Category Archives: The European Union

Treppenwitz

Posted on by
3

Introductory Statement by Jörg Asmussen, Member of the Executive Board of the ECB, in exchange of views with the Economic and Monetary Affairs Committee of the European Parliament on financial assistance to Cyprus –

If the sovereign had shouldered these massive recapitalisation needs, debt would have risen to 145% of GDP. This would have critically endangered public debt sustainability. At the same time, traditional ways of burden sharing by the private sector bank creditors were limited, given little junior debt outstanding in banks.

The Eurozone has an effective* traditional way of burden-sharing with non-depositor creditors?

In particular, it was decided to cover the capital needs of the two largest banks exclusively through the own contributions of uninsured depositors and senior and junior debt holders. The creditors of the two banks would not be made worse-off than they would have been in the case of liquidation, which would have been the alternative to the programme. 

The Eurozone has a criterion that bank debt writedowns can be justified as long as the creditors are not worse off than they would have been under liquidation?

If only Ireland had thought of these things in 2010!

[*i.e. that doesn't endanger debt sustainability]

Margaret Thatcher: European.

Posted on by
2

The French Socialists’ internal policy machinery has been activated to express increasing frustration and anger at the constraints of the Eurozone, in the context of rising unemployment and basically no sign of anything improving. Specifically, they’re trying to start a row with the Germans, and somewhat less obviously, Britain. The key quote is here:

“Le projet communautaire est aujourd’hui meurtri par une alliance de circonstance entre les accents thatchériens de l’actuel premier ministre britannique – qui ne conçoit l’Europe qu’à la carte et au rabais – et l’intransigeance égoïste de la chancelière Merkel – qui ne songe à rien d’autre qu’à l’épargne des déposants outre-Rhin, à la balance commerciale enregistrée par Berlin et à son avenir électoral”, écrivent également les dirigeants socialistes pour qui “la France possède aujourd’hui le seul gouvernement sincèrement européen parmi les grands pays de l’Union”.

So, they accuse Angela Merkel of thinking of nothing but German creditors, the German trade surplus, and her party’s prospects, and describe this as intransigent egoism. Well, perhaps they have a point. They blame all this on David Cameron for having a “Thatcherite tone” and only thinking of “Europe a la carte and with a rebate”. And apparently, the French government is the only sincerely European one.

Now I had no idea Merkel was such a poor weak insignificant figure that her policy was dictated by Britain. You may be surprised to learn that this diplomatic triumph is insufficiently publicised in the UK. Further, I clearly remember that the reason for austerity in the UK was meant to be that things were bad in the eurozone and we were going to be like Greece. Don’t just ask the prime minister, ask Sir Mervyn King. It’s as if British politicians tend to blame everything on the EU and French politicians tend to blame everything on the Brits, or something.

However, not only are they right on the actual issues, they have a point about Thatcherite Europe.

Margaret Thatcher was underrated as a European politician. As prime minister, she was very much in favour and deeply engaged in the creation of the Single European Act and therefore of the single market. It is a cliche to say that the Brits only think of the European Union as a single market, but this is ahistorical – in the mid-80s, single market completion was the absolute top priority on the European agenda. If Europe is a project under construction, the single market was the phase that was completed in the 80s. The notion of catching up with Europe, competing with Europe, trading across Europe – all of this was ingrained in Thatcherite style, tone, and rhetoric.

British macro-economic policy in the Thatcher years was also driven by European integration. After giving up on monetarism, the UK government decided to establish a fixed exchange rate with the D-Mark, and later formalised this by joining the Exchange Rate Mechanism. In fact, the UK spent as much time under Thatcher tracking the D-Mark as it did targeting the money supply. The notions of “importing credibility” that were used to promote the Euro in the 90s and 00s had an earlier run-out in the UK in the 1980s.

With an open capital account and a currency pegged to the D-Mark at a dramatically high parity, the UK in the late 1980s looks rather like a peripheral European economy of the mid-2000s, with inflows of capital chasing yield, a growing financial sector, a trade deficit, a housing bubble, and a political elite frantically clapping themselves on the back, before the crash.

The UK’s broader foreign and defence policy could have been reduced to the word “NATO”, which is another way of saying that it was focused on Europe. In the early 1980s, UK defence plans were all about the BAOR operational area in Germany and the NATO Northern Flank. In fact, if it hadn’t been for the accident of the Falklands, they would have been much more so, sharply reducing the Navy at the expense of the Army and RAF and the nuclear world. Similarly, Thatcher really didn’t care about the Commonwealth or anything much outside, yes, Europe or the North Atlantic.

I can hear a storm of whataboutery building by now. What about the rebate? What about “give me my money back”?

Well, what about it? A lot of European politicians spent the 1980s ripping into each other over narrowly national interests. (They did in the 70s and 90s and 00s, too.) Were any of the various ferocious defenders of the CAP as it applied to them un-Europeans? Was Helmut Kohl un-European for insisting on reunification, to head right for the reductio ad absurdum? Germany was obviously pretty keen on exporting cars – was Hans-Dietrich Genscher a Eurosceptic, then? This is simply hypocrisy, with a dash of sexism chucked in. (Do we have to quote Mitterrand fancying her again?)

I also think it’s important to distinguish Thatcher, prime minister, from Thatcher, post-prime-ministerial pontificator. Her swing to Euroscepticism was post-1990, post-power, rather like her swing towards the climate-change deniers. It’s worth noting that the Eurosceptics were not passive, either – they deliberately sought to claim the Thatcher myth as a source of legitimacy for their efforts to topple John Major. She also, I think, adopted Euroscepticism as a way of projecting influence in the Tory Party after leaving office. That said, we should surely consider action before 1990 as weightier than words after 1990. And her foundation was very much involved in the Central European transition to a certain idea of democracy – in the EU, in NATO, in the stability pact, eventually in the Euro.

So why isn’t this more obvious? I think the answer is that the European Union has not turned out to be the nice alternative to Thatcherism it was sold as in the 1990s. Ask a Spaniard. No, go ahead.

The policies it delivers – open trade, austeritarian macro-economics, open capital flows, no real redistributive budget, and a permanent war on inflation – are basically nothing Margaret Thatcher would not have welcomed. Even the way she thought tact was something sailing-ships did would fit right in with German newspapers claiming Cyprus is a richer country than Germany. And the EU’s generally sane approach to things like environmental regulation would work for the post-1987, Montreal Protocol and IPCC-championing, “first scientist prime minister” version of Thatcher. It did at the time.

I wonder, in conclusion, if Thatcher can be understood from a European point of view as an ordoliberal politician, rather than a libertarian or just a conservative? Britain has always been more like Germany than it lets on. Thatcher was a European; it’s Europe that’s the problem.

A right to be forgotten?

Posted on by
2

So we’re talking about the “right to be forgotten”. I am profoundly unconvinced about this. For a start, I can’t see how you can have an ethics of responsibility and at the same time a right to be forgotten. I am very interested in the past track record of people who want to exert power over me. That Boris Johnson used to claim that renationalising Railtrack was as bad as Robert Mugabe is, I think, relevant information to anyone who might have to vote for or against him. Similarly, the public memory of archives is enormously important, especially to anyone who intends to commit journalism.

That said, we should take petty tyranny, the abuse of private power, seriously too. We should take it seriously, among other things, because it is so common and it tends to be exercised in the same direction as all the other privileges in society. Having posted an embarrassing photo on Facebook should not actually be a bar to employment. Obviously, we’re living in a transitional era here – in the future, everyone will have an embarrassing Internet past, and therefore it will be unremarkable. The trouble is what happens in the meantime.

These two points are obviously in tension, if not contradiction. What I would like would be not so much a right to be forgotten, as a duty of tolerance, a right to be different or perhaps more importantly, a right to be wrong. Wrongness comes to us all. If you are never wrong, it suggests that you’re in denial, or that your ideas are simply uninteresting. And very often, being wrong is confused with just being unpopular.

But then, Harrowell, you’ve been very harsh on all sorts of people yourself. This is true, but I would claim that I’ve picked issues that are important and targets who can look after themselves.

To sum up, I would say that the notion of a right to be forgotten is worrying because we want it. This implies that we are scared of private bullying, and policed by elite consensus.

Beyond that, I am much more interested in the private use of public information, the deep-web stockpiles of ad-targeting metadata, which are worrying precisely because they are not directly observable. Then again, you have as much right to demand that you disappear from my notebook as from my mind.

Thing Versus Blob!

Posted on by
3

Here’s an example of the great floppy weight of conventional wisdom. And it’s about Francois Hollande, so I guess it’s Epic Blob vs. The Thing, a fine B-movie title. Andrew Rawnsley notes that Hollande doesn’t seem to be doing so well, and Ed Miliband should learn from this.

Astonishingly, though, his conclusion is that Miliband should set out a plan to “deal with the deficit”, i.e. to double-down on failure and join George Osborne hunkering down in the bunker. This is exactly the policy Hollande has adopted!

The French government has pivoted, as they say, to reducing the deficit as the top priority above all else. They have chosen to do so by taxing the rich, which is probably better, but this is a marginal distinction. Hollande’s popularity is slipping precisely because unemployment is up and the economy is going nowhere. It is going nowhere because the European economy is going nowhere.

And Hollande’s options are minimal. He can’t do anything with monetary policy, trade policy, or the exchange rate because he doesn’t control them. He can’t do much with the budget because, thanks to the six pack (aka “I can’t believe it’s not a balanced budget amendment!”) he doesn’t really control that any more.

Of course, this isn’t true of a hypothetical Miliband government.

Fortunately, nobody’s expecting anything from expansionary contraction or internal devaluation any more. But that just leaves what I call sad donkey economics – muddling through and hoping something turns up. The problem here is that it might not. Further, if it doesn’t matter who the hell you vote for, you may as well not, or you may as well vote extremist.

The ultimate development of elite consensus is politics with the politics taken out, the notion that it shouldn’t matter who is in charge. This is of course very close to the vision of the European project as defined by the elite. The Thing beats the Blob, but by then the two are indistinguishable.

Everything Will Be Fine In Just One Chote Unit

Posted on by
1

So I said that the European economic situation is basically like the Iraq War. Here’s an example from noted dissident David “Danny” Blanchflower:

Even this OBR [the UK Office for Budget Responsibility - ed] forecast is not credible because it suggests growth will be 1.8 per cent in 2014 and 2.3 per cent in 2015. There is no evidence that consumption, net investment or net trade – which are the main components of growth – will grow any time soon; they aren’t.

The OBR’s belief that all will be well in two years is the same assumption they have made in every forecast – so called “mean reversion” – but this hasn’t happened and isn’t going to.

I hadn’t been aware of that, but it is astonishing. The OBR’s core forecasting assumption is that everything will just revert to trend, and therefore everything is OK. The problem here is that things revert to the mean if, and only if, if there is a trend and some evenly-distributed noise around it. That is to say, they literally think nothing has changed, even though things have changed, and policy has changed. It is very important to identify the moments when the trend has changed, and if you’re the government, to reflect on whether or not you might be the trend.

Further, they have even formulated a well-defined timeframe within which everything will be OK. For the OBR, it’s two years. For Thomas Friedman, everything in Iraq was going to be OK within six months, aka one Friedman Unit, and then you pesky kids with your computer diaries were going to be sorry. In honour of OBR director Robert Chote, I therefore give you the Chote Unit. The economy will be fine by 2012, and failing that, in two years’ time.

Some of my readers will protest and say that Robert Chote is a man worthy of respect, a genuine expert. But one of the readers who is most likely to do that has already answered his own objection.

Yes. This government has a terrible record of co-opting genuine experts, using them like fools, and leaving them weeping by the roadside. As well as a Chote unit it could also be a Budd unit, after the founding OBR director Sir Alan Budd, who also thought everything would be fine by 2012, and who quit the OBR after its first intervention in politics, when it made up the numbers to suit the politicians (don’t ask me, ask me the first, me the second, and me the third). But I’m sticking with the Chote unit, because Chote was warned, and he’s stuck with it much longer than Budd.

The Iraq examples are legion, but the most telling one was the fate of the Iraq Study Group, led by none other than the enduring statesman and personal friend of Georges Bush 1.0 and 2.0, James Baker, which went to Iraq in 2006, and reported back that it was a terrible disaster and the best thing to do was to patch up local arrangements like the Marines did in Anbar and then get out as quickly as possible. This was ignored, and passed to the attack dogs to be denounced as treason. Eventually they ended up following the recommendations, after time and blood had passed under the bridge and the military had worked out the same ideas themselves.

Meanwhile, the high panjandrum of expansionary contraction, Alberto Alesina, has noted that the US stock market is up, and concluded this is down to the as-yet-undelivered golden prospects of sequestration. This is genuinely ridiculous. As the Washington Post points out, actual fiscal contraction in the US didn’t bring about a boom, and neither did much greater contraction anywhere else, yet he claims to believe that the mere prospect of it is firing up the old animal spirits.

(Of course, it can’t be those because animal spirits are thoughtcrime and we say expectations which are somehow different and nothing at all to do with Keynes although nobody really knows how.)

So, you can have contraction without expansion, expansion without contraction, and expansion with only future promises of contraction. Further, looking at the British experience, you can also have contraction that starts with future promises of contraction. In what way is this any better than astrology?

This House Has No Confidence In Olli Rehn, Nor Anyone Else

Posted on by
12

So here we are again. A peripheral European economy is falling apart, because of its hugely overextended banks. The powers-that-be, being the European Commission’s EMU directorate-general, the European Central Bank, and the German ministry of finance, intervene. This time, rather than letting the government deal with the banks, destroy its credit, and then lend the government money on terms that basically preclude any prospect of recovery – and don’t ask me, ask Deutsche Bank and Edward Hugh about the impact of youth unemployment on long-run productivity – they’ve decided to bill the banks’ depositors under the bail-in directive, and to hit the insured depositors below €100,000 although they didn’t have to, and then anyway impose a structural-adjustment programme of the order of 5.75% of GDP in case the horse sings this time – don’t ask me, ask the IMF. Everyone’s now standing by for Monday and whatever may come.

But isn’t this a bit, you know, 2008? If there was any point to the policy of the European powers-that-be, surely it was that this stuff was meant to be over? Instead, we are landed with a sort of permanent state of emergency. Why isn’t anybody sorry? Why isn’t anybody responsible?

Instead, what do we get from the elite?

Attempts at ideological policing. A cocktail of whataboutery and racist dogwhistle – I’m sorry, Professor Sachs, you’re smart enough and ugly enough to know just what is meant by welfare in current US politics. The British prime minister flat-out lying about what his own pet pro-austerity committee says. And I call it that advisedly. We’ve had Olli Rehn’s spokesman descending into playground bullying. We’ve had British chancellor George Osborne telling himself recovery is but a Friedman unit away. We’ve had that American private-equity guy complaining that French workers work three hours a day, when he put them on short-time working at three hours a day. We’ve had Hans-Werner Sinn suddenly discovering intra-eurozone trade imbalances after all these years. Someone has invented a political party to demand that Germany leaves the Euro because it’s not been austeritarian enough.

Clearly, the powers-that-be are as bankrupt as the Cypriot Bank of Horsemeat, and they must go. Paul Krugman is entirely right that the whole story is foully reminiscent of Iraq. The great flabby mess of elite consensus rolled downhill, not so much William Cobbett’s Thing as 1950s B-movies’ Epic Blob, absorbing every punch that could be thrown at it.

So what’s with the most prominent representative of this feeling in Europe, Beppe Grillo? Well, when he’s not looking after his network of offshore companies, or rather, letting his secretary and wife look after them, at least in name, he’s demanding the elimination of trade unionists – that’s a must read piece, by the way. You’ll need to put up with slightly tiresome left-wing-art-collective stylings and I was quite pleased to identify “that lot who called themselves Luther Blissett because he was black, like” before finding out they are indeed the collective author, but it’s damning. Further, even UKIP manage to make sense in flashes.

And after the usual painful negotiations and baboon threat-displays, the intergovernmental leaders managed to agree a budget that zeroed-out EU investment in broadband infrastructure. Obviously! (I agree I’m talking my book professionally there, but you’ll struggle to find anyone who doesn’t think it will do at least some good.)

Clearly, the old motto can be adapted. Tous les mêmes. Tous pourris. Même moi!

But it’s not as if nothing can be done. We still have the economic policy team at the Commission we had in February, 2010. We still have the same Commission President we had in 2004. Evidently, the European public is entirely satisfied and the same broad strokes of policy from the property-boom years are OK. No. Whoops, I took a crazy pill.

So, if you want new methods you usually need new men. The European Parliament has, to its credit, knocked back the budget. Now, it must stand up to its responsibility and knock back the Commission. Amazingly enough, we still can’t just bin Rehn, it’s all or nothing. But it’s been done before, over issues that were far, far less important in their consequences. This quote is a classic:

“It was becoming increasingly difficult to find anyone who had the slightest sense of responsibility.”

If it’s not labeled, did it really happen?

Posted on by
2

The IMF has published its Financial Sector Assessment Program (FSAP) report for the European Union. Usually FSAP reports are done for countries but this one looked at union level issues and institutions. The above is Figure 7 from it. It’s a chart showing a measure of spillover, which the report defines as the probability of a country being in distress given that other countries are in distress at the same time. Their point is that such spillover has been a feature of the Eurozone crisis since the summer of 2008.

Yet there is one strange thing about the figure. It blacks out two of the labels on the chart. But the imperfect blackout allows through various simple means to determine that the two dates that dare not speak their name are that for the Greek debt exchange and the Outright Monetary Transactions announcement. So clearly as the report went through the review stages, someone was sensitive about seeing these dates explicitly. Was it a claim that the data didn’t imply any clear link between spillover and those events, so putting them in looked like over-attribution? Or was it that the data showed too clearly that the Greek debt exchange failed to calm nerves — despite all the assurance at the time that it was a one-time, one country only deal — whereas aggressive ECB policy noises did? You’d think that this far into crisis, we’d at least be entitled to an airing of views.

The Tories’ Augustinian Populism

Posted on by
2

David Cameron’s big EU speech setting out the policy of an in/out referendum on EU membership after the next election contained a key claim: that a Britain more detached from the EU would be both more business friendly and closer to the people than those statist bureaucrats way off in Brussels. As if on cue, Switzerland came forward this weekend with a test case of what popularly-rooted policies on business conduct in a non-EU European country with a large financial sector might look like: a strong impulse to curb executive pay and bonuses, by all accounts driven by resentment at large bailouts given to — or at least brokered with some urgency for — the banking sector since 2008. Now you could say that this is not really representative of the UK, since it’s driven by the referendum system. Yet accountability was one of the rationales cited in Cameron’s speech for his policy and indeed for his decision to have a referendum. Five years from now.

Of course, the Eastleigh by-election result shows that insulation from populism doesn’t come that easily. And as Martin Wolf points out, it leaves the rest of the EU with one clear entry point to make life difficult for the Tories, by coming forward with policies like those on bankers’ bonuses that are actually popular.  At the very least, it seems that the Tories will have to work to make “business” mean something other than “bankers” over the next few years, before they lose the filter of infrequent parliamentary elections between policies and the people.

Italian Elections: Rounding the Last Pole

Posted on by
8

Launched in an act of treachery that brought down Mario Monti’s technocratic government, the Italian national election campaign will end one way or another, to the relief of many, Saturday evening. What might have been a sustained debate on the merits of austerity measures in a prolonged recession, on the future of Italian employment and its welfare state or a host of other pressing issues, has instead taken on the quality of an unsavory burlesque revue. Its stars: authentic if acerbic comic Beppe Grillo, whose 5 Stars protest movement may yet shape the outcome, and sick joker Silvio Berlusconi, whose foolish headline grabs have used up much of the electoral space. But it has been a lavish, large-cast production, with indictments flying, old allies back-stabbing, off-color jokes and evanescent affiliations, a Fellini-esque procession of oddities and crudities unworthy of the noble republic Italy could nonetheless become.

What to expect? Given Italy’s ban on published polls in the final two weeks, calling this one from Boston is something like watching a horse race through the wrong end of the binoculars–but I’m going to do it anyway. Bersani and the center-left have led all the way, notwithstanding the Monte dei Paschi banking scandal that implicates Monti as much as Bersani, and neither man in any direct way. Bersani’s campaign has been steady if utterly unflamboyant; he conveys an avuncular credibility that makes it hard to brand him a flaming radical despite Berlusconi’s many tries. He has sought international credibility in Berlin and in the American press, and has scrupulously balanced his attachments to rising centrist Matteo Renzi on his right and leftist but circumspect Nichi Vendola to his left. Nothing suggests that Bersani will be dislodged from the #1 spot, and thus control of the lower house.

But can he form a stable government? That’s a question about the Senate, and really about 2 or 3 key regions that will decide it: Lombardy, Sicily, maybe Campania. This interesting poll predicts a one-vote plurality for the center-left: it may be a long night for Pier Luigi. If he falls short, Monti’s centrist coalition acquires what corporate types call a ‘golden seat’ at the table, with considerable leverage over fiscal policy.

But Monti himself has been the great disappointment of the season. All the EU heavies have lobbied for him, with possibly negative effect. Italian voters may respect him but don’t seem to like him, and his campaign has never achieved lift-off. With fewer distractions this could be the real story of the campaign: even Italy’s desperate straits and Monti’s exemplary financial credentials are not enough to sell austerity to a chronically hurting electorate–liberal politicians throughout Europe, beware! As I’ve noted elsewhere, Monti’s persistent efforts to split Bersani from Vendola have miserably failed, and Monti has lurched from accomodation to hostility to a final call for a renewed ‘grand coalition.’ He may yet find himself part of one, but no thanks to his nondescript political skills.

Vendola, meanwhile, has shown himself to be a team player, capable of flashes of wit such as this wonderful Tweet. He has hewed to a steady left line, insisting that workers’ rights and the full social safety net must be cornerstones of any ‘reform’, but like Bersani he seems a lot less scary than his right-wing detractors would prefer. Look for Vendola in a prominent place in Bersani’s government.

But will Grillo’s anti-political movement obtain an intractable bloc in the new Parliament? Populist protests are notoriously hard to measure, though Grillo’s internet-savvy and personally charismatic style have made an indisputable and perhaps permanent impact. My own hunch is that on Sunday Grillo may underperform, losing a share of his 15% to that other discreet contender, Abstention. This shadow-candidate is thought to command 30% already, and I wonder: instead of showing their disdain for politics by going out to vote for Grillo, why won’t a fair proportion of his supporters send the same message by staying home? Well, maybe because they love Beppe–we’ll see.

In any case, Berlusconi’s faux-populism can’t hold a candle to Grillo’s real deal. The Cavalier still stands to win a substantial fraction–25%?–but without Grillo he would have had a better chance to harvest the broad dissatisfaction with Monti. Why this cadaverous has-been still gets even 1% is a mystery to me, but I remain confident that he will be shut out of any new government. Why? Because he is pure poison.

So I’m among the few who wait optimistically for Monday’s verdict. Last spring I hoped Hollande would feel empowered to contest Merkel’s disastrous orthodoxy. I noted the brief but surprising flourish of the Dutch Socialists last fall; I observe Alexis Tsipris’s recent arrival on the main stage, and sense a gathering change of mood in much of Europe, perhaps in time for next year’s Euro-elections. A Bersani-Vendola government would move the Old Continent a few more cautious steps in that direction. Avanti!