In the end at #Haiderbank, everyone who mattered got exactly what they wanted.

So I spent my Christmas reading the Hypo Alpe-Adria crash investigation, in a follow-up to this post . The point that stands out for me is that I don’t think you can blame this one on incompetence. Too many actors involved got what they wanted for that. Instead, they adopted a form of strategic incompetence that has long historical roots in Austria and its former empire, following the creases left by major historical events.

To kick off, the transition of Carinthia’s state-owned mortgage lender to a universal bank was an event conditioned by several massive historical phenomena. One of these was financial globalisation. Another was the relaunch of European integration. A third was the desire of important politicians in Austria to have alternatives to the postwar long coalition. It’s telling that Hypo Alpe-Adria, hereafter HAA, opened its first international office in 1986, about the time the extreme-right FPO was in government for the first time, in a weird alliance with the Social Democrats. Its new name, with its vaguely imperial claim to the “Alps-Adriatic”, actually appeared before the end of communism, and it began to do business in the former Yugoslavia even before it was former.

So the transformation of HAA gave its shareholders, at the time the state of Carinthia, a Steiermark mutual insurer, and some employees, a number of benefits. One of these was an economic strategy – we’re going to create a financial centre and we’re also going to invest in this new region. Another was something like having your own independent foreign policy – after all, the region was being conceptualised at the same time as the bank was being reorganised. Yet another was a source of budget revenue, from taxes and from the annual premium it paid for its state guarantee. Less legitimately, it was also a slush fund that could be used to look after important political constituencies.

And, from a very high level, it also played an important role in integrating the far right back into Austrian and European politics. The regional concept the bank embodied was one rooted in the empire and revived by the Nazis, and much loved by Austrian and German extremists. While Carinthia was an obscure collection of minor ski resorts crammed up against the iron curtain, its political elite didn’t have much to offer in exchange for rehabilitation, which they needed because their key political party had basically been invented as a lobby for old Nazis’ interests in the late 1940s. (The same thing nearly happened with the German FDP, but its liberal core and the allied oversight won out.) With a key lender in the reunification of Europe under their command, they counted for something. Wir sind wieder wer.

The European project was both a precondition of all this and also a threat to it. Without the facts of reunification and integration, it would never have gone anywhere. Without Austrian membership of the EEA and then the EU, it would never have been practical. But joining the union also made the whole deal problematic. The union didn’t, at least in principle, like state aid or special arrangements. It was especially keen to get rid of the state guarantees for German landesbanken and their equivalents. It was also keen on privatising all the things.

The owners of HAA formed a strategy to let them have it all. They would progressively sell down the shareholding, sticking at a blocking minority. They would put off unwinding the guarantee as long as possible, and load up on as much cheap funding as possible before the evil day. In the end they legislated in such a way as to let them keep guaranteeing HAA as long as it paid a market rate, which they didn’t define. The premiums were nice for the state budget and the cheap funding critical for the growth strategy. Influence would take the place of control.

Of course, people now ask “Why did they sign up to all those guarantees?” The investigation wonders why they kept guaranteeing even after they didn’t have majority control. But this is strategic incompetence for you. First of all, they relied on informal influence and personal networks to steer the bank. Second, the actors who mattered didn’t care about the risks because they well knew they weren’t meaningfully on the hook for them. Similarly, the Bavarian landesbank that bought HAA was convinced that the Austrian federal authorities were in charge, while both they and the Carinthians believed (or faked it) that the Germans were in charge.

The structure permitted all parties to get what they wanted. We don’t usually think of getting exactly what you want as being “incompetent”.

In 2006, when the Carinthians began selling down their shareholding, the accounts used for the due-diligence process dated back to 2002/2003 for the crucial South-Eastern European assets. This seems crazy. But it was just what the people who mattered wanted. There is an Austrian word, Schlamperei, which describes a sort of institutional blundering into the best course for one’s own interests. Then again, when Deutsche Telekom was ordered by its regulator to let other operators unbundle its lines, it regularly just failed to know they existed or where they were.

A poorly controlled SEE-focused landesbank was just what Jörg Haider wanted, and you can read the eventual sale to the Austrian feds as a scheme by the Carinthians and Bavarians, presumably with German federal acquiescence, to burn the other Austrians.

In practice, the strategic incompetence worked like this. In 2004, HAA engaged in a variety of transactions in derivatives that boosted its interest margins while taking risk on the absolute base rate. This worked for a while and then didn’t. They hid the losses, until they got caught. The then CEO, Kulterer, had to quit but couldn’t be questioned by financial regulators because the police wanted to talk to him. Because he wasn’t under a regulatory inquiry, that meant he could become chairman of the supervisory board. (In the changed post-crash climate, he went to jail.)

The plan had been to float HAA, but this was now out of the question. The state of Carinthia had borrowed against the IPO proceeds, which forced someone to do something. Strategic incompetence again. The solution was to do a small rights issue, and get a hedgie called Tilo Berlin to take the other end. The inquiry found that there were no named politicians on his share register but there were some companies whose beneficial owners they couldn’t trace. This was called the Austrian solution, although Berlin’s vehicle was registered as a Luxembourg SARL.

Berlin’s unique selling point was that he was willing to accept a fairness opinion that said HAA was worth what Haider wanted it to be, issued by a local tax adviser in Klagenfurt who got €12m for his trouble, although Haider then demanded half of it back as a “patriotic rebate”. HSBC and Rothschilds were asked, too, but oddly declined to agree with this valuation. HAA’s own auditors thought the due diligence was pathetic, the data room a joke, and the disclosure bordering on the fraudulent, but Berlin and his investors didn’t mind because they almost certainly already knew BayernLB would take it off their hands after a decent interval. After all, they lent them some of the money. Again, everyone with any power got just what they wanted.

Meanwhile, Haider and his circle ran the bank like they wanted. It lent enormously in the Balkans and looked after his people. When an ill-thought out airline venture was close to failure, Haider himself as chairman ordered that it get a €3m equity contribution, plus a €2.5m line of credit that was drawn down and lost within two days. The loan agreement was recorded as a “note on the file”. An Austrian senator with €9.23m in debts as a sole trader got a 50% writeoff, with more of the debt converted to an equity-kicker, permitting him to save the inheritance. Strangely, HAA never tried to collect on the land he put up as security.

Although it couldn’t be said for the man himself, Haider’s machine in Carinthia got out in time. None of the regional shareholders bothered to contribute a cent to the first bailout in 2008. With the crisis, HAA met another group of powerful people who wanted to have it all – the European Commission, which wanted stability as long as it didn’t cost anything. In order to comply with the state aid restrictions, it was necessary for the Austrian central bank, OeNB, to decide whether HAA was “distressed” or “not distressed”, and also whether it was “sound” or “not sound”. The OeNB held that it was “not distressed”, but stated that this did not mean it was “sound”. Helpful!

But then again, everyone who mattered got what they wanted. The state of being not distressed helped on interest rates, while the state of not being sound helped with regulatory clearance. If the situation was absurd, well, that was precisely what strategic incompetence was meant for, and anyway, shouldn’t the people who made the rules take some responsibility?

Then, as J.K. Galbraith said, things became more serious. As 2009 went on, a classic “slow” or “invisible” run on the bank developed, led by big-ticket depositors, often wholesale. Ironically, one of the biggest single names to move out was the state of Carinthia’s treasury.

This is where I disagree with the crash report. Concretely, BayernLB forced their hand by pulling HAA’s lines of credit with the parent company and invoking a mandatory set-off clause that effectively froze much of its cash. The inquiry argues that the Austrian government could have put HAA into insolvency and challenged this in the bankruptcy court, had they only taken more legal advice. Instead, BLB offered to maintain some of HAA’s liquidity and write off €500m of debts if the Austrian feds would buy the bank.

Interestingly, BayernLB had actually done something similar in the past, when they owned a Croatian bank. On that occasion, there was a run on the bank and BayernLB insisted on selling it back to the Croatian fisc. The circumstances of this were such that in 2007, the Croatian central bank tried to block the sale of HAA unless BLB cooperated with their inquiry, dramatically restricted its loan growth, increased its regulatory capital, and made a public apology. However, “high political pressure” was brought to bear – I think this means either the European institutions or Germany or both – and the central bank reversed itself. They didn’t even get the apology.

But I find the criticism wise after the event. It’s true that both the Bavarians (and the German feds) and the Carinthian pols got away with it at the expense of the Austrian federal budget. But nobody knew what would happen if a federal state became insolvent, or what would happen to BayernLB, or to the South-Eastern European banking system, still less what would happen if all of them happened at once. The prospect of perhaps recovering more money in insolvency in the distant future must have seemed a little remote and vague. HAA might not have been systemically important in 2008, but one of the major lessons of the great financial crisis was that it is fear that makes systemic importance.

Similarly, the inquiry rather oddly complains that the feds spent too much time and money combing the crash site for clues. The main evidence of this is that the HAA management complains a lot about how many employees are seconded to help with the special audit. But, as the late Mandy Rice-Davies would say, he would say that, wouldn’t he?

There is a good point here, though. HAA was probably the most directly and egregiously crooked of the bank failures of 2008-2009. But the problem wasn’t that Herr Marolt got let off half his debts, and treating it as if a really big forensic audit would fix it was a mistake. Although the post-crash investigation was meticulous, and quite a few HAA execs went to jail, the Austrian taxpayer is no less on the hook for the money than she was at the beginning of the process, and HAA is still stinking up the shed. It’s even paying premiums to Carinthia.

The problem, really, is that HAA’s rise and fall followed all sorts of deep features of the EMU and enlargement projects. It was bigger and more interesting than just a fraud. At every turn, you find arrangements that let various privileged groups get what they wanted, usually allowing them to have several contradictory advantages at once by dumping risks on someone else. Even the European Commission was at it – although it repeatedly badgered the Austrians to create a state-owned bad bank, it also pushed the “six pack” balanced budget amendment and insisted that the rest of the budget suffer for it. Similarly, it somehow determined that the €30-odd billion in total that BayernLB got from the Bavarian and German governments wasn’t state aid although the Austrian bailout of its subsidiary HAA kind of was.

In the end, everyone who mattered got exactly what they wanted.

Creative accounting is nothing new for the Eurozone

Frances Coppola blogs on the Austrian government’s crash investigation into the failure of Hypo Alpe-Adria (latest detail – the biggest participant in the run on the bank was its garantor), also known as Haiderbank, and on the related topic of the Juncker Commission’s “investment plan”. The link is that the investment plan relies on a succession of heroic accounting assumptions to bulk up the final number without putting in any, you know, actual munn, and the Austrians’ response to the Haiderbank’s failure was based on a lot of funny figures. Frances so:

But what struck me from this report was the sheer naivety of the government officials involved. They were like children playing with fireworks. The instruments they were handling blew up in their faces and they were badly burned. And Juncker wants government officials to do MORE of this sort of thing?

There is a worrying tendency at the moment for public officials worried about deficits and debt/gdp ratios to hide public liabilities off the balance sheet. But the HGAA saga should sound an alarm about this practice. The Carinthian guarantees were all off-balance sheet – but collectively, they were enough to bankrupt Carinthia, which as a sub-sovereign must balance its books. In fact they were sufficient to place the finances of Austria itself under considerable strain, as well as setting up a nasty spat between Austria and Germany with EU-wide implications. And it is painfully evident that government officials lack the expertise to understand the legal and financial implications of the complex financial instruments involved. The ease with which BayernLB’s experts could deceive Austrian government officials is frightening.

I disagree. I would be very surprised if Austrian finance ministry officials were at all naive about the possibilities of structured finance at the edge of the zone of acceptability. Why? Well, way back in the day when Hypo Alpe-Adria was doing its thing funding Jörg Haider’s career and I lived in Vienna, I remember that time Karl-Heinz Grasser, then finance minister before being disgraced in a corruption scandal, got the federal government to sell the lakes of Carinthia to the federal forestry service, for which the government extended its foresters €215m in credit until they could sell other property to meet the bill.

Somehow, because the deal was “Maastrichtkonform” in the jargon of the day, this meant that Grasser could book the money as in-year revenue but not any additional government debt in the EUROSTAT definition (because while the foresters had acquired a liability of €215m, the fisc had a matching receivable of €215m), and as a result, that he (and Haider as junior coalition partner, and prime minister Wolfgang Schlüssel) were lionised for achieving, you guessed it, a “schwarze Null”, although that wasn’t the expression they used.

I’ve no idea how the accounting treatment could possibly work, but of course that wasn’t the point. By the time the matter had gone up to where-ever it needed to go in Brussels, the relevant deadline would have passed, and if the European Commission complained, well, there would be a fine opportunity to indulge in nationalist whining. Hauptsache, the budget was balanced, for an instant, under their preferred definition, on the relevant day. As it turned out, the assets were worth about a quarter of that.

Wonderfully, since then, some of the same property has become the object of another financial scandal.

The point of this bit of dated little-country political gossip is that funny figures aren’t an exception in the eurozone. They’re constitutive of it. The original Stability Pact launched a culture of creative accounting that is still well with us. France got in because France Telecom “voluntarily” loaded up its balance sheet with debt to finance a “voluntary contribution” to the government that just so happened to be enough. The phone company could do this because the government still owned it and guaranteed its debts.

I’m sure every other country in the eurozone has at least one similar story – it was the first great era of financialisation and privatisation, creating all sorts of interesting opportunities just at the same time as there was a huge incentive to cook the books.

That said, you’ll get no disagreement from me about this:

This is no way to do public investment. We should be keeping public investment ON the balance sheet, where the risks can be seen and properly managed, not sweeping it under the carpet and pretending it doesn’t exist. Juncker’s call for EU member states to make greater use of “innovative financial instruments” is madness

Confidence to spend

draghi_euThis slide is from Mario Draghi’s presentation to the European Union council today. As the caption states, he says it shows that investment is suffering from a lack of confidence. But it perhaps more clearly shows that private investment has suffered as public investment has been slashed. And public investment is nothing to do with mercurial confidence — it’s something governments control! A “you first” approach to investment is not going to get us very far.

You still don’t have to have Juncker.

Stefan Kornelius in the Süddeutsche Zeitung says that it’s a myth that the EU has always managed to bring off major reforms, once it really came under pressure. Instead, whenever it came under pressure, it managed to do something dramatic – but it was usually wrong.

Es gehört zu den Mythen europäischer Politik, dass die Gemeinschaft immer dann zu großen Reformen in der Lage war, wenn sie unter enormem Druck stand. Dieser Mythos wurde zumindest in den vergangenen Jahren gründlich widerlegt. Richtig ist indes, dass es die Gemeinschaft immer wieder schaffte, an den großen Wegmarken ihrer Geschichte die falsche Richtung einzuschlagen…

Kornelius makes the excellent point that any fool can announce they want “more Europe”, and most of them have done. But, as he says, the longer this goes on, the more people vote against it. The great unasked question is what “more Europe” would do. This has been true for years, indeed decades. What would its leaders do with the new powers granted them? Isn’t the content of politics interesting, especially to the citizens who are likely to be its targets?

Instead of any meaningful discussion about what this Europe is going to do, though, we get an intense fight over nominations. The emotional energy of politics is assigned to the struggle between the institutions and the competition between individuals. This leaves nothing for the struggle between ideas or the competition between interests as expressed by the popular vote. But it’s always the way – at the crude level, any dispute in the EU is reduced to virtuous Franco-Germans versus bad Europeans/Eurosceptics, while at a finer level of resolution, any dispute is expressed as a conflict among the institutions.

In fact, it is a necessary condition of the fight between the institutions that it must change nothing in terms of policy. And, in the end, perhaps it will also change nothing in terms of personnel. We seem bound to get austerity and Juncker, even if the Bild Zeitung has noticed his Blair-like speaker’s earnings. We are offered the choice between getting them by virtue of the Council or by virtue of the Parliament. This is, I think, insufficient.

Really.

So, the “mini-summit” of Socialist heads of state or government has happened, and it says….Juncker! Their conditions for this are apparently:

  • more time for “reforms”
  • this time is conditional on “reforms”
  • no change to the Stability Pact

Parturiunt montes, nascitur riduculus mus. The Eurozone No Turning Back group. Everyone’s a member. Stephan-Andreas Casdorff makes some excellent points, notably that Germany’s SPD was only able to implement its now-famous Agenda 2010 because it burst the stability pact criteria to finance it, that the German conservatives, far from publicising Juncker, named David McAllister “national spitzenkandidat”, and that the main aim of the nine Socialists seems to be imposing Juncker on Merkel because it’s a win of sorts.

And the latest speculation on personnel politics? Hopelessly failed French prime minister Jean-Marc Ayrault for Council President, and Emma Bonino – famous for fake-fainting when anyone suggested less subsidy for Italian fishermen – as foreign minister. Catherine Ashton is probably the only EU official at the moment who can claim to have achieved anything, but clearly she must go to make room for this trawl of the discredited and the mediocre.

Don’t let them do it to you: Juncker edition

One of the things that annoyed me about the rush to Juncker, as it were, can be summed up by this chart from the European Parliament in the UK.

It’s still clear that the EPP is the biggest party, but it’s very far from a majority, and even if you accept the decision by Hannes Swoboda to support Juncker unconditionally…well, look at all the Europeans who were misguided enough to vote for something other than the two Respectable Parties. There are a lot. Personally, I score the Greens/EFA as a generally pro-Eurosystem (in every sense) group – I remember Joschka Fischer even if they don’t want to any more. Also, I score the ECR as such, but I’m less sure about that.

But even leaving them out, I get 151 MEPs who are specifically elected, whether from the right or the left or somewhere else, to oppose things carrying on as before. They are the third biggest party. They represent millions of Europeans. They are the 25% or so who have withdrawn consent from the European project. Does anyone really seriously imagine that the elections of 2014 transmit the message “That was great; let’s have some more of it”?

Further, the coalition possibilities are hugely diverse. The numbers work for several options, and the possibility of ECR refusing to play increases them. But the election-night interpretation of Spitzenkandidaten was specifically intended to silence this diversity of voices by taking the S&D MEPs out of the game. It is probably fair to say that nobody who voted for a party of the Left was hoping to get a conservative apostle of austerity and defender of tax havens, so the democratic status of this manoeuvre is deeply questionable.

After all, on the night, the group leaders like Swoboda specifically no longer represented the newly elected Parliament. We are still, per the chart, talking in terms of “projections” weeks later. The make-up of the new groups is up in the air, they need to elect their leaders, so by what right did the outgoing S&D leader throw the votes of European social democracy down the chute? Rayman kojast, as they used to say in Iran.

And as Daniel Gros points out, the S&D parties narrowly won the European popular vote.

What we want here is the freies Spiel der Kräfte, as the Germans say at these moments, the free play of forces. If the S&D and some combination of the Greens, the radical Left, and the Liberals could put together a majority, why not? Let them try. It will do us all the world of good. But the problem is that precisely this is what all sorts of people have been trying to prevent. Schulz mustn’t form a coalition, and must be stopped from even being Juncker’s deputy, so Germany gets to replace Olli Rehn.

The degree to which the EU institutions function as a way of restraining, filtering, and preventing democracy has rarely been so clear. The original idea of having Spitzenkandidaten itself is being blamed by German government briefers on Schulz, as a socialist plot to weaken Merkel. If the Parliament wants to add to its power as against the Commission or the Council, it can try, but under one unspoken condition: that nothing changes beyond that. It’s The Leopard in reverse: everything can change, so long as everything goes on as before.

It’s always the same – criticism is batted away as being “Eurosceptic” and hence probably fascist, and blamed on the British, who are uniquely evil. (Even when Angela Merkel threatens to veto Juncker.) It’s always the same old gang, too. You know who I mean. Can’t we have a language in which criticism is acceptable?

Fortunately, someone made a fuss. As a result, Van Rompuy is now off carrying out soundings with all involved. Interestingly, his role as President of the Council is suddenly rather like a head of state’s during a coalition crisis. However, the lesson in this post is that there was no option on the ballot that wouldn’t have given us Juncker. It used to be the Eurosceptics who had the No Turning Back group; now it’s the EU, and we’re all in it.

Olli Rehn: a tribute

Olli Rehn’s last ECOFIN press conference has just finished. AFOE would like to take this momentous occasion as an opportunity to salute Rehn’s towering achievements, and Matthew Yglesias passes on exactly what we need.

Screen_Shot_2014-06-13_at_11.50.26_AM

Yes, we know he was Enlargement Commissioner. But seriously folks, Rehn took office as Commissioner for EMU on the 9th of February 2010. If you were to overlay those two charts, the lines would diverge essentially right then.

And, desperately, he thinks he’s done a brilliant job:

It’s only topped by the astonishing fact that some Iraq War advocates not only continue to claim that Iraq had weapons of mass destruction, but claim that the weapons are still present to this day.

You can learn a lot from reading the newspaper…closely.

Make your mind up on Europe, Mr Cameron, we are told by a member of Der Spiegel‘s editorial board. If Merkel picks Juncker it will be living democracy, against the stubborn blockers, says Der Spiegel. Elsewhere, we discover that it’s Great Britain against democracy, according to Jean Quatremer. It’s a moral obligation that the Eurogroup chairman and defender of Luxembourg as a tax haven should be boss, says Alexis Tsipras.

The point is apparently that not everyone wants Jean-Claude Juncker for Commission President, and among this group is the British prime minister. The ur-text here is this Der Spiegel story, which claims that Cameron threatened Angela Merkel with a UK withdrawal from the EU if Juncker gets it.

Well, the headline claims that, and the strap more so. The headline says he “warned” her; the strap uses the German verb “to threaten”. The first paragraph, though, already walks the story back more than a bit. It says in the first sentence that Cameron is meant to have “put Merkel under pressure with the warning that he might not be able to guarantee that the UK would stay in the EU” if Juncker is picked. In the German, the subjunctive form is used.

In the second sentence, things get a bit more specific. According to “the participants’ circle, speaking to Der Spiegel“, which I think means something along the lines of “Sources close to some politician’s camp…” in British newspaper code, “Cameron made it clear on the fringes of the meeting”, i.e. he didn’t actually say it and he didn’t say it to Merkel, “that such a vote [or veto] might [subjunctive] destabilise his government to the extent that a referendum would have to be brought forward, which might lead to a probable British exit”. The last clause there is, I think, in the subjunctive mood, the passive voice, the future tense, and the conditional all at once, although I may have missed a syntactical subtlety at some point.

You’ll notice, though, that the anonymous source, who may not have been actually there (“circles”), doesn’t mention a direct threat and doesn’t quote Cameron. But you have to try hard to notice this, because there is a Cameron quote: A face from the 1980s can’t solve the problems of the next five years. I can imagine Cameron saying that. But it’s nothing like a threat to leave the EU, or even a longwinded observation on what might potentially happen given various scenarios. So what is it doing here?

Oddly enough, the eurosceptic prime minister with a notoriously difficult eurosceptic wing in his party, who’s fighting a massive UKIP insurgency to his right, hasn’t managed to brief this out to the friendly eurosceptic papers. Surely the Daily Mail, the Daily Telegraph, and the Sun are busy depicting heroic Spitfire pilot Cameron defying the Huns. Well, no, they’re not. Perhaps they don’t read German. More to the point, perhaps they don’t get those convenient anonymous briefings after the Bundespressekonferenz.

Because the style of this story is so typically Spiegel. The headline is a screamer. So vielversprechend or maybe just verhängnisvoll. You get into the story, and you find some kind of quote from a Big Important Guy (always a guy), which doesn’t actually say that. In between the two, there’s a lot of stuff about sources close to and friends, protected with exquisitely lawyered prose to eliminate any trace of responsibility. Typically, they’re close to the most pro-American and pro-ECB bits of the German establishment, which is why it was astonishing that they became a tier-one partner as it were of Ed Snowden. It’s very often the worst kind of establishment journalism, the sort of thing you get from David Brooks or Patrick Wintour or fill in your country’s version of it.

After all, if Cameron’s supposed démarche was so outrageous, why isn’t anyone and indeed Der Spiegel furious with Angela Merkel, who according to the Springer paper Berliner Morgenpost wouldn’t support Juncker on the night, who according to the Financial Times threw the race wide open, and who threatened to veto Juncker herself…according to Der Spiegel.

Merkel has her reasons. Here’s a post of mine from a few months back, about the way the choice of the commission president was becoming a question of power between the Parliament and the heads of government. You’ll notice that a key source back then was Jean Quatremer, who thought Merkel was behaving outrageously in trying to influence it. Now he doesn’t. It’s the Brits.

So let’s have a look at this really outstanding post from Thomas Mayer of Austrian paper Der Standard. If it’s information you want, this is pretty close to what you need – a detailed ticktock of election night. Mayer argues that as the results came in, Martin Schulz didn’t feel he should give in, because after all, it’s not as if Juncker has a majority. Juncker tried to bounce everyone into accepting him as boss, getting the outgoing head of the EP socialists, the Austrian Hannes Swoboda, to back him and offering Schulz the slot as vice-chief of the commission.

But Merkel wouldn’t wear it, because Schulz being a commissioner would take up a slot that a German conservative would otherwise get. And they told me it was all about principles. Looking at Mayer’s story and my old one, they fit quite well. Merkel might well have wanted to place Juncker as Council President, creating a vacancy among the Spitzenkandidaten and an opportunity to assert the Council’s power. But Juncker’s party did better than it was polling at the time this plan was hatched, and perhaps he thinks there’s more power in the Commission. I know I do. So he ignored any offer from that quarter and went for the main chance. This is bad news if you had that plan in mind, and a Schulz coalition is not acceptable for party political reasons. With targeted briefing, this could all be blamed on the Eurobogeyman.

Saying this, though, implies accepting that they do politics in the European Union. Politics. Where it’s possible to be wrong. Bogeyman stories are easier, in the same way that hoovering up unattributable government briefings is easier than journalism.

Before the Euro, there was the EMS

IE_CSO_unemploymentPaul Krugman, reacting to what appears to be a somewhat self-serving discussion by EU elites at the ECB Forum in Portugal –

Sorry, but depression-level slumps didn’t happen in Europe before the coming of the euro. 

The chart is unemployment in Ireland since 1983; we’ve used the longest span of consistent series produced by the Central Statistics Office. And the mid-1980s was no picnic for other high-debt EEC (as it then was) countries either. Granted, the Euro probably locked in some of the forces that could be quarantined back then through devaluations. But you don’t have be that old in Ireland to have been around for the second macroeconomic destruction of your economy in your lifetime.

The central bankers are in Sintra, Portugal discussing how banking supervision and monetary policy should evolve in the aftermath of the global financial crisis. They might want to discuss instead whether anything fundamental about the politics of boom and bust has changed in the last 6 years.

Quick debate point

An EU debate point. Martin Schulz just pointed to the German government’s scrappage bonus as an example of “protecting the hard core of German industry, automotive production, by keeping the people there” that justified an increase in sovereign debt. The reference to “keeping the people there” also implies he was thinking of kurzarbeit.