

    Recent guest of Sinn Fein Yannis Varoufakis with more detail on Greece:
    http://www.social-europe.eu/2011/09/is-greece-finished/

    And finally, for a flavour of what the German media is saying:
    http://www.spiegel.de/international/europe/0,1518,785690-2,00.html

    (the entire English Spiegel site is well worth visiting.)

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  3. Cynic2 (profile) says:

    I genuinely dont mean this as a political issue on the ‘national question’

    When the Euro collapses there will be tow possibilities

    1 Completel collapse

    2 Collapse back to a core hard Euro excluding the some or all of the PIGS. Even in this case Ireland’s chances of staying in the big boys club would be remote.

    It would be a huge political call but Ireland’s best lifeboat might be some sort of currency deal with Sterling – an Irish New Punt linked to Sterling for example. Or even politically to move to the US dollar.

    In what is about the happen I doubt it can stand alone

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  4. tuatha (profile) says:

    Cynic2 is not quite cynical enough – if forced out of the euro frying pan, to go for the US dollar would be incendiary insanity. I’d have to go for Sterling as it will become again our main entrepot when the Continent begins to dismantle Schengen & reimpose tariffs.
    The french banks are now totally zombified, only showing a semblance of life because blatant government chauvinism & perfidious fiddling of the figures.

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  5. Cynic2 (profile) says:

    Wouldn’t it be so richly ironic if one of President Marty’s first acts was to sign the Republic back into Sterling as the only way to save the State from bankruptcy. Would Britain have it back? Or even sign away almost the last vestige of Irish economic sovereignty to try and get back into some sort of hard Euro?

    Might SF have to did deep into those old wheelie bins full of Northern Bank fivers to help bail out the State?

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  6. Greenflag (profile) says:

    It gets worse here’s bloomberg

    U.S. Treasury Secretary Timothy F. Geithner predicted that Europe will adopt some of the same measures the U.S. took after the 2008 financial crisis.
    “I think you’re going to see them draw on the lessons of our crisis, draw on the lessons of things that worked here in the United States,” Geithner said in a Bloomberg Television interview today in Washington. “I think you’ll see that reflected in some of the choices they make.”

    Geithner has finally flipped . has he looked around at the USA economy -I mean outside the WalL St waste paper economy these past several years ?

    ‘In the aftermath of the September 2008 bankruptcy of Lehman Brothers Holdings Inc., U.S. regulators implemented the Troubled Asset Relief Program and conducted stress tests on the largest banks. The Federal Reserve set up the Term Asset-Backed Securities Loan Facility, or TALF, to keep consumer credit flowing.’

    Unfortunately for Geithner and even more unfortunately for the USA economy his ‘policies ‘ haven’t worked . Some 28 million are unemployed , 48 million are on food stamps without which they would starve and 50 million are without health insurance -meanwhile foreclosures continue to increase -property prices continue to fall and the construction industry remains moribund .

    Europeans would need to have their heads examined to follow Geithner’s prescription and in Poland he was rightly told to piss off politely .

    As for the UK anybody who trys to keep up will see how much progress the UK banks have made with the news last week that a Ghanain trader at UBS was able to ‘disappear ‘ 2 billion pounds with the usual sterling management oversight that USB has traditionnally employed . this of course is the same bank that was convicted in the USA of helping American citizens evade the IRS by sending salesmen with encrypted untraceable laptops to clients all around the USA to help them get their money to Switzerland without risk off being caught . Today of course the Swiss don;t want any more dollars for francs and they are doing everything they can to prevent the swiss franc from revaluing .

    The ‘banking sector ‘ be it in the USA or the UK or the EU has still not been ‘fixed ‘ by any of the governments . Geithner is panicking because he knows that if Greece defaults several American banks will be in Lehman territory and the political stomach with elections in the offing is not there for another bail out . The Germans remain terrified of inflation while the USA tries to finagle it’s way through quantitative easing which is 1984 speak for printing money .

    The UK is no lifebelt -quite the contrary -it’s total debt which is 5 times it’s GDP is the highest in Europe . Unemployment is rising and the ‘big society ‘ is lokking more and more like a beached whale .

    Ireland should have done an Iceland but it’s too late for that now . In the event of the Greeks ‘defaulting French , German , American , USA, and UK banks will suffer major losses in that order and their banking sectors will take a huge hit with some probably having to be bailed out or allowed to fail .

    The real news is that the current stagnation in the European and world economies will continue for several more years with little improvement by which time the barricades will be raised and ‘anarchic ‘ capitalism will be brought to an end by the people or authoritarian capitalism will be imposed by the new oligarchs .

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  7. Greenflag (profile) says:

    Cynic2,

    ‘Wouldn’t it be so richly ironic if one of President Marty’s first acts ‘

    So he’s already President -I take it you have taken advantage of Paddy Power’s odds or have you just given up already on the rest of the field ?

    Maybe you need a change of moniker ?

    How about Cock Eyed Optimist ?

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  8. Greenflag (profile) says:

    @ lorcan mullen ,

    Thanks for the reading list and the links . I need cheering up after watching a news item on ZDF (Zweites Deutsches Fernsehen ) on Greek ‘entrepreneurs’ in Bulgaria . The program focused on one Greek gentleman waxing lyrical on the advantages of being located in Bulgaria -one of the lowest wage economies in Europe which has proved attractive for Greeks trying to avoid the hassles of dealing with the Greek Byzantian maze of regulations and official corruption .

    Ironically the Greek ‘manufacturer ‘was employing a hundred plus Bulgarian wood workers to produce for what he called an expected upsurge in demand for his product in Greece .

    And the product I kid thee not -coffins . While the Germans and French and others behind closed doors prepare for the inevitable end of Greece’s eurozone membership somewhere in Bulgaria there are Greeks who are betting on the Army Generals taking over when Papadoupolos finally caves in . Presumably the ensuing civil unrest should keep that Greek businessman busy meanwhile the IMF and the ECB lads will wash their hands of a country which they knew should never have been included in the Eurozone from day 1 and which only gained entry because of the skilful artificing of Greece’s national accounts by Goldman Sucks wise boys on secondment for vast consulting fees :(

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  9. Cynic2 (profile) says:

    ” given up already on the rest of the field”

    Dear God, have you seen them? Your Greek coffin Maker has more chance. Inarticulate and above all incompetent

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  10. Lorcan Mullen (profile) says:

    Thanks for commenting.

    Cynic2, I’m afraid I don’t know much about currency transitions, but I’ll have a read around. I imagine national pride and distrust of outside monetary control would rule out full adoption of Sterling. Pegging would seem more likely. As far as I know, that would take a lot of foreign currency reserves to keep the exchange rate stable.

    Greenflag, Geithner has an awful lot to answer for, but he’s at least pointing out the madness of continuing, counter-productive austerity measures. I think the issues of poverty are less to do with the bailouts, and more to do with the lack of protection for US industry, the lack of any sort of industrial policy, grotesque levels of income / asset inequality etc etc All this pre-dates Geithner and the Obama administration. Their hands are tied now, due to Republican/Tea Party control of Congress, but they were of course very, very craven and unambitious when dealing with the real economy beyond Wall St, when they had the chance. And aye – Mason had an excellent report on the collapse of the social contract in Greece a while back, with the middle class angrier than the vulnerable. Noticeable nationalist element to big protests + collapse in social contract + generals worried about cuts to enormous ‘defence’ spending + the right-wing opposition flipping to austerity-scepticism all bodes badly.

    I’ll put up another post discussing austerity, along with more links, tonight or tomorrow.

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  11. Pete Baker (profile) says:

    Lorcan

    There’s no need to apologise for covering a topic I’ve been following for some time.

    But, as for “(I think Mason’s the best big-picture reporter on this…)”.

    No offence to Paul Mason, but he’s not even “the best big-picture reporter on this” within the BBC.

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  12. Greenflag (profile) says:

    @lorcan mullen

    ‘but they were of course very, very craven and unambitious when dealing with the real economy beyond Wall St, when they had the chance.’

    In effect all over the western world and in particular in the USA, and UK and in ROI the politicians caved in to the banksters demands for deregulation and were paid out in election donations and post political career jobs . Along the way the middle and working classes have been pillaged and looted by the banksters and their paid for politicians and now there are only two weapons left in the policy armory for the politicians to avoid total economic and social collapse -the one is to continue to make the middle and working classes pay up for the bankers and the other is to cut government spending for the poorest sections in society .

    Meanwhile in the surreal economy in the City -UBS are threatening employees that their ‘bonuses ‘ are at risk because of the eh ‘exuberant ‘ activities of one trader who is now assisting the police in their enquiries .

    As to the madness of continuing austerity cuts it seems Vince Cable in his conference address to the Lib Dems likens the current UK crisis to a ‘war ‘ and the FT reckons there is a further 12 billion pound ‘black hole’ in the British budget which will sooner or later have to be made up by squeezing the banksters -sorry the average Brit who according to Cable is now living pay cheque to pay cheque and in survival mode .

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  13. Alias (profile) says:

    The so-called ‘austerity measures’ will be continue to be counterproductive to economic recovery because that is a deliberately misleading description of those measures. It implies that public spending is being cut so that fewer taxes are extracted from the economy and, therefore, more money can continue to circulate within it, thereby stimulating it.

    In reality, the money that is being saved by reductions in public spending is not left in the economy to stimuate growth within it but is still extracted from it by non-decreased taxes and exported to foreign lenders as debt repayment.

    So, rather obviously, ‘austerity measures’ cannot assist economic recovery.

    Conversely, injecting money into the economy via fiscal stimulus won’t work either since the economy is too open. For example, the Irish government’s scrappage scheme (copied by the Americans as a fiscal stimulus to its auto industry) only served to stimulate economic growth in those countries that manufacture cars, serving to export billions from the Irish economy to foreign economies.

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  14. Greenflag (profile) says:

    Cynic 2 ,

    ”Dear God, have you seen them?’

    I’d leave the almighty out of it although at this stage now with Dana throwing her hat in the ring I suppose her Lord and Master may soon enough follow . I’m all for electoral competition but at this stage it’s beginning to look as though Dustin the Turkey will announce his candidature and will make up for his disastrous Eurovision performance by getting elected on the first count ;)?

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  15. Greenflag (profile) says:

    Heres a link to Vince Cables Lib Dem ‘Economic War ‘ speech to encourage all those who may believe that the good ship sterling is a sound bet in these chaotic times .

    http://www.bbc.co.uk/news/uk-14967061

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  16. Lorcan Mullen (profile) says:

    Greenflag,

    I agree.

    Alias,

    I phrased that section clumsily. I mean lower tax receipts due to depressed economic activity due to depressed demand due to job losses, wage freezes, some of the tax rises, low investor confidence due to ‘talking down’, corporate cash-piling etc.

    “So, rather obviously, ‘austerity measures’ cannot assist economic recovery.” I agree completely. But elite opinion continues to suggest growth will come from the ‘credibility’ or ‘stability’ austerity brings. So that means I’m allowed to complain about it.

    I’m sure a well-engineered stimulus package can still work in an open economy (one based on direct job creation and investment rather than tax cuts / incentives to consume foreign-made products.) A well engineered, EU-wide stimulus could find ways of investing in key industries across all states in a complimentary way. (Of course that presupposes a competent EU…hmmm)

    Pete Baker,

    there’s no accounting for taste! Got anything to add to the reading list?

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  17. Greenflag (profile) says:

    @ Alias ,

    Are you trying to convince us that anarchic financial sector led capitalism has run out of options to solve this particular crisis ?
    You may be preaching to the converted .

    So your alternative is

    a) Authoritarian one party oligarchic corporate led fascism ?
    b) Bring back Lenin and restore Marx to top societal analyst in lieu of Ayn Rand and Milton Friedman .
    c) Try real ‘laissez faire ‘ for the first time since the mid 19th century when laissez faire’s successes include the mass famines in India and Ireland and led to a rash of worldwide imperial acquisitions which make todays global takeovers look relatively modest /

    or d) Should we consider following the example of say the Norwegian ‘socialists ‘ where every Norwegian has a fund of 100,000 dollars (Norwegian equivalent held in trust until age 21 ) whereas in the land of the free and home of the ‘brave ‘ Americans of the same age cohort get to start life with a debt mortgage around their necks called ‘educational ‘ loans and thats before they get a ‘real ‘ mortgage for a house and thats before they need another mortgage to pay for a serious medical operation if they can’t afford health insurance and thats assuming they can find a job which some 28 million can’t and thats before they start paying back the extra 7 trillion dollars in national debt that has accumulated since the 2001 Afgahnistan invasion and the financial meltdown in the wake of Lehman brothers collapse ?

    So whats it to be then ?

    We need an answer soon as our politicians haven’t any and time is running out and not just for the Greeks .

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  18. Greenflag (profile) says:

    @ lorcan mullen ,

    ‘But elite opinion continues to suggest growth will come from the ‘credibility’ or ‘stability’ austerity brings.’

    Of all the lies being propagated by economic elites that one has to be the worst . There is austerity and austerity . The ‘austerity ‘ provided by the Weimar govt in Germany led to totalitarianism . The austerity now facing Greece may lead to civil unrest and a new dictatorship by the Colonels /Generals .

    Some in the mass media are looking at parallels in Egypt and North Africa for what may soon be unleashed across some parts of the ‘developed ‘ world where the rich /poor divide has now reached levels which will be politically unsustainable without these former democracies now plutocracies becoming police states .

    http://www.bbc.co.uk/news/magazine-14978876.

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  19. DC (profile) says:

    Here’s a link to the German Council of Foreign Relations, and some thoughts on the debt crisis and double crisis of the EU operating a politics without a project.

    It reads as though the Germans always wanted deeper political union and integration hand in hand with the euro currency.

    The Road Taken in 1990: The Monetary Union’s Birth Defect

    It is also worth looking back at German reunification when considering the European debt crisis and the crisis in the process of European unification. The course was set during the year of reunification. Up until this point the German position had been to create a currency union in the context of a political union, to introduce monetary union within a reliable framework thereby making it a foundation for wider integration. When German reunification unexpectedly arrived on the international political agenda, the French president François Mitterrand began to push for the absorption of the deutschmark into a common European currency as early as possible, hoping in this way to prevent reunified Germany from gaining economic, financial, and thereby political hegemony in Europe. He was less interested in the kind of supranational political union aspired to by the German government.

    Wanting to avoid a German-French quarrel and a severe crisis in the European Community, Chancellor Kohl gave way. At the special European Summit in Dublin held at the end of April 1990, currency and economic union were decoupled from the project of a political union.

    Constitutions and the Arduous Search for an Alternate Solution

    The debt crisis is only one of two crises that the European Union is facing at the moment. The other crisis can be termed a crisis of meaning. On the question of which goal or “finality” it should develop towards, the EU is less united than ever.

    …What is actually threatening European solidarity is something else: the widespread impression that Europe has increasingly become a purely executive domain in which the most important decisions, whether taken in the Commission or the Council, are being made behind closed doors.

    Crisis Management Without a Grand Project

    Deepening the process of European integration cannot be confined to the reform of decision-making processes and institutions. Europe will only grow together if it can generate a feeling of togetherness, an awareness of belonging, and solidarity. A deepening without such sentiments is a contradiction in itself. But its possibility is also a widespread technocratic illusion.

    The YouGov poll hosted on Spiegel shows that despite German unhappiness on how its government has handled the debt crisis and the perception that Germany isn’t benefiting from EU membership, a majority of those sampled still want more powers handed over to the EU to deal with the crisis more effectively, perhaps proving the above sentiments that Germans desire more political union and control over the political economy.

    http://www.spiegel.de/international/germany/bild-787032-262593.html

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  20. DC (profile) says:

    Sorry – link: http://www.ip-global.org/2011/08/29/politics-without-a-project/

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  21. Greenflag (profile) says:

    @ DC

    Berliners have given a big thumbs down to the FDP the German equivalent of the Irish (now extinct ) Progressive Democrats who have been pummeled in state elections across the country and who are Merkel’s coalition partner . This ‘right ‘ of centre party has been ratcheting up the anti Greek vote in the run up to this election and it has spectacularly backfired . it seems the Germans know that their bread and butter depends on the Eurozone remaining intacto and even if a Greek default has to be faced it may somehow be arranged with the Greeks still in the Eurozone in some form or other .

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  22. Greenflag (profile) says:

    Heres a report on the Berlin election result link for anyone interested . The new phenomenon is the ‘Pirate Party ‘ who polled 9% compared to the FDP’s 2% which means the former gets seats in the Berlin Legislature whereas the FDP being under 5% get no representation

    http://www.npr.org/templates/story/story.php?storyId=140570582

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  23. DC (profile) says:

    Greenflag, the Pirate Party polled well in and around Berlin, which is a party for internet freedom.

    I’m not sure how the euro will pan out to be honest, it’s just too hard to say.

    I think transferring private – multinational- if not globalised – banking debt over onto national territorial states as public debt which is what has happened to the likes of Ireland and even Britain and indeed the USA is an utterly flawed concept and thing to do. There will be hell to pay for it, one way or another. Hell to pay.

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  24. DC (profile) says:

    Greenflag just got your link after I posted.

    Re the pirate party – capitalism can’t have it both ways and by that I mean private property is the thing capitalism thrives on and cherishes most, so whenever I have a computer and internet in my own private property, as far as I am concerned this is my realm, private realm, and the state and copyright can go to hell. As living out a life publicly and privately are two different things entirely. The internet has reduced the need for CDs and hardcopy items such as music and films and has made record shops etc pretty much redundant – so the corporate executives of big music companies can get stuffed as far as I’m concerned.

    I’m sure there are many others out there who think the same thing – so long live the Pirate Party!

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  25. Greenflag (profile) says:

    @ DC

    A party for internet freedom ? They are just as concerned about maintaining personal privacy vis a vis those who accumulate data from internet users and then slice and dice that data for use as a marketing tool etc etc .
    All those who ‘google ‘ are in turn being ‘googled’ in return many unknown to themselves not that there is much anyone can do about it . In effect as you surf your preferences are stored so that when you search you are led to the kind of brand or viewpoint that your computer already knows you favour . Its off topic for this thread so I’ll stop it there.

    ‘I’m not sure how the euro will pan out to be honest, it’s just too hard to say.’

    The euro will continue although whether all the present members will remain within the zone is another issue . Other countries are lining up to join while still others are holding off applications until the current crisis is resolved and necessary reforms are effected .

    ‘I think transferring private – multinational- if not globalised – banking debt over onto national territorial states as public debt which is what has happened to the likes of Ireland and even Britain and indeed the USA is an utterly flawed concept and thing to do.’

    Well yes but in Ireland’s case we have only ourselves to blame for probably over half of the debt which is what the previous government signed us up, for despite the financial advice of Merrill Lynch to whom they paid the not inconsiderable sum of 7 million dollars only to tell M& L – they would not be taking the M& L recommendation NOT to guarantee ALL deposits .

    ‘There will be hell to pay for it, one way or another’

    The jury is still out -Our politicians -european and american are still dithering -a complex game of chicken is underway between Berlin , Athens , Washington DC , Frankfurt , Paris and London and it looks like another few weeks of ‘uncertainty ‘.

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  26. Greenflag (profile) says:

    @ DC ,

    ‘Capitalism can’t have it both ways ‘

    It can and it does at least what I call ‘financial capitalism ‘ can .
    Capital in the ‘paper format ‘ whether in actual currency , leveraged fiat money or with the highly sophisticated investment products ‘created ‘ by the quants etc is highly mobile and can be whisked around the world and back again in a couple of hours . The amounts that can be moved are so enormous that individual governments working solely in the interest of their own countries or nations -are virtually powerless against the forces of capital . Which is of course one of the ingredients in the mix of what brought about this present mess .

    Labour the other side of the equation is of course much less mobile . Even within the EU which is in theory a single labour market I would think that immigrant labour within any of the EU countries is mostly from countries outside the EU or from some of the more recent entrants . Such labour mobility as there is is restricted to a very small number of the highly educated or senior public sector personnel etc . Your average Fritz or Pierre or Tommy Atkins is not going to move home from Stuttgart or Marseilles or Lewisham simply because he can make an extra 10% in his income . now if you lived in say Bulgaria or Poland or Turkey or Albania where a move would result in a quadrupling or more of one’s real income thats an incentive . But to be practical millions of Brits or Russians are not going to move to China when that country becomes a higher paying economy than their home country for multiple reasons etc etc .

    I’m not anti capitalist per se as like it or not it has raised millions of the formerly poor at least in Europe and now in other parts of the world from a subsistence level of existence or even worse to a level at which what we like to call democracy can be made to work for the greater common interest .

    What the slide into ‘financial capitalism ‘ began a couple of decades ago has morphed into a a ‘beggar your neighbour ‘ form of economy in which the gap between the haves and have nots is widening and millions in western societies are being marginalised and in which their ‘children ‘ if they bother having any which many have opted out of will be new feudal like serfs to a world economic system which will be run not by democratically elected governments all over the earth but by a tiny minority of plutocrats from all countries who will play the puppet politicians off each other as they continue to dictate to these politicians that when it comes to economic or social policies the demands of the plutocrats will take precedence over the demands of the electorate .
    Increasingly because of the aggregation of economic and financial power within the very few hands of these plutocrats they can easily afford to buy off ‘some ‘ of the endangered ‘middle classes ‘ to do the necessary grunt work for them in maintaining a world economic system run on the basis of almost a battery hen farm environment .

    If all that above is a bit over the top -the fact is that today labour is as a political force at a nadir . Trade unions are disappearing apart from a few sectors and even in those sectors thay are being gouged out of existence by the forces of capital .

    BTW -don’t get the impression that I believe all of the above is a planned deliberate ‘conspiracy ‘. You might think that some of it could be but it’s the way the economy works if left to itself with little or no guidance .

    Those who complain from the right that government interferes too much in the economy are the same people who never said a word as corporations during the gilded age and even up to recent times and today in many parts of the world exploited and enslaved people for profit -and will do so again if they are given the opportunity .

    The single difference which marks out corporations and in particular these days the financial sector corporations from government is that at least people can vote out their government -I’m not suggesting that there are real choices available – but the only way for people to ‘defeat ‘ these corporations is through boycott or transferring their business to those corporations who are seen to be ‘fair ‘ employers and providers of necessary and useful services which help people in their daily lives .

    I could write a book on this topic but alas have little time .

    ‘ as far as I am concerned this is my realm, private realm, and the state and copyright can go to hell.’

    Not so fast -there is the case of that Derryman all those years ago who infringed copyright which led to all kinds of trouble .

    http://fredbenenson.com/copyrightcyberlaw/?p=23

    And then of course without the software created by the Californian ‘nerds ‘ of the ilk of a Bill Gates , Steve Jobs and many others the assemblage of plastic and wires and chips would be just lnadfill for 99.9999% of people who use computers . And while I’m aware that the CEO’s of some of the big music companies have been seen to have been avariciously inclined towards performing artists that’s because the system allows them to be so and their previous oligopolistic control allowed them to. I’m not up on what the current prognosis is although with the way the music world is now going I was somewhat amazed at a recent carneval in a Rhineland town I was visiting to hear some music which seemed familar to me but from a different environment -it took a while for me to remember but eventually the penny /pfennig / eurocent dropped .

    Nothing is sacred I tell you.

    http://www.youtube.com/watch?v=vfhvv5gywyU&feature=related

    And who said the Fritz’s haven’t a sense of humour ? Somehow this lot seem more credible than yer man ‘Diamond Dan ‘ ;)?

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  27. Alias (profile) says:

    “I’m sure a well-engineered stimulus package can still work in an open economy (one based on direct job creation and investment rather than tax cuts / incentives to consume foreign-made products.) A well engineered, EU-wide stimulus could find ways of investing in key industries across all states in a complimentary way. (Of course that presupposes a competent EU…hmmm)” – Lorcan Mullen

    Sorry for the delay in getting back to this thread.

    There isn’t any fiscal union (as of now) so EU-wide fiscal stimulus isn’t an option. If its use of monetary stimulus is a valid indicater, then the EU will bankrupt its members states via its control of fiscal policy in much the same lamentable manner that it bankrupted them via its control of monetary policy. The exceptions, as usual, will be Germany and France, with fiscal stimulus designed to boost production in industries based in those economies (engineering particularly). As those two economies contribute the most to the EU it should be no surprise that the EU has a vested interest in promotion those economies ahead of the smaller economies. The only surpise is that it would ever be otherwise.

    There’s lot of other reasons why fiscal stumulus won’t work in addition to the Irish economy being too open. Under EU law any government contract above a value of 100k must be open to tender from companies in all member states so the Irish government can not target such stimulus at Irish companies and, ergo, can not fiscally stimulate them. All that would occur is that Irish taxpayers would have to pay more taxes to repay foreign borrowing by the state that was used to fund economic growth in foreign economies and would, therefore, have less money available to spend in the real economy. Conmversely, investment by the state in indigenous industry via grants gives a poor return per job created when EU law prevents the state from stipulating that the grant is to be used to create Irish jobs rather than simply jobs for imported EU workers.

    The demand-side argument is fatally flawed anyway since it presupposes that demand could exist if only the state could inject the liquidity to stimulate it. But that is not the case. The reality is that people made a lot of bad investments through the EU’s policy to flood eurozone states with cheap credit and they now have a lot of debt to repay, so the demand is deflated for very real reasons and not simply because the state isn’t interfering enough in the economy. We had an artificial boom created by cheap ECB credit and we now have a recession wherein the stroked demand has collapsed as folks realised they’d eventually have to repay all this borrowed money.

    Governments are not qualified to make financial investments, and neither are quangoes. People who risk their own money and folks who spend their own money create real economies.

    Even the Keynesians now acknowledge that the US fiscal stimulus has failed abysmally but they then say ‘Oh, that was only because the government didn’t spend enough.’ Well, the problem with that bogus argument is that it isn’t falsifiable. If it is shown not to work, it is dismissed as proof that they didn’t do enoguh.

    “Are you trying to convince us that anarchic financial sector led capitalism has run out of options to solve this particular crisis ?
    You may be preaching to the converted .” – Greenflag

    Err, no. Capitalism is the only entity that is ‘solving’ the crisis. It is saying ‘We don’t think you can repay your debts so we’re not lending you any more money – well, not unless you can guarantee it.’ That’s the only reality in the Alice In Wonderland economics of the EU. The problem is the anarchic political sector.

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  28. Zig70 (profile) says:

    There are so many problems here, all down to interaction with the big casino – stock markets. Nothing we can do except minimize our interaction with it. i.e borrow as little as possible. Most households in NI are practicing the same thing. The big problem for NI is the obese public sector, we need to starve the beast and align public sector spending to private sector taxes. How this can be done without wreaking society? A long slow diet. Part of the problem to me are career politicians , so afraid of looking incompetent and a society that wants low taxes and gilt-edged public services. This has resulted in a risk adverse public sector that costs too much to run. Even when Greece defaults and poverty looms worldwide, we’ll still get strikes for more pay.

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  29. Greenflag (profile) says:

    Alias ,

    ‘The problem is the anarchic political sector.’

    While I’d be the last person to defend the role of any western politicians over the past couple of decades -it’s not just the political sector . As you well know political power and wealth tend to be more than buxom buddies everywhere and in some countries the relationship became more than a little incestuous.

    As to

    ‘Capitalism is the only entity that is ‘solving’ the crisis’

    Would this be the same ‘capitalism ‘ that created sub prime mortgages and cheap credit that fueled much of the current world economic crisis ?

    Or would it be the same capitalism that helped to fuel the economic growth of the USA 2000- 2009 without any increase but actual decreases in real household average incomes ?

    Or same capitalism that enabled Goldman Sachs to cook the Greeks national accounts for them so they could be admitted to the Eurozone ?

    Or he same capitalism that has delivered 28 million unemployed Americans with almost 50 million on food stamps -next step starvation /famine – 45 million without health insurance and where almost all of any productivity gains made in the US economy has gone to a small minority at the top of the American economic ponzi scheme ?

    Or would it be the capitalism that made money hand over fist through the profits made by the corporate subcontractors as they coined it from the Afghanistan and Iraqi wars while American combat troops died to prop up a drug riddled kleptocracy ?

    Or would this be the capitalism that screwed the USA taxpayer during the Reagan administration when the Savings & Loan heist should have been a wake up call to the Reagan Administration but instead was quietly forgotten? .

    Or would this be the capitalism that in the late 1970′s and 1980′s with a surfeit of petro dollars in it’s bank accounts could’nt wait to hand the dosh out to the newly independent African States whose economies at the time would make the present Greek economy look like modern Germany ?
    And who surprise surprise ‘disappointed ‘ when even the annual interest payments on Zambian debt could’nt be paid for with the foreign currency earnings of two years of that country’s exports ?

    Or would this be the capitalism that lent out mortgages to people whom they knew but pretended not to who would never be able to repay those loans ? Bank of America could tell you all about what a ‘marvellous ‘ buy Country Wide Home loans proved to be .

    Or would this be the capitalism that permitted sociopaths and liars like Bernard Madoff , Sanders and hundreds of others to gouge billions from people all over the world ?

    Or would this be the capitalism that does a roaring trade with a one party non democratic state that supplies it with all it can sell in the west while transferring the USA’s credit debt into the hands of Communist authoritarian Capitalists in Beijing and Shanghai ?

    As to your point .

    ‘Capitalism (better described financial capitalism ) is saying ‘We don’t think you can repay your debts so we’re not lending you any more money – well, not unless you can guarantee it.’

    Eh ? Thats what some of the arch villains are now saying but it’s not what they were saying 10 or 15 or 20 years ago and not what they were saying to destitute Africans in the 1970′s or 1980′s either . But then they are long practiced in the arts of lying hypocrisy and have never found it so easy or economical to buy in the required ‘political ‘ minions as at present :(

    more anon

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