The other moral hazard

If the euro zone is to survive, Germany too must keep its promises to reform

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Robert Peston has written an article on 'the price of saving the Eurozone' on BBC News/Finance. Comment 269/393 has a video of an Italian economist spending 7 minutes explaining the simple concept of the 'optimal currency area' and then deploying various charts to show what has happened in the EZ.

MilovanDjilas in reply to NAVESTOCK

And how does the American dollar represent an "optimal currency area"?

You apparently have no understanding or memory of how the US exported its inflation and unemployment to Europe for 40 post-war years.

We created the European Monetary System and the Euro to protect us better against American abuses of economic power. As long as the Euro exists, the Americans have to deal with their own problems. Otherwise, they can print all the dollars they wish and export them abroad, thus avoiding domestic inflation.

NAVESTOCK in reply to MilovanDjilas

There is a problem with US eg QE boosts inflation in rest of world. If you cannot, however, see that a mechanism that is bringing DEPRESSION to Greece and soon Portugal, Spain and Italy is NOT an answer I cannot say anything else that would be of use to you.
One point - IMF has done 100s of bailouts - the formula is always austerity AND DEVALUATION AND DEFAULT until DSK (a future French presidential candidate) got involved. Default gets debt down to DOABLE levels - one analyst has said that Greece's may reach 180% GDP again SQUARE ONE. Devaluation makes goods and services more attractive in international markets and imports become less attractive. Irving Fisher recognised the DEBT-DEFLATION TRAP IN 1933 - DEBT SAME, ECONOMY CONTRACTED - DEBT LEVEL RISES!
In Greece 5 people have been killed in rioting, suicides for financial reasons are well into 3 digits and Golden Dawn (THE ONE WITH THE BARELY MODIFIED SWASTIKA ON A RED FIELD FOR ITS FLAG) HAS GONE FROM 6% (seats in Pariament) to 12 %, a majority of Athens police vote for it and illegal immigrants are badly beaten up on streets + an assault on camera on 2 female MPs that went unpunished and was widely supported.
Djilas was the one that came up with a hybrid of socialism and market economics that WORKED? RIGHT?

MilovanDjilas in reply to NAVESTOCK

I agree with you about depression in Greece and elsewhere - but this is not the Euro per sè, this is Euro-policy (as conditioned incorrectly by the Bundesbank).

Also, defaults in the Third World are of little long-term consequence. Defaults in Europe are written in stone for centuries. I do not mean that as racism...
The Spanish crown went into bankruptcy in the 1550's - and to rescue the kingdom, Genoese financiers demanded a large percentage (20% I believe?) of the profits from every ship returning from the New World for the next 100 years.

Yes, I agree with you about the debt-deflation trap. My answer for Greece is that we the Original Six should GIFT enough money to Greece (€8 billion this year) to bring their deficit down from where it will be to Maastricht's 3% level - as against a continuing commitment to austerity and reform.
Do you really think GM and Chrysler would have been saved without gifting a few billion in 2009? As against the receipt of future tax income instead of the tax burden of millions of unemployed adults?

Djilas was one of the first great dissidents (to survive). He should have been Tito's successor, and he preferred instead prison and house arrest to power.
He was the first Socialist to denounce the "New Class" of party apparatchiks who chose to create a pseudo-aristocratic life for themselves. This is precisely our problem today in Italy: I live on the border between Italy and Slovenia/ex-Yugoslavia, and from my vantage point not everything is so different...

la.výritý in reply to MilovanDjilas


We??? From what will Italy "gift" enough money to Greece to close the country's deficit when Italy is unable to close its own budget shoertfalls?

Italy’s National Institute for Statistics (Istat) said in a statement last month that the state’s budget deficit stands at 8 percent of gross domestic product (GDP) this year (compared with a 7-percent deficit in the same period of last year).

SPIEGEL reported Sep 24, 2012, that, according to preliminary estimates by international lenders, Greece's budget shortfall now totals 20 billion euros. How will a one-time "gift" of 8 billion euros solve Greece's problem. Please amplify.

MilovanDjilas in reply to la.výritý

Greek gdp for 2012 is now dropping to below €200 billion.
1) Eight or nine billion euros would be enough to reduce the Greek deficit by 4.5%; as I understand it, 20 billion risks being their overall deficit this year (10% of gdp).
We tell them to find a way to get to 7.5%, as originally promised, and in exchange the Original Six will gift enough to get them to the Maastricht 3% level.
Greece continues with austerity and reform, Europe expresses (cheap and affordable) solidarity in concrete terms, thus slowing the rise in Greek debt.
2) Nine billion divided among the Original Six means about 0.15% of gdp for each - that is a negligible amount for the gifters.
3) Italy had an 8% percent deficit for the first half of last year AND ACHIEVED A 3.9% DEFICIT FOR THE END OF THE YEAR.
We had a 5% deficit in the first of this year and will (we are now told) achieve a 2.5% deficit this year.
We are always strongly in deficit in the first half of the year and then in surplus toward the end of the year. I have told you this half a dozen times over the last 2 years.
Also, go back and read the Istat statement, you obviously misunderstood it. Our deficit is shrinking, not growing. Believe me, my pocketbook is feeling it. Don't forget, in June, September and December we are now paying (in three tranches) the newly-instituted property tax. We are also now paying $11 American per gallon of petrol- being mostly taxes.


Bravo Draghi!

My thoughts exactly. The Germans are ever confusing Macroeconomics with (false, hypocritical) Morality.

MilovanDjilas in reply to SinnFrei

"Morality" in Italy is seen as synonymous with "False Morality" or "Hypocritical Morality".

"Morality" is a bad word in Italian. Instead, we speak of Ethics - as in Aristotelian Ethics. I have lived in four countries and travelled extensively over 3 continents, visiting 2 others. I speak four languages, read/understand four others and have studied at university in three countries.

If I thought the Italians were wrong about this, I would change my mind - but they are not. All I have heard from northern Europeans and North Americans is false moralism during this crisis - but in the meantime, the crisis in banking ethics comes from them, not from us.
Our banks have required no bailouts. Practically the only exposure to Greek, Irish, Portuguese debts and American mortgages anywhere in our financial system has been located in the German and Austrian banks acquired five years ago by Unicredit and BancIntesa.

You speak from prejudice - but it is you Germans who contributed with the Americans to creating this Depression with your unethical lending practises, not us Italians.

MilovanDjilas in reply to SinnFrei

Please allow me to give you a lesson in banking Ethics:
A banker must not dress in expensive clothes. Bankers who spend a lot of money are either earning too much (by taking excessive risks) or spending Other People's Money.
A banker must not work too hard - his job is engaging Other People's Money: therefore "working hard" means taking too many risks.
A banker must take a holiday every now and then - bankers who never take holidays are probably hiding illegal activities, and cannot permit themselves to be absent ever.
A banker's most important asset is his reputation for honesty - because his primary job is to convince other people to let him hold their money. If his honesty and Ethics are compromised, the community will simply refuse entrust their money to him.
A banker must participate in the community's economic development - and quality of life, because the avoidance of risk (also with community infrastructure, etc.) means fewer losses for the bank.
A banker should not be investing in activities he barely knows.
A banker should not be investing in countries he barely knows.
Furthermore, it is the job of bank regulators to make sure the above rules are followed.
But under the above code of Ethics, German bankers have failed and the Bundesbank has failed most of all. The current policy from the Bundesbank is not about protecting the German people from "Italian" inflation. That is a pretext so that German banking authorities may avoid paying for their mistakes.
Jens Weidmann is protecting unethical German bankers and especially their regulators, of which he is the number one man, from paying for their mistakes.
I would also mention to you that, as Unicredit is the largest bank in Austria and Bavaria, and number three in all of Germany (soon number two, given the problems at Commerzbank) German savings administered by the bank have not been invested in unethical activities.
Instead, Deutsche Bank, which purchased the Banca d'America e d'Italia 25 years ago (at the time, Italy's largest private bank) has used the Italian savings it administers to invest in American toxic securities, Greece (a country without a central Land Registry - as if the Bundesbank never knew that), the Irish real estate bubble and LIBOR manipulation.
Now we have heard that the American authorities are investigating European banks - and German banks in primis - to see if they were trading illegally with Iran. And once again, the only Italian bank involved in the investigation is Unicredit - but through its German subsidiary purchased a few years ago.

SinnFrei in reply to MilovanDjilas


Never guessed the last part, comes as a total surprise to me after reading your 100+ comments on this site.

You have something in common with EmmaF with regards to your slightly sick obsession with the "Goodness" of your nation. "Italy GOOOODDDD, Germany BBAAADDD".:)

MilovanDjilas in reply to SinnFrei

OK, this is true.
Look, once we get beyond this stupid Euro-crisis (that is, once Germany accepts that their taxpayers must GIFT something, TOGETHER WITH ITALY AND THE REST OF THE ORIGINAL SIX, to resolving problems in Greece and elsewhere) I will go back to admitting there is something better in Germany than in Italy.
Let's see, better and cheaper frozen pizzas.
Better universities in Germany (under most aspects, except for their Nationalist traditions).
Better use of eggs in the kitchen.
Generally, better steaks and grilled meats.
I like article 20 of the German constitution - which our Partisans could only dream of inserting into our constitution:
Given that in the late 40's, the term "resist" was a clear reference to the "Resistance" and generally taken to mean "armed resistance" - I think that is a very cool clause.

MilovanDjilas in reply to SinnFrei

Oh, BTW,

I do not believe in Italian "goodness". That is a (falsely) moralistic judgement. I will defend Italian banking at sword-point - our bankers have been a cut above the rest of the west over the last 20 years - and if we don't recognise it ourselves, then their slide into unethical Anglo-American practises will continue unabated.

Also, like all northern Italians, I detest the opinion of northern Europeans that Sicily somehow represents Italy. For fock's sake, if Italy was really as corrupt and violent as any Hollywood Mafia movie, do you think we would have ever built one of the world's largest and richest economies - already in the late 1800's? And not withstanding all our current problems, our gdp is still bigger than Russia's: a fairly amazing fact if you compare Russian and Italian natural resources.

MilovanDjilas in reply to SinnFrei

Oh, BTW,



non-existent.X in reply to MilovanDjilas

Milovan, I don't understand anything about economics and so maybe you are right (frankly the more I read you the more I'm changing my mind about our real situation compared to the others). Maybe in a few years we will be on the crest of the wave again, I'm sure about it. It's a fact though that we are trying to reform our State and to fight our corruption now, _just_ because our economy is so in trouble. I for one don't care if Germany is taking advantage from our weakness - the fact is we have to change, and IMO we have never been able to change by our own decision.
About ethics: I for one like a lot Germany and particularly the every-day way of living, not to mention the culture obviously, but I well know I'm partially dreaming of an ideal country (I mean, I don't know the _real_ Germany because I have never lived and worked there). So I was REALLY surprised recently in discovering how high tax evasion is in Germany - it's quite the same of ours! Really astonished, I would never guess it.
If only our politicians would be up to their role now! our people would be less pessimistic and much prouder of our unique history.

SinnFrei in reply to MilovanDjilas

"Let's see, better and cheaper frozen pizzas."

Well, I hate to disappoint but one of the best frozen pizzas sold in Germany is produced in Italy (but potentially not on sale in Italy).

But besides food, there are two other reasons why I can not really "hate" Italy:

1) Italian opera. As much I love Wagner, Rossini, Donizetti, Verdi and Bellini rule.

2) Armani glasses. Never bought anything else. I you want something simple (and expensive), they have it on offer.

So, peace offer accepted (for now that is).

MilovanDjilas in reply to non-existent.X

Our people are pessimistic because they fear war and fear it is coming in Europe. Quite possibly they are right...
Also, being pessimistic is our traditional, slightly-superstitious way of warding off bad luck and disasters ("le disgrazie").
I won't quarrel with our traditional pessimism - I understand it. But that should not sour us on defending what must be defended in Italy, like the (former) honesty of our bankers. If we fully adopt northwestern European/American ways, we will collapse. Our country has too many historic vulnerabilities to copy their bullshit.

Take for example Marchionne. He was hired by Obama to bring small Italian engines to America. Instead, he is bringing large American engines to Italy (better profits). But if Italians were to start driving American cars and engines, we would

a) collapse economically due to our petroleum import costs, and

b) destroy Italian roads and inner cities with anti-environmental American cars. Let's face it - anybody who has driven in the American West or visited American forests (and not in the mountains like ours) can see they enjoy an abundance of natural resources and land to despoil we have never had.

Senator Agnelli always understood this. Marchionne the Canadian does not.

If FIAT did not have Chrysler, they would simply have had to invest in what they have always done best: fuel-efficient vehicles. FIAT could have easily produced the world's most fuel efficient and least-polluting vehicle this year; they have not. They are now repeating the same mistakes Chrysler management always made for 50 years and more: pump out the gas-guzzlers at high prices and produce a few token small cars to improve their image.

As for our politicians: you are right. But we will never have a worthy political leadership without elections. The five-year term for our parliaments is wholly wrong-headed. The pretext is that it exists to promote stability; the truth is that it gives Italian politicians a longer period to avoid facing the voters and their wrath. Remember, the Americans vote for their lower Chamber every two years.

The elections exist not just to choose winners, but also to choose losers. They also exist to cut off the dead wood and non-deserving individuals who sit in parliament. How many who sit in our parliament of whores today can expect to return after the next elections? I would guess far less than 50% - that, in and of itself, will be a revolution.

Vendola, Di Pietro, Renzi and most of all Bersani need to get their act together: throw the four of them into the same primaries. Let their support be counted, let Bersani win and let's get to elections as soon as possible. Those four can and must govern.

I would leave out the Triumvirate of Death (of the Left) from any future ministerial posts: Fassino, Veltroni and D'Alema.

Grillo will be the necessary gadfly - as long as his supporters in parliament do not block the formation of a stable government. Perhaps they can be persuaded to abstain on a few votes from time to time.

In the meantime, Grillo is right - Napolitano has far outlived his usefulness - although it has been nice having a President who speaks good English. Monti would make a good President. of the Republic.
Against Napolitano I would have many criticisms. Here are two that are completely overlooked by his current critics:

1) When Berlinguer was raising the "moral" issue in politics in the 1970's - long before anyone else did - Napolitano was his primary nemesis in the party. That does not go to Napolitano's credit.
You do not have to be a Communist to appreciate Enrico Berlinguer. His was the only funeral of an Italian politician Henry Kissinger ever felt it necessary to attend (and even speak highly of his enemy).

2) When Napolitano was Minister of the Interior in 1996 (only five years after the collapse of Communism, a former Italian Communist LEADER becomes Minister of the Interior??? And nobody comments this strange fact???) HE DID NOT OPEN THE FILES ON ANY OF THE HISTORIC "MYSTERIES" OF THE FIRST REPUBLIC. Not one. He added not the least bit of transparency to the Italian political system.
Sort of tells you something, doesn't it?

Our political class is stlll thoroughly infected with postwar corruption - decades of bribes from the US and the Soviet Union (with the British and the French occasionally throwing in their contribution).
Time to sweep away the dead wood - both Berlusconi and D'Alema - both Veltroni and Alemanno.

A pity Lazio voted Polverini and not Emma Bonino. Bonino was a well-liked and well-respected European Commissioner. We could have used her in a time like this.

non-existent.X in reply to MilovanDjilas

(back here)
Yes, we aren't true "pessimists" by nature at all. Germans - as far as I know - are by far more pessimistic than us, if I can credit an intellectual of theirs, see this interesting article on the Guardian:

which btw also explains some harsh comments against Italy here: they seem dictated more by a pessimistic and irrational fear towards the future than by a real understanding of the phenomena. We are (or at least I feel we are) fatalist and maybe superstitious, but with a deep intimate belief that eventually we will always cope with our difficulties - kind of "Dio vede e provvede" and alike (religion doesn't matter much IMO).
Monti announced a "spending review" (said in English by him also in our Italian Parliament - how comic we are - had he said it in Italian, it would not sound credible enough, I suppose). Our politicians have been resisting with all their forces for months, but yet - very slowly - some cuts are getting done now. It's not so much a matter of financial review (IMO), but a real need to regain the trust of the Italian people: one name or the other is the same at this point, because every politician, even the most honest and passionate, is hated because he belongs to the same class. This is why I don't think an election could change anything at the moment - we need to trust our political class again first. I for one don't trust them.

MilovanDjilas in reply to SinnFrei

Much appreciated. I will continue to purchase German frozen pizzas. ;-)

About glasses:
I have purchased all mine for 10 years in Prague.
There is a wonderful optical centre on Narodnì street/Na Prikope in the Old Town: wide selection, resident optometrist, excellent aesthetic taste, good prices and they will make you a prescription and fill it (not bi-focals) within 3 hours.
I purchased a very simple pair of round glasses in 2004: paid 30 euros with the prescription, lens and frames - they have just died on me.
In 2007 I bought another pair for 60 euros. They still work fine.
Yet another pair were purchased in 2010 for about the same price.

I don't know where you are in Germany - but Prague is always worth the trip.

MilovanDjilas in reply to non-existent.X

Thanks for the link. I loved the film "The Reader" - saw it in a cinema d'essai in Krakow when it came out.
I am an incurable Leftist. (In rabid disagreement with a certain Italian Left that considers Economics a right-wing conspiracy). Our Left must now rise to the challenge - dumping the failures of the past if need be (yes, it is needed). I also do not consider Bersani necessarily a failure. I greatly appreciate Vendola choosing to ally with the PD - this is no time for a Left that prefers Opposition to Government, à la Bertinotti.
Monti's government is failing. Not politically, yet. But in the new financial numbers that were released last week. So, we will now have a deficit of 2.5%? With debt-to-gdp rising to 126% by the end of the year? And a deficit of 1.5% next year?
Bad. Almost unsustainable. With these levels of taxation? We won't make it. Within another 12-24 months there will be too many companies leaving the peninsula to avoid paying the taxes.
I interpret Monti's government as the best chance of the traditional political class to reform the economy and consolidate the budget without really touching pensions.
That operation is now failing, although not everyone has realised it yet. That is why Monti has suggested for the first time he might wish to continue as Prime Minister after elections. He needs and wants more time to succeed in his reforms.
Sorry. Time's up. Game Over in a few months. You represent a Government of Truce, not a political government.
And, most importantly, it is now becoming obvious to anybody with a brain that Italy will not exit the financial crisis without slashing pensions - especially the golden pensions from 3000-90,000 per month.
Our pensions now cost 16.6% of gdp. Austria, the world's second-most generous country, spends 12% of gdp. That is where the money to reach a 2% fiscal surplus must come from - there is no other source. The government has slashed every other spending item it can.
I realise this is politically impossible. But either the pensions will be cut, or the State will no longer be able to pay them within 2-3 years.
Monti, who receives €72,000 per month pension, has not wanted to address this issue. Fornero cries because a 2% or 3% inflation adjustment is denied to some pensioners this year. Give me a break.
Every businessman in Italy is waiting 6-12 months to get paid. From the government even longer. But the pensioners are not made to wait a single day to get their money. This is unsustainable. The unavailability of money to pay the State's private suppliers is driving more and more companies into bankruptcy - so where will the money come from to pay the pensions in 2013 and 2014?
Thieves, just thieves. Not pensioners.
No worker and few industrialists ever received such exaggerated pensions. These people are all the underbrush (sottobosco) of 3-4 decades of politicians and political appointees.

A J Maher

To be fair the bad faith exhibited by Germany is the mirror image of the bad faith exhibited by Rajoy when, on the very day he signed the fiscal pact, he declared that Spain was going to violate it's pledged reduction in deficits.

Spanish and German leadership are both displaying bad faith because they have no other choice whilst they are independent nations who share a currency. Germans cannot subordinate their essential national interests to help Spain without sacrificing her economic independence (via the further imposition on German taxpayers of uncapped current and future Spanish liabilities) and Spain cannot satisfy Germany without sacrificing her economic independence (via the German imposition on Spain of further debt deflation and mass unemployment i.e. "conditionality" and "austerity").

The only way these two countries can co-operate with one another and still stay true to their core national interests is for them to cease sharing a currency.

This currency experiment has been an unmitigated catastrophe and now the only way these nations can constructively work together will be to terminate the euro.

Both Merkel and Rajoy seem to prefer to cling to the euro wreckage at any cost. But this will inevitably force them to become ever more bitter enemies - all in the greater cause of preserving "European unity".

What a tragic, wasteful and destructive farce this is.....

emmafinney in reply to A J Maher

One wonders why they are torturing themselves by clinging to this deeply flawed currency union which has bought nothing but misery.

Ill conceived and given birth for political reasons rather than sound economic reasons, now the chickens are coming home to roost.

Before this nightmare is over, there will be broken bones all over the landscape of this ill fated currency union.

A J Maher in reply to emmafinney

Indeed Emma,

Larry Eliot of the pro euro Guardian has this to say on the subject:

"..Put simply, the idea is that too many eurozone countries have been feather-bedded for too long and now need a chill blast of reality to wake them up. Budget retrenchment will ensure that countries live within their means while deregulation, privatisation and more flexible labour markets will make them leaner and fitter. Before too long a revitalised Europe will be punching above its weight in the global economy.

All of which is total moonshine.

Not one of the objectives set by Hollande, Mariano Rajoy in Spain or Antonis Samaras in Greece is likely to be met. The first goal is that budget deficits will come down rapidly as a result of austerity. All the evidence so far is that targets will be missed because demand will be sucked out of already pitifully weak economies, with the effects magnified because so many countries are acting in the same way simultaneously.

A second fallacy is that the financial markets will be impressed by this self-flagellation. In the short-term that may be the case, but once the rotten economic data – for growth, unemployment and the public finances – starts to roll in, investors will take fright at the combination of bombed-out economies and rising debt-to-GDP ratios.

Finally, there is the misguided notion that voters will stoically accept all this pain, seeing it as a price worth paying for the restoration of national solvency and to ensure the future of the eurozone. In the fantasy world inhabited by European policymakers, the future is brighter, richer, more harmonious.

The general strike in Greece, the demonstrations in Madrid, the pressure for autonomy in Catalonia and the likely negative reaction in France to Hollande's budget, paint a rather different picture.

In the real world, the insistence on pain, pain and yet more pain means permanent recession, toppled governments and growing hostility to the European Union. If it eventually leads to the breakup of the single currency because voters decide they have had enough, those running the show (sic) will have only themselves to blame...."

fAcskop2qr in reply to emmafinney

What nonsense. "Brought nothing but misery" is just ignorant hyperbole - the Euro has brought many positives with it, whether they are enough to usurp the negatives is a fair question. But your statement is emotive tosh.

la.výritý in reply to Courtjester

Courtjester: "When did you come around to see that the Euro does not work?"
As long as the Euro was seen as merely a ‘joint medium of exchange’, as cut and dried in the relevant Euro treaties (the Maastricht treaty and the statute of the ESCB and of the ECB), I was convinced that the Euro is a good idea.
Under pressure of the Latin countries this currency quickly evolves into a political instrument now, which it was purposely never meant to be. Naturally, within the current political environment the Euro must fall short of such operational tasks since a common 'political currency' requires mandatorily a joint political infrastructure, which again requires the surrender of national sovereignty. This is currently not feasible in this European Union. That's why ‘this’ Euro can't work.
However, this doesn’t mean that parts of a common currency scheme can’t continue to exist in Europe, but surely not in its current form unless all members bid goodbye to a ‘political currency’ approach and return to the Euro’s original statute . . . or they indeed manage to evolve into a fully fledged European Federation (which is doubted here).

Courtjester in reply to la.výritý

I agree. (and said so last in December 2011).
Some quibble - I think the Mitterand and Kohl were aware of the flaws and hoped to use the ensuing crisis to create a "united Europe" - they never envisaged the acrinomy the Euro brought upon us.
What is the way forward? Will the core leave? Impossible to discuss in public, however....
Core leaving would be best - let Hollande, Monti and Rajoy inflate the Euro.
fully fledged European Federation - not in our lifetime, not with all the hurt pride orbiting around...
re-read what I said in last December, the only way it will work...
Yes, I thought Greece would have left by now, however, I know I underestimate the will of politicans to procrastinate....
Most of all, you need a "golden bridge" for the core to leave gracefully, because the one thing stopping the least unpalatable solution - is the appropiation of guilt (to the core), never mind bearing the cost of the necesssary debt restructuring all around.


The nub of the problem is that most Germans are adamantly opposed to the notion of the eurozone as a transfer union, in which hard-earned funds flow from the virtuous northern countries to the sinful southern ones. Yet the eurozone's survival depends on its becoming just such a union. Until Germany accepts that it must give away more and more money to the south, crises will re-occur with increasing frequency until the whole eurozone project collapses.

jean guy giraud

Common sense would suggest to first turn off the tap when the water (of deficits) is overflowing. Then - and only then - deal with necessary repairs. Putting an end to national beggar my neighbour policies in Europe is a priority. It cannot be achieved without some degree of imposed self discipline and supranational control. It is quite surprising that somme EU countries would rather suffer severe economics pains than "surrender" illusory parts of national economic sovereignty.

Plazidus in reply to MC Outcasted

'illusory parts of national economic sovereignty.' [jean guy giraud]
I have long harboured the suspicion that the average French voter is more jealous of her/his national sovereignty than the average Brit.
History shows it is a succession of French politicians and presidents who have attempted to seize the initiative in matters European. In other words, the French voter is happy to chant a European mantra so long as Paris dominates Brussels.


I suspect the Germans prefer their economics as a branch of moral philosophy more than the Italians prefer it being a branch of conjury.

Cutters. in reply to PSH

Italy is financial inept:

Greedy Italians thought they were getting a free lunch! Every rational and logical thinking person knows such things do not exist.

"Nomura, UBS and Deutsche Bank are among those accused by Italian prosecutors of mis-selling derivatives in deals worth 35bn euros (£28bn)." This is a scam by Italy to get around paying its debt:

MilovanDjilas in reply to PSH

Cutters: Since Britain won the war, it is possible for the country (barely) to host the world's most stunningly corrupt banking practises and still be considered a "developed" democratic country.
Since Italy lost the war, we have never had such luxury.
The accusations by Italian prosecutors merit the full support of our citizens. That our judges are quick to investigate such matters is part of the reason why there has been no significant Italian participation in: LIBOR manipulation, the Greek crisis, American mortgage-backed security scams, over-lending to the real estate sector at home or abroad, etc. etc.
PSH: Please allow me to disabuse you of your misconceptions.
Accounting, Modern Banking, Capitalism and the notion itself of "Capital" as opposed to money or cash, were invented in Italy.
Those developments most certainly did not occur in the Papal States. They occurred in Italy's northern city-states that mostly played off the Papacy and the Emperor to win a margin of independence.
As such, there was never any doubt in Italy that Banking and the Papacy were at separate ends of the philosophical spectrum (until modern times, Papal injunctions against interest-bearing loans was as strong as in the Muslim world).
Thus, any honest banker in Italy is committed to the proposition that Money and Faith should be kept separate ("Render unto Caesar" and all that).
The Germans instead are committed to confusing Macroeconomics with Morality - always a dangerous misconception.

Cutters. in reply to MilovanDjilas

MilovanDjilas: Just because Italy first record the use, does not mean they were the first to use the techniques.

Luca Pacioli did not invent double-entry bookkeeping, he produced the the first known published work on that topic. Accountancy is in fact over 7000 years old, the oldest records from Babylon, Assyria and Sumeria.

Ask yourself:

1. Why are the Big Four (Price Waterhouse, Deloitte & Co., Ernst & Young, and KPMG) all British?

2. Why are British accounting professional bodies considered above their 'academic' foreign counterparts.

Without Samuel Price, Edwin Waterhouse, William Welch Deloitte, and George A. Touche, modern accountancy would be very different.

Some additional reading:

MilovanDjilas in reply to Cutters.

1) Accounting from Babylon, Assyria and Sumeria has little relevancy to modern Capitalism and shareholders. Genoese capitalism was organising very sophisticated shareholder's rules (Private Law) as far back as the 1200's - being related to the raising of capital to build ships.
2) Because the British had the largest international empire for centuries, spanning all the inhabited continents of the world.
3) British accounting professional bodies are NOT considered above their foreign counterparts. They are often preferred to bodies from Civil Code Law by businessmen because businessmen everywhere are themselves Private Law persons, with a certain (reciprocal) allergy to countries where the traditions of Roman Law and the Napoleonic Code take a dim view of Private Law subjects.
For example (speaking concretely) Arbitration is difficult in Civil Code countries, since the philosophy of the Roman Civil Code is that no agreement, written or verbal, exists outside the Civil Code and no binding interpretative decisions may be made against or without it.
Therefore American and British arbitration panels are a welcome Common Law reform in most cases.
4) Without Price, Waterhouse, Deloitte and Touche, we would not have had the atrocious financial scandals of the 21st century. Just as without S&P, Moody's and Fitch there would be no Euro crisis.
Amazingly, Italian banks and capitalism survived for centuries without corrupt Anglo-Saxon "certification" agencies.

MilovanDjilas in reply to Cutters.

To re-iterate the point:
The various scandals of the first financial Depression of the new Millenium demonstrate the inherent bias and unsuitability of Anglo-American accounting and regulation.
You can scream all you want about the "democratic deficit" of the EU (whilst in the meantime, not even the world's worst dictatorships have seen an unelected Head of State survive for over 60 years, as in the UK today) or about the "impossibility" of the survival of the Euro.
But the fact is that it is Anglo-American Capitalism that has brought the world to the brink of economic and environmental collapse, whilst trampling underfoot any semblance of constitutional order or democracy.
Regardless of what happens over the next few years, England loses. Remember that.

Cutters. in reply to MilovanDjilas

Italian 'Capitalism'... by that I take it you mean Mafia and Italy becoming one of the most backward countries in the West.

Financial scandals happened because of poor regulation and governments taking back handers in many cases. Enron being a classic example.

Civil Code is mainly despotic, is authoritarian, and easily abused as it fails to keep up with events and an ever changing world. Can't blame accountants for failures in the legal system.

The British accountancy professional bodies are considered superior to the academic equivalents the world over. The ACCA is highly sought after, because of the high standards it sets. If the Italian authorities had invested in professional accountants, they would have found the clauses that would have made them think twice.

The rest of your post reads as sour grapes with nothing to back up any of your illusionary claims.

By the 1200s, Britain had the likes of Roger Bacon, Duns Scotus, and William of Ockham.

By the 1700s Britain had far surpassed the continent with Adam Smith, who you may want to read up as he would have some advice for your leaders:

crammerboy in reply to MilovanDjilas


You mean like Norway, Sweden, Denmark, the Netherlands, Belgium Luxemburg and Spain, all equivalent too to the "world's worst dictatorships", since their heads of state, or their predecessors, haven't been elected either?

You are capable of the most stupid remarks at times, this one so much so that Cutters couldn't even be bothered to refute it.

MilovanDjilas in reply to crammerboy

King Harald V of Norway has been Head of State since 1991
Queen Margrethe II of Denmark has been Head of State since 1972
King Carl XVI of Sweden has been Head of State since 1973
Queen Beatrix of the Netherlands has been Head of State since 1980
King Albert II of the Belgians has been Head of State since 1993
Grand Duke Henri of Luxembourg has been Head of State since 2000
King Juan Carlos I of Spain has been Head of State since 1975

Elizabeth II has been Head of State since 1952. She is unelected and the longest governing Head of State anywhere in the world. A admirable record not even Fidel Castro can beat.

MilovanDjilas in reply to emmafinney

Please Emma, I really do not want to get into it with you...

Yes, Italy's Head of State, the President of our Republic Giorgio Napolitano is elected - by the Parliament, not by the people. As is the German President. Not all Heads of State are elected by the people.

Also, you ignore the fact that Italy and Germany's electoral systems (as that of Japan) were largely dictated by the United States in the postwar period. The US did not want popularly elected presidents in Germany and Italy because nobody trusted either the Italians or the Germans to elect their own leaders in 1946.
Not instituting the direct election of our president made it easier for the US State Department to influence the choices of Head of State. Documents that were de-classified in the 90's from the postwar period made clear that all Italian Presidents required a "nulla osta" from the Americans for decades.

I suspect the same was true in Germany.

MilovanDjilas in reply to Cutters.

Ha Ha Cutters!
The Mafia! Ha Ha!

What pray tell has the Mafia got to do with the Italian accounting system? Which, by the way, if you were not so racist, you might recognise has protected Italian banking from the sorts of problems we now see in British, Dutch, American and German banking - requiring hundreds of billions in bailouts where none have been needed in Italy.

crammerboy in reply to MilovanDjilas

My argument still stands, since the monarchs you mention will also grow old and will count among the "longest serving unelected heads of state" as well. The Danish Queen has been there for 40 years and should make it to 60 too. Is she all that different?

BTW, Canada too has the longest reigning, unelected head of state and is one of the world's top countries for quality of life. Their having Elizabeth as their head of state doesn't seem to bother them overmuch. So what exactly IS your point?

My point was that it seems a strange argument to bring forth in an economic discussion with Cutters, and shows that you're on weak ground.

A bit 'ya-booish', if you follow me.

MilovanDjilas in reply to crammerboy

And my point is that I am getting a little tired of the "democratic deficit" argument against the EU, coming from the British Fifth Column.
A perfect case of psychological projection, given that they are the only country in the world not to have elected a Head of State over the last - what? 350 years? Since Cromwell?

Give me a break.

Besides, how about a referendum on the monarchy in Canada? Or in Australia? Ten years ago the consensus was that the referendum (barely) failed in Australia because its proponents only suggested a President elected by the parliament, and not the people - in which case most commenters asserted it would have passed.
And what will happen in Jamaica next year? Will the country go ahead with a referendum? Will the Queen's other Caribbean territories follow?

SinnFrei in reply to MilovanDjilas

"I suspect the same was true in Germany."

MiloWahn, please, please spare us your "knowledge" on German history.

And as stated already earlier: There is a reason why nobody trusts the Italians. Even not your "closest" ally, the US.

crammerboy in reply to MilovanDjilas


Your second, '350 years' paragraph is pure drivel, unworthy of comment.

"Besides, how about a referendum on the monarchy in Canada? Or in Australia?"

Indeed, why don't they get on with it? What's holding them back? Maybe they're satisfied with the status quo. Sorry if you're unhappy about this. I should have thought you guys in Europe had more to worry about than how our Canadian friends run their lives.

"And what will happen in Jamaica next year?"

I don't know what will happen in Jamaica next year, but when the time comes you'll no doubt come on this blog and tell us, but only if whatever happens there meets your approval. Anyway, why is this important to you?

Your problem, Milovan is you wish ill to others. Note your remark to someone elsewhere, probably Josh, that you are looking forward to witnessing unemployment in Germany.

Cutters. in reply to MilovanDjilas

Everyone knows that Italy has a huge problem with the Mafia, and that it is getting worse.

Italy has a huge black economy that it has done very little to weed out, much like Spain in this regard.

Her Majesty has an approval rating of around 80% going by the polls, far higher than any other head of state that I know of.

The reason that Italy has not had a bailout is because it is defaulting on foreign banks, as in my first example.

MilovanDjilas in reply to SinnFrei

Wake up and smell the coffee.

Do you really think the Grundgesetz was written by Germans alone?

Do you really think any of the victorious Allies had any intention of letting Germans choose their own form of government and leader in 1946?

Why do you think neither Germany nor Italy has a directly-elected president, as in France?

MilovanDjilas in reply to Cutters.

Absolutely incorrect.

The Italian underground economy was estimated reliably - also by Brussels - in the 1980's as being around 30% of gdp (i.e., Greek levels).
Since that time successive waves of reform and crack-downs has cut into this phenomenon. This tightening of the screws derived from:

a) Maastricht - both its rules and the need to reduce our 9-10% fiscal deficits from the late 80's/early 90's.

b) Increasing internationalisation of our economy over the last 20 years, which has rendered corruption much more difficult to organise.

c) September 11 and the threat of Islamic terrorism - no more "loose, unidentified" monies to be floating around our economy.

d) the new Financial Depression - and the need to achieve a balanced budget.

Experts now estimate the underground economy at 18.5% here.

In the United Kingdom, the "shadow" or "informal" economy (got to love you Brits and your propaganda - Italy has a huge "BLACK" economy, but you have an "informal" economy) is estimated at 14%:

emmafinney in reply to MilovanDjilas

"Allies had any intention of letting Germans choose their own form of government and leader in 1946?"

There was no German government in 1946. Your lack of knowledge of your own fellow Europeans is shocking to say the least.

In 1946, western Germany was under occupation by the 3 western allies - US, Britain, France. No doubt Italy would have loved to be an occupying power in Germany too and lording it over the Germans in the usual loud Italian fashion but I don't think the allies were too keen on that.

emmafinney in reply to crammerboy

I wonder why Joe is so obsessed with the Queen.

It sure looks like a very bad case of jealousy at the fact that Britain & the commonwealth have a head of state that is respected and held in great affection by the vast majority of her subjects, unlike Italy's head of state.

MilovanDjilas in reply to emmafinney

Yes, I know there was no German government in 1946 - my choice of that date was to indicate the year AFTER the war.

And, BTW, yes Italy had been a victorious power over Germany in WWI and was a signatory to the Treaty of Versailles.
Don't worry, when the next war comes, Italy will takes sides with France and the UK/US against Germany. That is a lesson driven into our DNA by now.

MilovanDjilas in reply to emmafinney

You are a dolt Sherry. The Queen's international influence is mostly expressed through her leadership of the Anglican Church - the backbone of what is left of the British Empire (no small part of the world, in fact).
However, that Commonwealth is but a pale copy of its Italian predecessor. You see, we too have a national church and a monarchy.
It's called the Catholic Church - and its international sway is much greater than the House of Windsor.
Obsessed with the English Queen? Because I recognise what she is - the closest thing to a competitor against the Papacy around the world - and one my family was allied to for generations in our own battle against the Pope.
Neither France nor Germany nor Japan nor the US have anything like this.

emmafinney in reply to MilovanDjilas

The Anglican Church? LOL

It has as much influence in the commonwealth as Harry potter.
The vast majority of commonwealth citizens are not Anglicans, not even Canadians and Australians.

And the Queen is held in respect by the commonwealth due to the way she has conducted herself as head of state with dignity & grace, and her tireless and devoted years of service. The respect for her has nothing to do with the Anglican church.

You need to get all those conspiracy theories out of your head.

Junoir in reply to MilovanDjilas

Never let facts get in the way of truth, Joe, especially when discussing the hated Brits.

The UK has far more contacts/relations/exchanges with other EU countries than the Italians do and far more other EU nationals live in the UK than in Italy. A Brit will always give an Italian, or indeed anyone else, an equal chance when he applies for a job. This is why so many
"Continentals" occupy important posts in the UK.

A Brit competing against an Italian has practically no chance.

MilovanDjilas in reply to Junoir

OK - about 51% true. But not entirely:

1) Italians are not particularly prejudiced against foreigners - you should know that about 15% of our country in modern times cannot speak Italian - and another 20% cannot speak it properly. If you speak reasonably well, you are far more accepted than you might expect...

2) Out of 7 million foreign-born Brits, only 2 million are from the EU. Of these, half a million are Irish-born. Doesn't really count since Ireland was ruled by London for centuries and more or less they speak the same language.

In Italy, out of a foreign-born population of 4.8 million, some 1.6 million are from EU countries - with the largest number of one million coming from Romania.

So you are correct about more EU nationals in the UK, but not by very much. The UK has more northern Europeans (Poles and Irish); Italy has more southern Europeans.

3) UK citizens have always been welcome in Liguria - and Aussies and Kiwis, etc. etc. I have known a few - and in leadership positions.

4) I will grant you the UK is the most open country economically in the EU; but it is not entirely true that an Italian will always be given an equal chance against a Brit. It is more often true that Italians find employment in the trades, where there are few Brits working. Our artisan stone-masons, electricians, carpenters and plumbers have always been very competent.

5) Perhaps you are confusing us with France... our nationalism or patriotism was never so organised or effective here. This is a far more tolerant country in its disorganisation than one might think - although it is also a country where even Italians generally get little or no chance to make advancement.

Finally, please do not confuse Italian cynicism with hatred. I love the Brits. I love England. I love the English language.
But the basic honesty and naiveté of the British people should not at all be confused with the governing elite. Neville Chamberlain was no naive fool; he was a hard-bitten British imperialist who sought to manoeuvre Hitler and Stalin into a war with one another. Stalin understood the game and played it right back at him.

MilovanDjilas in reply to PSH

Once again, a prejudiced and ridiculous assertion. And one that has nothing to do with what I wrote. Neither Economics nor Banking have anything to do with "conjury" in Italy.

Yours are prejudices. A pity, because you fail to see that it is northern European and American banks that are destroying Western Democracy. Certainly not Italian banks.

MilovanDjilas in reply to Cutters.

"Italians" are not financially inept. It sounds like a few local administrations were.
The BBC piece explains how London bankers defrauded a few local governments into derivative deals. The judges have every right to seek indemnities against this sort of fraud.
This is exactly what was done to Greek national authorities, and the lesson is: DO NOT TRUST LONDON BANKERS, WHO ARE THE FIRST CRIMINALS IN THE WORLD.
This was a strictly marginal phenomenon in Italy. Some 35 billion euros? A pittance in a €1.5 trillion economy.
But the Tories refuse to admit incompetent and corrupt Greek administrators could not have hid so much debt without help from London bankers. Yet another example of the monitoring incompetence of the Bank of England - and now London's media is hell-bent on blaming the Greek crisis on the Euro, when they are most to blame.
Nobody in Brussels, Frankfurt, Berlin, Rome or Paris ever thought it would have been possible for the Greeks to lie and hide so much debt on that scale. London plotted against the Euro with those deals, using the Greek Trojan horse against Brussels.
This whole "Euro-crisis" has been a conspiracy by British Masons against the Euro-zone.
Don't worry - our banks are the oldest in the world and will absorb the blows. Not so the many nationalised British banks.
This battle will not be decided in Europe. In the end it will be decided in India, Saudi Arabia, Brazil, Russia, Mexico, Singapore, China and other like places. We will see who they judge was more honest in the end.
Mario Draghi - the former chairman of the G-20 grouping, is much more credible than Mervyn King these days, eh?


The author should carefully listen to the financial world outside London's ivory towers: It's not 'Germany's promise' that is doubted by money-conscious creditors, but the actual capability of those pressured governments to keep lastingly their promises to reform.

Without the enforceability of sustainable reforms in those countries, the willingness to help will die quickly in creditor countries as well. Investors are quite aware of this interconnection. That's the catch-22 here.

Therefore, every violent clash between anti-austerity protesters and security forces which is on the tube, 'assures' conservative investors that they'll never see their money again . . . and that's an investor's 'country lore'.

Plazidus in reply to la.výritý

You may find this interesting:

On French TV news this evening was a minister (of Industrial Recovery, would you believe). He was threatening the Indian steel mogul Lakshmi Mittal with a compulsory purchase (for a notional one euro) of the steel foundry at Gondrange.

This is the point. How will European nations attract inward investment when TV images suggest they stay away and where it is possible to to be a clodhopper and a minister for Industry at one and the same time?

la.výritý in reply to Plazidus

Look around; there is not much willingness in those hard core socialist nations to wake up to today’s capitalist realities. It is so convenient and 'familiar' to point fingers . . . or to become collectively 'enraged'.

But at the end of the day it will help no one to avoid telling the truth … not daring to say that Spain actually didn’t follow through with what they have been pretending to be doing, namely cutting spending, promoting improved government tax collections and reforming their congealed ‘economic environment’. - Instead, Charlemagne is assigning blame to those who did all that, who want, as a preliminary point, that those who seek help must meet their terms as well.

Quote: “So, to summarize: [Spain’s] revenues down, spending up, budget deficit naturally higher than last year. Oh, stop calculating... and just buy their bonds. The Central Planners will make sure the math is irrelevant always and forever.” (

That’s also why I said in previous posts that this cross-border-socialism the Economist keeps promoting here is playing with fire. It will ultimately strengthen socialist approaches on all European levels.

The French threat to buy privately owned furnaces for a symbolic euro “to keep them working” is the pure logic of this kind of misguided mindset. Once started, the demands for ‘mutualization’ of wealth will surely not stop at a point of The Economist’s convenience.

MC Outcasted in reply to Plazidus

Zerohedge is not reliable, contribuators can be contradictory

About Gondrange, why not retake the site for one symbolic euro? Mittla didn't spit on state subsidies for exploiting the site once upon a time. Actually it's a good bet to retake it, when the euro will have crashed, with a recovered franc Gondrange could be competitive again.

(Mittal is closing Liège site too, and it will not stop there)

The problem is the euro, I wish Spanish politicians get enough courage to send the Germans and their AAA satellits to pic nic on the Baltic sea. We don't want of this EU federation directed from Berlin

united_europe in reply to la.výritý

A while back i would be more willing to agree with you, but now i believe the time for the old "reforms are not happening" argument is gone.

The indebted countries all have rightwing governments which are applying reforms even with mass protests on the streets and declining popularity.
There was an article on the Economist about Portugal which was called something like "how much austerity is too much?" and talked about how the government had gone so far as to alienate its own people, even though in Portugal they had been accepting of austerity.

Greece already lost 25% of its GDP, Spain is in the dump and Europe does not move.
The Balance of Payments of those countries is shifting and spending is falling (especially in the countries under the troika supervision)

We have to admit it. The reforms won't work without changing the architecture of the euro. But with Merkel thinking only about her own political future i'm afraid they may come too late...

Plazidus in reply to MC Outcasted

'Zerohedge is not reliable, contribuators can be contradictory' [MC Outcasted]

Indeed so, MC Outcasted. But ZeroHedge, its barely-suppressed hysteria notwithstanding , is such a refreshing change from Euro-zealotry. From the little I understand, I think it does give early indicators of what is going on without what you would call ‘the wooden tongue’

[Wooden language is a literal translation of the French expression langue de bois meaning language that uses vague, ambiguous, abstract or pompous words in order to divert attention from the salient issues. The French phrase became widely used during the 1970s and 1980s, arriving in the language from Russian, via Polish.]

Plazidus in reply to MC Outcasted

‘About Gondrange, why not retake the site for one symbolic euro? Mittla didn't spit on state subsidies for exploiting the site once upon a time.’ [MC Outcasted]
Question: what do we do with steel-producing plants if the car-buyer decides to save his money? The state subsidies, I suppose, were entirely necessary 'sweeteners' intended to entice global Mittal into the desolate post-industrial landscape of Lorraine, with its long history of class-conflict and fixed attitudes.
Don't get me wrong. Old-fashioned heavy-industry was macho, community-based, and heroic and provides inspiration for song and story, but it wasn't at all pleasant and the men in particular died early. This emotional attachment to unpleasant working conditions is all rather noble and irrational at the same time, don't you think? By remaining 'true to your roots' you can end up a twisted relic.

Plazidus in reply to la.výritý

You suggest that the world of journalism pays disproportional attention to the "story", the narrative, in which low-wage Germany plays the bad guy. Likewise, you suggest that insufficient attention is paid to the thousand-and-one ways in which signed agreements are not respected by debtor countries.

Writing as somebody intolerant of the wilder forays into the world of leveraging, my impression is that, with regard to the euro experiment, there is a kind of conspiracy of silence. The journalists - the 'respectable' ones - prefer to tip-toe round the issue in carpet-slippers.

Jokingly-termed 'partner-nations' should be accorded respect: by this I mean blunt and forthright messages. If offence is taken, tough.

The same, of course, applies to the matter of the unintended (positive) consequences of euro-zone membership for Austro-Finnethermany. The euro exchange-rate kept down by southern improvidence cannot be overlooked, La Vyrity.

la.výritý in reply to united_europe

"Greece already lost 25% of its GDP, Spain is in the dump and Europe does not move".

But you ignore that Greece's GDP was created solely thru a borrowing bubble, built “on quick-sand”. The country's 'real' (borrowing-adjusted) GDP per capita was closer to Turkey's than Germany's, as it falsely appeared 'on paper'. This level of GDP is not sustainable. Or do you expect other countries keep pumping money into Greece abysmally to guarantee an unearned living standard?

Spain unreasonably promoted a lopsided economy fuelled by a cancer-like building-spree ... much more malign than that in the US. This made Spain’s economy (and budget) appear ‘healthy’ on the surface, but was in reality based on an "economic tumor". Do you expect other countries to continue to finance this Spanish real estate 'tumor' to make the country “look healthy”?

la.výritý in reply to Plazidus

"... the world of journalism"? - I was talking about the Economist's tendentious Eurozone-journalism only.

Read A.J. Maher's latest post. He got things quite right IMO ... this time at least.

la.výritý in reply to Plazidus

I doubt that "southern improvidence" has much influence on the Euro's exchange-rate. If this be the case, the Euro value would be more than halved since introduction against the greenback. But the opposite is the case. The Euro has gained more than 50% against the USD ($0.85 Jan 2001 vs. $1.29 today). This reflects solely Germany's trustworthiness (in the eyes of euro-holders). If Germany’s role (as a euro-survivor) became uncertain, then the Euro would drop like a stone. Greece’s, Spain’s or Italy’s situations are not reflected in the current exchange-rate, only Germany’s relation to them is.

Plazidus in reply to la.výritý

‘The author should carefully listen to the financial world outside London's ivory towers: It's not 'Germany's promise' that is doubted by money-conscious creditors’ [La.Vyrity] ‘I was talking about the Economist's tendentious Eurozone-journalism only.’ [ibid] ‘Instead, Charlemagne is assigning blame to those who did all that, who want, as a preliminary point, that those who seek help must meet their terms as well.’ [ibid] ‘Once started, the demands for ‘mutualization’ of wealth will surely not stop at a point of The Economist’s convenience.’ [ibid]

For the sake of fairness, without taking sides, and doubtless because the fence is such a comfortable place to sit, I do think that we can absolve Charlemagne of pursuing a hidden agenda. Hell, the guy couldn’t be clearer, La.Vyrity. The title of Charlemagne’s article is ‘The other moral hazard’, followed by the sub-heading, ‘If the euro zone is to survive, Germany too must keep its promises to reform’.

Moreover, Charlemagne instances: one, Edgar and Edira’s disappearance from the European Commission’s proposals for a banking supervisor; two, Berlin’s wish ‘to exclude smaller banks, including its own often-troubled regional lenders’; three, Germany’s attempts ‘to slow down the timetable for the supervisor to start work on January 1st 2013’; four, Germany’s wish that ‘direct bank recapitalisation should only take place once the system has shown itself to be effective’; and, five, a German-Netherlands-Finnish indicating that ‘direct bank recapitulation’ should not apply to assets already known to be dodgy.

It strikes me that any charges of a lack of objectivity chez Charlemagne, have to take into account the (verifiable) evidence provided by our journalist. Otherwise, no case.

shaun39 in reply to la.výritý

Spain's government spending is down from 46.3% of GDP (2009) to 43.6% of GDP (2011). That's some deep austerity, given that unemployment was rising and fiscal stabilisers were working against the government:
Tax revenue has held up as a share of GDP too, and the deficit, though still too high (it has fallen far faster this year) has fallen substantially.

You're absolutely right that lack of credible commitment to reform is the biggest obstacle to cheap debt finance.

But you are wrong to claim any periphery failure (so far). The pace of reform and extent of spending constraint has no parallels in Germany, the US or the Netherlands.

We are right to be critical of the awful regulatory structures that still exist; we are right to be critical of unexploited opportunities; we are right to be critical of the imbalances which were allowed to accumulate. And, we are right to be sceptical of commitments to future reform. Yet, we should applaud the enormous efforts that have indeed been undertaken, and the very substantial accomplishments to date.

shaun39 in reply to la.výritý

On strengthening of the euro... in comparing q1 & q2 2012 to the same half-year in 2011:
- Germany's balance of trade has improved by 14.2 billion euro
- Greece's balance of trade has improved by 4.2 billion euro
- Spain's balance of trade has improved by 5.4 billion euro
- Portugal's balance of trade has improved by 3.6 billion euro
- Italy's balance of trade has improved by 19.8 billion euro
- Estonia's balance of trade has improved by 200 million euro
- Slovenia's balance of trade has improved by 200 million euro
- Cyprus's balance of trade has improved by 300 million euro

So, in the past year at least, the periphery countries have created a stronger upwards pressure on the euro through exports than Germany has (though, of course, they've also exerted a major downwards pressure on the euro through capital flight).

la.výritý in reply to Plazidus

“If the euro zone is to survive, Germany too must keep its promises to reform”.

This sentence is actually symbolic for Charlemagne’s manipulative methods . . . unless it is rooted in grave self-deception.

Fact is that the German government never “promised” unconditional aid to any Eurozone country or bank. Reuters noted on August 12, 2012 that senior members of Angela Merkel's party issued "a strong warning to Greece ... saying Germany would not hesitate to veto further aid to the country if there were any signs it was not meeting the conditions of the bailout." (Quote Reuters August 12, 2012).

Truth is that the German government continuously expressed clear resistance to a eurozone-wide deposit guarantee scheme without efficient supervision, which would essentially lead German taxpayers to underwrite troubled EU deposits (approx €5tn) and reimburse depositors of failed foreign banks in a totally uncontrolled financial environment.

This is why the Germans quite clearly stated that an EU-wide deposit guarantee scheme can only be the step AFTER the implementation of an independent, non-national, EU-wide banking supervision. Everything else would be sheer insanity - like undersigning a limitless blank-check (to an addict).

The same is true for an EU-wide banking union. To create an effective, neutral supervision for more than 6000 banks would take many years, but Germany wants to implement a pertinent bank supervision within ‘months’, in order to get the banking union going as soon as possible.

And, of course, supervision at the soonest must first concentrate on banks considered “too big to fail” . . . and foremost in countries which have already general over-indebtedness problems. Everything else is frittering away the scheme’s success in a timely manner.

Germany is able to bail out her own banks herself. The German SoFFin is still fully ‘loaded’. It can grant guarantees to German banks of up to 400bn euros and recapitalize or purchase assets for an additional 80bn euros [].

In the same dishonest way Charlemagne pretends that Edira and Edgar were “already agreed schemes”. Truth is that it was solely Barroso’s (resp. the European Commission’s) brainchild, especially the idea to implement this now, without an effective neutral banking supervision and without the consent of the taxpayers in those countries that would have to bear the brunt of the depositors’ reimbursement.

When Charlemagne pretends here as if Germany didn’t keep its promises by pointing to his own self-opinionated imaginations or to mere blueprints drafted by third parties without Germany’s consent, then this is highly manipulative and dishonest for a journalist.

Plazidus in reply to la.výritý

Thank you for your full, and convincing, responses, La.Vyrity. At the risk of annoying you somewhat, may I quote this morning’s FT at you? (I understand bits of it, I think.)

‘[Rajoy] is a walking example of the danger of removing market pressure, so-called moral hazard. The ECB’s conditional pledge of help prompted a drastic fall in Spanish yields, and so reduced the need for an immediate rescue. / Mr Rajoy has taken full advantage, resisting tough Brussels conditions that he would otherwise have been forced to accept quickly. Mario Monti, Italy’s prime minister, went further, criticising the ECB this week for demanding too much by calling for International Monetary Fund involvement (something anyway written into the terms of the new rescue fund, the European Stability Mechanism).

‘The moral hazard even stretches to Germany, the loudest advocate of strict conditions. At the height of the crisis in June stronger eurozone countries agreed that the ESM would take on the bank bailout costs of Spain and Ireland once financial regulation was centralised. Now the strain has lessened, Germany, Finland and the Netherlands are trying to backtrack. […]

‘Mr Rajoy should forget his domestic troubles, and practise one word: ¡Socorro! This week shows if he does not cry for help soon, the markets will deal with the moral hazard. That will hurt a lot more.’ [‘Spanish lessons for Mr Rajoy’, James Mackingtosh, FT, 28-9-12]

I wonder if, in the second paragraph, we are seeing an instance of journalistic economy of effort. Has James Mackintosh picked up his brother journo’s (playful? fanciful? perverse? provocative?) idea of ‘moral hazard’ applying to northern climates as well as southern in order to see if it gathers momentum? I fear that this perfectly sound concept (‘moral hazard’) may be the victim of a journalistic laziness, so relativizing the responsibility of Spain in order to make a better story.

Now I’m going to ask you a really stupid question. (Aren’t the important questions always ‘stupid’ in appearance?) Do the northern countries suspect that bailing out Spain, pouring their good money after bad, amount to this in practical terms: pouring their hard-won cash almost directly into the pockets of investors-speculators who are selling Spain short? Or Spaniards transferring their euros abroad? Asking people to be generous is one thing, asking them to be stupid is quite another.

la.výritý in reply to Plazidus


That's part of the problem. Another moral issue I posted earlier:
Banks (and investors) need 'to fail’ and bear the consequences like any business in a similar situation. If governments and the elected representatives of that country 'think' that a specific domestic bank is "too big to fail", then they should do something about it. But it should be solely the concern of the country under whose jurisdiction the 'failed bank' operated, since it was this country's banking authorities which had failed to 'supervise' properly. Never should taxpayers of a third country be held reliable for another country’s failure to do its job properly. This is why a common 'banking union' without -to begin with- a common banking supervision doesn't make sense.


Merkel knows Germany cannot save the euro but she has to give the impression that she is doing her best. Due to the long shadow of the WW2 there can never be a German chancellor who deliberately kills the common currency i.e. she will wait for the right moment and then raise her hands and say "look, we did our best" and then Germany will leave the eurozone.

VerySeriousSam in reply to reader735

"Merkel knows Germany cannot save the euro"

Yes, and she is right. Unlike all the others, from TE's very own Charlemagne to god knows who else, who fantasise about Germany should transfer limitless amounts of money, endlessly, to foreign nations (and to banks all over the place).


Countries like Spain borrowed a crap-ton of money to join the single currency in the first place, they should have paid this off in the boom years.

Germany is right to protect its own first and foremost, that is the job of responsible government.

Damn Dirty Ape in reply to Cutters.

And in a recession the right thing for individuals to do is to deleverage and spend less. The problem lies in everyone doing that at the same time. What will happen if Spain has to default on all of its loans? Will the fall out be limited to Spain?

knowitwonka in reply to Cutters.

This hurts made me facepalm myself so hard my head still hurts. Spain was the only one of the big Euro countries that had a balanced budget, EVEN HAVING SURPLUSES, and reducing its debt burden (that's why it had lower than 50% debt before the crisis started, I think close to 40% I'm not sure).

But yeah, who cares about facts right? Bigotry is so much more fun

Jospain in reply to Cutters.

Germany is hiding the extent of the problems of its own banks while finger pointing at others. But it does not really matter as we are not functioning as an Union any longer.

Cutters. in reply to knowitwonka

Italy, Greece and Spain took out huge derivative loans from the banks to join. Go look it up.

As soon as things turned bad, so did the derivatives and the repayments have jumped. Go look it up.

So why don't you do some fact searching, the blame for this comes down to the politicians and bureaucrats that signed the deals for political, not economical, reasons.

Facts hurt? Who cares, they are the facts.

Cutters. in reply to Jospain

Not denying that Germany has problems, in fact it is due to these problems that they should be looking to make sure they are fixed before helping others.

Rule number one: Look out for yourself first, because if you do not you are no use to others.

SinnFrei in reply to MC Outcasted

"Spain didn't have problems of growth at the end of Franco regime."

And what happened between 1976 and 2000? And unemployment was at approx. 10% during Francos reign (as far as these figures reflected the reality).

But why not, let's bring Franco back and while we are at it, Hitler as well. Only prosperity in Germany when he was in charge. And countries like France, Italy , Spain didn't dare to try f*ck*ng with us.


You really should stay away from that cheap red wine in plastic bags.....



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