88 replies to this topic

[Stephen Galvin]

Hello all.
We were having a sometimes heated discussion about the current and future shape of the Eurozone over in the Scottish independence thread, and as it was off topic, I asked the guys if we should start another thread and a few thought it had milage. So here it is!

The general thrust of my argument is that the current trajectory of the EU seems to be toward federalism with Germany leading by default because she has all the money. I argue that this is exactly why things have to change, because it is obvious that the only one making excess money from industry in the EU is Germany and perhaps France, which is obvious from the fact that she/they are the only ones with any left, or so it appears.
I say that this is the crux of the problem.
The retail price of a basic new a-class Mercedes is around Euro24-26K retail in Ireland. Just under 1 year average industrial wage. At the height of the 'boom' here, you had to beat them out of your way. Or Audis, or Peugeots, etc...
Considering that Ford used to have a factory in Cork, this shows partly what has happened.
I understand that a litre of milk in Germany costs 60cent, which is almost exactly the same as here. Try as I might, I could not think of anything outside of the foreign Pharma companies who would make anything here that the Germans would want.
Because we are in the Euro, we are under the impression that we can actually afford to import luxury German, French or Japanese cars. When as a matter of fact, we can't.
It is not fair to blame the Germans or French because they make something we want that we no longer make. Yet, it might be that if we understood the true cost of German cars as we did when we had the punt, we might be a bit slower trading in the old model for a new one.
In essence, I am saying that an honest look at who the Eurozone is benefiting, and whom it is harming, and why, is better than the drift into calamity.
Germany knows that the only route is the devaluation of the Euro, but it is under the impression that this will erode it's people's savings. It also seems loath to lend money, perhaps sensibly in a narrow selfish sense, to those countries that have no real industry other than agri-fishing export.
I think this will spill the Eurozone into chaos, unless Germany is forced to take the medicine or expelled from the Eurozone for acting contrary to the broader interest.
What does everyone else think?

[Henry Blanco]

Hello all.
We were having a sometimes heated discussion about the current and future shape of the Eurozone over in the Scottish independence thread, and as it was off topic, I asked the guys if we should start another thread and a few thought it had milage. So here it is!

The general thrust of my argument is that the current trajectory of the EU seems to be toward federalism with Germany leading by default because she has all the money.

Fritz Fischer was right!

http://en.wikipedia.org/wiki/Germany's_Aims_in_the_First_World_War

[Arjan Dirkse]

I think Russia has a good chance of winning it, they have a solid team.

[Stephen Galvin]

I don't think Germany is alone in harbouring grandiose ambitions, if indeed she is. Sarkozy was content to pretend that France also was a 'responsible partner' until it became difficult to maintain the illusion to his own people. The European nations are living beyond their means, in a wasteful and egocentric way, and it would be unfair to suggest that it is somehow Germany's fault for being prosperous. Rather, it seem to my limited understanding, that we need generally to reorganise wealth making and distribution to prevent it's concentration in too few hands. The Germans probably deserve their success, but the rest of us would be crazy to continue subsidising it by buying goods we cannot afford. A central fund should not be seen as the province of just one people. The Germans do not own the ECB, and while it may have to heed them, it has 720million other people who also have a voice, and a life, to take care of.

[The Lorcan Nagle]

As said in the other thread, it's a fallacy and unfair to state that Germany is looking to federalise the EU as some monolithic entity, especially as it's more part of Merkel's agenda - and if I remember Christian's posts she's losing popularity all the time.

[Stephen Galvin]

As said in the other thread, it's a fallacy and unfair to state that Germany is looking to federalise the EU as some monolithic entity, especially as it's more part of Merkel's agenda - and if I remember Christian's posts she's losing popularity all the time.

So, in your opinion, based on Christian's posts, it is Merkel who is forcing the policy of federalism, and the German people are not really for it. Whew, that's a relief.
I have been thinking about my branding of the Germans as being predisposed to certain mental postures, and the conclusion I came to was, if it is not possible for a people to have mass negative tendencies, it is also impossible for them to have mass positive tendencies. Therefore, the Germans cannot be more industrious, thrifty, or in any way statistically 'better' than any other population separated by geographical boundaries from them. The Greeks cannot be less thrifty than the Germans, but their social systems, political systems, etc.. might be. The difference between the general populations of Europe are then only a matter of the system that they presently operate under, and if the systems changed, then they would in a very short time, catch up with the Germans in terms of prosperity, thriftyness, etc...
This is obviously manifest nonsense. The situation must be more complicated than that. Perhaps culture, religion, access to raw materials, geophysical location (in the middle of the landmass), political system, etc.. have more to do with it than anything in the actual psyche.
I would be inclined to agree with that. Therefore, it hardly seems fair to berate the Greeks for not being more like the Germans when they are so radically different in what is available to them. They have a much smaller population. They are surrounded by water, They import nearly all their energy and forty percent of their food. They have not had the armies of Europe laying down roads for them for 3 centuries. Their military/industrial complex is rudimentary compared to France, Germany etc..
That's what really annoys me about this whole 'the Greeks and the Irish, and the Portuguese, are dragging down the Eurozone' bull. If the Eurozone printed a Trillion dollars, like the Americans have done, and handed it out for capitol projects, rather than lending it to pay back other loans like the ECB does, we might move forward. The Euro would come down in value relative to other currencies, but it wouldn't mean that things in Europe lost their value. Relative to each other, things would stay much the same. Energy supplies might go up, as they tend to be denominated in dollars, and that would have some inflationary effect, which would devalue savings, but it would not devalue hard trade items such as cars, food and houses. That only happens when people can't afford to buy them.
So, in effect, we can't have it both ways. If the Germans are much like everyone else, the reasons for their premium position lie not in some innate superiority, or excellence of habit, but in natural advantages of geographical position, social system, and resource concentration.
I do not use culture, as that is similar to national character, which I have been assured in the strongest terms on this board is a myth.
It is not some flaw in the Greek character that has led them to this. They did not lie about the state of their finances, (their government did). They have few of the advantages we enjoy. They do not deserve to be abandoned. I always count my friends as those who stood by me in the bad times. Well, Europe. Our friends the Greeks are in trouble.
What do we do to help them?

[Ogul]

As an outsider, I think federalism would be good for Europe. It's practically insane that Europe has a shared currency without federalism. Now should Germany be in charge of that? Maybe not, but they are paying for the whole thing, so it only seems fair that so long as they continue to do so, they have control over how the money gets spent (although I'd get it into your constitution in advance that this dynamic would only exist so long as their economy is stronger). Personally I'm in favor of as much international homogenization as possible.

[Stephen Galvin]

As an outsider, I think federalism would be good for Europe. It's practically insane that Europe has a shared currency without federalism. Now should Germany be in charge of that? Maybe not, but they are paying for the whole thing, so it only seems fair that so long as they continue to do so, they have control over how the money gets spent (although I'd get it into your constitution in advance that this dynamic would only exist so long as their economy is stronger). Personally I'm in favor of as much international homogenization as possible.

I agree with you in the sense that a common defence policy is necessary with Russia, the Middle East and China on the doorstep, but I would have to take issue with the 'they (the Germans) are paying for the whole thing.' However strong financially they appear to be, even the Germans are incapable of funding the entire bailout of the EU. They (The Germans) do not have 800billion euro. The ECB does> Somehow this myth has appeared that the Germans have all the money. They do not. Their contribution to the central fund is simply highest at 20%. Population of EU 500million. 100 million =20% 80 million =16%. Considering that the accession states are net receivers, it is a fair bet that all the other donor nations are pulling their share of the load too. Including the UK, which is not even in the Eurozone. The money that is being used in the bailout is not Germany's savings. Germany does not have 800billion to spare. I'll say it again in case anyone misses it. The Germans do not have 800Billion to give anyone. The ECB 'prints' the money.
Germany does not have the right to set policy, as she is paying out more or less the same as very other donor nation. Ireland contributed to Portugal's bailout, for example, even while receiving a bailout herself.
See what a merry go round it all is?
And a little figure for the eejits who attribute Ireland's prosperity to the grants from d'oul EU.

The €31bn figure — which includes just over €24bn to Anglo, €3.5bn to AIB and €3.5bn to Bank of Ireland — is equivalent to more than half the €61bn received in EU structural and agriculture development funds since 1973 From the Irish Examiner, Wednesday, August 11, 2010.
Or 13555 euro per head. It's a tidy sum, but it's hardly the stuff dreams are made of when you spread it over 39 years. 347 per head per year. call it 500 for inflation.

[Daniel R]

From New Scientist. I was intrigued by the idea that nature has dealt with the problems that face large interconnected systems in various ways, and that it gives us some idea on how to potentially solve real world issues like the Euro crisis.

New Scientist Briefing: Can ecosystems show how to fix the euro?
November 10, 2011 by Ben Ramalingam

The eurozone, like the rest of the world economy, is a complex networked system. That gives it properties economists rarely consider but which could help us understand the current crisis. This New Scientist ‘Science in Society’ Briefing examines the issues.

What is a complex network?

Complex networks have many interconnected components which influence each other’s behaviour. These changes then feed back on each other. A famous example is the numbers of predators and prey in a given environment, which vary in a complex interdependent way. The eurozone – the 17 countries that share a common currency, the euro – is similarly interdependent, with similar feedback mechanisms.

All complex networks are governed by a balance between negative feedback, such as interest rates, which is stabilising, and positive feedback, such as the self-reinforcing erosion of trust in markets, which is destabilising, says physicist Len Fisher at the University of Bristol, author of Crashes, Crises and Calamities: How we can use science to read the early-warning signs.

How does that help us understand economic crises?

In certain circumstances, one type of feedback can end up dominating the system, causing it to change so dramatically that it flips to another state. Examples include the way animal populations can suddenly collapse or the way economies can slip into recession.

These tipping points tend to be highly unpredictable. Even so, Fisher says computer models of the system can still show how the system can change. Yet leading economics journals, he says, do not accept computer-modelling studies. “Mainstream economists have not considered these non-linear effects,” agrees Oonsie Biggs of Stockholm University’s Stockholm Resilience Center in Sweden.

Can we understand complex systems well enough to control them?

Maybe. The diversity of a network’s components and the density and strength of its connections – called its connectivity – affect the system’s resilience, or resistance to change. More connections make a system more resilient: if one component fails others can fill in. But only up to a point. Go past a certain threshold and more connectivity makes the system less resilient because a single failure can cascade to every other component.

The trick is to get the balance right. “Cascades of failure may be controlled by changing the nature and strength of the links between various parts of the networks,” says Fisher. Much current research in complex systems focuses on assessing connectivity correctly to enable that. Other work aims to detect behaviour that indicates an imminent collapse.

So turning 17 separate currencies into one eurozone was a cascading failure waiting to happen?

Yes. That is why Greek debt is a crisis, even though Greece accounts for only 2.5 per cent of the eurozone’s GDP. News of its debts caused the trust that markets placed in Greek government bonds to plummet. Its creditors are mainly in the eurozone, so a Greek default is causing markets to lose confidence in other members, such as Italy – which is too big to bail out.

Could the crisis have been avoided?

Complexity theory shows what went wrong. Yaneer Bar Yam of the New England Complex Systems Institute in Cambridge, Massachusetts, says his still-unpublished studies show that investors profited by driving down the value of Greek government bonds, triggering the crisis. If instead of national bonds issued by sometimes weak economies, the eurozone had one common bond backed by powerhouses such as Germany, such an attack could not have happened.

Germany rejects eurobonds. But, says Bar Yam, complex systems such as multicellular organisms show that “if you are going to accept common risk, you have to invest in defences that extend to the weakest member”. Either that or make sure an attack on a weak member cannot spread, a technique that ant colonies have perfected: the death of a single ant has little effect on the colony as a whole. “Biology has solved this problem several ways,” says Bar Yam.

If connectivity is a risk, why create the euro?

Connectivity is also profitable as it makes economic production much more efficient. And it can adapt to problems: connectivity allows other eurozone countries to help Greece, and to build better common defences.

Trade-offs between efficiency and resilience may mean we need to develop ways to make systems more stable, such as pruning connectivity or paying for defence measures. “We now have the quantitative, analytical tools to do that,” says Bar Yam. Such models may also show when short-term costs that reduce a system’s efficiency may be warranted because of the long-term benefits of increased system resilience.

Some connectivity problems could be hard to prune, though. Biggs says close coupling between major global hubs, such as the eurozone and the US, is a big source of instability that which may threaten strong contributors in future, like France and Germany.

Why don’t economists know this?

They are starting to. Some economic theorists have drawn parallels between financial networks where bank failures are prevented, and forests where small fires are always put out. Such forests accumulate deadwood fuel and lose patchiness, increasing connectivity. When a fire eventually breaks out, it becomes huge. That’s why forest managers now encourage regular, small burns. Similarly, banking networks may need low-level failures to prune connectivity and risk.

Systems-based thinking has even reached the Bank for International Settlements in Basel, Switzerland, which sets global rules for the capital a bank must hold to back loans. It announced this month that the risks posed by banks depend on their “size, interconnectedness, complexity and global scope”. So from 2016, “global systemically important banks” – initially 29 of them – will be required to keep more capital on hand per dollar loaned than less vital banks. This is partly to “discourage banks from becoming even more systemically important” – in other worlds, too big to fail.

This recognition of the importance of complexity has been largely confined to banking, however. The eurozone is a network of governments. It is not clear how eagerly they will adopt a way of thinking that truly puts collective interests first.

Essentially, the Euro's financial network is inherently unstable; I don't think that's especially controversial right now. Although it was quite successful, pre-financial crisis, all it took was the global economy to take a major knock to expose it's intrinsic weakness: throughout nature, the more complex and interconnected a system, the more vulnerable to outside shocks it becomes, with the entire system ultimately becoming as vulnerable as its weakest member as it's connectivity increases.

In nature, evolution has produced various design solutions to the problem of interconnection, such as settling for a tradeoff point between efficiency and risk, putting in place error correction and quarantine features, and ensuring that weakest members are defended as strongly as stronger ones. The Euros' current predicament comes from it's lack of any of these features. It's nature, and weakness before the financial markets make quarantine measures ineffective. Lack of error correction in the form of proper regulation has led to errors, in the form of a lack of political trust between members, corrupting the system, preventing pooling of risk, and making weaker members vulnerable. Political considerations now mean that stronger members are reluctant to defend weaker ones.

There are two routes to stability, either decrease interconnection (drop the Euro, partly or completely), or put in place features to prevent shocks from propagating through the system in the future. A common fiscal union would ensure common risk, preventing weaker parts of the network from being targeted; extra regulation and appropriate blocks on certain transactions and banking structures would act as firewalls on future shocks.

The worst of all worlds, I believe, is to carry on as before through political cowardice, trying to do the absolute minimum until the last minute; this will virtually guarantee the breakup of the Euro.



-DR

Edited by Daniel R, 09 June 2012 - 01:53 AM.

[Ogul]

but I would have to take issue with the 'they (the Germans) are paying for the whole thing.' However strong financially they appear to be, even the Germans are incapable of funding the entire bailout of the EU. They (The Germans) do not have 800billion euro. The ECB does> Somehow this myth has appeared that the Germans have all the money. They do not. Their contribution to the central fund is simply highest at 20%.

Ok, fair enough, but still, representation in proportion to their contribution would be reasonable.

[Christian U]

I think this will spill the Eurozone into chaos, unless Germany is forced to take the medicine or expelled from the Eurozone for acting contrary to the broader interest.
What does everyone else think?

I agree. Unfortunately, I don't see any other EU country forcing us to do anything at all...

We will have general elections next year; with any luck, Merkel and the conservative party will be out of power and the left-center parties will be in. They emphasise policies that would focus on improving the economies of the Southern states and generally those who are having trouble. I think that's the only way to go, really.


More generally speaking and finances aside... I do want those flying pigs. I still believe in the idea of Europe being more than a free trading zone. I believe in the idea that we can all be part of something greater than our own countries and still be ourselves. I believe that the old times of nationalism and small-minded patriotism that lives off hatred of your neighbours are over, and that a united Europe is what we need. I also think, however, that the system as it is badly needs to be reformed (more like completely overhauled) and to become more democratic, and that we should be careful as to how much power is centralised in a European body.

Edited by Christian U, 09 June 2012 - 08:41 AM.

[Ogul]

At least everyone can agree that English needs to be made the official "common" language of Europe, used exclusively in all official documents.

[Stephen Galvin]

I agree. Unfortunately, I don't see any other EU country forcing us to do anything at all...

We will have general elections next year; with any luck, Merkel and the conservative party will be out of power and the left-center parties will be in. They emphasise policies that would focus on improving the economies of the Southern states and generally those who are having trouble. I think that's the only way to go, really.


More generally speaking and finances aside... I do want those flying pigs. I still believe in the idea of Europe being more than a free trading zone. I believe in the idea that we can all be part of something greater than our own countries and still be ourselves. I believe that the old times of nationalism and small-minded patriotism that lives off hatred of your neighbours are over, and that a united Europe is what we need. I also think, however, that the system as it is badly needs to be reformed (more like completely overhauled) and to become more democratic, and that we should be careful as to how much power is centralised in a European body.

Great Minds think alike.
Seriously though, I apologise if my criticism of your people has seemed a bit harsh and slightly jingoistic. If it was the French, I would be banging on just as harshly.
It is good to know there are people who think outside of narrow nationalistic viewpoints such as you. If the Eurozone is to have any hope of becoming the humane modern entity we both seem to hope for, sometimes nations will have to 'take one for the team'. I totally agree with you. A united Europe without controls on how it is steered is a danger to world peace.
To give a small parochial example. Ireland's constitution forbids us to aid any one prosecuting a war unless the Dail is polled. Yet we allowed the Americans to use Shannon airport as a base to transport troops and munitions as well as a first stop in the kidnapping and 'interditement' of suspected terrorists.
This was purely so we didn't upset our allies. If we had followed our own rules, the outcome may not have changed, but at least it would be out in the open, casting a clear light on our so called neutrality. We should be tied to a common defence policy with all the other European states, in which it would require a vote from all the other members with a majority in favour before we are allowed to use our ports to assist a non European state in the prosecution of a private war. Our two-faced approach in this area should not be tolerated by the rest of the Eurozone. We have a duty to stand with our allies in a legal framework of mutual defence. This is one area where I do think Ireland is trying to have its cake and eat it. And we shouldn't be allowed to get away with it.

So, thanks, Christian. You have reminded me that, however much I may delude myself, I am not the only one who knows what it means to be fair and rational.

[Ogul]

We should be tied to a common defence policy with all the other European states, in which it would require a vote from all the other members with a majority in favour before we are allowed to use our ports to assist a non European state in the prosecution of a private war. Our two-faced approach in this area should not be tolerated by the rest of the Eurozone

You seem to be putting Europe in a posture against the rest of the world. Why? European unification shouldn't have anything to do with being against everyone else, it should be about making them more capable of bonding with nations outside of Europe.

[Stephen Galvin]

You seem to be putting Europe in a posture against the rest of the world. Why? European unification shouldn't have anything to do with being against everyone else, it should be about making them more capable of bonding with nations outside of Europe.

We are always potentially against the rest of the world. The more capable we are of defending ourselves, the less likely it is we will have to.
It is too late to sharpen your sword when the drum beats for battle.
Do you doubt if we were a homogeneous political bloc that we would find ourselves in a position where our ability to resist political posturing by other large groups such as China and North America inevitably leads to that ability being exercised? If we could rival Russia, I would say that it is inevitable that we will find that ability being tested. It doesn't mean war, but it does mean conflict of some kind.
If Europe could put a million armed personnel into the field, backed up by modern aircraft and a nuclear backstop to keep tempers cool, everyone else would have to adjust their own postures to take account of this new reality.
The will to power is such an ubiquitous quality in mankind that I can't see a virile Europe accepting a position on the substitutes bench in any world scramble for resources or influence. That is one possible future. It would be good if we could avoid it.

[Ogul]

We are always potentially against the rest of the world. The more capable we are of defending ourselves, the less likely it is we will have to.

I don't think anyone seriously worries about Europe being invaded by anyone, they have America to watch their backs these days (although I still think we should be presenting a bill for that).

[The Lorcan Nagle]

You're more than welcome to fuck off out of Europe. We have our own armies and nukes and it means we can keep all the good food and drink.

[Mike]

Slight tangent, but one of my favourite Europe quotes:

"Hey, this is Europe. We took it from nobody; we won it from the bare soil that the ice left. The bones of our ancestors, and the stones of their works, are everywhere. Our liberties were won in wars and revolutions so terrible that we do not fear our governors: they fear us. Our children giggle and eat ice-cream in the palaces of past rulers. We snap our fingers at kings. We laugh at popes. When we have built up tyrants, we have brought them down. And we have nuclear *fucking* weapons."

[The Lorcan Nagle]

Ken McCleod, right?

[Mike]

Yup. I particularly love the 'The bones of our ancestors and the stones of their works are everywhere' line.