EU: “And frustration is taking hold.”

The Irish Times‘ Arthur Beesley with an update on the situation in Europe.  From the Irish Times article

One way or another, most of Cowen’s senior counterparts in Europe are on the hind foot politically. Merkel’s room for manoeuvre has been circumscribed ever since she lost her majority in the upper house of parliament; Sarkozy’s popularity has collapsed; Silvio Berlusconi administration in Italy is teetering; and José Zapatero is haunted by fear that his reprieve from the markets may prove temporary. Similar weakness prevails elsewhere, with only the recently elected David Cameron seen to be secure.

All of which makes it especially difficult to agree the most crucial element of the package to reform the euro system: sanctions on countries that consistently break EU budget rules.

Fearful that large fines would only magnify countries’ fiscal weakness, Merkel and a few other leaders want instead to suspend the voting rights of errant countries. But most countries – Ireland among them – don’t want that, not least because it involves a change to the EU treaties.

The talks have been stalled on this point for months, with little sign of compromise. While some well-placed observers see domestic political concerns in the roots of Merkel’s intransigence, the final push for a deal cannot be avoided forever.

And frustration is taking hold. Luxembourg prime minister Jean-Claude Juncker, who chairs meetings of the euro finance ministers, yesterday bemoaned the “nonstop repetition of generalities” in the talks and “the impression on financial markets that we’re not following through” with important reforms.

Yet if a sense of drift is palpable, so too is the perception that things would move quickly if there was another bout of disruption. Testing times for European Council president Herman Van Rompuy, the man charged with bringing everyone together in six weeks’ time. Testing times for everyone.

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  • A.N.Other

    It is now odds-on that Ireland will have to go to the IMF.

  • Greenflag

    Where did you see the odds ? Paddy Power?

  • Seymour Major

    It seems to me that what Europe badly needs right now is a powerful German leader with vision. Merkel came to power through coalition and the German people get angry when they think it is being frittered by spongers from all over Europe.

    Germany can not go on dithering. It can not go on hiding behind EU rules and wagging fingers at Nations that are weak and struggling. The Euro will collapse and all of the political capital that has gone with it if it does not throw its weight 100% behind the structures which are supposed to be in place to help out countries in great difficulty.

    Germany needs to decide what kind of Europe it wants. If it wants Europe to be a united family of Nations, it has to start taking responsibility. Time is running out.

  • Well it’s 1940 on the BBC and the plucky British are still shooting the murderous Luftwaffe down. Perhaps if you Irish sell them Queenstown they’ll see you right.

  • slug

    According to the document “Measuring Ireland’s Progress” as published today by the Irish government, Ireland is still richest country in the EU per capita (excluding Luxembourg) so this would suggest they will be able to pay off these debts.

  • The only way for individual countries in a currency union to manage their economies is through fiscal policy, which is still firmly under the control of ministers, and no amount of after-the-fact punishments will change anything. The current crisis is based on two major failures: the failure to properly regulate the banking sector, and the failure to exercise budget restraint during the boom. The first failure is relatively easy to address, and progress has been made in that direction.

    The inability of democratic governments to exercise budget restraint during a boom exposes a more fundamental failing in our democracies – the fact that governments rarely plan beyond the next election. Considering that the business cycle is generally on the order of 8-10 years and the electoral cycle is only half that, political considerations will tend to drive positive-feedback effects in the economy, forcing bigger booms and thereby bigger busts. It is a brave government which at the height of a boom would resist calls for public spending and/or tax cuts, when a sober assessment would recommend exactly the opposite. Recessions may be inevitable, but sovereign debt crises are not.

    Inflation was finally tamed by removing the power to print money from the direct control of politicians and handed to central banks with operational independence but politically-defined targets. Just as it was too tempting for finance ministers to print extra money whenever holes in the balance sheet appeared, it is also tempting to increase spending (or cut taxes) during a boom rather than invest or pay off existing debt. Increased taxation has a dual effect – it provides extra revenue but it also slows the economy. During a boom, both these outcomes are desirable, but politically painful.

    In the same way that independent central banks tamed inflation, independent revenue services could tame sovereign debt. A revenue chairman would have the power to adjust tax rates (but not bands), issue government bonds and manage a sovereign-wealth fund. He would then be obliged to provide a steady funding stream (fixed for five-year periods) to the government via whatever methods are most suitable for the position in the economic cycle. Finance ministers would set targets and exercise oversight, but would not have their hands directly on the fiscal levers.

  • HeinzGuderian

    Germany has already tried that !! A powerful German leader ?? Are you for real ??? 🙁

  • HeinzGuderian

    Gave you the freedom to post shite on here,though Sir !!! ‘-)

  • HeinzGuderian

    PMSL 🙂

  • HeinzGuderian

    Indeed Andy…………..A ui in the morning would surely prop up the decidedly unsteady Sate of roi,and put her on a course for total civil war !!

    I wonders,I do………………….what do our nat/rep chums think will happen,if there ever is an ui ??

    Will there be a campaign from Unionists to revert this ?? Will wooly nat/rebs call for talks ?? Will the dreary steeples of Fermanafg always be dreary ??

    These,and more questions will be ansawerd by da bearded one……………..maybe ?? 🙂

  • Alias

    Fiscal policy didn’t cause the external debt to explode from 11 billion punts prior to joining the eurozone to 1.67 trillion euros a mere 10 years after joining it. Surrendering sovereignty over macroeconomic and monetary policies, sovereignty over banking regulation, and dumping Ireland’s banks in the eurosystem caused that.

    Europhiles believed that Germany’s macroeconomic needs would strangely conflate with Ireland’s, so if Germany’s economy needed to stimulate consumer demand for its goods and services in the EU by the ECB supplying cheap and plentiful credit to those EU consumers then Ireland’s economy must need it too. The fact that cheap and plentiful credit was the last thing that Ireland’s economy actually needed was neither here nor there since it would get the macroeconomic and monetary policies that were designed for Germany’s economy and because the EU can do no wrong then what is good for Germany must be good for Ireland. That’s how europhiles and other certifiable lunatics think.

    Supplying cheap and plentiful credit to those EU consumers was good for Germany since they sold billions in cars and other goods to Ireland as a result of it, and their financial services sector made tens of billions in profits from supply that supplying cheap and plentiful credit to those EU consumers – retrospectively guaranteed by the Irish state. Each house sale in Ireland equalled a massive profit for a eurosystem bank in Germany who loaned circa half a million to a eurosytem bank in Ireland who in turn loaned it to a eurosystem consumer.

  • Greenflag

    Germany today is

    Ein Volk
    Kein Reich
    Kein Fuhrer

    The Euro is not going to collapse . Germany may be the biggest economy in the EU but Germans make up slightly less than 20% of the EU population . Over the past 50 years the Germans have done more than their bit in the EU and have in the last 20 years had to carry a virtual third world economy (East Germany) on it’s back . Germans can be forgiven for saying enough is enough .

    It’s not up to Germany to decide what kind of Europe it wants it’s more Europe deciding what kind of Germany it wants . As one of the world’s biggest economies right in the middle of Europe it’s importance is not just economic but politically crucial to ‘our’ (Britain & Ireland) in a way that Japan or China would not be at least not yet!

  • Greenflag

    Good post AG . Are you certain about that cyclical 10 year theory .? Do I not recall during Mr Greenberg’s ‘reign’ that the cycle of boom and bust had been overcome thanks to the zealous efforts of MIlton Friedman and the Chicago school of Economics ?

    Chicago historically has also had to overcome a strong association with ‘gangsterism’ Perhaps the ex cons ended up attending economic courses at the university ?

    So given your analysis above what role then for elected politicians and in particular Finance Ministers ?

    How have the Central Banks behaved in this crisis and how ‘independent’ have they proved to have been ?

    Is the entire world to be governed along the lines of the powerless NI Assembly while the real power (those fiscal levers) is wielded by persons unelected and unknown to the general public and largely not accountable to anyone other than whoever appointed them ?

  • Greenflag

    ‘what is good for Germany must be good for Ireland.’

    The last time I checked Ireland had a trade surplus with Germany of a billion US $ . You can elicit the number from the info below.

    In 2007, Ireland exported some US$125 billion worth of goods led by machinery and equipment, computers, chemicals, pharmaceuticals, live animals and animal products. Topping the list of customers for Irish exports were the United States (18.7% of total exports), the United Kingdom (17.9%), Belgium (14.4%), Germany (7.8%), France (5.8%) and Italy (4.2%).

    Irish imports were valued at $90.4 billion. Leading suppliers of Irish imports included the U.K. (37.5% of total imports), the U.S. (11.5%), Germany (9.6%) and the Netherlands (4.6%).

    If we could go back to 2000 and make the choice again knowing what we know now then I’m sure we’d have made a different decision -but then Mr Greenberg of the Federal Reserve along with most of the world’s leading financial gurus has said the same .

    Not that that will bother anybody at Goldman Sachs who fresh from their gorging on American taxpayers have now posted higher profits again this year over last . The ‘rats’ having jumped ship to the safety of government bail out are now back on board gobbling up what’s left of the American middle class 🙁

    Something will yet give in this crisis !

  • Seymour Major

    “Recessions may be inevitable, but sovereign debt crises are not.”

    Well, we have a sovereigh debt crisis and there is no apparent solution to that in the offing.

    With respect to AndrewG, I believe there is more to this crisis than just Banking regulation and Fiscal ineptitude.

    Even if those matters are resolved, you still have the problem of the differentials in the relative strengths of the various economies.

    The recent bricks and mortar boom in the PIIGS countries disguised these differentials until the bank loans ran out.

    If reversing currency union is not an option, something else has to be put into place to help the weaker economies to catch up. That is why I say, again, that Germany has to make up its mind about its vision for the future of Europe.

  • Greenspan’s failing was to start believing his own hype. Friedman never went that far. And remember that Friedman’s work saved us from the stagflation era of the late 70s. Keynes wrote “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist” – and of course by the 70s that defunct economist was Keynes. Friedman will of course become defunct himself, but it will not be by a return to Keynes, but by the development of a new theory.

    Politicians will still be in charge, but they will not be making day-to-day decisions. The hands-off principle is now well established in the theory of governance – not just central banks but regulatory bodies, police forces, appointments commissions… in each of these cases it has been found (through bitter experience, mostly) that politicians will make populist, short-term decisions at variance with long-term interests. Better to keep the politicians as the supervisors rather than the workers. So long as the lines of responsibility are kept clear, this can and does work to great advantage. In response to your question about central banks, no of course they have not behaved perfectly, but if the politicians had been in charge would they have handled the situation any better? History would suggest otherwise.

  • Euro rates are set for the eurozone as a whole, not for Germany – although Germany is weighted quite heavily in the calculations due to the size of its economy. Cheap credit is not necessarily a bad idea, but what the PIIGS should have been doing with it was investing in structural improvements that would make them more like Germany, rather than frittering it away on land speculation. But that’s short-term economic populism for you.

    We all need to sit back and consider a simple question – why is Germany so successful economically? It’s not just size – Britain, France and Italy are only slightly smaller. What sets Germany apart is what made Germany a great economy again after the destruction of the war – the Mittelstand. SMEs are the backbone of any world-class economy, and we have not been doing enough in Ireland (N or S) to expand that sector. But we have a chicken-and-egg syndrome – without an existing Mittelstand there is no political constituency on which to base a political movement to push for the reforms that could help create one. This is much the same as the way a lack of an industrialised working class prevented the emergence of a strong labour movement in the Republic (NI’s excuse has more to do with sectarianism).

    The Dublin government is in thrall to the interests of a few large companies rather than that of the economy as a whole – bankers, developers, multinationals. Of course we need such companies, but they are not representative of a balanced economy. By contrast, the current thinking in NI seems to be that if you throw enough grant money around, some of it is bound to do some good – but all you end up creating are companies that spend their time applying for funding rather than creating value. Neither approach is sustainable.